Tax accounting quarterly update: June 2018

Transcription

1 Tax accounting quarterly update: June 2018 Thursday, June 21, :30 pm ET We will be starting soon Please disable pop-up blocking software before viewing this webcast Grant Thornton LLP. All rights reserved. 1

2 CPE Reminders To receive CPE, you must be active for the entire webcast and respond to at least 75% of the polls. CPE is not offered for audio-only attendees or replay viewing Group participation will not receive CPE. You must be logged in individually to receive CPE credit Upon conclusion of the program, please complete the final evaluation and your CPE certificate will be available if you have met the minimum CPE requirements. Turn off all popup blockers to download your CPE certificate Use Q&A to ask questions during the webcast Grant Thornton LLP. All rights reserved. 2

3 For a better webcast experience Use a wired internet connection from your local office and turn off your computer's Wi-Fi signal For optimal viewing speed, close all other applications, including Outlook Most technical issues (e.g., buffering, silenced audio) can be resolved by refreshing your feed using the F5 key Use the Help button if you have technical difficulties. You can also call or contact GTWebcast@centurylink.com Click the Resources button to download the presentation materials Grant Thornton LLP. All rights reserved. 3

4 Speakers Dean Jorgensen National Partner Jeff Martin Partner Chris Oatis Managing Director Sheri Fabian Partner Scott Robins Senior Manager Neil Hewko Managing Director Grant Thornton LLP. All rights reserved. 4

5 Learning objectives 1 Identify updates in federal tax matters 2 Recognize significant state tax developments Describe significant international tax developments Apply relevant FASB, SEC and other accounting updates Explain compensation and benefits developments Grant Thornton LLP. All rights reserved. 5

6 Agenda Federal tax International taxation State and local taxation Accounting principles Human capital services Grant Thornton LLP. All rights reserved. 6

7 Federal tax updates 1 IRS Initiates New Compliance Campaigns 2 Tax Rates for Fiscal Year Taxpayers Notice Interest Expense Limitation Notice Expected future regulatory guidance Grant Thornton LLP. All rights reserved. 7

8 IRS Initiates New Compliance Campaigns March 2018 Campaigns Costs that facilitate a Sec. 355 transaction Self-Employment Contributions Act (SECA) tax Partnership stop filer Sale of partnership interest Partial disposition election for buildings May 2018 Campaigns Interest capitalization for self-constructed assets Forms 3520 / 3520-A non-compliance and campus assessed penalties Forms 1042 and 1042-S compliance Nonresident alien (i) tax treaty exemptions, (ii) Schedule A and other deductions, and (iii) tax credits Considerations (i) review list of all 35 campaigns, (ii) be prepared for exam, (iii) ensure appropriate FIN 48 liabilities have been considered Grant Thornton LLP. All rights reserved. 8

9 Tax Rates for Fiscal Year Taxpayers Notice Background Tax Cuts and Jobs Act (TCJA), effective for tax years beginning after Dec. 31, 2017: Reduced federal corporate tax rate to flat 21% rate Repealed corporate alternative minimum tax (AMT) Sec. 15(a) use of blended tax rate for fiscal year taxpayers in year of tax rate change Sec. 15(b) repeal of tax shall be considered a rate change to 0% Application of Sec. 15 to tax computations for fiscal year straddling Dec. 31, Tentatively apply pre-tcja rates to taxable income for the entire fiscal year 2. Tentatively apply post-tcja rate to taxable income for the entire fiscal year 3. Tax = proportion of each tentative tax which the number of days in each period (i.e., before and after Jan. 1, 2018) bears to number of days in entire taxable year Grant Thornton LLP. All rights reserved. 9

10 Tax Rates for Fiscal Year Taxpayers Notice : Examples Regular Tax Computation 6/30 taxable year 1) Taxable Income $1,000,000 2) Tax on Line 1 using rates before TCJA 340,000 3) # of days in tax year before Jan. 1, ) Multiply Line 2 by Line 3 = tentative tax before TCJA 62,560,000 AMT Tax Computation 6/30 taxable year 1) AMTI in excess of AMT exemption amount $2,000,000 2) Tentative minimum tax before the TCJA 400,000 3) # of days in tax year before Jan. 1, ) Multiply Line 2 by Line 3 = tentative tax before TCJA 73,600,000 5) Tax on Line 1 amount using rates after the TCJA 210,000 6) # of days in taxable year after Dec. 31, ) Divide Line 4 by total # of days in taxable year = AMT for the year 201,644 7) Multiply Line 5 by Line 6 = tentative tax after TCJA 38,010,000 8) Divide Line 4 by total # of days in taxable year 171,397 9) Divide Line 7 by total # of days in taxable year 104,137 10) Sum of Line 8 and Line 9 = tax for the year $275,534 Effective tax rate for fiscal year ended 6/30/ % Grant Thornton LLP. All rights reserved. 10

11 Tax Rates for Fiscal Year Taxpayers Notice : Considerations IRS recently issued draft instructions for 2017 Form 1120 to reflect clarification provided in Notice TCJA provided that any remaining AMT credit carryforwards may be refundable AMT blended rate should be considered when determining utilizability of certain credits against regular tax Amended return should be evaluated if federal return already filed without using appropriate blended tax rate calculations Tax provision computations for fiscal year taxpayers should be considered, as will be subsequently discussed in this webcast Grant Thornton LLP. All rights reserved. 11

12 Interest Expense Limitation Notice Background IRC Sec. 163(j), as amended by the TCJA, limits net interest expense deductions to 30% of "adjusted taxable income," effective for tax years beginning after Dec. 31, 2017 Tax years beginning before Jan. 1, 2022 adjusted taxable income ~ EBITDA Tax years beginning on or after Jan. 1, 2022 adjusted taxable income ~ EBIT Interim Guidance provided by Notice Treatment of disallowed qualified interest from last taxable year beginning before Jan. 1, 2018 C Corporation business interest expense and income Application of Sec. 163(j) to consolidated groups Impact of Sec. 163(j) on earnings and profits Business interest income and floor plan financing of partnership, partners, S corporations, and S corporations shareholders Other Issues Notice does not address whether Sec. 163(j) applies to controlled foreign corporations Grant Thornton LLP. All rights reserved. 12

13 Interest Expense Limitation Notice : Considerations Model potential limitations of interest expense, considering guidance provided by Notice Consider tax effect of any disallowed interest when calculating the annual effective tax rate Determine the need for a valuation allowance on any limited amounts to be carried forward as a deferred tax asset Grant Thornton LLP. All rights reserved. 13

