IRS Notice on Interest Expense Limitations
In a recent notice (i.e., Notice 2018-82), the IRS has provided guidance for computing the new business interest expense limitation under Code Section 163(j) under the Tax Cuts and Jobs Act (“TCJA”). Code Section 163(j), as amended by the TCJA, provides new rules limiting the deduction of business interest expense for tax years beginning after Dec. 31, 2017. In general, the interest expense limitation rules limit most large businesses’ interest deduction to any business interest income plus 30% of the business’ adjusted taxable income.
Among other things, the Notice describes Regulations that the IRS intends to issue (e.g., application of 163(j) to consolidated groups) and clarifies the treatment of interest disallowed and carried forward under former Code Sec. 163(j). For the full text of the Notice, click here.
IRS to Terminate Offshore Voluntary Disclosure Program
On March 13, 2018, the Internal Revenue Service announced that the 2014 Offshore Voluntary Disclosure Program (OVDP) will terminate on September 28, 2018. The OVDP provides U.S. taxpayers the opportunity to correct tax noncompliance and disclose to the IRS previously undisclosed non-U.S. assets, accounts and associated income. The OVDP was specifically designed for taxpayers with potential exposure to criminal liability due to willful failure to report foreign financial assets and accounts and pay all resulting U.S. federal income taxes due. The OVDP threshold requirements are as follows:
Upon successfully completing the OVDP process, the taxpayer enters into a closing agreement with the IRS that precludes IRS examination of the eight years covered in the OVDP submission. Additionally, the IRS will not recommend criminal prosecution to the Department of Justice for any issues related to the tax noncompliance.
While the OVDP is set to expire in September 2018, other programs will remain available to noncompliant taxpayers. For instance, the Streamlined Filing Compliance Procedures, designed for taxpayers whose tax noncompliance was not willful, will continue to be available to eligible taxpayers. This streamlined process allows taxpayers who have unreported income to (a) file U.S. federal income tax returns for the preceding three years and FBARs for the preceding six years; and (b) pay all outstanding income taxes owed, along with interest and, for U.S. resident taxpayers only, a potential one-time miscellaneous offshore penalty. To be eligible for the streamlined process, taxpayers must certify that their failure to report foreign financial assets did not result from willful conduct. Because the streamlined process does not conclude with the taxpayer entering into a closing agreement with the IRS, potential exposure to later IRS audit and criminal charges remain.
Louisiana is Cracking Down on Employee Misclassification
Louisiana agencies, through the GAME ON (Government Against Misclassified Employees Operational Network) task force, are ramping up their efforts to stop employee misclassification. GAME ON was formed in 2017 by the Louisiana Department of Revenue (LDR) and the Louisiana Workforce Commission’s (LWC) Unemployment Insurance and Office of Worker’s Compensation divisions. These task force agencies are also working with the Internal Revenue Service and the U.S. Department of Labor’s Wage and Hour Division.
The task force has focused on industries that the LWC claims are historically known to use independent contractors on a large scale, including construction, healthcare, hospitality, personal service, and staffing companies. For the last several years, the LWC, through use of its tax auditors, has led the nation in audit-based discoveries of misclassified workers. In 2015, the LWC’s tax auditors discovered nearly 20,000 cases of misclassified workers, representing $101 million in unreported wages, through the use of shared information from the task force agencies and tips from a fraud hotline.
Once the task force determines that an employer misclassified employees, the LDR can seek to collect unpaid taxes on any unreported wages as well as any accrued interest and penalties of up to $1,000 per offense. The LDR may also file lawsuits. For instance, the LDR recently notified employers that the LDR filed lawsuits against three Louisiana businesses accused of evading taxes by not withholding and remitting the appropriate payroll taxes from their employees’ earnings. The tax liabilities for the three businesses total $242,311.
The LWC is in the process of implementing audit software that features built-in analytics to help identify suspect companies. This phased-in program will also streamline the audit process allowing the LWC’s auditors to investigate more companies in less time.
For any company that regularly uses independent contractors, this continued focus by the task force is important. Accordingly, all companies should review their use of independent contractors to ensure they are not being misclassified.