ABLE Accounts for Individuals with Disabilities

Financial planning for a family that includes an individual with disabilities, especially those without the resources to fully fund a special needs trust, often has substantial challenges. In December of 2014, the United States Congress passed legislation permitting families with individuals who develop a disability before age 26 to save for future expenses in an account that will grow tax-free. The Stephen Beck, Jr., Achieving a Better Life Experience (“ABLE”) Act of 2014, allows families to save in an account akin to a 529 college savings account. Those hoping to take advantage of the program must wait for their state to statutorily adopt the program, however many states, including Nebraska, have already acted.

An ABLE account holder can save up to $100,000 in the account and still be eligible for social security, Medicaid, and other federal programs. The annual limit for all contributions to an account is $14,000, paid from after-tax contributions. Although the contributions are after-tax, the disbursements, including the interest growth in the account, are tax free if spent on qualifying expenses. A qualifying expense for an individual with a disability includes “education, housing, transportation, employment training and support, assistive technology and personal supports services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight.”

On June 22, 2015, the Internal Revenue Service (“IRS”) issued proposed regulations to implement the law pertaining to ABLE accounts, enabling states to fully adopt the program. These proposed regulations have a variety of limitations, such as requiring the beneficiary to be a resident of the state where the ABLE account is created, requiring the beneficiary to have an eligible disability, limiting each beneficiary to one account, and limiting the investment direction a designated beneficiary can make to twice a year. Other aspects of the proposed regulations include limitations on types of contributions, specific accounting procedures, and options for states to contract with other states for administering programs.

The tax provisions in the proposed regulation include applying Internal Revenue Code (“IRC”) § 72 to distributions from the ABLE account. Under this section, all distributions during a tax year are treated as one distribution in that year and the value of the account is computed at the end of the calendar year. Further, if a distribution from an ABLE account is not for a qualifying expense, the distribution is includable in gross income for that taxable year. That means the distribution will be included as taxable income, as well as incurring an additional 10% tax on the amount of the distribution included in gross income. However, if the non-qualifying distribution occurs after the beneficiary dies or the distribution is a result of an excess contribution, the added 10% tax does not apply.

Another tax provision includes the application of the gift tax to ABLE account contributions by a person other than the designated beneficiary. Under the proposed regulation, the contribution is immediately considered a completed gift to the designated beneficiary and not a future transfer under IRC § 2503(e), thus any future distribution is not a taxable gift to the beneficiary. However, when the designated beneficiary dies, the amount remaining in the ABLE account is part of the beneficiary’s estate for purposes of the estate tax.

In Nebraska, Legislative Bill 591 was signed into law on May 27, 2015, formally adopting the program. The law, known as Nebraska ABLE, will allow qualifying individuals in Nebraska to take advantage of the program. At this time, however, it is unclear exactly how the state program will operate as the law allows the Nebraska State Treasurer to either establish a program within the state or contract with another state to provide for the accounts.

It is expected that final regulations will be issued at some point in the future, but the IRS states that the proposed regulations may be used and relied upon for creating programs and accounts. Those states that adopt programs and individuals who create an ABLE account based upon the proposed regulations will receive the benefits of IRC § 529(a), regardless of whether the final regulations impact the qualification of the ABLE program.

© 2015 Houghton Vandenack Williams
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Workers’ Comp in Assault Cases

By Sarah E. Cavanagh.

The Nebraska Court of Appeals recently held that an employee is not entitled to collect workers’ compensation for an assault perpetrated by another employee if the assault is personal in nature and unrelated to the employment.

McDaniel v. Western Sugar Co-op, the employee, McDaniel, appealed a workers’ compensation court decision to deny benefits. McDaniel was working at Western Sugar Co-op when another employee harassed and assaulted him based on his past criminal history. McDaniel claimed that his injuries should be compensable by workers’ compensation because the injury took place at the workplace and he would not have interacted with the other employee had it not been for the job.

Whether a workers’ compensation claim will be granted depends on whether the injury “arises out of the employment.” This phrase is used to describe the accident – its origin, cause and character. The Court places risks into three categories for purposes of worker’s compensation: (1) Risks associated with employment, (2) personal risks, and (3) neutral risks. In order for an injury of a personal nature to have arisen out of the employment, “the employment must somehow exacerbate the animosity or dispute or facilitate an assault which would not otherwise be made.”

While the injury occurred at the workplace and likely would not have occurred had the parties not worked together, the reason for the incident was personal and not work-related. The assault stemmed from McDaniel’s criminal history, and was wholly disconnected from the place of employment or the parties’ relationship as co-workers. Therefore the Court found that workers’ compensation benefits were properly denied.

