Reminder: 1099-MISC Filing Due Date

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1 Tax Alerts January 2019 Reminder: 1099-MISC Filing Due Date Due Date The filing due date for paper and electronically filed Form 1099-MISC that report amounts in Box 7 (NEC (non-employee compensation)) is January 31, If you report amounts in any other boxes of Form 1099-MISC such as Box 1 (rents), or Box 2 (royalties), as well as forms 1097, 1098 and 1099, the original due dates still apply February 28, 2019 for paper filing and April 1, 2019 for electronic filing (March 31st is a Sunday). Extensions The 30-day automatic extension of time for 1099-MISC with NEC has been eliminated for Forms 1097, 1098 and 1099 only: A 30-day extension of time to file is available via Form 8809, Application for Extension of Time to File Information Returns. Penalties For your reference, the penalties for failure to file correct Information Returns by the due date are as follows (Section 6721): a) $50 per form if filed within 30 days after due date with a max of $547,000/year (or $191,000 for a small business) b) $100 per form if filed after 30 days after due date but before August 1, with a max of $1,641,000/year (or $547,000 for a small business) c) $270 per form if filed after August 1 or do not file at all with a max of $3,282,500/year (or $1,094,500 for a small business) d) $540 per form for intentional disregard, with no maximum Recap The IRS continues to enforce 1099 compliance with accelerated due dates for certain information returns. The 1099-MISC (NEC) due date is January 31, 2019, which is a very quick deadline. This deadline is for 1099-MISC forms that report amounts in Box 7 (NEC). If you report amounts in any other boxes such as Box 1 (rents), Box 2 (royalties), or other types of information returns such as 1097, 1098 or 1099, the original due dates still apply. 1

2 IRS Provides Interim Guidance on UBTI Attributable to Parking Expenses The 2017 Tax Cuts and Jobs Act (TCJA) enacted Code Section 512(a)(7), which requires tax-exempt organizations to treat qualified transportation fringes (QTFs) as unrelated business taxable income (UBTI). Since the enactment of this new Code Section, tax-exempt organizations have been waiting on guidance from the Treasury and IRS to determine methods under which certain QTFs should be valued. On December 10, the IRS released Notice to provide interim guidance regarding the definition and calculation of parking expenses as a QTF until the proposed regulations are published. What is a qualified transportation fringe? QTF benefits includes transportation in a commuter highway vehicle between the employee's residence and place of employment, any transit pass, and qualified parking. Qualified parking is defined by the Internal Revenue Code as parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work. Notice clarifies the definition to include, but is not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately). Depreciation is specifically excluded from the definition, as well as expenses paid for items not located on or in the parking facility. Calculating parking expenses Note: Organizations will have until march 31, 2019 to mitigate their tax liability by changing their parking arrangements to decrease or eliminate their reserved employee spaces (the changes will be retroactive to January 1, 2018). A. Organization pays a third party for employee parking: The nondeductible expense is generally calculated as the total annual amount paid to the third party. However, if the parking expense exceeds the monthly limit on exclusion ($260 per employee for 2018) and the excess amount is treated as taxable wages to the employee, the total of the monthly amount in excess is excepted from UBTI. B. Organization owns or leases all or a portion of a parking facility: Notice provides a four-step process for determining parking expenses when the organization owns or leases the parking facility used for employee parking. Step 1: Identify the number of spots in the parking facility (or the organization's portion thereof) exclusively reserved for employees. The method of reserving these spaces can vary, but 2

