The Treasury and IRS have issued guidance on the recent order by President Trump to defer certain employee payroll tax obligations on wages paid from September 1, 2020, through December 31, 2020. Under the guidance:

The Treasury and IRS have issued guidance on the recent order by President Trump to defer certain employee payroll tax obligations on wages paid from September 1, 2020, through December 31, 2020. Under the guidance:

• the due date for the withholding and payment of the employee’s portion of the 6.2-percent old-age, survivors and disability insurance (OASDI) tax (Social Security tax) under Code Sec. 3101(a), and the employee’s portion of the Railroad Retirement Tax Act (RRTA) Tier 1 tax that is attributable to the 6.2-percent Social Security tax under Code Sec. 3201, on applicable wages is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021; and
• the deferred taxes must be withheld and paid from wages and compensation paid between January 1, 2021, and April 30, 2021.

The guidance states that it does not separately postpone the deposit obligation for employee Social Security tax. This is because the deposit obligation does not arise until the tax is withheld, so by postponing the time for withholding the employee Social Security tax, the deposit obligation is delayed by operation of the tax regulations.

7508A Relief
In light of the coronavirus (COVID-19) disaster, President Trump issued a memorandum on August 8, 2020, directing the Treasury Secretary to use his Code Sec. 7508A authority to defer the withholding, deposit, and payment of the employee’s portion of Social Security tax, and the employee’s portion of the RRTA equivalent tax, on wages and compensation paid from September 1, 2020, through December 31, 2020. The deferral is available only for employees whose biweekly, pre-tax pay is less than $4,000, or a similar amount where a different pay period applies.

The Treasury Secretary has determined that employers required to withhold and pay the employee share of the Social Security tax under Code Sec. 3102(a) or the RRTA tax equivalent under Code Sec. 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the presidential memorandum.

Applicable Wages
The deferral applies to wages under Code Sec. 3121(a) or compensation under Code Sec. 3231(e) paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020 (collectively "applicable wages"), but only if the amount of wages or compensation paid for a biweekly pay period is less than $4,000, or the equivalent threshold amount with respect to other pay periods.

Applicable wages are determined on a pay period-by-pay period basis. If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages for the pay period. In that case, the relief provided in the guidance applies to the wages or compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.

Paying Deferred Taxes
An affected employer must withhold and pay the total applicable taxes that it has deferred ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, on any unpaid deferred taxes.

If necessary, the employer can make arrangements to otherwise collect the total deferred taxes from the employee.

The IRS has released the 2020-2021 special per diem rates. Taxpayers use the per diem rates to substantiate the amount of ordinary and necessary business expenses incurred while traveling away from home. These special per diem rates include the special transportation industry meal and incidental expenses (M&IEs) rates, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. Taxpayers using the rates and list of high-cost localities provided in the guidance must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390.

The IRS has released the 2020-2021 special per diem rates. Taxpayers use the per diem rates to substantiate the amount of ordinary and necessary business expenses incurred while traveling away from home. These special per diem rates include the special transportation industry meal and incidental expenses (M&IEs) rates, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. Taxpayers using the rates and list of high-cost localities provided in the guidance must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390.

The guidance is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only, that are paid to any employee on or after October 1, 2020, for travel away from home on or after October 1, 2020. For computing the amount allowable as a deduction for travel away from home, the guidance is effective for M&IEs or for incidental expenses only paid or incurred on or after October 1, 2020.

Transportation Industry Rates
The special M&IE rates for taxpayers in the transportation industry are:

• $66 for any locality of travel in the continental United States (CONUS), and
• $71 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method
For purposes of the high-low substantiation method, the per diem rates in lieu of the rates described in Notice 2019-55 (the per diem substantiation method) are:

• $292 for travel to any high-cost locality, and
• $198 for travel to any other locality within CONUS.

The amount of these rates that is treated as paid for meals, and the per diem rates in lieu of the rates described in Notice 2019-55 (the M&IE only substantiation method), are:

• $71 for travel to any high-cost locality, and
• $60 for travel to any other locality within CONUS

The guidance provides a list of localities that have a federal per diem rate of $245 or more, and are high-cost localities for a specified portion of the calendar year. The list differs from the high-cost locality list in Notice 2019-55:

• Added to the list: Los Angeles, California; San Diego, California; Gulf Breeze, Florida; Kennebunk/Kittery/Sanford, Maine; Virginia Beach, Virginia.
• Localities that have changed the portion of the year in which they are high-cost localities: Sedona, Arizona; Monterey, California; Santa Barbara, California; District of Columbia; Naples, Florida; Jekyll Island/Brunswick, Georgia; Boston/Cambridge, Massachusetts; Philadelphia, Pennsylvania; Jamestown/Middletown/Newport, Rhode Island; Charleston, South Carolina.
• Removed from the list: Midland/Odessa, Texas; Pecos, Texas.

