TAX ALERT: IRS Mandates New Depreciation Regulations

The IRS has mandated that all taxpayers who incur costs to acquire, produce, or improve fixed assets adhere to new depreciation regulations. All taxpayers that this applies to are required to adopt these new regulations for the 2014 tax year. The adoption is considered an accounting method change and requires form 3115 to be filed. The preparation of this form will result in additional time and cost for all 2014 returns.

In addition to this, we recommend that all taxpayers for whom these regulations apply have a capitalization policy on record effective 1/1/2014. Below are links to two templates which you may use. The first should be used if you do not have annual audited financial statements. The second should be used if you have annual audited financial statements.

Please feel free to contact us if you have any questions.

Sincerely,
Your trusted advisors at KatzAbosch
Capitalization Policy 1 no audit
Capitalization Policy 2 with audit

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Retirement Plan Compliance Being Scrutinized by The IRS

The IRS is scrutinizing retirement plans with participant loan balances.  The IRS is concerned that Plans have not been following, or are abusing, the rules for loans from retirement funds. As a result, the Employee Plans Compliance Unit (EPCU) sent out letters to Form 5500-EZ filers identified in their records as having participant loans in excess of $50,000 per participant.  The project is intended to ensure sponsors are complying with participant loan limits, and that income tax is paid on excess amounts, and that Plans then correct the underlying procedures allowing this to happen.   Failure to comply does carry the risk that the Plan may lose its tax-favored status. Participant loans must meet the following standard requirements:

• The Plan must allow for participant loans.
  
• Loans must have a legally enforceable agreement stating the date of the loan, the amount, a reasonable interest rate, and the repayment schedule. The maximum loan amount is 50% of the vested account balance or $50,000, whichever is less.  An exception exists for situations where the vested account balance is less than $10,000.
  
• Generally, the participant must make payments at least quarterly of principal and interest.
• Generally, the loan must be paid back in 5 years or less, however there are exceptions if the loan is for a main home or if the participant is performing military service during the 5 year period of the loan.
  

If these rules are not followed, then the loan may be considered to be a “deemed taxable distribution”.  If the Plan has not followed these rules, options may exist for voluntary correction programs.  The IRS is also looking at loan balances in larger plans. More information can be found at http://www.irs.gov/Retirement-Plans/Form-5500-EZ-Excess-Participant-Loans-Project. If you have any questions, or if you need help in reviewing your Plan’s compliance, please contact Janet Cookson at jcookson@katzabosch.com, Josh Sutherland, CPA at jsutherland@katzabosch.com, or Katie Fortwengler, CPA at kfortwengler@katzabosch.com.

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Retirement Plan Compliance Being Scrutinized by The IRS

The IRS is scrutinizing retirement plans with participant loan balances.  The IRS is concerned that Plans have not been following, or are abusing, the rules for loans from retirement funds. As a result, the Employee Plans Compliance Unit (EPCU) sent out letters to Form 5500-EZ filers identified in their records as having participant loans in excess of $50,000 per participant.  The project is intended to ensure sponsors are complying with participant loan limits, and that income tax is paid on excess amounts, and that Plans then correct the underlying procedures allowing this to happen.   Failure to comply does carry the risk that the Plan may lose its tax-favored status.

Participant loans must meet the following standard requirements:

• The Plan must allow for participant loans.
• Loans must have a legally enforceable agreement stating the date of the loan, the amount, a reasonable interest rate, and the repayment schedule. The maximum loan amount is 50% of the vested account balance or $50,000, whichever is less.  An exception exists for situations where the vested account balance is less than $10,000.  
• Generally, the participant must make payments at least quarterly of principal and interest. 
•  Generally, the loan must be paid back in 5 years or less, however there are exceptions if the loan is for a main home or if the participant is performing military service during the 5 year period of the loan. 

If these rules are not followed, then the loan may be considered to be a “deemed taxable distribution”.  

If the Plan has not followed these rules, options may exist for voluntary correction programs.  The IRS is also looking at loan balances in larger plans.

More information can be found at http://www.irs.gov/Retirement-Plans/Form-5500-EZ-Excess-Participant-Loans-Project. 

If you have any questions, or if you need help in reviewing your Plan’s compliance, please contact Janet Cookson at jcookson@katzabosch.com, Josh Sutherland, CPA at jsutherland@katzabosch.com, or Katie Fortwengler, CPA at kfortwengler@katzabosch.com.

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