© 2015 Houghton Vandenack Williams
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Domain Blocks Now Available for “.sucks” Domain Extensions

By Tom Langan. Earlier this year, over 550 new domain name extensions were created.  Examples include .basketball, .college, .miami, and .fishing.  Among the more controversial additions is “.sucks” which allows nearly anyone to obtain the domain www.[InsertYourName].sucks.  A “domain block” feature is now available that would allow individuals and/or business owners to reserve .sucks domain extensions and prevent others from using it. A domain block costs $199 and is valid for one (1) year.

© 2015 Houghton Vandenack Williams
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The Supreme Court PPACA Ruling and Your Taxes

On June 25, 2015, the United States Supreme Court made headlines by ruling on King v. Burwell, No. 14-114, pertaining to the Patient Protection and Affordable Care Act (the “Act”). At issue, whether the Internal Revenue Service (IRS) may promulgate regulations that extend subsidies to individuals purchasing health insurance from a federal healthcare exchange instead of a state-based exchange. The question arose because the language of the Act itself suggested the insurance must be purchased through a state exchange in order for the individual to receive a subsidy. The Supreme Court found in favor of the IRS, allowing tax subsidies in the dozens of states that did not establish a state exchange and instead rely solely on the federal exchange.

What does this mean for the individual consumer, from a tax perspective? This means that regardless of the state in which you live, or whether the insurance was purchased on a state or federal exchange, subsidies for health insurance are available. Generally, an individual may receive assistance in obtaining health insurance by qualifying for a premium tax credit, cost sharing reduction subsidy, or Medicaid and CHIP. The premium tax credit,  the focal point of the King v. Burwell case, provides a subsidy based upon the applicant’s income.

Internal Revenue Code § 36B provides a potential premium tax credit for health insurance purchasers, dependent upon the modified adjusted gross income (MAGI) of the taxpayer and individuals in the taxpayer’s household required to file a tax return. If the income is between 100% and 400% of the federal poverty line, currently $11,770 for a one person household, a tax credit may be available. Depending upon the MAGI, the IRS limits the amount a taxpayer is required to pay for a health insurance premium, with a maximum payment range of 2% to 9.5% of the total MAGI. Any premium in excess of the applicable maximum percentage of income will be covered by the premium tax credit. The tax credit is payable in advance, to the insurer, to reduce the premium directly paid by the taxpayer. However, should the advance payments be made, the individual taxpayer must submit IRS Form 8962 with the individual’s annual tax return in order to reconcile the advance tax credit payments provided with the amount of the eligible tax credit based on the income shown on the return. In the event the reconciliation results in the taxpayer receiving a higher or lower tax credit than the amount for which the individual is eligible, an additional credit may be available, or a portion of the advanced credit the taxpayer received may need to be repaid.

King v. Burwell, No. 14-114, allows those purchasing health insurance on the federal healthcare exchange who are receiving subsidies to continue to do so. Although the tax credits are still available, an individual receiving the premium tax credit should be careful to recognize the potential tax implications on their next annual income tax return.

© 2015 Houghton Vandenack Williams

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IRS System Compromised for 104,000 Individuals

The Internal Revenue Service (IRS) recently announced that one of their systems has been hacked by organized criminals believed to be linked to one or more foreign countries. The system, “Get Transcript,” is traditionally used by taxpayers to retrieve tax returns from prior years. The hackers were able to access the information from this system for approximately 104,000 individuals, although attempts were made on over 200,000.

In order for the hackers to access the system through the multi-step authentication process, the hackers had substantial information regarding these individuals prior to this event. Information that the hackers had on each person prior to this incident likely included social security numbers, dates of birth, tax filing statuses, and street addresses.

The result from the data breach includes approximately 15,000 fraudulently filed tax returns, however, the IRS notes that the volume and type of data retrieved may be used to perpetrate other frauds.  These frauds include opening new lines of credit or credit cards in the victim’s name, filing future fraudulent tax returns, or otherwise taking advantage from the sensitive information.

For those 200,000 individuals directly impacted, the IRS will notify them regarding the data breach and monitor their tax returns closely next year. For the 104,000 accounts actually hacked, the IRS will provide free credit monitoring services and a secure PIN, to add another security layer for future tax filings.

© 2015 Houghton Vandenack Williams

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Required Reporting of Offshore Assets

US individual and business taxpayers with interests in certain foreign or offshore financial assets or accounts are required to disclose those assets on their federal income tax returns or file additional forms. A failure to file the necessary forms or a failure to disclose reportable assets can lead to both criminal and substantial monetary penalties.

The IRS has established various programs for remedying certain non-compliance issues and limiting liability for taxpayers that either fail to file or make proper disclosure. The programs typically involve voluntary disclosure of the reportable assets or the filing of amended returns. These voluntary programs must normally be undertaken prior to any IRS investigation of the matter. The correct remedy and actual eligibility for the various programs depends on the circumstances surrounding the failure to disclose the reportable assets or the failure to file the necessary forms.

In 2014, the IRS announced modifications of certain programs, but expanded others to accommodate additional taxpayers. For more information, see http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance. IRS, IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance; IR-2014-73, June 18, 2014.