14 Future Regulatory Guidance Estimated timeline of additional regulatory guidance based on informal commentary may be as follows: Sec. 199A (qualified business income deduction) June / July Sec. 163(j) (interest expense limitation) August / September Sec. 965 (repatriation) July / August Sec. 168(k) (bonus depreciation) July / August Sec. 250 and Sec. 951A (global intangible low-tax income) (GILTI) September / October Sec. 250 (foreign-derived intangible income) (FDII) September/October Sec. 59A (base erosion and anti-abuse tax) (BEAT) November / December Without necessary regulatory guidance, a company may have uncertainties regarding the reporting of the financial statement impacts of the TCJA. Such uncertainties may: Delay a company from completing its accounting for the income tax effects under SEC Staff Accounting Bulletin (SAB) No. 118; however, the measurement period under SAB 118 must end no later than one year from Dec. 22, 2017 Create unrecognized tax benefits (FIN 48) for financial statement purposes Grant Thornton LLP. All rights reserved. 14

15 Agenda Federal tax International taxation State and local taxation Accounting principles Human capital services Grant Thornton LLP. All rights reserved. 15

16 International tax Recent guidance and expected updates regarding U.S. international tax provisions Recently enacted foreign tax law changes Grant Thornton LLP. All rights reserved. 16

17 One-time transition tax - Notice On April 2, the IRS and Treasury released Notice , which provides guidance in nine key areas (bolded ones to be covered in more detail): Limited relief from controlled foreign corporation (CFC) attribution rules Determination of cash measurement dates Treatment of accrued foreign income taxes Anti-avoidance rules Rules related to elections, reporting, and payment Treatment of Sec. 965(c) deduction Modification of net accounts receivable rule in Notice Sec. 962 implications Limited penalty relief Grant Thornton LLP. All rights reserved. 17

18 One-time transition tax - Reminder Amended Sec. 965 Treatment of Deferred Foreign Income Upon Transition to Participation Exemption System of Taxation Generally requires that: For the last taxable year beginning before Jan. 1, 2018 Of any deferred foreign income corporation Any U.S. shareholder must include in income Its pro rata share of the accumulated post-1986 deferred foreign income As an increase to subpart F income as otherwise determined under Sec. 952 The Measurement Date Greater of E&P balance on: November 2, 2017 OR December 31, 2017 Effective date Effective for the last taxable year of a foreign corporation that begins before Jan. 1, 2018, and with respect to U.S. shareholders, for the taxable years in which or with which such taxable years of the foreign corporations end Grant Thornton LLP. All rights reserved. 18

19 One-time transition tax - Reminder Tax accounting implications In the period of enactment, companies will need to record the transition tax on previously unrepatriated earnings The tax results in a reversal of some or all of a U.S. parent's outside basis difference in a foreign subsidiary If electing to pay the transition tax over the 8-year period, consider the balance sheet classification between current and non-current taxes payable Tax provision impact depends on prior indefinite reinvestment assertion: Indefinitely reinvested earnings will result in an unfavorable permanent difference For non-indefinitely reinvested earnings, the deferred tax liability (if any) will become taxes payable, albeit at a lower effective rate after the rate equivalent deduction benefit (see above regarding impact of the election to pay over an 8-year period) The one-time transition tax, along with the corporate tax rate reduction, have had a significant impact on financial statements Grant Thornton LLP. All rights reserved. 19

20 One-time transition tax - Notice Section Foreign Income Taxes Accruing between Measurement Dates Limited exception to the general rules applicable to the calculation of E&P for certain foreign income taxes that accrue between measurement dates The exception provides that, for purposes of determining the specified foreign corporation's post-1986 earnings and profits as of the measurement date on Nov. 2, 2017, any foreign income tax that accrues between the measurement dates will be allocated between the respective portions of the foreign tax base on which the accrued foreign taxes are determined Not available for other deductions, which may not be fixed and determinable until after Nov. 2, 2017 Grant Thornton LLP. All rights reserved. 20

21 One-time transition tax - Notice Section 3.04(a) Anti-Avoidance Rules (transactions) The IRS intends to issue regulations under Sections 965(c)(3)(F) and (o) providing that actions that reduce Sec. 965 tax liability will be disregarded for purposes of determining any Sec. 965 tax liability Anti-avoidance rule will apply and transactions will be disregarded if the following conditions are met: The transaction occurs, in whole or in part, after Nov. 1, 2017 The principal purpose of the transaction is to reduce Sec. 965 tax liability The transaction would otherwise reduce the Sec. 965 tax liability of such shareholder The Notice describes anti-avoidance rules in section 3.04(a)(i). The Notice specifically highlights three types of Sec. 965 reduction transactions in sections 3.04(a)(ii)-(iv), which are presumed to be undertaken with a principal purpose of reducing the Sec. 965 tax liability: Cash reduction transactions E&P reduction transactions Pro-rata share transactions Grant Thornton LLP. All rights reserved. 21

22 One-time transition tax - Notice Section 3.04(b) Anti-Avoidance (continued) : Disregard of certain changes in method of accounting and entity classification elections Any change in method of accounting made for a taxable year of a specified foreign corporation ending in 2017 or 2018 will be disregarded for purposes of determining the Sec. 965 tax liability if it would reduce the liability Method changes will still be valid, but the favorable ones won t be taken into account for purposes of computing the Sec. 965 tax liability Unfavorable changes remain important to getting the amount of the liability right The regulations will not apply to changes in method of accounting filed before Nov. 2, 2017 This rule also provides that any entity classification election that is filed on or after Nov. 2, 2017 will be disregarded for purposes of determining the Sec. 965 tax liability if it would reduce the liability of any United States Shareholders Grant Thornton LLP. All rights reserved. 22

23 Other Notable Published Guidance On April 2, the IRS released Notice which outlines processes and provides clarification concerning Sec. 1446(f)(1) reporting and withholding for non-publicly traded partnerships On April 6, the IRS issued Publication 5292 explaining how to calculate the Sec. 965 transition tax enacted by the tax reform legislation On May 4, the IRS released Notice indicating that regulations would be issued to expand the definition of exceptions to the definition of United States property under Sec. 956(c) related to notional principal contracts On May 11, the IRS s Advance Pricing and Mutual Agreement Program (APMA) issued a new template that taxpayers must use when requesting an advance pricing agreement (APA) under Rev. Proc Grant Thornton LLP. All rights reserved. 23

