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Author: egregory

Signs Point to Yes: The IRS Advisory Committee Drops Hints That the Qualified Retirement Plan Determination Letter Program Might Return in Some Form

For many years, plan sponsors could regularly get a determination letter from the IRS to ensure that their individually-designed qualified retirement plan met all of the requirements for favorable tax treatment. However, in 2017 the IRS ended that practice. Since that time, plan sponsors have had no mechanism by which to confirm that their plans continued to satisfy all of the qualification requirements. Recent publications from the IRS and its Advisory Committee, however, suggest that the program might come back in some form. Issues for Employers without the Determination Letter Program Without the determination letter program, employers are required to be more vigilant that their individually-designed plans are regularly reviewed by benefits counsel. For decades, determination letters served as a “backstop” for employers to ensure compliance with the Internal Revenue Code, which helps guarantee the current deductibility of employer contributions and tax-free growth of plan investments held in trust. Qualification is also important to third parties. Auditors and investment managers would typically examine favorable determination letters. Companies involved in mergers and acquisitions would typically present a favorable determination letter to demonstrate qualification requirement compliance. Since the program has not been in place, it has been more difficult to obtain assurance that a plan meets the qualification requirements. Signs of Change Early in 2018, the IRS published Notice 2018-24, which requested comments on possibly re-opening the program for individually-designed plans....

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Qualified Transportation Fringe Benefits No Longer Deductible for Employers

In the past, employers have been able to deduct expenses related to “qualified transportation fringe benefits” (“QTFBs”) such as qualified parking, transit passes, transportation in commuter highway vehicles, or qualified bicycle commuting reimbursements. Pub. L. No. 115-97, commonly referred to as the “2017 Tax Act” or the “Tax Cuts and Jobs Act” (“TCJA”), however, has repealed the ability of employers to deduct the costs associated with QTFBs after December 31, 2017. This change also means that QTFBs paid out under a salary reduction arrangement (“SRA”), where the employee has the choice between the actual receipt of compensation and the QTFB benefits, also do not give rise to an employer deduction. Employees, conversely, may still make elections under an SRA or otherwise exclude QTFBs from their income. Employees, however, can no longer exclude qualified bicycle commuting reimbursements from income for tax years 2018 through 2025. This means that most employers have less of an incentive to provide QTFBs. Employers may provide additional compensation to employees that would be deductible so long as it is “ordinary and necessary” under Code Section 162. Tax-exempt organizations must include as unrelated business taxable income (“UBTI”) any amounts paid by the organization for any QTFBs. This is effectively a 21% tax on these amounts. Despite the disadvantages of losing a deduction (or paying a tax in the case of tax-exempt employers) many employers that previously...

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The IRS Announces Updated Limitations Related to Employer Plans; 401(k) Contribution Limit Increases to $18,500 for 2018

The Internal Revenue Service (“IRS”) announced cost of living adjustments affecting dollar limitations for employer plans for tax year 2018. The IRS issued technical guidance detailing these items in Notice 2017-64, in addition to previous guidance in Rev. Proc. 2017-37 and Rev. Proc. 2017-58. Many of the limitations will change because the increase in the cost-of-living index met the legal thresholds that trigger their adjustment. Some limitations remain unchanged because the increase in the index did not meet the statutory thresholds that give rise to their adjustment. Retirement Plan Limitation Highlights for 2018 The following will likely be of the greatest interest to employers who sponsor retirement plans: The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $18,000 to $18,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans remains unchanged at $6,000. The limitation for defined contribution plans under Code §415(c)(1)(A) is increased in 2018 from $54,000 to $55,000. Effective Jan. 1, 2018, the limitation on the annual benefit under a defined benefit plan under Internal Revenue Code (“Code”) §415(b)(1)(A) is increased from $215,000 to $220,000. For a participant who separated from service before Jan. 1, 2018, the limitation for defined benefit plans under Code §415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196....

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Tax Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.