Tag Archives: irs

IRS Set to Nail Employers on ACA

The Internal Revenue Service is acting to help individuals who are eligible for Patient Protection and Affordable Care Act (Obamacare) health subsidies and who live in regions where exchange insurers do not offer bronze (lowest-cost) coverage, even as it moves ahead to nail employers failing to comply with Obamacare’s employer shared responsibility rules (commonly referred to as the “employer mandate”).

IRS New Individual Obamacare Relief

Notice 2017-74  will provide that individuals who are not eligible for coverage under an eligible employer-sponsored plan and who lack access to affordable coverage should not be denied the use of the affordability exemption under § 5000A(e)(1) of the code and § 1.5000A-3(e) of the regulations merely because they reside in an area served by a marketplace that does not offer a bronze-level plan. Consequently, for purposes of the affordability exemption under § 5000A(e)(1) and § 1.5000A-3(e), if an individual resides in a rating area served by a marketplace that does not offer a bronze plan, the individual generally should use the lowest-cost metal-level plan available in the marketplace serving the rating area in which the individual resides.

Notice 2017-74 will be in IRB 2017-51, dated Dec. 18, 2017.

See also: Optimizing Financing in Healthcare  

Employers Still Face Obamacare Penalties

While the IRS has issued limited relief for individuals from the ACA’s individual mandate penalties, so far it has remained steadfast in its refusal to grant employers corresponding relief from the ACA employer-shared responsibility penalties or other ACA penalties. Instead, IRS officials continue to make clear that the IRS intends to enforce the ACA employer-shared responsibility rules against employers with 50 or more full-time employees (including full-time equivalent employees).

Under the Obamacare employer mandate rules, covered employers face significant federal tax penalties for (1) failing to offer minimal essential coverage to substantially all full-time employees and their dependents (the “A Penalty”), or (2) offering coverage that is either “unaffordable” or does not provide “minimum value” (the “B Penalty”) if a full-time employee enrolls in the health insurance marketplace and receives a premium tax credit.

While many employers assumed President Trump’s Jan. 20, 2017, executive order “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” would insulate them against enforcement of the employer mandate and other Obamacare penalties, the IRS doesn’t see the executive order as barring its enforcement of Obamacare against sponsoring employers or their group health plans. In an April 14, 2017, IRS Chief Counsel letter, for instance, the IRS announced it does not interpret its discretionary authority under Obamacare to allow waiver of the employer mandate tax imposed under Internal Revenue Code Section 4980H against covered employers that fail to provide the affordable minimum essential coverage required by the employer mandate. In keeping with this interpretation, the IRS has announced that it will begin enforcement of the employer mandate tax liability for plan years after 2015 against covered employers that failed to meet the employer mandate.

Of course, the employer mandate is not the only Obamacare provision that employers and their health plans need to worry about. In addition to the employer mandate, Obamacare imposed a host of patient protection and other federal mandates upon employer-sponsored plans, most of which apply to plans covering two or more employees. In addition to any benefit and other administrative penalties that otherwise arise under the Employee Retirement Income Security Act or the Social Security Act for violating these mandates, employers sponsoring plans that violate any of 40 listed mandates imposed by Obamacare or certain other federal laws also become liable under Internal Revenue Code Section 6039D to self-identify, self-assess, report on Form 8928 and pay an excise tax equal to $100 per person per uncorrected violation. The IRS, Department Of Labor and Department Of Health and Human Services have taken the position that the Jan. 20 executive order also does not bar enforcement of those Obamacare penalties. Accordingly, employers and their group health plans continue to face potentially substantial liability if their group health plan does not comply with Obamacare.

See also: U.S. Healthcare: No Simple Insurtech Fix  

In the face of these exposures, employers and their group health plan should carefully review their plans and their administration for compliance before the end of the plan year so as to be able to take appropriate and timely corrective action before penalties attach and while stop loss or other insurance is available to help mitigate the cost of these corrections. Employers preparing for health plan renewals also should review their group contracts and conduct due diligence to verify their group health plans terms and operations meet the mandates as they initiate new plan years. Employers also generally will want to review their compliance and take action to address any deficiencies against any vendors or advisers who may have culpability in the defective health plan design or administration. Prompt action against vendors who may be culpable for the design or administration defects is necessary to preserve potential claims for deceptive trade practices or other causes of action that an employer might have under state contract, tort or other law. Employers and health plan fiduciaries should consider engaging experienced legal counsel to conduct this review on behalf of the employer or other plan sponsor within the scope of attorney-client privilege so as to assess and address these potential risks on a timely basis.

