Presented by:Presented by:

Presented by:

Achieving Full Compliance with Efficiency for Financial Institutions and Capital Markets Firms

Kristine Hoeflin, Tax Senior Manager, Moss Adams LLP

Amy Jessup, Senior Manager, Moss Adams LLP

Brett Scribner, SVP, Director of Tax, U.S. Bancorp

Presented by:

Disclaimer

The material appearing in this presentation is for informational purposes only and should not be construed as advice of any kind, including, without limitation, legal, accounting, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although this information may have been prepared by professionals, it should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought.

Presented by:

• Agenda

– Recent Legislation

– Reporting Organizational Actions

– Post Acquisition Reporting

– FBAR

– FACTA

– Affordable Care Act

– Penalty Abatement

Presented by:

• Surface Transportation and Veterans Health Care Choice Improvement Act– Return Due Date Modifications (Applies to tax years beginning after

December 31, 2015)

• Form 1065

– 15th day of the third month following the close of the fiscal year

– Maximum 6 month extension

• Form 1120S

– 15th day of the third month following the close of the fiscal year

Presented by:

– Return Due Date Modifications (Applies to tax years beginning after December 31, 2015 except for corporations with fiscal years ending on June 30. The new due dates apply to tax years beginning after December 31, 2025)

• Form 1120

– 15th day of the fourth month following the close of the tax year

– Maximum 6 month extension with following exceptions:

» Calendar-year corporations allowed a 5 month extension until 2026

» Corporations with June 30 year end allowed a 7-month extension until 2026

Presented by:

– Return Due Date Modifications (Applies to tax years beginning after December 31, 2015)• Form 3520-A, Annual Information Return of a Foreign Trust with a United States

Owner

– 15th day of the third month following the close of the fiscal year year

– Maximum 6 month extension

• Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

– April 15th for calendar year filers

– Maximum 6 month extension

• FinCen Report 114 (Report of Foreign Bank and Financial Accounts)

– 15th day of the third month following the close of the fiscal year

– Maximum 6 month extension and with provisions for an extension under rules similar to those in Treas. Reg. §1.6081-5

Presented by:

– Revised Extended Due Dates (Applies to tax years beginning after December 31, 2015)• Form 1041, U.S. Income Tax Return for Estates and Trusts – Maximum 5 ½ month

extension

• Form 5500 series – maximum 3 ½ month extension

• Maximum 6 month extension:

– Form 990

– Form 4720

– Form 5227

– Form 6069

– Form 8870

Presented by:

– Additional Information on Returns Relating to Mortgage Interest (Applies to tax returns and statements due after December 31, 2016)

• IRC §6050H amended to require mortgage information statements sent to individuals who pay more than $600 in mortgage interest in a year to include the:

– Outstanding principal amount at the beginning of the calendar year

– Address of the property securing the mortgage, and

– Mortgage origination date

Presented by:

• Trade Preferences Extension Act of 2015– Taxpayers must receive a payee statement containing the information

required in IRC §6050S(d)(2) to:

• Claim an American opportunity, hope or lifetime learning credit under IRC §25A, or

• Take the deduction for qualified tuition and related expenses under IRC §222

Presented by:

• Trade Preferences Extension Act of 2015– Information Returns for Higher Education Tuition and Related

Expenses:

• Penalties under IRC §6721 and IRC §6722 will not be imposed for failing to provide the individual’s TIN if the eligible educational institution contemporaneously certifies under penalty of perjury that it has complied with IRS standards for obtaining the individuals TIN.

• Effective for returns required to be made after December 31, 2015

Presented by:

• Trade Preferences Extension Act of 2015– Increased Penalties for Failure to File Correct Information Returns and

Provide Payee Statements:

• Penalty is increased from $100 to $250 per return and the maximum annual penalty is increased from $1.5 million to $3 million

• For failures that are corrected within 30 days, the penalty is increased from $30 to $50 per return, and the maximum annual penalty is increased from $250,000 to $500,000.

Presented by:

• Trade Preferences Extension Act of 2015– Increased Penalties for Failure to File Correct Information Returns and

Provide Payee Statements:

• Lower limitation on the maximum annual penalty for taxpayers with gross receipts under $5 million is increased from $500,000 to $1 million, from $75,000 to $175,000 for failures corrected within 30 days, and from $500 to $1.5 million for failures corrected before August 1.