24 Other Notable Published Guidance On June 13, the IRS announced in Notice the intention to defer the applicability date of the final regulations under Sec. 987 and some of the provisions of the related temporary regulations by another year Sec. 987 provides rules for determining and translating income and currency gain or loss with respect to certain branch operations (known as a qualified business unit or QBU) that uses a different functional currency than that of the QBU's owner Notice , issued on Oct. 2, 2017, had already deferred the applicability date by one year Notice now defers the applicability date to tax years beginning on or after 3 years after the first day of the first tax year following Dec. 7, 2016 For a taxpayer whose first taxable year after Dec. 7, 2016 begins on Jan. 1, 2017, the final regulations will apply for the taxable year beginning on Jan. 1, 2020 The delay impacts the recognition of deferred tax assets and liabilities pertaining to unrealized currency gains or losses under Sec. 987 Grant Thornton LLP. All rights reserved. 24

25 Other Notable Published Guidance On June 13, the IRS announced in Notice the intention to defer the applicability date of the final regulations under Sec. 987 and some of the provisions of the related temporary regulations by another year (cont'd) As a reminder, on Oct. 2, 2017, the Department of the Treasury issued The Second Report to the President on Identifying and Reducing Tax Regulatory Burdens The Treasury and the IRS stated their intentions to propose modifications to the final regulations to permit taxpayers to elect to adopt a simplified method of calculating and translating Sec. 987 gain and loss, subject to certain limitations on the timing of the recognition of a Sec. 987 loss The IRS and the Office of Tax Policy are considering alternatives to the transition rules in the final regulations "The foreign currency regulations are overly complex and costly to comply with often requiring taxpayers to make significant modifications to financial accounting systems and processes in order to comply" Cory Perry, International Tax Senior Manager in Grant Thornton's Washington National Tax Office, as quoted in Daily Tax Report (June 14, 2018) Grant Thornton LLP. All rights reserved. 25

26 International tax Recent guidance and expected updates regarding U.S. international tax provisions Recently enacted foreign tax law changes Grant Thornton LLP. All rights reserved. 26

27 Recently enacted foreign tax law changes Our focus is on enacted foreign income tax rate changes and other material tax law changes enacted since our March webcast Reminder: the effect of an income tax law change is reported as a discrete item in continuing operations in the period of enactment The summary may not capture all foreign income tax rate changes applicable to your company and is not intended to summarize other foreign tax law changes that may be applicable to your company Certain non-income tax developments are also included given they can impact "above the line" earnings Grant Thornton LLP. All rights reserved. 27

28 Recently enacted foreign tax law changes Luxembourg adopted on March 22 a new intellectual property regime, which enters into force with retroactive effect as from Jan. 1, 2018; the regime allows an exemption of 80% on the net income derived from eligible intellectual property assets Hong Kong published legislation on March 29 in its official gazette which provides for a reduced corporate income tax rate from 16.5% to 8.25%, applicable only for the first HK$2 million of profits (USD $255,000), effective beginning with the year of assessment 2018/19 China issued circulars on April 4 which reduces the VAT rate for certain industries, e.g., a reduction in the VAT rate of manufacturing from 17% to 16%, which took effect May 1, 2018 China issued Public Notice on March 28 providing 4 incentives to qualified software and integrated circuit enterprises, effective from Jan. 1, 2018; China also announced on April 3 that it will decrease the corporate income tax rate for certain generic drug manufacturers from 25% to 15% Egypt issued amendments to its transfer pricing regime on May 22 including providing for the (1) addition of the transactional net margin method and the profit split method and (2) the removal of the hierarchical approach in selecting which method must be used Grant Thornton LLP. All rights reserved. 28

29 Recently enacted foreign tax law changes Italy published on May 14 a decree on transfer pricing rules in its official gazette, which included: Defining "associated companies" to which the transfer pricing requirements are applicable Clarifying the comparability analysis including listing 5 comparability factors Providing the methods for determining transfer prices including which methods are preferred Introducing a simplified approach for low value-added intra-group services based on a 5% markup on direct and indirect costs Reflecting the general rule that an arm's-length result may lie anywhere in the range of all values derived from independent comparable transactions Turkey published an amnesty program on May 18, with a further communication published on June 11 Allows taxpayers to settle outstanding tax debts, including direct and indirect taxes, relating to tax periods prior to March 31, 2018 Depending on the type of the tax, the program provides full or partial amnesty for the principal amount, penalties and/or interest provided that the taxpayer satisfies the required conditions Consider the amnesty program as a means to mitigate any risks and/or unrecognized tax benefits associated with Turkey Grant Thornton LLP. All rights reserved. 29

30 Recently enacted foreign tax law changes Singapore announced on May 16 that the rate of goods and services tax (GST) will be reduced from 6% to 0%, effective June 1, 2018 The zero-rated GST applies to all supplies of goods and services, as well as the importation of goods The Malaysian Royal Customs on May 17 issued FAQs on the GST rate change, including what to do during the transition period The introduction of a new sales and services tax (SST) regime is expected, with a proposed effective date of Sept. 1, 2018; the new SST regime would be an updated version of the previous SST, which was replaced by the GST regime in 2015 Angola announced on May 21 that VAT will be gradually implemented beginning on Jan. 1, 2019 with large taxpayers The full implementation of VAT is expected to take up to 2 years Grant Thornton LLP. All rights reserved. 30

31 Recently enacted foreign tax law changes India published legislation on March 29 in its official gazette, which included: A reduction in the corporate tax rate from 30% to 25%, applicable to Indian domestic companies with total turnover or gross receipts not exceeding INR 2.5 billion (approximately USD $37.5 million) in the tax year The current 30% rate will continue to apply to all other domestic companies, with foreign companies still subject to a 40% rate A domestic company is defined as a company incorporated in India; it also includes a foreign company if the company has made certain arrangements for declaration and payment of a dividend in India The reduction is effective on April 1, 2018 All corporate income tax rates noted herein are before any applicable surcharge and cess A replacement of the existing Education Cess and Higher Education Cess (an aggregate 3% rate) with a new Health and Education Cess (4% rate), effective on April 1, 2018 An expansion in the scope of business connection, which is used to determine the existence of permanent establishment; the expanded rules will apply from April 1, 2019 (tax years and beyond) Grant Thornton LLP. All rights reserved. 31

32 Recently enacted foreign tax law changes Pakistan enacted the amended Finance Act 2018 on May 24, which generally takes effect on July 1, 2018, including but not necessarily limited to: Reduction in corporate tax rates (generally 1% per year reduction starting in tax year 2019 until it reaches 25% for the tax year 2023 and beyond) (not applicable to banking companies) Reduction in super tax rates starting with tax year 2019 Reduction in the distribution requirement of public companies Introduction of a tax on income of certain controlled foreign corporations (CFCs) Introduction of a foreign tax credit on dividends from certain CFCs Expansion of the definition of a "permanent establishment" Extension of existing tax credits to June 30, 2021 Introduction of a 5% tax on the gross amount paid to non-residents in respect of fee for offshore digital services (with certain exceptions provided) Grant Thornton LLP. All rights reserved. 32