IRS Guidance on Hurricane Recovery

Hurricanes Harvey and Irma have wreaked havoc on the lives of thousands of Americans, leaving many looking for ways to assist those in need and achieve favorable tax treatment. The IRS has maintained historical guidance, and it made recent announcements that provide guidance for those individuals and employers looking to assist victims.

Employers Can Offer Tax-Free Assistance to Staff 

An employer may provide assistance to employees affected by a presidentially declared disaster in a manner that is exempt from federal income and employment taxes. Providing assistance in cash or services is relatively straightforward and requires no substantiation from the employees, while still allowing the employer to deduct the payments. Because there are virtually no administration requirements, an employer can react very quickly to help alleviate its employees’ immediate needs.

The exclusion is provided by Internal Revenue Code (IRC) Section 139(a) and specifically exempts from gross income “Qualified Disaster Relief Payments” that are not compensated by insurance or otherwise. “Qualified Disaster Relief Payments” can be paid to, or for the benefit of, an individual to reimburse or pay reasonable and necessary expenses incurred:

  • As a result of a qualified disaster for family, living or funeral expenses;
  • For the repair or rehabilitation of a personal residence; or
  • For repair or replacement of the contents of a personal residence — to the extent that the need for such repair, rehabilitation or replacement is attributable to a qualified disaster.

Revenue Ruling 2003-12 shows how this provision is particularly helpful after a hurricane, stating, “Payments that employees receive under an employer’s program to pay or reimburse unreimbursed reasonable and necessary medical, temporary housing or transportation expenses they incur as a result of a flood are excluded from gross income.” In addition, the rule explains that the amounts excluded from gross income under Section 139 are not subject to typical reporting requirements.

See also: Harvey: First Big Test for Insurtech  

Increased Access to Retirement Plan Funds 

The IRS recently announced relaxed procedural and administrative rules that normally apply to retirement plan loans and hardship distributions, specifically for victims of Hurricane Harvey. Participants in 401(k) plans, 403(b) tax-sheltered annuities and 457(b) deferred-compensation plans sponsored by state and local governments may be eligible to take advantage of streamlined loan procedures and loosened hardship distribution rules designed to provide quicker access to their money. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply. While IRA participants are not allowed to borrow from the IRA, they may be eligible to make IRA withdrawals under liberalized procedures.

Not only does this broad-based relief apply to victims of hurricanes, it also applies to a person who lives outside the disaster area, takes out a retirement plan loan or hardship distribution and uses it to assist an immediate family member or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement. To qualify for this relief, hardship withdrawals must be made by January 31, 2018.

Before accessing retirement funds, it is important to remember that the relaxed procedures have not changed the tax treatment of loans and distributions. Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less and hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax unless one of several exceptions is satisfied.

Employee Donations of Leave

The IRS also recently issued Notice 2017-48, which indicates they will not assert that cash payments an employer makes to a charitable organization in exchange for vacation, sick or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are: (1) made to the charity for the relief of victims of Hurricane Harvey and Tropical Storm Harvey; and (2) paid to the charity before January 1, 2019. The employee does not take the money into income and therefore does not get a charitable deduction.

IRC 501(c)(3) status for disaster relief organizations

When considering natural disasters like Harvey or Irma, a company may want to donate to an existing charity, or they may want to form a new charity. If an employer forms a new charity, it should be sure the assistance is geared towards a class of persons broad enough to constitute a “charitable class.” In other words, assistance cannot simply be for a single family or an individual. Even if the group is smaller and limited to a particular group of employees or franchisees, the group could still qualify as a charitable class if the group is indefinite and open ended, such as one that includes victims of a current or future disaster. If a new organization applies to the IRS for 501(c)(3) status, it could be eligible for an expedited review of the application.

Existing organizations qualified under section 501(c)(3) could get involved in disaster relief activities that accomplish charitable purposes — even though those activities were not described in its exemption application, without first obtaining permission from the IRS. However, it should report new activities on its annual return.