Presented by:

• Trade Preferences Extension Act of 2015– Increased Penalties for Failure to File Correct Information Returns and

Provide Payee Statements:

• Penalty for intentional disregard is increased from $250 to $500 per return and the maximum annual penalty is increased from $1.5 million to $3 million

• Effective for information returns to be filed after December 31, 2015

Presented by:

• Temp. Reg. §1.6081-8T– Proposed regulations

• Removes the automatic extension to file information returns on forms in the W-2 series

• Allows only one 30-day non-automatic extension that will be granted in limited circumstances

• Applies to extension requests for information returns due after December 31, 2016

Presented by:

• Proposed Regulations– Remove the automatic 30-day filing extension for Forms W-2G, 1042-

S, 1094-C, 1095-B, 1095-C, 3921, 3922, 8027, 1097 series, 1098 series, and 5498 series.

– Preamble states final regulations will not be effective before the 2018 filing season

Presented by:

• Budget Act

– New rules for partnership audits and adjustments.

– Changes to IRC §704(e) & IRC §761(b) related to the determination of

who is a partner in a partnership.

Presented by:

• Section 6045B and Form 8937– Issuers of specified securities (i.e. stocks, bonds, commodity contracts,

etc.) report organizational actions (e.g., stock splits, mergers, acquisitions, etc.) that affect basis on Form 8937

– It is due within 45 days of the action or, if earlier, by Jan. 15 of the next calendar year

– But, the issuer can post the return on its primary public website in a readily accessible format by the due date (instead of filing a return)

– Actions relating to more complex debt instruments do not have to be reported until 2016

Presented by:

• Successor Employer/M&A Issues

– W-2 reporting

– Equity Awards

– Affordable Care Act

– 1099 reporting

Presented by:

• FBAR Background– Report of Foreign Bank and Financial Accounts (FBAR).

– Requires reporting of foreign financial accounts.

– Implemented out of the Bank Secrecy Act.

– Codified primarily under Title 31.

– Responsibility is under Financial Crimes Enforcement Network (FinCEN).

– IRS has FBAR examination and enforcement authority.

Presented by:

• FBAR Filing Basics– Four Elements of FBAR Filing

• “United States Persons” must file if,

• They have a financial interest in or signature authority over an account

• That account is a Foreign Financial Account, and

• The aggregate value of the account exceeds $10,000 at any time during the calendar year.

Presented by:

• FBAR Definitions– U.S. Persons:

• U.S. citizens

• U.S. residents

• U.S. entities

– U.S. Resident:

• U.S. resident under IRC §7701(b)

• Green card and substantial presence tests

• Those who elect to be treated as residents under §7701(b) file only FBARS on accounts held during the election period

• Tax treaty or IRC §6013(g) or (h) elections disregarded for FBAR purposes

Presented by:

• Financial Interest– U.S. person is record owner or holds title directly

– Someone else holds title for the benefit of U.S. person

– U.S. person is record owner or holds title indirectly

• U.S. person owns >50% of the entity that holds title

• Applies to tiered entities

• Signature Authority– Individuals can control disposition of account assets

– By direct communication (oral or written)

Presented by:

• Foreign

– Outside the United States, which means

• States, including D.C

• Territories and Possessions

• Indian lands

– Physical location of account governs

Presented by:

• Financial– Both monetary and non-monetary assets

– Bank, brokerage, and investment accounts; insurance and annuity policy cash values and mutual funds

– Generally not including real and personal property

• Account– Relationship with financial institution or person acting as a financial

institution

– Not assets directly held

Presented by:

• Aggregation– Aggregate Value Exceeding $10,000

• Aggregate accounts with financial interest and those with signature authority

• Aggregate accounts owned directly and those owned indirectly

• Do not use family attribution rules under Title 26

Presented by:

• Reportable Accounts– Bank accounts

– Securities or brokerage accounts

– Other financial accounts

• Deposit accounts

• Cash value of insurance or annuities

• Commodity futures or options accounts

• Mutual funds or similar pooled funds

Presented by:

• Reportable Account Exceptions– U.S. military banking facility

– Accounts of U.S. governmental entities

– International financial institutions

– Correspondent accounts

– Held in U.S. IRA (if owner or beneficiary)

– Held in a tax qualified retirement plan

– Consolidated filing

Presented by:

• U.S. Foreign Account Tax Compliance Act (FATCA) Brief Overview– The U.S. Foreign Account Tax Compliance Act (FATCA) was enacted in

