Puerto Rico Treasury Department Finally Grants Relief to Participants Affected by Hurricane Maria

Transcription

1 Nvember 16, 2017 If yu have questins, please cntact yur regular Grm attrney r ne f the attrneys listed belw: Juan Luis Alns jalns@grm.cm (202) Elizabeth T. Dld edld@grm.cm (202) David N. Levine Dlevine@grm.cm (202) Luis T. Mazawey lmazawey@grm.cm (202) David W. Pwell dpwell@grm.cm (202) Puert Ric Treasury Department Finally Grants Relief t Participants Affected by Hurricane Maria After a lng and tumultuus prcess, and 56 days after Hurricane Maria hit Puert Ric, the Puert Ric Treasury Department ( PR Treasury ) issued Administrative Determinatin N ( AD ) t grant relief n eligible distributins (including, hardship withdrawals) and plan lans by participants in Puert Ric tax qualified retirement plans wh were affected by Hurricane Maria. The PR Treasury had previusly issued Administrative Determinatin N ( AD ) cncerning certain disaster assistance payments and interest-free lans t emplyees affected by the hurricane. Eligible Distributins / Hardship Withdrawals On Nvember 15, 2017, the PR Treasury issued AD (available here in Spanish) t prvide that certain distributins frm a qualified retirement plan ( Qualified Plans ) under Sectin f the Puert Ric Internal Revenue Cde f 2011, as amended ( PR Cde ), made by an Eligible Individual frm September 20, 2017 t June 30, 2018 ( Eligibility Perid ), requested t cver lsses r expenses incurred by a Qualified Plan participant r beneficiary because f Hurricane Maria ( Eligible Expenses ) wuld qualify as a distributable event under the PR Cde ( Eligible Distributins ). 1 Eligible Distributins may be made either in the frm f a lump-sum distributin, as defined in Article (b)-2 f the PR Cde Regs., r as a hardship withdrawal, as defined in Article (b)-4 f the PR Cde Regs. ( Eligible Hardship Withdrawal ). Distributins in the frm f an annuity r peridic payments d nt qualify as an Eligible Distributin. Pursuant t AD 17-29, an Eligible Individual is an individual wh is a tax resident f Puert Ric during taxable years 2017 and 2018, as defined in PR Cde Sectin (a)(30). Eligible Hardship Withdrawals are nt subject t the 12-mnth suspensin perid n cntributins generally applicable after a hardship withdrawal. Eligible Expenses Eligible Expenses are defined in AD as all thse expenses incurred by an individual r his/her spuse, descendants (e.g., children) r ascendants (e.g., parents), t cver the lsses r damages caused by Hurricane Maria in Puert Ric, and extrardinary and unfreseeable expenses t cver basic needs after Hurricane Maria. Eligible Expenses include, but are nt limited t, expenses incurred during the recvery perid after Hurricane Maria fr the repair f damages t a residence r mtr vehicle, medical expenses, replacement r repair f persnal prperty, purchase f fd and fuel, purchase and/r repair f pwer generatrs, 1 AD N als prvides relief fr distributins frm Puert Ric individual retirement accunts ( PR-IRAs ).

2 r ldging and fd expenses resulting frm the ttal r partial destructin f the principal residence caused by Hurricane Maria. The participant r beneficiary is nt required t prvide a detailed list f the expenses r lsses incurred because f Hurricane Maria. The Eligible Distributin must be made during the Eligibility Perid. Cnsequently, the participant must make sure t timely file the request in rder fr the distributin t be made during the Eligibility Perid. Ntwithstanding, Eligible Expenses may be incurred after said date. Tax Treatment - The first $10,000 distributed as an Eligible Distributin during the Eligibility Perid will be exempt frm incme taxes and the alternate minimum tax ( AMT ) under the PR Cde. Cnsequently, the first $10,000 distributed as an Eligible Distributin will nt be subject t Puert Ric incme tax withhlding. - Eligible Distributins in excess f the first $10,000 will be subject t a flat 10% incme tax rate in lieu f any ther tax impsed under the PR Cde, including the AMT. The 10% special rate is nly available if the tax is withheld at the time f the distributin. - An Eligible Individual may make several Eligible Distributins during the Eligibility Perid, but such distributins may nt exceed $100,000 (nly the first $10,000 are tax exempt). - Eligible Distributins requested under a Qualified Plan r PR-IRA autmatically reduce the $10,000 and $100,000 limits with respect t any subsequent request fr an Eligible Distributin regardless f the actual date f disbursement f the previus Eligible Distributin. - Eligible Distributins are deemed t cme first ut f amunts nt previusly subject t tax (e.g., pre-tax and emplyer cntributins and any related earnings) and then frm amunts which had previusly been subject t tax (e.g., after-tax cntributins and amunts fr which the tax was prepaid). - The 10% special rate is nly available if the tax is withheld at the time f the distributin. If the 10% tax is nt withheld, the distributin will be taxed at the rdinary tax rates, including the AMT. The persn/entity handling the distributin (e.g., the trustee) is required t withhld the 10% tax, and will be subject t applicable penalties fr failure t d s, including the payment f the tax that shuld have been withheld. - Eligible Distributins, and any tax withheld theren, must be reprted in PR Treasury Frm 480.7C, Infrmative Return Retirement Plans and Annuities. - All ther distributins/withdrawals which d nt cnstitute Eligible Distributins, including, but nt limited t, annuities, peridic payments, and ther hardship withdrawals, are subject t the applicable tax, withhlding tax and reprting rules, and will nt enjy the special tax treatment described in AD Request fr Eligible Distributin Alng with the request fr an Eligible Distributin, the Participant must prvide the emplyer r plan administratr a swrn statement (in persn, by mail r ) including the fllwing: - Name and mailing address f the Eligible Individual; 2 This publicatin is prvided fr educatinal and infrmatinal purpses nly and des nt cntain legal advice. The infrmatin shuld in n way be taken as an indicatin f future legal results. Accrdingly, yu shuld nt act n any infrmatin prvided withut cnsulting legal cunsel. T cmply with U.S. Treasury Regulatins, we als infrm yu that, unless expressly stated therwise, any tax advice cntained in this cmmunicatin is nt intended t be used and cannt be used by any taxpayer t avid penalties under the Internal Revenue Cde, and such advice cannt be quted r referenced t prmte r market t anther party any transactin r matter addressed in this cmmunicatin Grm Law Grup, Chartered 1701 Pennsylvania Ave NW Washingtn, DC All rights reserved.