The Treasury and IRS have issued final regulations that limit the Code Sec. 245A dividends received deduction and the Code Sec. 954(c) exception on distributions supported by certain earnings and profits not subject to the integrated international tax regime created by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). Proposed regulations and temporary regulations, issued on June 18, 2019, are adopted and removed, respectively.

The Treasury and IRS have issued final regulations that limit the Code Sec. 245A dividends received deduction and the Code Sec. 954(c) exception on distributions supported by certain earnings and profits not subject to the integrated international tax regime created by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). Proposed regulations and temporary regulations, issued on June 18, 2019, are adopted and removed, respectively.

TCJA Provisions
The TCJA transitioned the United States from a primarily deferral-based international system of taxation (i.e., current taxation of subpart F income) to a participation exemption system with immediate taxation of certain offshore earnings. The TCJA introduced:

• the Code Sec. 245A dividends received deduction;
• the Code Sec. 965 transition tax; and
• the global intangible low-taxed income (GILTI) regime under Code Sec. 951A.

The Code Sec. 245A deduction provides a 100-percent deduction to domestic corporations for certain dividends received from a specified foreign corporations (SFC) after December 31, 2017. Earnings and profits generated before the deduction became available are subject to the Code Sec. 965 transition tax on post-1986 earnings and profits.

The GILTI regime subjects certain intangible income of a controlled foreign corporation (CFC) to current taxation, for tax years starting in 2018.

The subpart F regime was retained for tax years starting in 2018. The regime subjects certain earnings of a CFC to current taxation. The regime also provides that dividends received by a CFC, from a related CFC, are not included in the recipient CFC’s income and subject to current tax under subpart F, if certain requirements are met under the Code Sec. 954(c) exception.

Earnings and profits that are previously taxed under the transition tax, or subpart F or GILTI regimes, are treated as being distributed before non-previously taxed earnings and profits, and a distribution of previously taxed earnings and profits (PTEP) is not treated as a distribution of a dividend eligible for the Code Sec. 245A deduction.

Limits on Deduction
The final regulation limit the Code Sec. 245A deduction with respect to a dividend received by a U.S. corporation from certain SFCs so that the deduction is not available for the earnings and profits attributable to base erosion-type income. The final regulations limit the deduction to the portion of the dividend that exceeds the ineligible amount of the dividend. The ineligible amount is the sum of (1) 50 percent of the extraordinary disposition amount, and (2) the extraordinary reduction amount.

An extraordinary disposition is a disposition of an asset by a SFC that:

is outside of the ordinary course of activities to a related party during the disqualified period (between January 1, 2018, and the end of the foreign corporation's last taxable year beginning before January 1, 2018), and
exceeds the lesser of $50 million or 5 percent of the gross value of the SFC’s assets.
The Code Sec. 245A deduction is limited with respect to extraordinary dispositions, because earnings and profits generated in those transactions are not subject to tax under the transition tax, or the GILTI and subpart F regimes and, as a result, are not of the residual type for which the Code Sec. 245A deduction is intended to potentially be available.

Extraordinary reductions result from transfers of CFC stock where:

a controlling Code Sec. 245A shareholder transfers more than 10 percent of its stock of the CFC, or
there is a greater than 10 percent change in the controlling Code Sec. 245A shareholder’s overall ownership of the CFC.
The Code Sec. 245A deduction is limited in connection with extraordinary reductions because the deduction can result in complete avoidance of U.S. tax with respect to subpart F income or tested income that, absent the extraordinary reduction, would have been included in income by the selling U.S. shareholder under the subpart F or GILTI regimes, respectively

The final regulations require taxpayers to compute, track, and report information relevant for determination of extraordinary dispositions and extraordinary reductions. If an SFC is sold and there is no Code Sec. 245A shareholder of the target SFC after the transaction, the extraordinary disposition account of the target SFC is generally eliminated.

A taxpayer may elect to close the tax year of the CFC for all purposes of the Code on the date of an extraordinary reduction. This prevents disallowance of the Code Sec. 245A deduction. Under the election, the CFC’s earnings and profits for the tax year up to the date of the extraordinary reduction are subject to taxation under the subpart F or GILTI regimes in the seller’s hands, while the remaining earnings and profits of the CFC for the year would be subject to taxation under the subpart F or GILTI regimes in the buyer’s hands. The final regulations clarify that there must be agreement between the buyer and seller of the CFC that was subject to the extraordinary reduction for the election to be made.

Limits on Exception
Application of the Code Sec. 954(c)(6) is also limited when portion of a dividend is paid out of an extraordinary disposition account, or when an extraordinary reduction occurs.

The Code Sec. 954(c)(6) exception is limited where its application would otherwise allow earnings and profits that had accrued after December 31, 2017 (the last measurement date for determining the amount of earnings and profits subject to the transition tax), and that was generated by income that had never been tested under the subpart F and GILTI regimes, to inappropriately qualify for an exception to the subpart F regime.

Treasury has issued final and amended regulations on the rules for distributions made by terminated S corporations during the post-termination transition period (PTTP). These regulations apply after an S corporation has become a C corporation.