3 IRS Provides Interim Guidance on UBTI Attributable to Parking Expenses (continued) segregated by a barrier to entry. Then determine the percentage of reserved employee spots in relation to total parking spots and multiply the percentage by the total parking expenses for the facility. The product is the amount of total parking expense that must be included in UBTI. Step 2: Identify the remaining parking spots in the parking facility to determine whether their primary use is to provide parking to the general public. If true, then the remaining total parking expenses are not considered UBTI. For purposes of Notice , "primary use" means greater than 50% of actual or estimated usage of the parking spaces (non-reserved spaces that are available but empty are treated as provided to the general public). Step 3: Identify the number of parking spots in the facility, or the organization's portion thereof, exclusively reserved for non-employee parking (such as visitors and customers), determine the percentage in relation to the remaining total parking spots, and multiply that percentage by the remaining total parking expenses. The product is the amount of remaining total parking expenses that should not be included in UBTI. Step 4: For any remaining parking spots not identified in steps 1-3, organizations must reasonably determine the employee use of the remaining parking spots during normal hours on a typical day and the related expenses allocable to employee parking spots. Estimated tax relief for tax-exempt organizations The IRS also released Notice providing penalty relief for the underpayment of estimated tax, to the extent the underpayment results from these qualified parking expenses. The relief applies to tax-exempt organizations that provide QTF's to employees for which estimated taxes were due as of December 17, 2018, and the organization was not required to file a Form 990-T for the taxable year preceding the first taxable year ending after December 31, The 990-T and tax liability must also be timely filed and paid in order to qualify for penalty relief. In order to claim the penalty waiver under this notice, the organization must write "Notice " on the top of its Form 990-T. The IRS acknowledges that this guidance falls late in the year and taxpayers that own or lease parking facilities may have already adopted reasonable methods in 2018 to determine the amount of their nondeductible parking expenses. Therefore, until further guidance is issued, organizations may either rely on this guidance or use any reasonable method for determining nondeductible parking expenses related to employer-provided parking. IRC 132(f)(5)(C) IRC 132(a)(5) 3

4 New IRS Standard Mileage Rates for 2019 The IRS Standard Mileage Rates are changing. In 2019 the optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes with change. Beginning on January 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: 58 per mile driven for business use, up 3.5 (54.5 ) from the 2018 rate 20 per mile driven for medical or moving purposes, up 2 (18 ) from the 2018 rate 14 per mile driven in service of charitable organizations. Same as Electric Vehicle Tax Credits Starting to Phase-Out The IRS announced that Tesla, Inc. has sold more than 200,000 vehicles eligible for the plug-in electric drive motor vehicle credit during the third quarter of This triggers a phase-out of the tax credit available for purchasers of new Tesla plug-in electric vehicles beginning January 1, Qualifying vehicles by the manufacturer are eligible for a $7,500 credit if acquired before January 1, Beginning January 1, 2019, the credit will be $3,750 for Tesla s eligible vehicles. On July 1, 2019, the credit will be reduced to $1,875 for the remainder of the year. After December 31, 2019, no credit will be available. The plug-in electric drive motor vehicle credit was enacted in the Energy Improvement and Extension Act of 2008 and subsequently modified in later law. It provides a credit for eligible passenger vehicles and light trucks. By law, five quarters after reaching the sales threshold, the credit ends for the manufacturer. Tesla, Inc. s vehicles are eligible for some portion of a credit until January 1, For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES ( ). 4

5 Deductible Moving Expense Changes with Tax Reform For businesses that have employees, there are changes to fringe benefits that can affect a business s bottom line and their employee s tax liabilities. One of these changes is to qualified moving expenses. Under previous law, payment or reimbursement of an employee s qualified moving expenses were not subject to income or employment taxes. Under last year s tax reform legislation, employers must include all moving expenses in employees wages, subject to income and employment taxes. Exception Generally, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if: they are on active duty, they move pursuant to a military order and incident to a permanent change of station, and the moving expenses would qualify as a deduction if the employee did not get a reimbursement. Transition Rule There is a transition rule under the new law. Under this rule, certain payments or reimbursements are not subject to federal income or employment taxes. This includes amounts that: an employer pays a third party in 2018 for qualified moving services provided to an employee prior to 2018, an employer reimburses an employee in 2018 for qualified moving expenses incurred prior to To qualify for the transition rule, the payments or reimbursements must be for qualified expenses that would have been deductible by the employee if the employee had directly paid them before January 1, The employee must not have deducted them in Corrections Employers who have included amounts covered by the exception or the transition rule in individuals wages or compensation can take steps to correct taxable wages and employment taxes. toll free at 844.4WINDES ( ). 5