33 Recently enacted foreign tax law changes Spain: Biscay, Alava, and Guipúzcoa the three provinces of the Spanish Basque region with the power to issue their own tax rules have approved major corporate income tax reform legislation Alava and Biscay published the legislation in their Official Gazettes on March 16 and March 27, respectively, while Guipúzcoa published the legislation in its Official Gazette on May 17 The amendments generally are effective for tax years beginning on or after Jan. 1, 2018, and include the following: Reduction of corporate income tax rates Enhancement of the current fixed-assets tax credit Introduction of interest expense limitation rules Deduction denial on hybrid transactions Removal of know-how from being eligible for the intangible property regime Modification of the net operating loss carryforward rules Modification of the participation exemption regime Introduction of an annual advance tax payment Grant Thornton LLP. All rights reserved. 33

34 Other foreign tax law updates On May 25, the Economic and Financial Affairs Council (ECOFIN) adopted Directive 2018/822 (often referred to as "DAC6"), which requires disclosure and exchange of certain aggressive cross-border tax planning The directive was published on June 5 in the Official Journal of the European Union, enters into force on June 25, and applies from July 1, 2020 (with EU Member States required to transpose the Directive into their national laws by Dec. 31, 2019) During the transition period, reportable arrangements are required to be disclosed by Aug. 31, 2020 where the first step of implementation is made between June 25, 2018 and July 1, 2020 After the transition period, a reportable arrangement is required to be disclosed within 30 days beginning on the day after the arrangement (1) was made available for implementation, (2) was made ready for implementation, or (3) when the first step in the implementation was undertaken, whichever occurs first The disclosure requirement applies to cross border arrangements that contain one or more features or "hallmarks" of aggressive tax planning Cross border arrangements are those which concern either (1) more than one EU Member State or (2) an EU Member State and a country outside of the EU The disclosure will include, among other information, the names of the relevant taxpayers and information about the arrangement Grant Thornton LLP. All rights reserved. 34

35 Other foreign tax law updates On May 25, the Economic and Financial Affairs Council (ECOFIN) adopted Directive 2018/822 (often referred to as "DAC6"), which requires disclosure and exchange of certain aggressive cross-border tax planning (cont'd) The disclosure requirement applies to intermediaries such as tax advisors, accountants, lawyers, and banks who have an EU connection If the intermediary is protected by legal professional privilege, then the obligation to disclose is transferred to any other intermediary which can disclose, and if not, then to the taxpayer The taxpayer will also have the obligation to disclose where there is no intermediary or where the intermediaries do not have an EU connection Companies should assess the financial statement implications of potential disclosures made pursuant to this Directive The national laws being enacted will include penalties for non-compliance, which should be scoped in a way that is effective, proportionate and dissuasive Although U.S. GAAP currently requires a company to presume that tax positions will be examined and evaluated by the taxing authority with full knowledge of all relevant information, the pending disclosures will likely result in more enforcement/audit activities Heightened audit activity may change settlement experience, which can ultimately change management's estimate of the largest amount of tax benefit that is more than 50% likely of being sustained upon settlement with the taxing authority Grant Thornton LLP. All rights reserved. 35

36 Other foreign tax law updates The European Commission on March 21 proposed taxation of digital business models Would require a company to pay income tax in an EU Member State where it is deemed to have a significant digital presence by fulling any of the following requirements in that State: More than 7 million (USD $8.7 million) in revenues from digital services in a taxable year; More than 100,000 users of digital services in a taxable year; or The creation of more than 3,000 business contracts for digital services, created between the company and business users, within a taxable year Would also impose a 3% digital services tax (DST) within the EU on gross revenues derived from certain digital activities The digital activities subject to the tax would include revenues derived from (1) selling online advertising space, (2) selling data generated from user-provided information, and (3) digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them Companies subject to the DST would be limited to those with more than (1) 750 million (USD $930 million) of worldwide revenues for the latest financial year and (2) 50 million (USD $62 million) of revenues derived from taxable digital activities within the EU The DST would only apply until the longer term solution regarding significant digital presence is implemented Grant Thornton LLP. All rights reserved. 36

37 Other foreign tax law updates The European Commission proposed taxation of digital business models (cont'd) The proposals will be provided to the EU Council for deliberation and potential adoption The EC hopes that adoption will occur by Dec. 31, 2019, for transposition into national laws of EU Member States by Jan. 1, 2020 with respect to tax periods beginning on or after that date As tax legislation, the unanimous approval by all 28 EU Member States is required; the proposals are highly controversial The Organization for Economic Co-Operation and Development (OECD), on March 16 released an interim report, Tax Challenges Arising from Digitalisation Interim Report 2018 It appears that the OECD has not, at this point, reached consensus on how to address the taxation of the digital economy The report is very specific that there is no consensus at this point on the need for interim measures and recognizes that a number of countries are opposed to such measures The G-7 leaders, after their recent June 8-9 summit, expressed their commitment to work together to seek a consensus-based solution by 2020 Grant Thornton LLP. All rights reserved. 37

38 Agenda Federal tax International taxation State and local taxation Accounting principles Human capital services Grant Thornton LLP. All rights reserved. 38

39 State and local taxation 1 Legislative income tax developments 2 Non-legislative income tax developments 3 Non-income tax developments Grant Thornton LLP. All rights reserved. 39

40 Tax accounting effects - reminder The effect of a tax law change is reported as a discrete item in continuing operations in the period of enactment The effect includes any necessary adjustments to existing deferred tax assets and liabilities Since deferred taxes are measured at the enacted tax rate at which the underlying temporary differences are expected to reverse, scheduling the reversal of existing temporary differences may be necessary in some cases The forthcoming highlights, of both legislative and non-legislative activity, are not intended to be an all-inclusive compilation of state and local tax developments that may affect your company Enacted changes can significantly impact state deferred tax amounts Grant Thornton LLP. All rights reserved. 40

41 Legislative income tax developments: State Responses to Tax Reform To the extent the Internal Revenue Code (IRC) changes as a result of federal tax reform, state conformity to those changes will vary from state to state based on the manner in which each state's laws interact with the IRC: Some state laws may automatically adopt the IRC currently in place (rolling conformity) Some state laws may adopt the IRC as of a certain date (static conformity) Some state laws may adopt only select portions of the IRC with the state tax code conforming to, or decoupling from, IRC provisions Many of the state legislative developments address federal tax reform Grant Thornton LLP. All rights reserved. 41