Treasury has issued final and amended regulations on the rules for distributions made by terminated S corporations during the post-termination transition period (PTTP). These regulations apply after an S corporation has become a C corporation.

Generally, the regulations are applicable as of the date they are published in the Federal Register.

Eligible Terminated S Corporation (ETSC) Under Section 481
In the case of an S election revocation with a retroactive effective date, the revocation may be treated as occurring on the retroactive effective date for ETSC qualification as well.

The treasury department amended Reg. §§1.481-5(b)(2) and (3) so that a corporation may test compliance with the revocation requirement and the shareholder identity requirement on either:

• the date the revocation was made; or
• in the case of a revocation with a retroactive effective date, the date the revocation was effective.

To qualify as an ETSC under Code Sec. 481, a corporation must satisfy the revocation requirement by making a revocation of its S election during the two-year period beginning on December 22. It also must satisfy the shareholder identify requirement that the owners of the stock of the corporation on the date the S election was revoked are the same owners as on December 22, 2017.

The two year period during which an S corporation can revoke its S election ends on December 23. Reg. §1.1362-2(a)(2) provides that Code Sec. 7503 applies where the last day for making a revocation occurs on a Saturday, Sunday, or legal holiday.

No Newcomer Rule
Reg. §1.1377-2(b) applies to a corporation’s taxable years beginning after the date of the publication of final regulations. It eliminates the no-newcomer rule for special treatment under Code Sec. 1371(e)(1) of distributions of money by a corporation with respect to its stock during the PTTP.

In the case of a corporation using the calendar year as its annual accounting period, newcomers are not entitled to receive distributions of the accumulated adjustments account (AAA) before January 1, 2021, unless the corporation chooses to apply Reg. §1.1377-2(b) before January 1, 2021.

The final regulations allow but do not require corporations to apply the final regulations addressing distributions made during the ETSC period to tax years beginning on or before the date that the final regulations are published.

Distributions of Money by ETSC
Reg. §1.1371-1 addresses distributions of money by an ETSC. It provides rules for qualified distributions and distributions where Code Sec. 301 applies during the tax years of the ETSC period, including the tax year in which the ETSC period ends.

Under Reg. §1.1371-2, if an intervening audit PTTP arises, the ETSC period immediately stops. Then, the ETSC period resumes provided that the ETSC’s AAA balance is greater than zero. Otherwise, later distributions by the ETSC are treated in the manner provided in Code Sec. 301(c).

Applicability Dates of the Regulations
A corporation may choose to apply the rules set forth in Reg. §§1.481-5, 1.1371-1, and 1.1371-2 to tax years beginning on or before the date the regulations are published in the Federal Register. In addition, a corporation generally may choose to not apply the no-newcomer rule in Reg. §1.1377-2(b) to tax years beginning on or before publication as long as the three year period described in Code Sec. 6501(a) has not expired.

Final regulations clarify that the amount of the rehabilitation credit for a qualified rehabilitated building (QRB) is determined as a single credit in the year the QRB is placed in service. This is the case even though the credit is allocated ratably over a five-year period. The final regulations adopt without modification proposed regulations released earlier this year ( NPRM REG-124327-19).

Final regulations clarify that the amount of the rehabilitation credit for a qualified rehabilitated building (QRB) is determined as a single credit in the year the QRB is placed in service. This is the case even though the credit is allocated ratably over a five-year period. The final regulations adopt without modification proposed regulations released earlier this year ( NPRM REG-124327-19).

TCJA Changes to Rehabilitation Credit
The Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) amended the rehabilitation credit for amounts paid or incurred after 2017. The credit is now claimed ratably over a five-year period that begins in the year the QRB is placed in service. The ratable share for each year is 20 percent of the qualified rehabilitation expenditures (QREs) for the building. However, a transition rule allows certain taxpayers to claim the credit all in one year under pre-TCJA rules if the 24- or 60-month period selected for the substantial rehabilitation test began by June 20, 2018.

Final Rehabilitation Credit Regs Include Coordination Rules and Examples
The amended version of the rehabilitation credit is still determined in the year the QRB is placed in service. This single credit is then claimed ratably over five years. This single-credit approach also applies to the recapture, basis adjustment, and leased property rules. These results are consistent with pre-TCJA law.

To reflect these changes, the final regs provide:

• a general rule for calculating the rehabilitation credit;
• definitions of "ratable share" and "rehabilitation credit determined;"
• a rule coordinating the amended credit with the Code Sec. 50 rules for the investment credit; and
• examples illustrating the interaction of the credit with Code Sec. 50(a) (recapture in case of dispositions, etc.), Code Sec. 50(c) (basis adjustment to investment credit property); and Code Sec. 50(d)(5) (relating to certain leased property when the lessee is treated as owner and subject to an income inclusion requirement).