3 - Physical address f the principal residence f the Eligible Individual as f the date f the request fr an Eligible Distributin; and - A certificatin that the: Eligible Individual is a resident f Puert Ric and will cntinue t be a resident f Puert Ric in 2017 and 2018; Eligible Distributin being requested des nt exceed the $100,000 limit and that the Eligible Distributins will be used t cver: lsses resulting frm Hurricane Maria; extrardinary expenses incurred t cver basic needs after Hurricane Maria; r t cmpensate fr unearned incme after Hurricane Maria; Eligible Individual has nt received ther Eligible Distributins (therwise must include the date and amunt f any Eligible Distributins previusly received); and Eligible Individual has nt received Eligible Distributins nt subject t withhlding (therwise must include the date and amunt f any Eligible Distributins previusly received which was nt subject t withhlding); Eligible Individual assumes respnsibility fr the payment f any tax n the amunts requested if the Eligible Individual: (i) des nt cmply with the residency requirement; (ii) the amunts received are nt use t cver Eligible Expenses, r (iii) received distributins frm Qualified Plans r PR-IRAs in excess f the $100,000 limit. The plan administratr r trustee is nt required t cnfirm that the Eligible Individual will use the amunt received t cver Eligible Expenses r validate the quantity r cst f the damages r expenses. Ntwithstanding, the plan administratr r trustee must cnfirm, based n the infrmatin prvided in the swrn statement, that the individual is a resident f Puert Ric. In additin, the plan administratr r trustee must reduce the amunts available fr Eligible Distributins by any amunts f any Eligible Distributins previusly requested. Terms f the Plan The prvisins f AD are ptinal. That is, a plan is nt required t prvide fr Eligible Distributins r may prvide fr lwer limits r a limited definitin f Eligible Expenses (generally t be cnsistent with US Cde prvisins and IRS relief in case f dual-qualified plans). Plan amendments related t Eligible Distributins must be adpted n r befre December 31, 2018 with a retractive effective date. That is, Eligible Distributins may be allwed even when the terms f the plan d nt currently allw them. AD prvides that plan amendments related t Eligible Distributins d nt cnstitute a Qualificatin Amendment, and therefre, are nt required t be filed with the PR Treasury fr updated qualificatin. 3 This publicatin is prvided fr educatinal and infrmatinal purpses nly and des nt cntain legal advice. The infrmatin shuld in n way be taken as an indicatin f future legal results. Accrdingly, yu shuld nt act n any infrmatin prvided withut cnsulting legal cunsel. T cmply with U.S. Treasury Regulatins, we als infrm yu that, unless expressly stated therwise, any tax advice cntained in this cmmunicatin is nt intended t be used and cannt be used by any taxpayer t avid penalties under the Internal Revenue Cde, and such advice cannt be quted r referenced t prmte r market t anther party any transactin r matter addressed in this cmmunicatin Grm Law Grup, Chartered 1701 Pennsylvania Ave NW Washingtn, DC All rights reserved.