March 10, 2010 with the HIRE act

– FATCA aims to compel the reporting of offshore assets owned by US persons and put an end to offshore tax avoidance• This is achieved through mandatory reporting, documentation, withholding

obligations and penalties

– FATCA compliance is required not only for certain US persons with foreign assets or making payments outside the US, but also for any foreign financial institution (“FFI”) that has US account holders or assets

Presented by:

• Global Impact of FATCA– GATCA – the new global standard in automatic electronic information

exchange

– OECD is designing the platform to standardize information to be shared for all adopting countries

– Fiscalis 2020 is considering an EU version of FATCA under

– ‘Son of FATCA’ for UK Crown Dependencies is currently begin rolled out

Presented by:

• Definition of a Financial Institution– Foreign financial institution (FFI) – An FFI is an entity not resident in

the U.S. that accepts deposits in the ordinary course of business, holds financial assets for the benefit of others (custodial institution), is an investment entity, is an insurance company, is a holding company or treasury center or as otherwise defined under an applicable IGA. Reg. 1.1471-5(d)

– Investment entity – Trades in securities, financial instruments, currencies, commodities for or on behalf of a customer; performs individual or collective portfolio management; otherwise invests, manages or advises customers related to financial assets.

Presented by:

• FACTA Applied to FFIs– Under FATCA, FFIs (including those investment entities) are required

to:

• Register with the IRS and obtain a GIIN; these “participating FFIs” are not subject to withholding

• Provide current W-8BENs to US withholding agents from which they receive US-source payments

• Collecting and reporting information on US account holders to the IRS (or the FFI’s local government under an intergovernmental agreement (“IGA”))

Presented by:

• FATCA Applied to NFFEs– Non-financial foreign entities (“NFFEs”)

– Are exempt from FATCA reporting if they are active. NFFEs are active if they have

• <50% passive income in PY; and

• <50% passive assets

– If not exempt, either:

• Certify that the NFFE has no substantial US owners; or

• Report the substantial US owners to withholding agent(s)

Presented by:

• Payments Subject to FATCA– The following payments are subject to withholding under FATCA:

• US-source FDAP (fixed, determinable, annual or periodic) subject to Ch. 4 withholding

• Gross proceeds from the sale of assets where the sale income is subject to Ch. 4 withholding (i.e.: sale of assets giving rise to FDAP income)

• This requirement begins in 2017• Fees – bank, brokerage, investment advisory, custodial

• Insurance premiums

• Cash value payments under life insurance and annuities

• Foreign reportable payments

• Foreign pass-through payments

Presented by:

• Payments Subject to FATCA (cont’d)– The following payments are excepted from FATCA compliance:

• Short-term obligations (payable within 183 days of issuance) with an interest payment or original issue discount payments

• Grandfathered obligations (from prior to 2014 which are outstanding at January 1 2014, unless materially modified)

• Payments made to NFFEs that beneficially own the payments and are either active NFFEs, a territory NFFE , direct reporting NFFEs, or, along with its affiliates, publically traded

Presented by:

• Intergovernmental Agreements (IGAs)– FATCA requires that US financial institutions withhold a portion of

payments made to FFIs if the payee FFIs are not FATCA compliant

– FFIs are non-compliant if they do not collect and report information regarding their US account holders

– IGAs allow FFIs to report the information to their own government (instead of the IRS), and the foreign government then shares information with the IRS

– There are three IGA models:

• Model 1A: Reciprocal; governments exchange FATCA-related info

• Model 1B: Unilateral; foreign government report FATCA-related info to IRS (e.g.: Cayman Islands)

• Model 2: FFIs report FATCA info directly to IRS (e.g.: JP, SW)

Presented by:

• What IGAS Mean for US FIS and Investment Entities– U.S. Financial Institutions are required to report to the IRS certain

information on account holders resident or organized in reporting Model 1A IGA countries.

– Under the Model IGA a "Financial Institution" means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.