42 Legislative income tax developments Utah enacted legislation on March 26 For tax years beginning on or after Jan. 1, 2018, the corporate income tax rate is reduced from 5% to 4.95% Starting with the taxable year beginning on or after Jan. 1, 2019, single sales factor apportionment will be phased in for most taxpayers, unless a taxpayer is an optional apportionment taxpayer For the 2019 tax year, the sales factor is multiplied by 4 (denominator is 6) For the 2020 tax year, the sales factor is multiplied by 8 (denominator is 10) Single sales factor applies to tax years after 2020 Florida enacted legislation on March 23, effective Jan. 1, 2018, to adopt the IRC in effect as of Jan. 1, 2018 but continues to decouple from bonus depreciation Grant Thornton LLP. All rights reserved. 42

43 Legislative income tax developments Wisconsin enacted legislation on April 3 to adopt the IRC in effect on Dec. 31, 2017 for tax years beginning after Dec. 31, 2017, with many exceptions including: Sec. 163(j) (interest deduction limitation) Sec. 245A (dividend received deduction related to 10%-owned foreign subsidiary) Sec. 965 (repatriation) Sec. 951A (global intangible low-taxed income (GILTI)) Sec. 250 (GILTI and foreign-derived intangible income (FDII)) Sec. 59A (base erosion anti-abuse tax (BEAT)) Grant Thornton LLP. All rights reserved. 43

44 Legislative income tax developments Oregon enacted legislation on April 10 to adopt the IRC in effect on Dec. 31, 2017 for tax years beginning on or after Jan. 1, 2018 Decouples from the treatment of repatriation under Sec. 965 by requiring corporations to add back the related federal dividends received deduction (DRD) and then providing a separate Oregon DRD (70%-80%) New York/New York City enacted legislation on April 12 to address certain provisions of tax reform for tax years beginning on or after Jan. 1, 2017 Expands the definition of "exempt CFC income" to include income received under Sec. 965, provided that the corporation is not included in a combined return with the taxpayer, and requires an addback for the amount of correlating federal deduction Requires an addback for the federal deduction under Sec. 250(a)(1)(A) (FDII) Provides for a subtraction for deemed dividends under Sec. 78 but only if dividends are not deducted under Sec. 250 (GILTI and FDII) Grant Thornton LLP. All rights reserved. 44

45 Legislative income tax developments Indiana enacted legislation on May 14 to adopt the IRC in effect on Feb. 11, 2018 for tax years beginning on or after Jan. 1, 2018 Decouples from the treatment of repatriation under Sec. 965 by requiring non-reit corporations to add back the amount reported for tax years beginning after Dec. 25, 2016 Effective for tax years beginning on or after Jan. 1, 2018, expands definition of "foreign source dividend" to include taxpayer addbacks under Sec. 965 and income under Sec. 951A (GILTI) Requires an addback of an amount equal to the deduction under Sec. 250(a)(1)(B) (attributable to GILTI), as well as any interest expense paid/accrued in a previous tax year but allowed as a deduction under Sec. 163 in the current tax year Subtractions are allowed for interest expense paid or accrued, but not deducted, due to Sec. 163(j)(1) limitations Grant Thornton LLP. All rights reserved. 45

46 Legislative income tax developments Tennessee enacted legislation on May 21 to address certain provisions of tax reform For tax years beginning on or after Jan. 1, 2017, addition is required for any amount which would have been excluded from federal taxable income as a result of applying Sec. 118 (contributions to capital) as it existed before tax reform was enacted For tax years beginning on or after Jan. 1, 2020, Sec. 163(j) (interest expense limitation) must be applied as it existed immediately before tax reform was enacted Arizona enacted legislation on April 5 to adopt the IRC in effect on Jan. 1, 2017 for tax years beginning from and after Dec. 31, 2017 For tax years beginning from and after Dec. 31, 2016 through Dec. 31, 2017, Arizona adopts the IRC in effect on Jan. 1, 2017, but includes those provisions that are retroactively effective during tax years beginning from and after Dec. 31, 2016 through Dec. 31, 2017 Grant Thornton LLP. All rights reserved. 46

47 Legislative income tax developments Iowa enacted legislation on May 30 to adopt the IRC in effect on March 24, 2018 for tax years beginning during 2019 For tax years beginning on or after Jan. 1, 2020, Iowa adopts the IRC as currently amended Sec. 179 expensing allowance applies for tax years beginning on or after Jan. 1, 2019, with certain limitations for the 2019 tax year Top corporate tax rate is reduced from 12% to 9.8% for tax years beginning on or after Jan. 1, 2021, and the corporate AMT is repealed New Hampshire enacted legislation on April 20 to amend the effective dates of the business profits tax (BPT) and business enterprise tax (BET) rate reductions For taxable periods ending on or after Dec. 31, 2019, the BPT is reduced to 7.7% (effective Jan. 1, previously effective July 1, 2019); the BET is reduced to 0.6% (effective Jan. 1, previously effective July 1, 2019) For taxable periods ending on or after Dec. 31, 2021, the BPT is reduced to 7.5% (effective Jan. 1, previously effective July 1, 2021); the BET is reduced to 0.5% (effective Jan. 1, previously effective July 1, 2021) Grant Thornton LLP. All rights reserved. 47

48 Legislative income tax developments Maryland enacted legislation on April 24 to adopt single sales factor apportionment Starting with the taxable year beginning on or after Jan. 1, 2018, single sales factor apportionment will be phased in over a four-year period During the phase-in period, the state uses a three-factor formula with the sales factor weighted as follows: 2018 tax year, sales factor multiplied by tax year, sales factor multiplied by tax year, sales factor multiplied by tax year, sales factor multiplied by 6 Single sales factor applies to tax years beginning on or after Jan. 1, 2022 Certain worldwide headquartered companies may elect to use a three-factor formula with a double-weighted sales factor Grant Thornton LLP. All rights reserved. 48

49 Legislative income tax developments Kentucky enacted legislation on April 27, superseding similar tax legislation which had previously been enacted over the Governor's veto on April 13 For tax years beginning on or after Jan. 1, 2018 The IRC in effect on Dec. 31, 2017 is adopted; however, decoupling continues for bonus depreciation and the expanded Sec. 179 expensing The corporate income tax is imposed at a flat rate of 5% Single sales factor apportionment must be used A sale of other than tangible personal property is sourced to Kentucky if the market for the sale is in the state Sale of a service is sourced to Kentucky if it is delivered to a location in the state Sale of an intangible is sourced to Kentucky if it is used in the state Includes a "throwout" rule For tax years beginning on or after Jan. 1, 2019, mandatory water's-edge combined reporting is required for members of a unitary group of corporations; election is available, however, to file a consolidated return with all members of the affiliated group, which is binding for eight years Grant Thornton LLP. All rights reserved. 49

