IRS details new reporting requirements for life insurance

The Internal Revenue Service spelled out new information reporting requirements Thursday for some life insurance contracts under the recently enacted Tax Cuts and Jobs Act.

The new requirements will apply to reportable death benefits paid, along with reportable policy sales, that were made after Dec. 31, 2017. The IRS provided transitional guidance Thursday postponing any reporting under Section 6050Y of the tax code until the final regulations are issued. The transitional guidance gives taxpayers some extra time to satisfy any reporting obligations that could occur before the IRS and the Treasury publish the final regulations.

Information returns have to be filed in the situations below, according to the IRS:

- By anyone who acquires a life insurance contract, or any interest in a life insurance contract, in a “reportable policy sale”;

- By an issuer of a life insurance contract upon notice of a transaction required to be reported above or upon any notice of a transfer of a life insurance contract, or any interest in a life insurance contract, to a foreign person; and

- By any payor of “reportable death benefits.”

A “reportable policy sale” is usually the acquisition of an interest in a life insurance contract, either directly or indirectly, if the acquirer has no substantial family, business or financial relationship to the insured. A “reportable death benefit” is an amount paid when an insured person dies under a life insurance contract that was transferred in a reportable policy sale.

The IRS is asking for public comments on the proposed regulations to implement the new reporting requirements.

‘Sure things’ in tax reform

As Congress prepared to begin the process of reconciling its various tax reform bills in the first week of December, the final shape of the Senate’s Tax Cuts and Jobs Act gave important clues as to the shape the changes to the Tax Code may ultimately take.

In the run-up to the passage of the bill at 2 a.m. on Saturday morning, the Senate made a number of changes to its original proposal, many of them aimed at bringing it more into line with the House proposal that passed in mid-November, and others aimed at addressing the concerns of individual Republican senators.

With those changes as a guide, it’s possible to compare the two acts and get a much clearer idea of where Congress can – and can’t – reach a consensus. With that in mind, here are six things that are highly likely to be part of any final tax reform legislation.

1. Lower corporate tax rates. Lowering the overall rate for businesses is a core goal of GOP leaders, and is included in both the Senate and House bills. The aim of both is to take the overall rate from 35 percent down to 20 percent; the Senate nixed a proposal to raise the rate to 22 percent. That said, the House proposal would institute the cuts immediately, while the Senate would postpone them for a year.

2. An increased standard deduction. Both bills would significantly boost this to $12,000 for individuals and $24,000 for married couples.

3. Goodbye to the personal exemption. The House and the Senate agree on eliminating the current $4,050 personal exemption that taxpayers can claim for themselves, their spouses and each of their dependents.

4. A higher estate tax exemption. Both the House and Senate bills double the size of estates that are subject to the estate tax – from $5.5 million to $11 million. The House wants to kill the so-called “Death Tax” entirely after six years, however, while the upper house wants to leave it in place.

5. Keeping a rump of the state and local tax deduction. The Senate bill had originally eliminated all deductions for state and local taxes; Sen. Susan Collins, R-Maine, championed keeping a $10,000 deduction for state and local property taxes (but not income or sales taxes). This brought the Senate bill in line with the House proposal.

6. Taxing assets held abroad. The House would tax corporations on cash held abroad at 14 percent, at 7 percent on non-cash assets. The Senate bill originally had lower rates, but raised them to get more in line with the House.

IRS adjusts due dates for partnerships

The Internal Revenue Service has issued a notice providing more time for partnerships, real estate mortgage investment conduits and some other types of businesses to file their returns.

Notice 2017-71 provides that any act performed for the 2016 taxable year of a partnership, REMIC, or certain other entities will be treated as timely for all purposes under the Tax Code, except with respect to interest, if the act would have been timely if the Surface Transportation Act had not changed the due date for partnership returns.

The 2015 legislation had accelerated the due date to March 15 for filing partnership returns and issuing K-1 schedules to partners instead of the traditional due date of April 15. However, the bill provoked objections and in September the IRS issued guidance providing penalty relief for some types of partnerships that didn’t file the required returns by the new due date for tax years beginning in tax year 2016. The new notice appears to expand that relief to REMICs.

A REMIC isn’t a partnership, the IRS noted, but under Section 860F(e) of the Income Tax Regulations it’s generally treated as a partnership for purposes of the Tax Code. For example, the due date and availability of an extension of time for filing a REMIC’s annual return are determined as if it were a partnership. As a result, the new due date also applies to the returns of a REMIC for taxable years beginning after Dec. 31, 2015.

A partnership can get a six-month extension of time to file Form 1065, 1065-B, or 8804, and a REMIC can receive a six-month extension to file Form 1066, by filing Form 7004, “Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns,” by the statutory due date. A partnership that receives an extension of time to file Form 1065 receives a concurrent extension to furnish its partners with Schedules K-1. Also, a partnership that receives an extension of time to file Form 8804 receives a concurrent extension of time to file Forms 8805 and to furnish copies of the forms to its partners. The six-month extension can apply to additional returns that a partnership may be required to file by the due date of its Form 1065 or 1065-B, but that doesn’t affect the due date for a partnership to furnish partners with K-1 schedules. 

An entity that fails to timely meet its obligations to file and furnish returns is still subject to penalties, the IRS cautioned, including those that fail to file Forms 1065, 1065-B, 1066, 8804 and 8805 by the due date.

Accounting is Short on Talent Despite Demand

Due to a talent shortage of qualified accountants and financial professionals, recruiting for these positions has proved challenging and demand for them has been quite high, according to the 2018 Robert Half Salary Guide for Accounting and Finance Professionals.

Ky Kingsley, Vice President, North America, with Robert Half Finance & Accounting, says that public accounting firms have gotten creative in their approach to recruiting accounting candidates. Despite having ‘brand recognition,’ Kingsley says that many large public accounting firms have had to come up with ways to offer technical accountants in public accounting settings some flexibility and more work life balance to retain their top talent.

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