Presented by:

• What IGAS Mean for US FIS and Investment Entities (Cont’d)– Information to be reported by a U.S. FI on FATCA partner account holders:

• Name, address, and [FATCA Partner] TIN of any person that is a resident of [FATCA Partner] and is an Account Holder of the account; (2) the account number (or the functional equivalent in the absence of an account number);

• Name and identifying number of the Reporting U.S. Financial Institution;

• Gross amount of interest paid on a Depository Account;

• Gross amount of U.S. source dividends paid or credited to the account; and

• Gross amount of other U.S. source income paid or credited to the account, to the extent subject to reporting under chapter 3 of subtitle A or chapter 61 of subtitle F of the U.S. Internal Revenue Code

Presented by:

• Secondary Liability– FATCA can impose secondary liability on a US withholding agent/payor

for:

• Failure to collect proper documentation from the foreign payee (i.e.: Form W-8, etc.); and/or

• Failure to properly withhold for payments to foreign payees who are not FATCA compliant

– This secondary liability renders the withholding agent subject to a penalty

– Consider need for FAS 5 liability

Presented by:

• FATCA Applied to Portfolio/Bank Interest– Issuers of debt obligations that are required in IRS-registered form but fail to do so are

subject to disallowance of interest deductions (see IRS Notice 2012-20)

• There is an exception from withholding/penalties for certain outbound portfolio interest payments that have been:

– Registered with the IRS;

– Issued after March 18, 2012; and

– Compliant in collecting Form W-8 to confirm that beneficial owner of the debt was a US person

– FATCA impacts this exclusion by increasing the documentation requirements for FFIs (including qualified intermediaries) and withholding agents

• Foreign targeting compliance satisfies the compliance requirement and registration is not required

Presented by:

• Compliance Requirements, Timing & Penalties– Forms

• Forms 1042/1042-S: these forms predate FATCA, reporting US source income subject to withholding, but have become more involved

– File a separate Form 1042-S with IRS for each foreign payee and for each type of payment made to a single recipient

– Due March 15th of year subsequent to payment CY

• Form 8966 provides the IRS with W-8 information regarding the residency of the payee

• Applies to owner-documented FFI payments

• Goes into effect in 2014

Presented by:

• Compliance Requirements, Timing & Penalties (Cont’d)– Forms

• Form 8938 is the general FATCA form where assets/accounts must be reported

– To be included with the reporting person’s tax return

• Penalties

• Non-compliant parties/payments are subject to 30% withholding to be withheld by the payor

• Steep penalties apply to willful non-compliance, including the seizure of up to 50% of the FATCA account assets

Presented by:

• Process Controls– Due to the new FATCA documentation requirements for US

withholding agents, FFIs and NFFEs, many such entities will need to alter and/or expand their current process controls and educate personnel on compliance procedures

– Processes to collect, store, and report FATCA information must be implemented by entities subject to FATCA reporting to avoid penalties and other sanctions

Presented by:

• Affordable Care Act– Notice of Coverage Options

• Applicable employer

– At least one employee

– $500,000 annual dollar volume of business

• Must be provided within 14 days of start of employment

• Applies to all employees

• Model language provided by Dept. of Labor

– English version for employers who offer health plans

– Spanish version for employers who offer health plans

– English version for employers who do NOT offer health plans

– Spanish version for employers who do NOT offer health plans

Presented by:

• Form W-2 Reporting– Cost of coverage under an employer-sponsored group health plan

• Box 12, Code DD

• Both employer and employee portion

– For informational purposes only

– Transitional rule: Optional for employers who are required to file fewer than 250 Forms W-2 for the preceding calendar year

Presented by:

• Applicable Large Employer– Employed an average of at least 50 full-time employees during the

preceding calendar year

– An FTE is 30 or more hours per week (130 per month)

• FTEs are tracked by month

– Large employer calculation• Prior calendar year is look-back period

• Determined monthly; then totaled and averaged annually

Presented by:

• Information Reporting– Employer Aggregation Rules

• Same aggregation as used in retirement plans

• Under subsections (b), (c), (m), or (o) of IRC §414

– Common control (IRC §414(b) and §414(c) )

– Affiliated service group (IRC §414(m))

• Each company files informational returns under their own EIN

Presented by:

• Reporting by Applicable Large Employers– ALEs must report (using Form 1094-C and Form 1095-C):

• Information on each full time employee

• Health insurance offered to EE and their dependents

• Months actually covered by health plan

• Months coverage was offered

• Employee’s share of lowest cost premium (self-only)

– An ALE is 50 or more FTEs

Presented by:

• Three Tiers of EmployersEffective date

Shared responsibility provisions

*or first day of plan renewal in that year

**subject to Form 1095 reporting for 2015

Small (less than 50 FTEs)

Medium (50-99 FTEs)

Large (100 or greater)

NONE

January 1, 2015*

January 1, 2016* **

Presented by:

• IRS Forms/Who is Responsible for Filing– 1095 – Health Coverage

• A – Health Insurance Marketplace

• B – Health Insurance Companies

• C – Applicable Large Employer

– 1094 – Transmittal Forms

• B – Health Insurance Companies

• C – Applicable Large Employer

Presented by:

• Reporting:– Data collection is required for each month of 2015.