Effective Date for Rehab Credit Regs
The final regulations apply to tax years beginning on or after the date they are published in the Federal Register. However, taxpayers may apply them to QREs paid or incurred after December 31, 2017, as long as they apply them in their entirety and in a consistent manner.

The IRS has released final regulations that clarify the definition of a "qualifying relative" for purposes of various provisions for tax years 2018 through 2025. These regulations generally affect taxpayers who claim federal income tax benefits that require a taxpayer to have a qualifying relative.

The IRS has released final regulations that clarify the definition of a "qualifying relative" for purposes of various provisions for tax years 2018 through 2025. These regulations generally affect taxpayers who claim federal income tax benefits that require a taxpayer to have a qualifying relative.

Effective Date
These regulations are effective on the date of publication in the Federal Register.

Exemption Amount
On June 9, 2020, the Treasury and the IRS published a notice of proposed rulemaking REG-118997-19. Consistent with Notice 2018-70, the proposed regulations provide that, in determining whether an individual is a qualifying relative for purposes of various provisions that refer to Code Sec. 152 in tax years in which the exemption amount is zero, the Code Sec. 151(d) exemption amount will be the inflation-adjusted Code Sec. 152(d)(1)(B) exemption amount in the annual revenue procedure setting forth inflation-adjusted items that is published in the Internal Revenue Bulletin. Thus, the exemption amount to be used for this purpose is $4,150 for tax year 2018 (section 3.24 of Rev. Proc. 2017-58, 2017- 45 I.R.B. 489, modified and superseded by Rev. Proc. 2018-18, 2018-10 I.R.B. 392); $4,200 for tax year 2019 (section 3.25 of Rev. Proc. 2018-57, 2018-49 I.R.B. 827); and $4,300 for tax year 2020 (section 3.25 of Rev. Proc. 2019-44, 2019-47 I.R.B. 1093).

The IRS has announced that Medicaid coverage of Coronavirus Disease 2019 (COVID-19) testing and diagnostic services is not minimum essential coverage for purposes of the premium tax credit under Code Sec. 36B.

The IRS has announced that Medicaid coverage of Coronavirus Disease 2019 (COVID-19) testing and diagnostic services is not minimum essential coverage for purposes of the premium tax credit under Code Sec. 36B.

Under the Affordable Care Act (ACA), certain taxpayers who obtain their coverage through an Exchange may claim a premium tax credit under Code Sec. 36B. However, taxpayers are only allowed the credit for months they are not otherwise eligible for minimum essential coverage.

Minimum essential coverage includes coverage under government-sponsored programs, including Medicaid, but certain health care coverage providing limited benefits is exempted.

The Treasury Department and the IRS have determined that Medicaid coverage limited to COVID-19 testing and diagnostic services is not minimum essential coverage under a government-sponsored program. Thus, an individual’s eligibility for this coverage for one or more months does not prevent the individual from claiming the premium tax credit under Code Sec. 36B.

The IRS has released guidance in the form of questions and answers with respect to certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and the Bipartisan American Miners Act of 2019 (Miners Act).

The IRS has released guidance in the form of questions and answers with respect to certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and the Bipartisan American Miners Act of 2019 (Miners Act).

Business Credit
The SECURE ACT added a new Code Sec 45T, which provides a business credit to an eligible employer that establishes an eligible automatic contribution arrangement under a qualified employer plan. The credit is equal to $500 per year and applies to tax years beginning after December 31, 2019.

The notice clarifies than an eligible employer can only receive a credit during a single three year credit period. For example, if Employer X includes an automatic contribution arrangement for Plan A during 2021, 2022, and 2023 and then includes an automatic contribution arrangement for Plan B during 2022, 2023, and 2024, they can receive no more than $500 as a credit for 2021, 2022, and 2023, and are not permitted to receive a credit for 2024. The employer must include the same arrangement in the same plan for years two and three.

The credit applies separately to each eligible employer that participates in a multiple employer plan.

IRA Contribution Age Limit
Prior to the SECURE Act, an individual was not permitted to make contributions to their IRA if they were age 70 and 1/2 or older by the last day of the year. The SECURE Act eliminated that age limit for contributions after 2019.

The notice clarifies that a financial institution is not required to accept contributions after age 70 and 1/2, but if it does choose to accept them, it must amend its IRA contract and distribute a copy of the amendment and disclosure statement to each individual.

Individuals are not permitted to offset the amount of their required minimum distribution by the amount of their post-age 70 and 1/2 contributions for the same year.

Individuals are able to take their required minimum distributions as qualified charitable distributions. The example below illustrates how this would interact with the new lack of age limit on contributions.

