TCS Networking

During the conference there were a number of questions and resources mentioned.

Question and Answers
1. NRA Form Example (this is not a form from the NC Office of the State Controller)
2. Networking Contact List - NOW AVAILABLE!
3. Answers to your questions by Kathy Pitts: Excise tax on investment income. Does not apply to state Universities. Expected to apply to most 501(c)(3) private foundations? The section 4968 excise tax on investment income is a new tax from the recent legislation that applies to certain educational institutions that meet student and asset tests. Private Foundations under 501(c )(3) were already subject to certain excise taxes, including one on investment income under 4940, which is similar to, but separate from, this new tax. It would be very unlikely that a private foundation would meet the definition of educational institution in the 4968 tax and thus it is very unlikely that the new tax would apply to a private foundation. Private foundations remain subject to their own, longstanding excise tax, under 4940. Does the elimination of miscellaneous deductions subject to the 2% floor affect accountable plan rules? Will those reimbursed expenses no longer be excluded? No, there was no impact on the accountable plans rules. The expenses are still excluded from income if properly substantiated. For keeping pre-tax parking, can the revenue be reduced by parking related expenses for UBIT? The new 512(a)(7) UBIT rules for certain fringe benefits impose the tax on an organization's expenses (not revenue), which is counterintuitive. Because it is a tax on expenses, at present there is very little opportunity to reduce the tax, though there may be some limited opportunities. Related to Form 990, since the filing is exempt for government/public entities- are OPEB benefit plans they sponsor and administer also exempt? Yes, generally OPEB plans are a part of the governmental unit, so they are currently not required to file Form 990. However, Voluntary Employee Benefit Plans are required to file Form 990. What are some factors to consider if you have a foreign employee who decides to work from their home country for an extended period of time? (6 months or more) Some of the items to consider include: Does the home country have an income tax treaty with the US Permanent Establishment (PE) – does the employee have a “fixed place of business” (such as renting space), or is the employee acting on behalf of the company or have authority to make decisions on behalf of the company. These factors can generally lead to creating a PE which may result in the company having to register in the foreign location and have reporting and filing requirement in the foreign country. Employer Obligations – Are there any reporting and labor responsibilities for individuals working locally. In some situations, employers may be obligated to withhold taxes and social security and provide local benefits as required by the local country regulations. This differs from country to country. Immigration Status – Is the person in the country on a valid visa, where required US reporting requirements such as Schedule F, FBAR etc. Requirements vary from country to country so it is essential to consult with advisors with local country expertise. Does the coaches penalty apply to coaches at private universities? Yes, the 21% excise tax applies if the university is tax exempt under IRC Section 501(c )(3) or 115. Tax reform: Moving expenses are taxable now. What if the employee must return the funds if they leave the company within a specified period of time. It would be a claim of right wage repayment when repaid under IRC sec. 1341. If repaid within 3 years, the employer files 941X/W-2c to recoup FICA (and reimburse employee for FICA paid on taxable moving expenses in earlier year). Employee recoups income tax via the claim of right process (generally available if repaid wages were over $3,000). The 21% tax on over $1 million compensation. Could multiple foundations pay employee to equal then $6 mil. For example, athletic foundation $2 million- The new 4960 tax requires aggregation of compensation paid by related entities, but there are no rules in the statute that would pull in compensation from unrelated entities. However, there is specific authority for the IRS to establish anti-abuse rules, so it remains to be seen what those may be. Would you discuss parking/unit planning going on other than switching parking to post tax? and Our fiscal year is 7/1/17 - 6/30/18. Which means we must use the 2017 990-t form when we do our 990-t this fall. Will we follow the new provision? One of the first steps is determining whether something of value is being provided to employees. If there is, then we look at whether that can only be classified as a qualified transportation benefit or if there are other ways to structure things that would still allow for a pre-tax benefit, just not as qualified transportation benefits. This is a fact-specific exercise, but we would be happy to discuss in more detail. Please note: The NC Office of the State Controller is providing this information, in collaboration with the speakers, as a way of enhancing the knowledge of the participants who are implementing and maintaining their tax compliance program. This information does not constitute tax/legal advice or guidance from the Office of the State Controller and each institution should seek his/her own counsel in addressing specific situations. Any follow-up questions should be addressed to your tax/legal professionals at your institution. This information is not intended to be used for the purpose of avoiding any penalties that may be imposed on the taxpayer by any taxing authority or agency.