Public charity or private foundation?

If the organization qualifies as a 501(c)(3) organization, a determination must be made as to whether the organization is a public charity or a private foundation. Employer-sponsored private foundations can make payments to employees for certain “qualified disasters” that the Secretary of the Treasury has specified. On the other hand, public charities can make payments under broader circumstances, like other disasters or employee emergency hardships. Classification as a public charity will depend on whether there is broad-based public support for the organization, as opposed to a few individuals or a company making the major contributions. In some cases, an organization can be classified as a public charity if it supports another public charity, such as a community foundation.

When companies form new organizations to help employees who encounter disasters, it may be possible to show broad public support if other employees make donations. Even though these employees are associated with the company, they still may be considered the general public when it comes to their individual donations, allowing the organization to qualify as a public charity.

See also: Hurricane Harvey: A Moment of Truth  

Employers cannot excessively control a public charity

In addition to the charitable class requirement, an employer cannot excessively control a public charity, nor can the organization impermissibly serve the related employer’s private interests. Recipients should be chosen based on an objective determination of need or distress and should be selected by a group independent of the employer so that any benefit to the employer is merely incidental.

If these requirements are met, the public charity’s payments — even if those payments are to employees and their family members — are considered payments for charitable purposes and, thus, are not considered taxable income.

For more information

This is just a short summary of what companies and organizations need to keep in mind the next time disaster strikes and they wish to extend a helping hand. Companies should review IRS Publication 3833 for more information.

Additional resources concerning other tax relief, specifically related to Hurricane Harvey and Hurricane Irma, can be found on the IRS disaster relief page. For information on government-wide relief efforts, visit www.USA.gov/hurricaneharvey or www.USA.gov/hurricane-irma.

Be on the Lookout for Tax Scams

Las fall, authorities in India busted nine — yes, nine — bogus IRS call centers, arresting 70 people on suspicion of tricking (and often scaring) Americans into sending money to settle “pressing” but nonexistent tax bills.

You receive a call from a purported IRS agent claiming you owe money and must pay it immediately. If you can’t (or don’t) come up with the money pronto, well, you can expect a police officer or U.S. marshal at your door, and you will be arrested and thrown in jail. In a 21st-century version of this scheme, you receive a robocall where an automated voice directs you to call a specific number to settle your debts with Uncle Sam. If you don’t call back right away, you could be anything from sued to arrested to deported, or maybe you’ll just have your driver’s license revoked.

It’s an inelegant ruse, of course. The prize? Your hard-earned cash and, for good measure, some of your personally identifiable information (PII).

See also: Implications for Insurance Taxation?  

I probably don’t have to explain this hot-and-heavy approach because you’ve probably been on the receiving end of one of these phone calls. IRS scams are so prevalent they topped the Better Business Bureau’s top scams of 2015 by a mile — and that was well before the IRS itself issued a warning to taxpayers saying there was a “summer surge” last year in IRS impersonation scams, with a new variant asking poor, unsuspecting taxpayers to fork over payment on iTunes gift cards.

A sigh of relief?

If you think the major bust in India means you can breathe a little easier every time your phone rings, unfortunately, you’re wrong.

Make no mistake, those nine phony call centers represent only a small fraction of all the nefarious enterprises out there. Consider the latest stats from the U.S. Treasury Inspector General for Tax Administration published in The Wall Street Journal: 8,000 victims have paid more than $47 million because of these completely phony “IRS agents.”

Scams are akin to the old whack-a-mole game or, to put an even finer point on it, a Lernaean hydra — cut one of them down, and two more will spring forth. In fact, around the same time police were raiding the bogus call centers, reports had surfaced that there was a new IRS scam in town: Fraudsters have started to send out notices about fake IRS tax bills related to the Affordable Care Act via email and traditional snail mail in an effort to meet their, ahem, sales goals.

What you can do

You should stay vigilant because it’s about to get significantly more difficult to avoid getting got. The IRS announced it’s going to begin using private collection firms to handle overdue federal tax debt, a change that could effectively throw the one-step method of avoiding phony IRS agents — hang up the phone! — out the window.

The IRS has yet to make it completely clear whether it’s going to allow the collection firms it’s hired to call debtors directly. But even with this significant change, there will be a few dead giveaways that there’s a scammer on the other end of the line.