Imagine Bob is over 70 and a 1/2 before 2020. He deducts $5,000 for contributions for 2020 and 2021, but makes no contribution for 2022. He makes no qualified charitable distributions for 2020 and makes qualified charitable distributions of $6,000 for 2021 and $6,500 for 2022. Bob’s excludable amount of qualified charitable distributions for 2021 is the $6,000 of qualified charitable distributions reduced by the $10,000 aggregate amount of post-age 70 1/2 contributions for 2021 and earlier taxable years. For this individual, these amounts are $5,000 for each of 2020 and 2021, resulting in no excludable amount of qualified charitable distributions for 2021 (that is, $6,000 - $10,000 = ($4,000)). The excludable amount of the qualified charitable distributions for 2022 is $2,500 ($6,500 - $4,000 = $2,500). Because the $4,000 amount reduced the excludable amount of qualified charitable distributions for 2022, that $4,000 amount does not apply again in later years, and no amount of post-age 70 1/2 contributions remains to reduce the excludable amount of qualified charitable distributions for subsequent taxable years.

Qualified Birth or Adoption Distributions
Code Sec. 72(t)(1) generally imposes a 10 percent additional tax on an early distribution from a qualified retirement plan (including an IRA or Roth IRA), unless the distribution qualifies for an exception. The SECURE Act provides a new exception to the 10 percent penalty for any qualified birth or adoption distribution up to $5,000 from an applicable retirement plan if made during the 1-year period beginning on the date on which the child is born or the adoption is finalized. The parent must include the name, age and the Taxpayer Identification Number of the child on their tax return the year the distribution is made.

The distribution can be made from any eligible retirement plan described in Code Sec. 402(c)(8)(B), other than a defined benefit plan. Therefore, a Code Sec. 401(a) qualified defined contribution plan, a Code Sec. 403(a) annuity plan, a Code Sec. 403(b) annuity contract, a governmental Code Sec. 457(b) plan, or an IRA is eligible to permit a qualified birth or adoption distribution. Eligible adoptees include any individual who has not attained age 18 or is physically or mentally incapable of self support as defined in Code Sec. 72(m)(7), but does not include an individual who is a child of the taxpayer’s spouse. Each parent can receive a qualified distribution up to $5,000 with respect to the same adoptee, and can receive multiple distributions if they have multiple births (ex. Twins or triplets).

Eligible retirement plans are not required to permit distributions for qualified birth or adoption distributions, but if they do not, individuals can still take the distribution and treat it as a qualified birth or adoption distribution on their federal tax return. Plans must accept recontribution of the distribution, if the following apply:

(a) the plan permits qualified birth or adoption distributions;

(b) the individual received a qualified birth or adoption distribution from that plan; and

(c) the individual is eligible to make a rollover contribution to that plan at the time the individual wishes to recontribute the qualified birth or adoption distribution to the plan.

Qualified birth or adoption distributions are not treated as eligible rollover distributions for purposes of the direct rollover rules, Code Sec. 402(f) notice requirements, and the mandatory withholding rules.

Difficulty of Care Payments
Code Sec. 408(o) provides that designated nondeductible contributions may be made on behalf of an individual to an IRA. A difficulty of care payment is a type of qualified foster care payment that is excludable from gross income.

The notice clarifies that difficulty of care payments received by an employee from a person other than his or her employer are not included as compensation. If an employer does not make difficulty of care payments, then the plan does not need to amend the plan to include the payments in the plan’s definition of compensation. However, if the employer begins to make difficulty of care payments, the plan must be amended.

Participation Rights Expanded for Part-Time Employees
Prior to the SECURE Act, employers that maintained a 401(k) plan were not required to offer it to part-time employees who work less than 1,000 hours per year. The rules require only that employers offer the plan to any employee who has both attained age 21 and has completed at least one year of service. A "year of service" is defined as a 12-month period during which the employee has worked at least 1,000 hours. Someone who works a bare 1,000 hours would be averaging 19.2 hours per week.

Under the SECURE Act, employers with 401(k) plans must offer employees who work between 500 and 1000 hours year an additional track to 401(k) participation. Employees must be able to satisfy participation requirements by completing either:

• the existing one year of service requirement, working at least 1,000-hours, or
• the new three consecutive 12-month periods of service requirement working at least 500 hours in each period.

The three-consecutive-years-of-service track is not available for an employee unless the employee reaches age 21 by the close of the last of the 12-month periods.

For purposes of determining vesting rights to employer contributions for 500-hour track employees, each 12-month period for which the employee has at least 500 hours of service is treated as a year of service. For purposes of the break-in-service rules, a 1-year break in service includes a year in which the employee has not completed at least 500 hours of service.

These amendments apply to plan years beginning after December 31, 2020, except that 12-month periods beginning before January 1, 2021, are not taken into account. The IRS guidance clarifies that this exception does not extend to the special vesting rules.

Plan Amendments
The deadlines to amend a retirement plan for provisions of the SECURE Act, the regulations thereunder, or Act Sec. 104 of the Miners Act are as follows. Note these amendment deadlines apply to both required and discretionary plan amendments.

• Qualified plans. For a qualified plan that is not a governmental plan or an applicable collectively bargained plan, the deadline is the last day of the first plan year beginning on or after January 1, 2022. The plan amendment deadline for a qualified governmental plan or for an applicable collectively bargained plan is the last day of the first plan year beginning on or after January 1, 2024. A plan sponsor may amend its plan after these dates, but they are not entitled to anti-cutback relief.
  