6 IRS Tax on Employee Reward changes under the Tax Cuts and Jobs Act There are new rules for the IRS tax on employee rewards. The IRS reminds employers that last year s Tax Cuts and Jobs Act (TCJA) made changes to several programs that can affect an employer's bottom line and its employees' deductions. This includes employee achievement awards. Here are some facts about these changes: Under previous law: Employers could deduct the cost of certain employee achievement awards. Deductible awards were excludible from employee income. Under the TCJA: There is now a prohibition on cash, gift cards, and other non-tangible personal property as employee achievement awards. Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. The new law clarifies that tangible personal property does not include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities, and other similar items. 6

7 Interim Guidance on 2019 Withholding from Wages and from Retirement Distributions In a notice, the IRS has provided interim guidance for the 2019 calendar year on income tax withholding from wages and from retirement and annuity distributions. The notice also provides that the IRS will be issuing withholding regulations that reflect changes made by the Tax Cuts and Jobs Act (TCJA) as well as other miscellaneous changes. Notice provides a variety of guidance The notice provides a variety of guidance including: withholding allowances; changes of status solely because of the TCJA; employees who fail to furnish a valid Form W-4; estimated amounts of deductions and credits under Internal Revenue Code (IRC) Section 3402(m); use of withholding calculator and Publication 505 as an alternative withholding procedure; alternative withholding methods under; suspension of requirement to notify the IRS that an employee is not employed by an employer; and withholding with respect to pensions, annuities and certain other deferred income. 7

8 New Jersey Amnesty Program until January 15, 2019 The New Jersey Division of Taxation (Division) issued rules implementing an amnesty program that will run through January 15, The programs provide for potential 100% penalty abatement and reduced interest on back taxes. Pursuant to recently enacted legislation that requires the Division to establish a tax amnesty program, the Division recently published implementing administrative rules that were effective November 9, 2018, and expired on December 28, Note that New Jersey s amnesty program began on November 15, 2018, and will run through January 15, The program provides an opportunity for eligible taxpayers to file and pay their past-due taxes with reduced interest and no penalties. Eligible periods generally cover state tax liabilities for tax returns due on or after February 1, 2009 through September 1, Note that an additional 5% non-abatable penalty may be imposed on any eligible debts not resolved during this program s amnesty period. In addition to these new administrative rules covering the program s scope, eligibility requirements, procedures, and consequences for participation and non-participation, other amnesty program guidelines, forms, and answers to frequently asked questions are available on the Division s website. 8

9 IRS Simplifies, Streamlines Procedures for Changing Accounting Method to Comply with Applicable Financial Statement (AFS) Deadline for All Events Test The IRS will grant automatic consent to accounting method changes to comply with new Internal Revenue Code (IRC) Section 451(b), as added by the Tax Cuts and Jobs Act. In addition, some taxpayers may make the accounting method change on their tax returns, without filing a Form 3115, Application for Change in Accounting Method. These procedures generally apply to tax years beginning after December 31, All-Events Test for Accrual Basis Taxpayers Under IRC Section 451(b), the date that an accrual basis taxpayer takes an item into account as revenue in its AFS is also the deadline for treating the item as satisfying the all-events test. This rule also applies to: any portion of an item; any other financial statement identified by the IRS; and income from a debt instrument with original issue discount (OID). Automatic Consent to Accounting Method Change The automatic consent procedures apply to a taxpayer with an AFS that wants to change to a method of accounting that complies with IRC Section 451(b); and/or for the year of the change, is not adopting Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) financial accounting standards for revenue recognition, titled "Revenue from Contracts with Customers (Topic 606)" that were announced on May 28, For income from a debt instrument having OID, the IRC Section 481(a) adjustment period for the change is six tax years (year of change plus the next five tax years). However, this applies only for the taxpayer s first tax year beginning after December 31, The automatic consent procedures do not apply to a taxpayer that wants to make a change to a method that adopts the FASB/IASB standard or to a special accounting method as described in IRC Sec. 451(b)(2). Streamlined Procedure for Change Made on Return For its first tax year beginning after December 31, 2017, a qualified taxpayer can change its accounting method to comply with IRC Section 451(b) without filing a Form An eligible taxpayer must either: meet the IRC Section 448(c) gross receipts test for a small business taxpayers (so the taxpayer s average annual gross receipts for the three prior tax years cannot exceed $25 million); or be making the change to comply with IRC Section 451(b)(1)(A) and/or (b)(4), and the IRC Section 481(a) adjustment for each of the changes is zero. 9