– Deadlines

• Form 1095-C to employees by January 31

• Form 1094-C to IRS by February 28 (March 31 if filing electronically)

– Extension for filing with the IRS is available.

• 30 day extension

• Form 8809

Presented by:

Employer HealthPlan

Employer Files Forms 1095-B/1094-B?

Employer FilesForms 1095-C/1094-C?

Large Employer None No Yes

Large Employer Insured No (insurer files forms)

Yes (Parts I, II)

Large Employer Self-Insured Generally, no(non-employees

enrolled can elect instead of 1095-C)

Yes (Parts I, II, III)

Small Employer Self-Insured Yes No

Presented by:

• Practical Considerations– Who is tracking the data?

• Hours worked by employee by month

• Health insurance offered

– Who will prepare the informational returns?

• Payroll providers

• Health insurance providers

• Internally prepared

• Tax service providers

Presented by:

• Other Issues– Filing with IRS MUST be electronic if 250 or more forms

– Filing to employees due January 31 and can only be electronic if affirmative electronic consent given

– Must file form for all FT employees even if they opt out

– Self-insured employers must complete all parts of 1095-C for ANY participating employee regardless of FT

• If employee is not FT, use code 1G in those months

– Fully insured employers do NOT complete part III

• This information will be provided to IRS by insurance company

– An employee in a Limited Non-Assessment Period is not considered a FT employee but……..

Presented by:

• Other Issues– Limited Non-Assessment Period

• First year as ALE – January to March – IF no coverage in p/y

• Waiting periods

• Initial Measurement Period and Administrative Period

• Period following change in status

• First month of employment if employee starts after first day of month

• First 4 above – only if coverage offered subsequent to LNAP

– Employees that work for multiple members of an aggregated group• Each Member must issue a 1095-C for that employee

• But the employee should only be counted in any month ONCE

Presented by:

• Information Reporting by Insurers– Use Form 1094-B / 1095-B

– Includes self-insured group health plans

• Regardless of employer size

– Employers who self-insure and are also ALEs will use the “C” Series instead.

Presented by:

• Noncompliant plan penalties– Imposed on employers who offer insurance that is not compliant with market reforms.

– $100/day/affected employee ($36,500 / year)

– Does not apply to certain insured small employer plans

• Small employer = 2 – 50 employees for the preceding calendar year

• Health insurance coverage provided solely through a contract with a health insurance issuer

– Does not apply if

• Failure is retroactively undone to the extent possible and affected person is placed in a financial position which is as good as such person would have been in had such failure not occurred

– Form 8928 to self report noncompliance• Law requires filing if violation is not corrected within 30 days

Presented by:

• Failure to File Information Returns– Sec. 6721 (failure to file correct information returns) and Sec. 6722

(failure to furnish correct payee statements) penalties apply for Forms 1094/1095.

– Trade bill signed into law June 29 increased the Sec. 6721 and 6722 penalties:

• $100 to $250 for each individual failure

• Penalty cap = $3MM

– $500,000 if corrected within 30 days– $1.5MM if corrected by August 1

Presented by:

• Reimbursement Plans– In general, standalone employer health reimbursement plans are not

permitted under the ACA after 2013.

• It makes no difference if the reimbursement is offered pre- or post- tax

– Exceptions

• Single participants plans

• Plans that offer only “excepted” benefits

– Noncompliant plan penalty of $100 per employee per day applies

– Relief from Form 8928 filing and penalty for small employers (2 – 50 employees) only through June 30, 2015.

– S Corporation Shareholders

• No Form 8928 reporting and no penalties through the end of 2015

Presented by:

• Penalty Abatement

– Increasing trend in computer/system penalty assessments.

– Increase in penalties assessed with respect to Forms 3520, 5471 and 5472

– Increase in penalties for 1099 reporting

Presented by:

• Penalty Abatement

– First Time Abatement Program

• What applies?

• Failure to file

• Failure to pay

• Failure to deposit

Presented by:

• Reasonable Cause – IRC §6724

– To establish reasonable cause:

• Significant mitigating factors or failure arose from events beyond the filer’s control.

AND

• Payor acted in a responsible manner both before and after the error occurred.

Presented by:

Questions?