• Section 403(b) plans. The deadline for a Code Sec. 403(b) plan that is not maintained by a public school is the last day of the first plan year beginning on or after January 1, 2022. The deadline is for a plan maintained by a public school is the last day of the first plan year beginning on or after January 1, 2024. A plan sponsor may amend its plan after these dates, but they are not entitled to anti-cutback relief.
  
• Code Sec. 457(b) governmental plans. The deadline is the later of (i) the last day of the first plan year beginning on or after January 1, 2024, or (ii) if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary that the plan was administered in a manner that is inconsistent with the requirements of Code Sec. 457(b).
  
• IRAs. The deadline to amend the trust governing an IRA is December 31, 2022, or such later date as the Secretary prescribes in guidance. In the case of a deemed IRA, the deadline is the deadline applicable to the plan under which the deemed IRA is established.

Reduction in Minimum Age for In-Service Distributions
A qualified pension plan cannot make distributions to an employee who is still in-service (that is, working for the employer) prior to a certain age. The Miners Act lowered the minimum age from age 62 to age 59 1/2. Similarly, the Miners Act changed the rule for an eligible government deferred compensation plans under Code Sec. 457(b), reducing the minimum age to the calendar year the participant turns age 70 1/2 to age 59 1/2. These amendments apply to plan years beginning after December 31, 2019.

IRS guidance clarifies that neither a qualified plan nor a Code Sec. 457(b) governmental plan is required to provide for in-service distributions due to changes in the Miners Act. For example, a qualified plan that provides for in-service distributions commencing at age 62 is not required to be amended to provide for in-service distributions commencing at age 59 1/2. Also, the guidance clarifies that a change in the in-service distribution minimum age does not necessarily affect the plan’s existing normal retirement age.

Final regulations provide additional guidance on the base erosion and anti-abuse tax (BEAT) under Code Sec. 59A. The regulations also address certain aspects of the BEAT under Code Secs. 1502 and 6031.

Final regulations provide additional guidance on the base erosion and anti-abuse tax (BEAT) under Code Sec. 59A. The regulations also address certain aspects of the BEAT under Code Secs. 1502 and 6031.

The final regulations retain the basic approach and structure of the 2018 proposed regulations ( NPRM REG-112607-19), with certain revisions. The final regulations generally provide rules addressing the following:

• the determination of a taxpayer’s aggregate group for purposes of determining gross receipts and the base erosion percentage;
• an election to waive deductions for purposes of the BEAT;
• the application of the BEAT to partnerships; and
• the anti-abuse rule provided in Reg. §1.59A-9(b)(4) with respect to certain basis step-up transactions.

Determination of Taxpayer’s Aggregate Group
The final regulations provide guidance regarding how a taxpayer determines its aggregate group. Specifically, rules are provided for the calculation of gross receipts and the base erosion percentage when either the taxpayer or a member of the taxpayer’s aggregate group has a short tax year. The final regulations generally retain the rule in the 2018 proposed regulations that permits the use of a reasonable approach to determine whether a taxpayer’s aggregate group meets the gross receipts test and base erosion percentage test with respect to a short tax year of the taxpayer. The final rules provide examples of methods that may or may not constitute a reasonable approach.

In addition, the final regulations provide guidance on how the gross receipts and the base erosion percentage of an aggregate group are determined when members join or leave a taxpayer’s aggregate group, such as through a sale of the stock of a member to a third party. Clarification is provided regarding the close of the tax year rule for determining gross receipts and base erosion percentage. The final rules also address concerns regarding over-and under-counting of gross receipts of aggregate group members with different tax years.

Finally, guidance is provided on the application of the aggregate group rules to predecessors and successors.

Election to Waive Allowable Deductions
The final regulations address the election to waive allowable deduction and more specifically:

• when a taxpayer is eligible to make the BEAT waiver election;
• the effect of the BEAT waiver election on the base erosion percentage (whether deductions
• waived pursuant to the BEAT waiver election should be included in the denominator of the base erosion percentage);
• a reduction of waived deductions during audit or on an amended return;
• a waiver of life and non-life reinsurance premiums;
• procedures for making the BEAT waiver election;
• the application of the BEAT waiver election to partnerships;
• the application of the BEAT waiver election to consolidated groups; and
• the interaction of the BEAT waiver election with other regulations.

Application of the BEAT to Partnerships
The final regulations expand the ECI exception to apply to certain partnership transactions. The regulations also clarify the treatment of curative allocations and the partnership anti-abuse rule for derivatives.

Anti-abuse Rules of Reg. §1.59A-9 for Basis Step-up Transactions
The anti-abuse rule of Reg. §1.59A-9 is revised to address concerns about the breadth of this rule and its potential to create a "cliff effect," whereby a minimal amount of pre-transaction basis step-up could disqualify an entire transaction that would have otherwise qualified for the specified nonrecognition transaction exception.