50 Legislative income tax developments Connecticut enacted legislation on May 31, effective for tax years beginning on or after Jan. 1, 2018 Imposes a new income tax on most pass-through entities at the entity level Tax is levied at the top personal income tax rate of 6.99% This tax is then offset by a credit mechanism for corporate or individual owners For owners subject to corporate income tax, the credit is equal to the direct and indirect share of the tax paid by the passthrough entity, multiplied by 93.01% Decouples from the treatment of Sec. 179 expensing allowance by requiring an 80% addback of any deduction claimed To the extent of the disallowed deduction for corporate income tax purposes, 25% of the disallowed portion of the deduction is allowed as a subtraction in each of the four subsequent tax years Allows a deduction for business interest paid or accrued as provided under the IRC, except that in making such determination, Sec. 163(j) does not apply Grant Thornton LLP. All rights reserved. 50

51 Legislative income tax developments Missouri enacted legislation on June 1 For tax years beginning on or after Jan. 1, 2020 The corporate income tax rate is reduced from 6.25% to 4% Single sales factor apportionment must be used A sale of other than tangible personal property is sourced to Missouri if the market for the sale is in the state Sale of a service is sourced to Missouri if the ultimate beneficiary is in the state Sale of an intangible is sourced to Missouri if it is used in the state Reasonable approximation used if the state of assignment cannot be determined Effective as of Aug. 28, 2018 The elimination of transactions between affiliated group members of a Missouri consolidated income tax return is required The requirement that an affiliated group must derive at least 50% of its income from Missouri sources in order to file a consolidated return is eliminated Grant Thornton LLP. All rights reserved. 51

52 Legislative income tax developments Colorado enacted legislation on June 4, effective for tax years beginning on or after Jan. 1, 2019 Sources a sale of other than tangible personal property to Colorado if the market for the sale is in the state Sale of a service is sourced to Colorado to the extent the service is delivered to a location in the state Sale of an intangible is sourced to Colorado if it is used in the state Replaces the term "business income" with "apportionable income," with an expanded definition Replaces the term "sales" with "receipts," with a modified definition (for purposes of the single receipts factor apportionment) Grant Thornton LLP. All rights reserved. 52

53 Legislative income tax developments North Carolina enacted legislation on June 12 through a legislative override of the Governor's veto of S.B. 99. With these overrides: North Carolina conforms to the IRC in effect as of Feb. 9, 2018, except for: Requiring an addition for amounts deducted under Sec. 250 (FDII and GILTI) and Sec. 965(c) (repatriation) Allowing a subtraction for amounts included in income under Sec. 78 (gross-up for deemed paid foreign tax credit), Sec. 951 (certain income from controlled foreign corporations), Sec. 951A (GILTI) and Sec. 965 (repatriation), net of related expenses Continuing to not allow bonus depreciation The corporate tax rate reduction from 3% to 2.5%, enacted on June 28, 2017 and effective for tax years beginning on or after Jan. 1, 2019, is preserved Grant Thornton LLP. All rights reserved. 53

54 Legislative income tax developments Hawaii enacted legislation on June 13: Hawaii conforms to the IRC in effect as of Feb. 9, 2018, effective for taxable years beginning after Dec. 31, 2017, with the following Decouples from certain new IRC Sections including the amount deducted under Sec. 199A (qualified business income), the amount deducted under Sec. 250 (FDII and GILTI), and the amount limited by Sec. 267A (certain related party amounts paid or accrued in hybrid transactions or with hybrid entities) By prescribing these sections as inoperative, Hawaii continues to decouple from Sec. 861 to Sec. 999, except for treatment of foreign currency transactions; accordingly, decoupling includes Sec. 951 (certain income from controlled foreign corporations), Sec. 951A (GILTI) and Sec. 965 (repatriation) Continues to decouple from Sec. 168(k) (bonus depreciation) and expanded Sec. 179 expensing Grant Thornton LLP. All rights reserved. 54

55 State and local taxation 1 Legislative income tax developments 2 Non-legislative income tax developments 3 Non-income tax developments Grant Thornton LLP. All rights reserved. 55

56 Non-legislative income tax developments: Sec. 965 treatment These jurisdictions provided guidance as to how they intend to treat repatriation under Sec. 965 Alabama requires Sec. 965 income/expense items to be reported on the state's tax return, with a DRD allowed if applicable (>20% owned CFC) for the net amount California does not conform to Sec. 965, must make adjustments to the state's tax return Colorado requires Sec. 965 income to be reported on the Colorado return; a portion of the Sec. 965 income may be eligible for the foreign source income exclusion Connecticut conforms to Sec. 965, requires taxpayers to report income on the state's tax return, treats the income as Subpart F and provides a DRD (net of 5% expenses) Florida excludes Sec. 965 income from its tax return since not part of federal taxable income Illinois requires Sec. 965 income to be included in Illinois base income; Illinois subtraction modification for foreign dividends will exclude a portion of the increase in Illinois base income for certain taxpayers Grant Thornton LLP. All rights reserved. 56

57 Non-legislative income tax developments: Sec. 965 treatment These jurisdictions provided guidance as to how they intend to treat repatriation under Sec. 965 Michigan excludes Sec. 965 income from its tax base since outside of federal taxable income New York City includes Sec. 965 income for taxpayers subject to the general corporation tax, banking corporation tax and unincorporated business tax, and treated accordingly (business income, investment income, or income from subsidiary capital) Pennsylvania requires Sec. 965 income/expense items to be reported on the state's tax return since it's part of federal taxable income, treats as Subpart F and provides a DRD Tennessee excludes Sec. 965 income from its tax return since it's not on federal tax return Grant Thornton LLP. All rights reserved. 57

58 Non-legislative income tax developments: Sec. 965 treatment Financial statement considerations States' reactions with respect to IRC conformity will need to be monitored closely; any subsequent changes will need to be timely identified and evaluated Given the multitude of jurisdictions and the differences in IRC conformity treatment, this may cause additional tax provision complexities and risks If state-to-state differences to Sec. 965 as well as to other tax reform provisions (e.g., bonus depreciation) are significant, this may require state-specific tax provision computations vs. use of a state blended tax rate Grant Thornton LLP. All rights reserved. 58

59 State and local taxation 1 Legislative income tax developments 2 Non-legislative income tax developments 3 Non-income tax developments Grant Thornton LLP. All rights reserved. 59

60 Non-income tax developments: Financial statement considerations May create accruals or contingent liabilities for non-compliance May result in an "above the line" expense (pre-tax income) May require the adoption of new procedures and controls to ensure the timely collection, reporting and remittance of the tax Grant Thornton LLP. All rights reserved. 60