  1. If you do owe Uncle Sam, you’ll have received a bill in the mail, and should you be one of the more unfortunate ones turned over to a legitimate collector, you’ll also get written notice that your debt has been transferred over to one of its collection firms: CBE Group, Conserve, Performant and Pioneer.
  2. You’ll be allowed to make your payments online at IRS.gov/PayYourTaxBill, so, if you’re not being told about this option, hang up and notify the IRS.
  3. Payments by check should be made to the “U.S. Treasury.” If you’re being asked to write one made payable to the collector or even the IRS (which can easily be altered to read “MRS.”), hang up the phone.
  4. There will never be any threat involving police or marshals or prison.

Other ways to protect yourself

Here is the toll-free number for the IRS: 800-829-1040. If you get even the slightest inkling that someone is trying to swindle you, hang up and immediately call the agency.

See also: New Worry on ID Theft: Tax Fraud  

If you get an email that looks like it is coming from the IRS about a tax bill, do not click on any links (which could be malware designed to infect and infiltrate your computer system and steal any payment or personal information it can get its hands on). Instead, forward the email to phishing@irs.gov and wait patiently for someone to contact you about its validity.

What to do if you’re a victim

If you think you’ve already been had, well, then you’ve got some work to do. Report the crime to your local police, file a complaint with the Federal Trade Commission and call the IRS at the number provided above to find out if you really owe them money. Contact TIGTA to report the call either at 800-366-4484 or by using its IRS Impersonation Scam Reporting website. And then rely heavily on the three Ms I outline in my book, Swiped: How to Protect Yourself in a World Full of Scammers, Phishers and Identity Thieves:

  1. Minimize your exposure to fraud: If you did turn over your most sensitive personal information, request that a fraud alert be put on your credit file by all three credit bureaus — Equifax, Experian and TransUnion. You need only contact one, and it will electronically notify the other two. You might also consider a credit freeze, which is more comprehensive but cumbersome because you need to notify each credit bureau individually; lockdown of your credit report prevents thieves from opening new accounts in your name.
  2. Monitor your accounts. You might wish to purchase a combination credit and fraud monitoring service, which provides instant alerts if someone tries to open up lines of credit. You also may consider enrolling in transactional monitoring programs offered for free by banks, credit unions and credit card companies that notify you of any activity in your accounts. At the very least, keep an eye on your credit yourself. You can do this by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your credit scores for free, updated every two weeks on Credit.com.
  3. Manage the damage. Close any account that has been tampered with or opened by a fraudster without your permission. And if you gave them the veritable skeleton key to your finances — your Social Security number — be sure to notify the IRS, do all of the above and file your taxes as early as possible next year to preclude anyone from getting their grubby little fingers on your refund.

Remember, it’s not just the phony taxman you have to worry about whenever you pick up the phone. Fraudsters come in all shapes and sizes, and, no matter how many scam centers authorities put out of business, the ultimate guardian of the consumer is the consumer (i.e., you)! Stay vigilant. While identity theft may be the third certainty in life, with a little luck you can make it that much harder for fraudsters to get you in their maw.

This post originally appeared on ThirdCertainty.

Full disclosure: IDT911 sponsors ThirdCertainty. This story originated as an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More on identity theft:
Identity Theft: What You Need to Know
3 Dumb Things You Can Do With Email
How Can You Tell If Your Identity Has Been Stolen?

Outlook for Taxation in Insurance

During his campaign, President Trump identified tax reform as a central pillar of his agenda to create 25 million jobs over the next decade. Similarly, Congressional Republicans have said that tax reform is essential to increasing economic growth and hope to complete action on tax reform legislation before the end of this year. Many Congressional Democrats, including Senate Democratic leader Schumer and Senate Finance Committee ranking member Wyden, also have supported corporate rate reduction to boost U.S. international competitiveness, provided it is done on a revenue-neutral basis.