Possible Future Guidance Concerning the QDP Reporting Requirements
The IRS is currently studying the interaction of the QDP exception, the BEAT netting rule in Reg. §1.59A-2(e)(3)(iv), and the QDP reporting requirements in Reg. §1.59A-6 and Reg. §1.6038A-2(b)(7)(ix) and considering whether future guidance may be appropriate.

Applicability Date
The final regulations generally apply to tax years beginning on or after the date they are published in Federal Register. Certain rules apply to tax years ending on or after December 2, 2019. However, taxpayers may apply these final regulations in their entirety for tax years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply these regulations in their entirety for all subsequent tax years. Alternatively, taxpayers may apply only Reg. §§1.59A-3(c)(5) and (6) for tax years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply them in their entirety for all subsequent tax years. Taxpayers may also rely on Proposed Reg. §§1.59A-2(c)(2)(ii) and (c)(4) through (c)(6), and 1.59A-3(c)(5) and (c)(6) in their entirety for tax years beginning after December 31, 2017, and before the date of publication of these final regulations in the Federal Register.

People are buzzing about Roth Individual Retirement Accounts (IRAs). Unlike traditional IRAs, "qualified" distributions from a Roth IRA are tax-free, provided they are held for five years and are made after age 59 1/2, death or disability. You can establish a Roth IRA just as you would a traditional IRA. You can also convert assets in a traditional IRA to a Roth IRA.

Before 2010, only taxpayers with adjusted gross income of $100,000 or less were eligible to convert their traditional IRA (provided they were not married taxpayers filing separate returns). Beginning in 2010, anyone can convert a traditional IRA to a Roth IRA, regardless of income level or filing status.

Comment: While you can only contribute a maximum of $5,000 to a Roth IRA for 2010 (plus a $1,000 catch-up contribution if you are over age 50), you can convert an unlimited amount from a traditional IRA.

Conversion is treated as a taxable distribution of assets from the traditional IRA to the IRA holder, although it is not subject to the 10 percent tax on early distributions. While paying taxes on conversion is undesirable, the advantages of holding assets in a Roth IRA usually outweigh this disadvantage, especially if you will not be retiring soon. Furthermore, if you convert assets in 2010, you have the option of including them in income in 2011 and 2012 (50 percent each year) instead of 2010.

Comment: Generally, this income-splitting would be advantageous to any taxpayer who does not expect a sharp increase in income in 2011 or 2012. A wildcard factor is that the lower income tax rates that have been in effect since 2001 will expire after 2010 and could increase in 2011.

There are four ways to convert a traditional IRA to a Roth IRA:

• A rollover - you receive a distribution from a traditional IRA and roll it over to a Roth IRA within 60 days;
• Trustee-to-trustee transfer - you direct the trustee of the traditional IRA to transfer an amount to the trustee of a Roth IRA;
• Same-trustee transfer - the trustee of the traditional IRA transfers assets to a Roth IRA maintained by the same trustee; or
• Redesignation - you designate a traditional IRA as a Roth IRA, instead of opening a new Roth account.

Comment: The account holder does not have to convert all of the assets in the traditional IRA.

Another advantage of converting assets from a traditional IRA to a Roth IRA is that you can change your mind and put the assets back into the traditional IRA. This is known as a recharacterization. You have until the due date, with extensions, for the return filed for the year of conversion. Thus, if you convert assets in 2010, you have until mid-October in 2011 to undo the conversion.

This ability to recharacterize the conversion allows you to use hindsight to check whether your assets declined in value after the conversion. Since you are paying taxes on the amount converted, a decline in asset value means that you paid taxes on phantom income that no longer exists. However, if you convert assets into multiple Roth IRAs, you can choose to recharacterize the assets in a Roth IRA that decreased in value, while maintaining the conversion for a Roth IRA's assets that appreciated in value.

The use of a Roth IRA can be a savvy investment, but whether to convert assets is not an easy decision. If you would like to explore your options, please contact this office.

Yes, but only for a limited time. In late December 2009, Congress passed the 2010 Defense Appropriations Act (2010 Defense Act). The new law temporarily extends the eligibility period for COBRA premium assistance through February 28, 2010 and the duration of the subsidy for an additional six months (up to 15 months).

Reduced premiums

Individuals who are involuntarily separated from employment between September 1, 2008 and February 28, 2010 may be able to make reduced premium payments for COBRA continuation coverage. Instead of paying the full monthly premium, assistance eligible individuals pay 35 percent of the premium and their former employers pay the remaining 65 percent of the premium. The former employer is reimbursed by a payroll tax credit.

Extension

Originally, Congress set a December 31, 2009 deadline for eligibility for COBRA premium assistance. The 2010 Defense Act extended the deadline for eligibility to February 28, 2010. The 2010 Defense Act also extended the maximum period for receiving the subsidy an additional six months (from nine to 15 months).

