Tax News & Views Cobra Cafeteria HEROES Roundup

May 13, 2020

IRS Allows Some New or Changed Elections under Cafeteria Plans. The IRS yesterday issued a notice  allowing Section 125 Cafeteria Plans to permit certain mid-year elections. 

Stephanie Cumings of Tax Notes reports ($) that Notice 2020-29 permits plans to allow these changes:

  • elect employer-sponsored coverage;

  • revoke an existing health plan election and make a new one, including moving from self-only coverage to family coverage;

  • revoke health coverage if they attest they will enroll in coverage not provided by their employer;

  • change elections regarding their FSA; or

  • change elections regarding a dependent care assistance program.

The ruling also clarifies that High-Deductible Plans may fully cover telehealth services COVID-19 testing and coverage without applying the deductible retroactively to January 1.

Plans are not required to apply these rules, and they have flexibility in choosing which changes to allow.

In a separate notice (Notice 2020-33), the maximum amount that can be carried over to the next year in a flex plan is increased to $550, from the current $500 max.


Expanded tax help in covering child care costs during coronavirus closure rules - Kay Bell, Don't Mess With Taxes. "Temporary changes announced today extend the claims period for dependent care and health FSAs, as well as bump up the potential roll over amount in medical accounts."

Maximum FSA Carryover Set to 20% of Maximum Deferral and Change in Timing for Reimbursement for Individual Premium Provided for in IRS Notice - Ed Zollars, Current Federal Tax Developments. "In Notice 2020-23[1] the IRS revised the maximum amount a cafeteria plan may allow a participant to carry over to the next year for a medical flexible savings account and clarified that a health plan may reimburse individual insurance policy premium expenses incurred prior to the beginning of the current year."


Democrats Pack Latest Relief Package With Tax-Related Priorities - Alexis Gravely and Jad Chamseddine, Tax Notes ($). "A new House bill written by Democrats includes several tax provisions for businesses and individuals that mostly reflect the party’s own wish list and will likely get little support from Republicans."

That of course means it can't pass a Republican Controlled Senate. House leadership plans to hold a vote on the 1800-page bill Friday.

Tax provisions in the "HEROES Act" include

- Restoring the limit on individual losses enacted in the CARES Act for 2018 and later years.

- Limiting the carryback of net operating losses to years starting in 2018. This would undo many claims being filed under the IRS guidance allowing quick refunds for 2018 losses if the forms 1045 or 1139 are filed by June 30, 2020.

- Limiting NOL carrybacks for taxpayers with "excessive" executive compensation or "excessive" stock buybacks.

- Restore the full deduction for state and local taxes on 1040s - a deduction capped at $10,000 under the 2017 Tax Cuts and Jobs Act.

- Increase the above the line deduction for K-12 "educator expenses" to $500.

The act also would launch another round of $1,200 relief payments. Families would also get $1,200 per dependent for up to three dependents.  The bill would also extend the $500 dependent payments of the CARES act to taxpayers with dependent college students and adult dependents. 

The proposal is probably best understood as a combination of a negotiating position for the next COVID-19 relief bill, a message to Democratic constituencies that they are remembered, and a campaign document. 

It's not clear when the outlines of the next COVID-19 relief bill will emerge. The article says one item is likely to be part of a package if one comes together: "If Republicans and Democrats come to some sort of agreement on a tax relief measure, they are likely to include making business expenses associated with the Paycheck Protection Program (PPP) deductible."

Related: What You Need to Know About the CARES Act

Reminder: Tomorrow is the last day to repay PPP loans no-questions-asked. Also, repayment by tomorrow allows taxpayers to use the Employer Retention Tax Credit.


Massive House Bill Includes New & Improved Stimulus Checks, Expanded Jobless Benefits And Tax Relief - Kelly Phillips Erb, Forbes:

There's a *lot* in the bill. And towards, the end, it gets kind of messy. Clearly, other (failed) provisions were tacked on in an effort to push them through. Do we need funding to identify wildlife species that pose a risk to human health? Perhaps. Do we need it now? Perhaps not so much. Do we need additional hate crime legislation? Maybe. Do we need it tucked inside a COVID-19 relief bill? Maybe not so much.