While there is little detail on specific tax reform proposals at this early stage in the process, insurance companies will be asking how various tax reform proposals may affect the U.S. tax treatment of their domestic and foreign operations as tax reform efforts advance in 2017. With the proviso that the tax-reform situation is very fluid, here is what the proposals currently put forward by the president, the House and the Senate could mean:

During his campaign, President Trump proposed reducing the U.S. corporate tax rate from 35% to 15%. He also would repeal the corporate alternative minimum tax (AMT). His plan would eliminate “most business tax expenditures,” except for the research credit. President Trump’s tax plan also would impose a one-time, 10% repatriation tax on overseas corporate profits. Earlier in his campaign, Trump’s tax plan specifically called for the repeal of tax deferral on the foreign earnings of U.S.-based companies, but his most recent plan does not address the taxation of future foreign earnings.

A House Republican task force on tax reform, led by Ways and Means Committee Chairman Brady, prepared the Blueprint. Chairman Brady and committee staff have been working since July of last year to draft statutory language that reflects the goals and principles outlined in the Blueprint. Under the Blueprint, the top U.S. corporate income tax rate would be reduced from 35% to 20%. The Blueprint generally proposes eliminating all business tax expenditures except for the research credit. In addition, the Blueprint would move the U.S. from a worldwide international tax system to a “territorial” 100% dividend-exemption system and impose a mandatory “deemed” repatriation tax
(8.75% for cash or cash equivalents and 3.5% for other accumulated foreign earnings).

The cash flow system proposed by the Blueprint includes immediate expensing of all depreciable and amortizable new business investment and denying a deduction for net interest expense. The Blueprint notes that special rules are needed for banking, insurance and leasing business activities under the proposed border adjustable destination-based cash-flow tax system. As of mid- February 2017, the details of such special rules remain under consideration by Chairman Brady and his staff.

The Blueprint proposes to establish a “destination-based” business tax system that would be “border adjustable” by exempting the gross receipts from export sales and imposing tax on imports, which could be achieved through the denial of a deduction for the cost of the imports.

In recent interviews, Chairman Brady has described border adjustability as a critical part of the Blueprint, stating, “It became clear we needed border adjustability to eliminate all the incentives for companies to move jobs, innovation and headquarters overseas.”

Chairman Brady and other House Republican leaders also have cited border adjustability as a key means of offsetting the cost of lowering the U.S. corporate tax rate to 20%. Although there are no official revenue estimates for the House Republican Blueprint, the Brookings Institution-Urban Institute Tax Policy Center has estimated that border adjustment raises $1.2 trillion over 10 years. The cost of lowering the U.S. corporate tax rate to 20 percent and the cost of repealing the corporate AMT was projected to be $1.8 trillion over the same period.

House Republican leaders have noted that they would need to identify alternative means offsetting a reduction in corporate tax rates if their border adjustment proposal is not adopted. In 2014, former House Ways and Means Committee Chairman Dave Camp (R-MI) introduced a tax reform bill (H.R. 1) that included provisions to lower the U.S. corporate tax rate to 25% and included a broad range of revenue offsets affecting various industries. Revenue offsets in H.R. 1 affecting insurance companies included proposals to change the way life insurance reserves and non-life insurance reserves are computed, and changes to the taxation of deferred acquisition costs (the “DAC” tax). Other offsets included changes to life and non-life insurance company proration for DRD and tax-exempt interest. H.R. 1 also proposed an increase in the discount rate used to compute life insurance reserves. Under H.R. 1, U.S. insurance companies also were not permitted to deduct reinsurance premiums paid to a related company that is not subject to U.S. taxation on the premiums, unless the related company elects to treat the premium income as effectively connected to a U.S. trade or business (and thus subject to U.S. tax).

The Blueprint states that transition rules will be needed for tax reform in general and in particular for the move to a destination-based cash-flow business tax system; however, it does not describe those transition rules. Chairman Brady recently has reaffirmed that he does not support exemptions for individual business sectors, but he is prepared to consider transition relief.

See also: Implications for Insurance Taxation?  

Senate tax reform proposals

In a Feb. 1 speech, Senate Finance Committee Chairman Orrin Hatch (R-UT) said the Senate is working on its own tax reform plan, and the “hope is to have a tax reform proposal in one form or another to discuss publicly in the near future.”

Chairman Hatch has expressed hope that the Senate tax reform effort will be able to secure bipartisan support. Without Democratic support, Chairman Hatch has noted that “we’ll basically need universal Republican support to pass anything through [budget] reconciliation” procedures that allow for legislation to pass with a simple majority. Most Senate legislation requires approval by a 60-vote supermajority.