61 Non-income tax developments: South Dakota On Jan. 12, in South Dakota v. Wayfair, Inc., the U.S. Supreme Court granted review of South Dakota's legislation regarding collection of sales and use taxes by remote sellers South Dakota's law, enacted in March 2016, requires a remote seller with no physical presence in the state to collect and remit sales taxes if it met certain thresholds based on gross revenues or number of transactions The legislation is similar to statutes in various other states that attempt either to circumvent or to directly challenge the U.S. Supreme Court's 1992 holding in Quill Corp. v. North Dakota that imposes a physical presence requirement for remote sales tax collection On April 17, oral arguments to the Supreme Court were made A decision is expected soon Grant Thornton LLP. All rights reserved. 61

62 Non-income tax developments: Remote seller legislation Oklahoma enacted legislation on April 10 Requires certain sellers to elect no later than July 1, 2018 to either (1) collect and remit sales tax or (2) comply with new notice and reporting requirements; annual election thereafter Requirements apply if, during the preceding 12-month period, the seller had at least $10,000 sales of tangible personal property within Oklahoma or delivered to locations within Oklahoma Kentucky enacted legislation on April 13, effective July 1, 2018 Requires certain sellers to collect and remit Kentucky sales tax Requirements apply if the seller either has (1) gross receipts exceeding $100,000 from the sale of tangible personal property or digital property delivered or transferred electronically to a purchaser in Kentucky or (2) at least 200 transactions involving such items with a purchaser in Kentucky, in either the preceding or the current year Grant Thornton LLP. All rights reserved. 62

63 Non-income tax developments: Remote seller legislation Georgia enacted legislation on May 3, effective Jan. 1, 2019 Requires certain sellers to either (1) register to collect and remit sales tax or (2) notify customers of use tax obligations and report to the state that such requirements have been fulfilled Requirements apply if the seller either (1) conducts 200 or more separate retail sales of tangible personal property for Georgia delivery or (2) obtains more than $250,000 in gross revenue from such sales in the current or previous calendar year Iowa enacted legislation on May 30, effective Jan. 1, 2019 Requires certain sellers to collect and remit Iowa sales tax Requirements apply if the seller either (1) has Iowa sales of at least $100,000 or (2) has at least 200 separate transactions during the prior or current calendar year Grant Thornton LLP. All rights reserved. 63

64 Non-income tax developments: Remote seller legislation Illinois enacted legislation on June 4, effective Oct. 1, 2018 Requires certain sellers to collect and remit Illinois sales tax Requirements apply if the seller either (1) has cumulative gross receipts from sales of tangible personal property to Illinois purchasers of at least $100,000 or (2) enters into at least 200 separate transactions for the sale of tangible personal property to purchasers in Illinois Hawaii enacted legislation on June 12, effective July 1, 2018 (for tax years beginning after Dec. 31, 2017) Requires certain sellers to pay general excise tax, Hawaii's version of sales tax (the general excise tax is not a tax on customers, and businesses are not required to collect it from customers) Requirements apply if the seller in the current or preceding year either (1) has $100,000 or more in gross income or gross proceeds from the sale of tangible personal property delivered in Hawaii, services used or consumed in Hawaii, or intangible property used in Hawaii or (2) enters into 200 or more separate transactions involving such items in Hawaii Grant Thornton LLP. All rights reserved. 64

65 Non-income tax developments: Remote seller legislation Connecticut enacted legislation on June 14, effective Dec. 1, 2018 Modifies the sales amount that creates click-through nexus for out-of-state retailers from $2,000 annually to $250,000 Modifies the sales tax economic nexus requirements to characterize a non-connecticut business as engaging in business in Connecticut if, during the prior 12-month period ending on Sept. 30, it has (1) at least $250,000 of Connecticut gross receipts from sales of tangible personal property outside Connecticut to destinations within the state and (2) 200 or more sales of tangible personal property from outside Connecticut to destinations within the state Requires certain marketplace facilitators to collect and remit Connecticut sales tax on behalf of their marketplace sellers Requires certain referrers to provide information to customers, sellers and the state but does not require them to collect and remit Connecticut sales tax Grant Thornton LLP. All rights reserved. 65

66 Agenda Federal tax International taxation State and local taxation Accounting principles Compensation and benefits Grant Thornton LLP. All rights reserved. 66

67 Tax reform Grant Thornton LLP. All rights reserved. 67

68 Considerations for non-calendar-year entities: Tax rate Deferred tax liabilities and assets at enactment date Enacted tax rate(s) expected to apply to taxable income in period(s) in which deferred tax liability or asset is expected to be settled or realized Annual income tax provision Blended tax rate based on ratio of days that occur before and after effective date Deferred tax liabilities and assets at fiscal year end (in 2018) New U.S. federal tax rate of 21 percent Grant Thornton LLP. All rights reserved. 68

69 Considerations for non-calendar-year entities: NOL deductions NOL carryforwards offset 100% of future taxable income 2-year carryback, 20-year carryforward period Dec. 31, 2017 NOLs carryforwards offset up to 80% of future taxable income Indefinite carryforward period Consider the tax year in which the NOL arose Grant Thornton LLP. All rights reserved. 69

70 Reevaluating the realizability of deferred tax assets ASC 740 does not allow an entity to anticipate events such as impairments or disposals when predicting reversal of deferred tax liabilities related to temporary differences ( naked credits ) Entities need to determine whether the reversal of a naked credit may be a source of future taxable income when evaluating whether a valuation allowance is needed for deferred tax assets Scheduling the pattern of reversal for deferred tax assets and liabilities will be necessary to determine the realizable portion of the deferred tax asset Grant Thornton LLP. All rights reserved. 70

71 Example: Naked credits DTL related to naked credits - $600, DTA is also $600, $300 to reverse and become NOL carryforwards in each of 2018 and 2019 Temporary differences of same nature and same tax jurisdiction Breakeven results expected in 2018 and 2019 Future taxable income of $600 in 2020 Future taxable income of $1,000 in 2020 Offset 80% ($480) of NOL carryforward deduction of $600 and valuation allowance of 20% ($120) required 80% limit would not apply and valuation allowance not required because $600 is less than 80% of $1,000 Grant Thornton LLP. All rights reserved. 71

72 Accounting for changes to "APB 23 assertion" "APB 23 assertion" - an entity s investment in a foreign subsidiary is permanent and foreign earnings will be indefinitely reinvested No change to existing guidance related to how an entity should account for and disclose the income tax effects of its investments in certain foreign entities Change to indefinite reinvestment assertion could impact amount, financial statement presentation, and limitations when recognizing deferred tax liabilities and assets related to outside-basis differences Grant Thornton LLP. All rights reserved. 72