4 Qualified Plan Lans During the Eligibility Perid, a Qualified Plan is allwed t make lans t participants even thugh the terms f the plan d nt currently prvide fr them, t the extent the plan is amended n r befre December 31, 2018 t allw them. The plan may mdify the repayment terms f plan lans utstanding as f September 20, 2017, and lans disbursed during the Eligibility Perid, t allw participants t stp making lan payments fr up t ne year, r re-amrtize the lan fr up t ne additinal year withut stpping the repayment. Nte that the plan lans must still cmply with the plan lan prvisins r plicy and the plan requirements f ERISA and the US Cde, if applicable. AD prvides that plan amendments related t the Plan Lans relief d nt cnstitute a Qualificatin Amendment, and therefre, are nt required t be filed with the PR Treasury fr updated qualificatin. Qualified Disaster Assistance Payments On Octber 4, 2017, the PR Treasury issued AD (available here in Spanish) which prvides that Qualified Disaster Assistance Payments (as defined belw, and hereinafter, QDAPs ), received by an individual with the purpse f prviding assistance t repair, mitigate r cmpensate fr any lss r damage suffered by such individual caused by Hurricane Maria wuld be excluded frm grss incme (i.e., exempt frm Puert Ric incme taxes taxfree fr the individual). A QDAP is defined as any amunt paid t, r fr the benefit f, an individual: - t prvide r pay necessary and reasnable expenses t the individual, r his family members, fr items such as fd, medicatins, gasline, ldging, medical expenses, care f children and/r dependents, the purchase f pwer generatrs, and funeral expenses, incurred because f Hurricane Maria, t the extent the payment is made directly t the item r service prvider; - t pay necessary and reasnable expenses incurred fr the repair r rehabilitatin f a principal residence, r the repair r replacement f its cntent, t the extent such repair, rehabilitatin r replacement is attributable t damages caused by Hurricane Maria, and t the extent the payment is made directly t the item r service prvider; - payments directly made t an individual as mnetary assistance t cver the expenses related t any damage r lss suffered by such individual as a result f Hurricane Maria; r - payments made by federal, state r lcal gvernments, r their respective agencies r instrumentalities, as a result f Hurricane Maria, t prmte general welfare, t the extent any expense cmpensated by such payment is nt therwise cvered by insurance r in ther manner. QDAPs must als cmply with the fllwing requirements: - payments must be delivered t the individuals between September 21 and December 31, 2017; - QDAPs may nt be granted under an arrangement that discriminates in favr f highly cmpensated emplyees, as defined in PR Cde Sectin (d)(2); 4 This publicatin is prvided fr educatinal and infrmatinal purpses nly and des nt cntain legal advice. The infrmatin shuld in n way be taken as an indicatin f future legal results. Accrdingly, yu shuld nt act n any infrmatin prvided withut cnsulting legal cunsel. T cmply with U.S. Treasury Regulatins, we als infrm yu that, unless expressly stated therwise, any tax advice cntained in this cmmunicatin is nt intended t be used and cannt be used by any taxpayer t avid penalties under the Internal Revenue Cde, and such advice cannt be quted r referenced t prmte r market t anther party any transactin r matter addressed in this cmmunicatin Grm Law Grup, Chartered 1701 Pennsylvania Ave NW Washingtn, DC All rights reserved.

5 - QDAPs are limited t $1,000 per mnth, and cannt be attributed r related t the emplyee s psitin r salary. On r befre January 31, 2018, any emplyer that makes a QDAP must file with the Puert Ric Treasury Department a swrn statement including the name and scial security number f each emplyee t whm a QDAP is made, and the ttal amunt paid between September 21 and December 31, At a later time, the PR Treasury will issue guidance n the electrnic filing f this infrmatin. In additin, emplyers must include QDAPs paid in the emplyee s Withhlding Statement, PR Treasury Frm 499R-2/W-2PR fr The emplyer may claim a deductin fr any QDAPs made t emplyees. Interest Free Lans t Emplyees In additin, AD prvides that any emplyer wh prvides interest-free lans t emplyees frm September 21 t June 30, 2018, t prvide assistance t emplyees t cver necessary and reasnable expenses f the individual r his family members, and expenses fr the cnstructin r repair f the emplyee s principal residence, incurred because f Hurricane Maria, shall nt recgnize taxable incme fr such lan, t the extent the lan(s) ttal amunt granted during said perid des nt exceed $20,000. Multiple lans are allwed t the extent the $20,000 maximum amunt is nt exceeded. Emplyers may prvide these lans t emplyees in additin t the QDAPs. 5 This publicatin is prvided fr educatinal and infrmatinal purpses nly and des nt cntain legal advice. The infrmatin shuld in n way be taken as an indicatin f future legal results. Accrdingly, yu shuld nt act n any infrmatin prvided withut cnsulting legal cunsel. T cmply with U.S. Treasury Regulatins, we als infrm yu that, unless expressly stated therwise, any tax advice cntained in this cmmunicatin is nt intended t be used and cannt be used by any taxpayer t avid penalties under the Internal Revenue Cde, and such advice cannt be quted r referenced t prmte r market t anther party any transactin r matter addressed in this cmmunicatin Grm Law Grup, Chartered 1701 Pennsylvania Ave NW Washingtn, DC All rights reserved.