Chairman Hatch has not taken a position on the border tax adjustment. However, he has noted that several senators have expressed concerns or opposition to the House proposal. Senators who have announced opposition to the House border adjustment proposal include Senate Majority Whip John Cornyn (R-TX), who also serves on the Finance Committee, and Sen. David Perdue (R-GA).

“What it means is that the Senate will have to work through its own tax reform process if we’re going to have any chance of succeeding,” Chairman Hatch said in his Feb. 1 remarks. “No one should expect the Senate to simply take up and pass a House tax reform bill, and that’s not a bad thing.”

While now focused on pursuing comprehensive tax reform, Chairman Hatch and his staff had been working over the last two years on a corporate integration proposal that would subject business income to a single level of tax. The proposal, which has not been released to date, has been expected to adopt a dividends-paid deduction approach in which dividends are treated like interest (i.e., deductible payments) and a withholding tax is imposed on both to ensure one level of U.S. tax on interest and dividend income.

Implications

  • There is little detail on specific tax reform proposals that could affect the insurance industry at the time of this document’s publication. Accordingly, insurance companies will need to closely monitor how various tax reform proposals may affect the U.S. tax treatment of their domestic and foreign operations as tax reform efforts advance later in 2017. PwC will provide timely updates on developments as they arise.

Administrative Developments

A number of administrative developments occurred in 2016 concerning insurance companies.

These developments affected insurers in various lines of business:

  • Life insurers – The most significant development for life insurers remains the adoption of Life Principles Based Reserves (PBR), effective as early as Jan. 1, 2017, for some companies and some contracts issued on or after that date. Life PBR has a number of related tax issues, and the IRS and Treasury Department provided its first guidance in Notice 2016-66, setting forth rules for implementing the 2017 CSO mortality tables. Life PBR remains on the annual Priority Guidance Plan, was recently identified as one of 13 “campaigns” to which the IRS will devote significant resources in the coming months, and is the subject of an Industry Issue Resolution (IIR) project.

Two other 2016 administrative developments are particularly important for life insurers. First, Notice 2016-32 provides an alternative diversification rule under section 817(h) for a segregated asset account that invests in a government securities money market fund. The new, alternative diversification rule in Notice 2016-32 facilitates such investments. Second, Field Attorney Advice 20165101F concludes that a change in the computation of the statutory reserves cap that applies to life insurance reserves is a change in basis and therefore required to be spread over 10 years. Although Field Attorney Advice is not precedential, this conclusion was controversial, and companies are still considering the issue as potential changes in basis arise.

  • Non-life insurers – IRS Attorney Memorandum (“AM”) 2016-002 addresses the mechanics of a change in method of accounting for unearned premiums by a Blue Cross or Blue Shield organization that fails to meet the medical loss ratio (MLR) requirement of section 833(c)(5). The guidance is helpful to a broader class of nonlife insurers than Blue Cross organizations because it illustrates the operation of the unearned premium reserve and the application of section 481 to changes in accounting method more generally.

In addition, in early 2017, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury issued Frequently Asked Questions about ACA implementation, including guidance defining the term “health insurance coverage.” Under that guidance, the provision of Medicaid coverage to Medicaid recipients as a managed care organization, and the provision of coverage under a Medicare Advantage organization or plan or a Medicare prescription drug plan is not “health insurance coverage.” This interpretation could excuse some companies from the compensation deduction limitation of section 162(m)(6) and could clear up confusion created by two prior Chief Counsel Advice memoranda (201610021 and 201618010).

  • Health insurers – No payments will be required in 2017 under the Affordable Care Act (ACA) Health Insurance Provider fee, as a result of that fee’s suspension under the Consolidated Appropriations Act of 2016. Health insurance providers are still required to file Form 8963 for the 2016 year pending legislative developments on the ACA.

In addition, some insurers (particularly health insurers) anticipate significant guaranty fund assessments as a result of the liquidation of Penn Treaty America Insurance. Many such companies (other than Blue Cross organizations) account for those payments on a reserve basis as premium- based assessments under Rev. Proc. 2002-46.

  • Captive insurance companies – Section 831(b) allows certain small, non-life insurance companies to elect to be taxed only on investment income and not on underwriting income. The IRS and Treasury Department have not provided guidance on changes that the Protecting Americans from Tax Hikes (PATH) Act of 2015 made to the requirements to qualify for that provision.