73 ASC 606 and IRS reporting New automatic method change for changes in the timing of recognition of income due to the New Standards IRS revenue procedure Applies to a taxpayer that wants to change its method of: - Identifying performance obligations - Allocating transaction price - Considering performance obligations satisfied Cut-off basis or 481(a) adjustment Reduced filing requirements Grant Thornton LLP. All rights reserved. 73

74 Internal control considerations Risk assessment Financial reporting Relevant tax laws and rates Timing implications Identification of appropriate data Completeness and accuracy of data Suitability of data for the intended purpose Disclosures Grant Thornton LLP. All rights reserved. 74

75 Leases Grant Thornton LLP. All rights reserved. 75

76 Effective date 2019 for calendar year public companies * * Entity that meets the definition of a public business entity solely because it includes, or is required to include, its financial statements or financial information in another entity s SEC filing can use the private company effective date. Grant Thornton LLP. All rights reserved. 76

77 ASC 842 Implementation Identify leases Classify leases Measure leases Maintain leases Grant Thornton LLP. All rights reserved. 77

78 Identifying leases Train personnel to identify leases under ASC 842 Validate data collection Define process for identifying future leases Collect data for identified and unidentified leases Search existing contracts for embedded leases Design policy, define policy, and update policy Grant Thornton LLP. All rights reserved. 78

79 Classify leases Determine categories of in scope leases Develop criteria for leases vs services evaluation Provide personnel with guidance for future lease negotiation Grant Thornton LLP. All rights reserved. 79

80 Measure leases Determine data needed for calculation Draft disclosures and identify relevant data Document assumptions required for calculation Calculate impact of shift to 842 Analyze tax classification of leases and potential book tax differences Grant Thornton LLP. All rights reserved. 80

81 Maintain leases Build a lease repository Implement lease management service Modify processes to incorporate lease software Maintain deferred tax assets and liabilities Select software for lease management Maintain leases Project impact on B/S, ratios, debt covenants Grant Thornton LLP. All rights reserved. 81

82 Agenda Federal tax International taxation State and local taxation Accounting principles Human capital services Grant Thornton LLP. All rights reserved. 82

83 Compensation and benefits Qualified transportation fringe (update) Health savings accounts Grant Thornton LLP. All rights reserved. 83

84 Qualified transportation fringe TCJA eliminates the employer's deduction Effective for taxable years beginning after Dec. 31, 2017: Cannot deduct benefits provided or reimbursements made to employees as qualified transportation fringe benefits Exceptions: Bicycle commuting reimbursements included in the employee's income No authority to support including in an employee's income a benefit provided under a qualified transportation plan in order for the employer to receive a deduction To receive a deduction, the benefit must be provided outside a qualified plan E.g., pay cash regardless of whether it is under for qualified transportation Disallowance of employer deduction will increase your effective tax rate Grant Thornton LLP. All rights reserved. 84

85 Qualified transportation fringe TCJA eliminates the employer's deduction IRS Publication 15-B Employee elective salary contributions to a qualified transportation arrangement are not deductible Some taxpayers argued elective contributions were deductible as compensation Grant Thornton LLP. All rights reserved. 85

86 Compensation and benefits Qualified transportation fringe (update) Health savings accounts Grant Thornton LLP. All rights reserved. 86

87 Health Savings Accounts (HSAs) Attempts to set contribution limits Individuals who are covered by a high deductible health plan may make contributions to an HSA IRS sets annual HSA contribution limits, based on inflation adjustments Rev. Proc , issued May 4, 2017, set the 2018 contribution limits: Self-only coverage: $3,450 Family coverage: $6,900 Catch-up (age 55 or older): $1,000 Grant Thornton LLP. All rights reserved. 87

88 Health Savings Accounts (HSAs) Attempts to set contribution limits Tax Cuts and Jobs Act changed the rules for calculating inflation adjustments Effective beginning in 2018 Generally reduces the rate at which inflation adjustments grow IRS recalculated the 2018 HSA inflation adjustment amounts Issued Rev. Proc on March 2, 2018 Reduced the family coverage contribution limit by $50 Results of the adjustment Employer payroll systems must change retroactively Individuals may be required to take action to receive a corrective distribution in order to avoid an excise tax Chaos ensues Grant Thornton LLP. All rights reserved. 88

89 Health Savings Accounts (HSAs) The IRS listens to concerns IRS issues Rev. Proc on April 26 to provide relief Taxpayers may ignore the $50 reduction and use the originally stated $6,900 family covered 2018 contribution limit Taxpayers who received a corrective distribution from an HSA because of the $50 reduced limit may: Repay (if allowed by the HSA custodian or trustee) the $50 to the HSA and treat the distribution as a mistake of fact Mistaken distribution is not reported on Form 1099-SA or Form 8889 Repayment is not reported as an additional contribution Retain the distribution and treat it as an excess contribution returned Grant Thornton LLP. All rights reserved. 89

90 Questions? Grant Thornton LLP. All rights reserved. 90

91 Speakers Dean Jorgensen National Partner Jeff Martin Partner Chris Oatis Managing Director Sheri Fabian Partner Scott Robins Senior Manager Neil Hewko Managing Director Grant Thornton LLP. All rights reserved. 91

92 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser Grant Thornton LLP. All rights reserved. 92

93 Disclaimer * * * * * * * * * * * * * * * * * * * * * * IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this PowerPoint is not intended or written to be used, and cannot be used, for the purpose of (a) avoiding penalties under the U.S. Internal Revenue Code or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein. * * * * * * * * * * * * * * * * * * * * * The foregoing slides and any materials accompanying them are educational materials prepared by Grant Thornton LLP and are not intended as advice directed at any particular party or to a client-specific fact pattern. The information contained in this presentation provides background information about certain legal and accounting issues and should not be regarded as rendering legal or accounting advice to any person or entity. As such, the information is not privileged and does not create an attorney-client relationship or accountant-client relationship with you. You should not act, or refrain from acting, based upon any information so provided. In addition, the information contained in this presentation is not specific to any particular case or situation and may not reflect the most current legal developments, verdicts or settlements. You may contact us or an independent tax advisor to discuss the potential application of these issues to your particular situation. In the event that you have questions about and want to seek legal or professional advice concerning your particular situation in light of the matters discussed in the presentation, please contact us so that we can discuss the necessary steps to form a professional-client relationship if that is warranted. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd. All rights reserved. Printed in the U.S. This material is the work of Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd. Grant Thornton LLP. All rights reserved. 93

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