If you have foreign or offshore assets, it is best to contact an attorney to determine whether those assets are reportable, and if you have failed to report those assets, it is important to determine what steps should be taken to limit the risks associated with the previous failure to report foreign or offshore assets.

© 2015 Houghton Vandenack Williams

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B-Corp and Benefit Corporation Status

Currently, in 28 jurisdictions including Nebraska, Benefit Corporation status exists as an option for forming a legal corporate entity. This is distinguished from B-Corp. status, which is a certification by B-labs, a 501(c)(3) organization. Although the purpose and intent of the certification and the legal status are similar, each have important differences.

A Benefit Corporation is organized under the laws of the state and requires the company to make decisions that benefit the shareholder, the employees, and society at-large. In Nebraska, for example, the state officially started recognizing this form of corporate entity in April, 2014. If elected, the corporation must have a general public benefit as measured by a third party standard and meet transparency and accountability requirements. It is expected that the volume of states recognizing Benefit Corporation status will grow.

Electing Benefit Corporation status means society and the public will benefit, generally, in accordance with the intent of the founder. More importantly, should the owner/founder leave the company or somehow no longer be in charge, the company will be required to consider the societal benefit aspects of the company in their decision making.

B-Corp status, on the other hand, requires a certification process by B-labs. The certification process varies depending upon the size of the company, but includes a company assessment and a fee. This allows the company to advertise their B-Corp status and show that they are looking beyond the shareholder profit motive, to a larger, moral and societal perspective regarding their company.

Although becoming B-Corp certified is distinct from using Benefit Corporation as a legal entity, they both encourage a broader, societal perspective in corporate decision making. Depending upon the specific organization contemplating one of the two options, a careful review of the requirements for each will ensure a proper selection.

© 2015 Houghton Vandenack Williams

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Beware of Potential Tax Return Fraud

Many doctors and health practitioners around the nation are experiencing tax return fraud issues. Tax return fraud occurs when another person or entity fraudulently files a tax return for another individual, looking to receive the victim’s refund. Across the nation, over the past two tax years, this has been a growing problem targeting doctors and similar health professionals. In Nebraska, it appears that this could also be a growing trend.

If you attempt to file a return and the Internal Revenue Service rejects it because a return has already been filed under your Social Security number, this signals tax return fraud. In this event, please contact an attorney for guidance.

© 2015 Houghton Vandenack Williams

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IRS Issues Notice Regarding PPACA Excise Tax

Part of the Patient Protection and Affordable Care Act (“PPACA”) efforts to reduce healthcare costs include an excise tax on health insurers that provide benefits to employees above a threshold limit. This tax is designed to discourage insurance programs that allow employees to receive unusually generous benefits under the insurance plan, which is believed to encourage heavy usage of healthcare. By reducing the overall usage, it will decrease costs. Moreover, it is expected that this tax will help fund the PPACA and off-set the cost of healthcare for those who are not enrolled in a qualified welfare plan. The 40% excise tax is set to take effect in 2018 for the cost of an applicable coverage plan that is above the threshold limit.

In preparing for the implementation of the excise tax, the Internal Revenue Service (“IRS”) has issued Notice 2015-16. This notice serves to clarify “the definition of applicable coverage,” “the determination of the cost of applicable coverage,” and “the application of the annual statutory dollar limit to the cost of applicable coverage.” The notice also seeks input on these issues.

This notice is only the start of implementing the new excise tax and the IRS anticipates issuing further notices. Eventually, the IRS intends to propose regulations and will invite further comments. For details regarding Notice 2015-16, the notice may found at the following link: http://www.irs.gov/pub/irs-drop/n-15-16.pdf .

© 2015 Houghton Vandenack Williams

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Update to FMLA Definition of “Spouse”

The Department of Labor (“DOL”) has updated selected regulations to the Family and Medical Leave Act (“FMLA”). The updates change the definition of spouse to mean: “husband or wife refers to the other person with whom an individual entered into marriage as defined or recognized under state law for purposes of marriage in the State in which the marriage was entered into . . . .”

Essentially, the change now requires employers to recognize FMLA leave for same sex individuals if the marriage is recognized and valid in the state where they were married. This change departs from the previous rule that requires recognition of the marriage by the state where the employee resides. This update will impact several parts of FMLA regulations, including leave for pregnancy, adoption, next of kin, and the care of a parent.

Although this new rule brings FMLA closer to the definition of spouse in other federal regulations and Supreme Court precedent, it does not include domestic partners. It must be a legally recognized marriage, including common law marriage, but it does not include a domestic partnership.

For employers, this may mean updating employee manuals and handbooks, as well as being aware of the laws of the various states when an individual applies for FMLA leave. The DOL does not expect compliance with the new regulations to add substantial cost.

The update to the federal regulations can be found at the following link: https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-03569.pdf

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