See also: Be on the Lookout for These 3 Tax Scams  

Captive insurance companies – particularly small (“micro”) captive insurance companies — remain a significant administrative priority, however. For example, Notice 2016-66 identifies a significant number of such companies as “transactions of interest” for which reporting is required. Those reporting requirements are drafted broadly, and a large number of companies are in the process of reporting. The IRS also has identified “micro captive” insurance companies as a “campaign” issue that is a priority for the IRS in targeting its examination resources. Furthermore, practitioners and taxpayer alike are still waiting for the Tax Court’s decision in Avrahami v. Commissioner, which could provide even more judicial guidance on insurance qualification in the context of captive insurance.

  • Regulations under Section 385 (characterization as debt or equity) – In spring 2016, the IRS and Treasury Department proposed regulations that would establish a contemporaneous documentation requirement that must be satisfied for certain related- party debt to be respected as debt and recharacterize as equity certain instruments that were intended to be treated as debt for Federal income tax purposes if they are issued in connection with certain distributions and/or acquisitions, even if they met the documentation requirements. The proposed regulations generated significant Congressional and taxpayer concern, including nearly 200 unique comment letters. In fall 2016, the IRS and Treasury Department released final and temporary regulations. The government made significant changes in the final regulations in response to taxpayer comments. The overall scope of the proposed regulation has been reduced through a number of exemptions in the final and temporary regulations. The final and temporary regulations do not apply to debt instruments issued by foreign corporations. They also do not apply to interests issued by regulated insurance companies other than captive insurance companies. The final regulations also treat surplus notes of an insurance company as meeting the documentation requirements of the regulations, even though approval or consent of a regulator may be required for payments under the notes. However, the final regulations make no special provision for life insurance companies that are prevented from joining a consolidated return by the life-nonlife consolidated return limitations, nor do they provide specific guidance on the treatment of a company’s obligations under funds withheld reinsurance.
  • Regulations Under Section 987 – The IRS has issued final and temporary Section 987 regulations in December 2016. The final regulations implement an accounting regime based largely on proposed regulations issued in September 2006, to account for income earned through a qualified business unit (QBU) that operates with a functional currency different than that of its owner (e.g. foreign branches). Similar to the 2006 proposed regulations, the final regulations generally do not apply directly to insurance companies but may be relevant to non-insurance affiliates.

2016-17 Priority Guidance Plan

As in prior years, the IRS and Treasury jointly issued a Priority Guidance Plan outlining guidance it intends to work on during the 2016-2017 year. The plan continues to focus more on life than property and casualty insurance companies.

The following insurance-specific projects, many of which carried over from last year’s plan, were listed as priority items:

  • Final regulations under §72 on the exchange of property for an annuity contract. Proposed regulations were published on October 18, 2006;
  • Regulations under §§72 and 7702 defining cash surrender value;
  • Guidance on annuity contracts with a long-term care insurance rider under §§72 and 7702B;
  • Guidance under §§807 and 816 regarding the determination of life insurance reserves for life insurance and annuity contracts using principles-based methodologies, including stochastic reserves based on conditional tail expectations;
  • Guidance on exchanges under §1035 of annuities for long-term care insurance contracts; and
  • Guidance relating to captive insurance companies.

Less clear is what projects the 2017-2018 Priority Guidance might include. For example, the Trump administration may have different guidance priorities than its predecessor. In addition, a recent Executive Order requiring agencies to relieve existing regulatory burdens in exchange for imposing new ones could complicate the number of guidance items that may be published or the form those items may take.

Implications

  • Life insurers should consider the effect of Life PBR tax issues on product development, financial modeling, and compliance as some companies consider a January 1, 2017, effective date.
  • Nonlife insurers who move in and out of insurance company status (or whose products move in and out of insurance contract status) should consider whether the recent Attorney Memorandum sheds light on the application of section 481 to insurance- specific items such as unearned premium reserve.
  • Health insurers can expect significant changes in tax rules and, in particular, one-time transition rules as a result
    of the 2017 suspension of the Health Insurance Provider Fee and the likely repeal (and possible replacement) of the ACA.
  • Captive insurers should be prepared for additional IRS scrutiny as a result of the Priority Guidance Plan item promising guidance, identification of the micro captive issue as a “campaign,” and the possibility that a decision in the Avrahami case could shed more light on insurance qualification for Federal income tax purposes.