How the HEROES Act Would Allocate State and Local Aid - Jared Walczak, Tax Policy Blog. "The HEROES Act, introduced Tuesday by House Democrats, provides more than $1 trillion to state and local governments, including $915 billion in flexible aid—which can be spent for any purpose, including to backfill revenue losses—in installments over the next year."


Court Denies Easement Deduction and Upholds Regs’ Validity - Emily Foster, Tax Notes ($). "The Tax Court denied a partnership’s multimillion-dollar charitable conservation easement deduction, and the court’s majority rejected its challenge to the regulation’s “protected in perpetuity” rule."

The Tax Court handed down two decisions yesterday in the case. The first decision, a formal reviewed decision, upholds the validity of the IRS regulations defining whether an easement meets the requirement of being "perpetual." The second decision, a "memorandum" decision, applies the regulation to the facts in the case to disallow the deduction.

The regulation addresses how proceeds from a sale of the property are split between the donor and the conservation easement holder if the property is later sold because of unanticipated events that make the conservation purpose untenable. The court majority found the regulations to have been properly adopted and therefore valid.

Judge Holmes, the most entertaining Tax Court writer, dissented from the decision on the validity of the regulations:

In today's case, we hold that the Treasury Department gets to ignore basic principles of administrative law that require an agency “to give reasoned responses to all significant comments in a rulemaking proceeding.” PPG Indus., Inc. v. Costle, 630 F.2d 462, 466 (6th Cir. 1980). A court is supposed to ensure that an agency has taken “a 'hard look' at all relevant issues and considered reasonable alternatives.” Simms v. Nat'l Highway Traffic Safety Admin., 45 F.3d 999, 1004 (6th Cir. 1995) (quoting Neighborhood TV Co., Inc. v. FCC, 742 F.2d 629, 639 (D.C. Cir. 1984)). But if the majority is right, the Treasury Department can get by with the administrative-state equivalent of a quiet shrug, a knowing wink, and a silent fleeting glance from across a crowded room.

This is not the way rulemaking is supposed to be. 

Score another victory for the IRS in its continuing campaign against conservation easements.

Free links:

Full Tax Court opinion on validity of regulations.

Memorandum Opinion on facts of case.


Analyzing the IRS FAQs on Incarcerated and Non-Resident Taxpayers - Patrick Thomas, Procedurally Taxing. "On May 6, the IRS released four new FAQs (FAQ 10, 11, 12, and 41) relating to deceased, non-resident alien, and incarcerated individuals with respect to economic impact payments."

UBTI Proposed Regs Leave Lots of Open Issues for Exempt Orgs - Fred Stokeld, Tax Notes ($). "Recently proposed guidance on calculating unrelated business taxable income leaves some questions that tax-exempt organizations should consider addressing in written comments to the IRS and Treasury, former Treasury officials said May 12." 



Supreme Court Hears Trump's Tax Return Cases - Paul Caron, TaxProf Blog. A roundup of coverage of yesterday's Supreme Court arguments.

By Overturning the ACA, The Supreme Court Would Cut Taxes Substantially For High-Income Households - Howard Gleckman, TaxVox. "Last week,  President Trump reaffirmed the Administration will urge  the US Supreme Court to overturn the entire 2010 Affordable Care Act."


Shelby Cobra bites owner. One way is to call the motor vehicle department with a question, as an Iowan has learned the hard way. 

The Des Moines Register reports (taxpayer name redacted):

Jason Maahs, the deputy director of the bureau of investigation and identity protection at the Department of Transportation, said the charges came after [the car owner] requested a review of the vehicle identification numbers for some of his automobiles. Maahs said this is a common practice after someone buys an older car that does not have an Iowa title. Among other issues, the government wants to make sure no one had previously reported the vehicle as stolen.

The problem? Allegedly the car owner lowballed the price of the vehicles, by a lot:

According to the criminal complaint, [the car owner] reported buying a 1988 Specially Constructed Atlantis Roadster for $9,600 instead of the actual purchase price of $105,600. He also allegedly reported buying a 1965 Shelby Cobra for $10,000 when he actually bought it for $110,000.`

The report says the car owner pleaded guilty to five counts of fraudulent practice in underreporting the cost of five vehicles by a total of $309,400. 

The Moral? Don't fudge your purchase price when you register your car. And if you do, call the DMV at your own risk. 

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