10 IRS Simplifies, Streamlines Procedures for Changing Accounting Method (continued) These streamlined procedures do not apply to a taxpayer who wants to make a change to a method that adopts the FASB/IASB standard, or to a special accounting method as described in IRC Section 451(b)(2), or certain other concurrent accounting method changes. Tax shelters also are not eligible. The IRS warns that consent granted under the streamlined procedures is not a determination that the new accounting method is permissible, and taxpayers using the streamlined change method do not receive audit protection. California Implements Wayfair Economic Nexus Thresholds This article is reproduced with permission from Spidell Publishing, Inc. The California Department of Tax and Fee Administration (CDTFA) has announced that effective April 1, 2019, it will begin to impose the sales and use tax economic nexus thresholds approved by the U.S. Supreme Court in Wayfair, Inc. v. South Dakota. The CDTFA is applying these standards to both state and district taxes. Retailers with no physical presence in the state or in a district during the current or preceding calendar year must collect and remit the state and district use taxes to California if their sales of tangible personal property is comprised: $100,000 of sales into the state/district; or 200 separate transactions. This means, effective April 1, 2019, if the $100,000 sales or 200 transactions threshold was met in 2018: California retailers must begin collecting and remitting district use taxes for districts in which the threshold was met; and Out-of-state businesses must register with the CDTFA and begin to collect and remit the state and district use taxes to California if the threshold was met in the state and the district. The CDTFA's Special Notices announcing these developments can be accessed below: For more information about this article, please contact our tax professionals at taxalerts@windes.com or 10

11 IRC 199A Information Released in Draft Publication This article is reproduced with permission from Spidell Publishing, Inc. The IRS recently released a draft of Publication 535 for The publication, which was previously titled "Business Expenses," is currently untitled and now provides 10 pages of new IRS information on the IRC 199A deduction. Two items in the draft publication are noteworthy: 1. It states that that "the ownership and rental of real property doesn't, as a matter of law, constitute a trade or business, and the issue is ultimately one of fact in which the scope of the taxpayer's activities in connection with the property must be so extensive as to give rise to the stature of a trade or business" (emphasis added). While, this language quashes the idea that all rental real estate will qualify for the IRC 199A deduction, it is unclear what "so extensive" means. In other words, it appears that something more than mere ownership of rental real estate is required. 2. The publication contradicts Treas. Regs A-5 regarding real estate and insurance agents and brokers by stating that a specified service trade or business is any trade or business providing services in the fields of brokerage services including arranging transactions between a buyer and a seller for a commission or fee "such as stock brokers, real estate agents and brokers, insurance agents and brokers, and intellectual property brokers." While the current language in Draft Publication 535 directly contradicts the regulations regarding real estate and insurance agents and brokers, practitioners must remember that the regulations are authoritative and carry the full force and effect of law, while IRS publications are merely informative. Also, keep in mind that this is only a draft of the publication, and this language is not yet final. 11

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