Be on the Lookout for These 3 Tax Scams

In the early ’60s, Roger Maris and Mickey Mantle hit a remarkable number of home runs — including famous, back-to-back four-baggers that, according to Yogi Berra, were the reason he famously quipped, “It’s déjà vu all over again.” While spring training is still a bit away, we’re in the thick of tax season, where legions of scammers are swinging for the back wall.

According to the IRS, there was a 400% increase in phishing and malware incidents during the 2016 tax season. With the April 15 filing deadline still feeling as far away as the Green Monster from home plate in Fenway Park, Berra’s other dictum — “It ain’t over till it’s over” — has never been more true.

My book, “Swiped: How to Protect Yourself in a World Full of Scammers, Phishers and Identity Thieves,” goes into great detail about the various tactics cyber criminals use to lure you, but the most important thing you can do to keep yourself scam-free this tax season is educate yourself on the most prevalent risks out there.

As ever, the best advice is to file your taxes as early as possible. Tax-related identity theft is primarily aimed at grabbing your tax refund, and scammers are creative, sophisticated and persistent and move very quickly once your information is in hand. Armed with your Social Security number, date of birth and a few other pieces of your personally identifiable information, which if you have been involved in a data breach (you can check here to see warning signs and view two of your credit scores for free on Credit.com) is likely available on the Dark Web, people are furiously filing fraudulent tax returns online.

See also: Implications for Insurance Taxation?  

Here are three scams to bear in mind as the tax season is upon us:

1. Phishing

There is no bigger threat than phishing. By now, it is a home truth that there are phishers out there. Catfishing is a regular part of the popular imagination, and phishing emails hit our inboxes with the same regularity as the various promotional emails we get from retailers and media outlets.

Phishing emails take many forms, but they are most commonly pointed at getting enough of your personally identifiable information to commit fraud in your name (identity theft). They also commonly contain a link that places malware on your computer. These programs can do a variety of things (none of them good), ranging from recruiting your machine into a bot-net distributed denial-of-service attack; to placing a keystroke recorder on your computer to access bank, credit union, credit card and brokerage accounts; to gathering all the personally identifiable information on your hard drive.

Here’s what you need to know: The IRS will never send you an email to initiate any business with you. Did you hear that? NEVER. If you receive an email from the IRS, delete it. End of story. Oh, and the IRS will never initiate contact you by phone, either.

That said, there are other sources of email that may have the look and feel of a legitimate communication that are tied to other kinds of tax scams.

2. Criminal tax preparation scams

You learned how to do homework in school for this reason: Not all tax preparers are the same, and you must vet anyone you’re thinking about using well before handing over a shred of your personally identifying information. Get at least three references, check online to see if there are any reviews and call them.

Here’s why: At this time of the year, tax prep offices that are actually fronts for criminal identity theft tend to pop up around the country in strip malls and other properties and then promptly disappear a few days later. Make sure the one you choose is legit.

3. Shady tax preparation

Phishing emails may not be aimed at stealing your personally identifiable information or planting malware on your computer. They simply may be aimed at getting your attention and business through enticing (and fraudulent) offers of a really big tax refund. While these preparers may get you a big refund, it could well be based on false information.

Be on the lookout for questions about business expenses that you did not accrue, and especially watch out for signals from your preparer that you are giving him or her a figure that is “too low.”

Other soft cons of shady tax preparation include inflated deductions, claiming tax credits to which you are not entitled and declaring charitable donations you did not make. Bottom line here: We’re all connected these days, and chances are you will get caught, so just make sure you are working with someone who follows the instructions. (Yes, they’re complicated, and that’s why it’s not a bad idea to get help.)

See also: New Worry on ID Theft: Tax Fraud  

As Berra said, “You can observe a lot by watching.” Tax season is stressful even without the threat of tax-related identity theft and other scams. It’s important to be vigilant, because, to quote Berra all over again, “If the world were perfect, it wouldn’t be.”

Full disclosure: CyberScout sponsors ThirdCertainty. This story originated as an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.