Question and Answers

1. NRA Form Example (this is not a form from the NC Office of the State Controller)

2. Networking Contact List - NOW AVAILABLE!

3. Answers to your questions by Kathy Pitts:

Excise tax on investment income. Does not apply to state Universities. Expected to apply to most 501(c)(3) private foundations?

The section 4968 excise tax on investment income is a new tax from the recent legislation that applies to certain educational institutions that meet student and asset tests. Private Foundations under 501(c )(3) were already subject to certain excise taxes, including one on investment income under 4940, which is similar to, but separate from, this new tax. It would be very unlikely that a private foundation would meet the definition of educational institution in the 4968 tax and thus it is very unlikely that the new tax would apply to a private foundation. Private foundations remain subject to their own, longstanding excise tax, under 4940.

Does the elimination of miscellaneous deductions subject to the 2% floor affect accountable plan rules? Will those reimbursed expenses no longer be excluded?

No, there was no impact on the accountable plans rules. The expenses are still excluded from income if properly substantiated.

For keeping pre-tax parking, can the revenue be reduced by parking related expenses for UBIT?

The new 512(a)(7) UBIT rules for certain fringe benefits impose the tax on an organization's expenses (not revenue), which is counterintuitive. Because it is a tax on expenses, at present there is very little opportunity to reduce the tax, though there may be some limited opportunities.

Related to Form 990, since the filing is exempt for government/public entities- are OPEB benefit plans they sponsor and administer also exempt?

Yes, generally OPEB plans are a part of the governmental unit, so they are currently not required to file Form 990. However, Voluntary Employee Benefit Plans are required to file Form 990.

What are some factors to consider if you have a foreign employee who decides to work from their home country for an extended period of time? (6 months or more)

Some of the items to consider include:

Does the home country have an income tax treaty with the US
Permanent Establishment (PE) – does the employee have a “fixed place of business” (such as renting space), or is the employee acting on behalf of the company or have authority to make decisions on behalf of the company. These factors can generally lead to creating a PE which may result in the company having to register in the foreign location and have reporting and filing requirement in the foreign country.
Employer Obligations – Are there any reporting and labor responsibilities for individuals working locally. In some situations, employers may be obligated to withhold taxes and social security and provide local benefits as required by the local country regulations. This differs from country to country.
Immigration Status – Is the person in the country on a valid visa, where required
US reporting requirements such as Schedule F, FBAR etc.
Requirements vary from country to country so it is essential to consult with advisors with local country expertise.

Does the coaches penalty apply to coaches at private universities?

Yes, the 21% excise tax applies if the university is tax exempt under IRC Section 501(c )(3) or 115.

Tax reform: Moving expenses are taxable now. What if the employee must return the funds if they leave the company within a specified period of time.

It would be a claim of right wage repayment when repaid under IRC sec. 1341. If repaid within 3 years, the employer files 941X/W-2c to recoup FICA (and reimburse employee for FICA paid on taxable moving expenses in earlier year). Employee recoups income tax via the claim of right process (generally available if repaid wages were over $3,000).

The 21% tax on over $1 million compensation. Could multiple foundations pay employee to equal then $6 mil. For example, athletic foundation $2 million-

The new 4960 tax requires aggregation of compensation paid by related entities, but there are no rules in the statute that would pull in compensation from unrelated entities. However, there is specific authority for the IRS to establish anti-abuse rules, so it remains to be seen what those may be.

Would you discuss parking/unit planning going on other than switching parking to post tax? and Our fiscal year is 7/1/17 - 6/30/18. Which means we must use the 2017 990-t form when we do our 990-t this fall. Will we follow the new provision?

One of the first steps is determining whether something of value is being provided to employees. If there is, then we look at whether that can only be classified as a qualified transportation benefit or if there are other ways to structure things that would still allow for a pre-tax benefit, just not as qualified transportation benefits. This is a fact-specific exercise, but we would be happy to discuss in more detail.

Please note: The NC Office of the State Controller is providing this information, in collaboration with the speakers, as a way of enhancing the knowledge of the participants who are implementing and maintaining their tax compliance program. This information does not constitute tax/legal advice or guidance from the Office of the State Controller and each institution should seek his/her own counsel in addressing specific situations. Any follow-up questions should be addressed to your tax/legal professionals at your institution. This information is not intended to be used for the purpose of avoiding any penalties that may be imposed on the taxpayer by any taxing authority or agency.