In some cases, an individual may have exhausted his or her nine months of COBRA premium assistance before Congress approved the extension. The 2010 Defense Act provides an extended period for the retroactive payment of the individual's 35 percent payment. To continue coverage, the assistance eligible individual must pay the 35 percent of premium costs by February 17, 2010 or, if later, 30 days after notice of the extension is provided by their plan administrator.

In other cases, an individual may have exhausted his or her nine months of COBRA premium assistance and paid 100 percent of the COBRA premium for December. Individuals who paid the full COBRA premium in December are entitled to a refund under the 2010 Defense Act.

Automatic

Individuals who qualify for COBRA premium assistance are automatically eligible to pay reduced premiums for up to six more months for a total of 15 months. The individual must continue to be eligible for the subsidy. If he or she becomes eligible for other group health coverage (such as a spouse's plan) or Medicare the individual is no longer eligible for COBRA premium assistance.

Income limits

Higher-income individuals may qualify for COBRA premium assistance but find they have to repay it. If an individual's modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for married couples filing a joint return), the amount of the subsidy during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for married couples filing a joint return), the amount of the premium reduction that must be repaid is reduced proportionately.

Higher-income individuals may permanently waive the right to COBRA premium assistance. However, they may not later obtain the subsidy if their adjusted gross incomes end up below the limits. Our office can help you decide which option is best.

Possible extension

Many lawmakers in Congress support extending eligibility for COBRA premium assistance beyond February 28, 2010. In fact, the House of Representatives approved a bill in December extending eligibility through June 30, 2010. However, the Senate has yet to vote on the bill. Our office will keep you posted of developments.

The new "new homebuyer" tax credit

The homebuyer tax credit would have expired on November 30, 2009 had Congress not extended the credit. The new credit is extended to homes purchased before (1) May 1, 2010, or (2) July 1, 2010 if the taxpayer enters into a written binding contract before May 1, 2010 to close on the home before July 1, 2010. The credit amount remains at a maximum of $8,000, or 10 percent of the home's purchase price (whichever is less). However, the new law places a cap on the home's purchase price, which cannot exceed $800,000 in order to claim the credit. In addition, a modified credit is available for "repeat" homebuyers, discussed below.

Comment. The "first-time homebuyer credit" is somewhat of a misnomer. Under the original - and now extended - credit, you did not (and still do not) technically have to be purchasing your very first home to qualify for and take the credit. A first-time homebuyer for purposes of the $8,000 credit is a taxpayer who an individual (and spouse, if married) who had no present ownership interest in a principal residence during the three-year period ending on the date the home is purchased. This means that you could have previously owned a home as long as you have not had any ownership interest in a personal residence for at least the three years prior to purchasing the home for which you are claiming the credit.

Congress raises income limits

The homebuyer tax credit is also now available to a greater segment of the home-buying population. The new law has increased the income limits that phase out the credit, allowing higher income individuals and families to qualify.Phase-out of the credit begins under the new law at $125,000 modified adjusted gross income (AGI) for single taxpayers (up from $75,000) and at $225,000 for married taxpayers filing joint returns (up from $150,000). The phaseout range itself is $20,000, thereby reducing the credit to zero for individual taxpayers with modified AGI of more than $145,000 ($245,000 for married joint filers). The credit is reduced proportionately for taxpayers with modified AGIs between these amounts.

"Long-time" homeowners qualify for reduced $6,500 credit

A reduced homebuyer tax credit may be claimed by existing homeowners who have owned and lived in their home for a long period of time. The reduced tax credit, of up to $6,500, may benefit long-time homeowners who are ready to move up or simply move on from their current home. The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

To qualify for the reduced $6,500 credit, you must be a "long-time resident" as defined by the law. For purposes of the credit, a "long-time resident" is defined as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase of the new residence. Importantly, for married taxpayers, the law tests the homeownership history of both the spouses.

If you are an existing, repeat homebuyer who qualifies for the reduced credit, you do not have to purchase a home that is more expensive than your previous home to qualify for the tax credit. There is no requirement that the new principal residence be a "move up" property; it can be less expense than your former home. However it must be your new "principal residence" in order to claim the credit. Moreover, a repeat homebuyer does not need to sell or otherwise dispose of his or her current residence to qualify for the $6,500, either, as long as your new home becomes your principal residence.

Example. Bob and Edith are married and are both eligible to claim the reduced $6,500 credit for existing "long-time residents." Their modified AGI is $240,000, which results in being $15,000 over the beginning of the phaseout for married taxpayers filing jointly. They will be able to claim a partial reduced homebuyer credit in the amount of $1,650 (15,000/$20,000 = 0.75; 1.0-0.75 = 0.25. $6,500 x 0.25 = $1,625).

While the homebuyer credit can be very valuable, it is also very complex. In addition to the provisions we have described, there are special rules for repayment, new documentation requirements, a purchase price cap, and more. Please contact our office for more details about the first-time homebuyer credit.