In this fourth quarter update, we cover some of the most important tax issues for companies in the technology, clean technology, life sciences, and communications and media industries and touch on what your organization can do to stay ahead of them.
ACA Information Reporting
The Affordable Care Act requires certain employers to report information on the health care coverage provided to employees to the IRS to determine whether employers are in compliance with the coverage requirements. Employers must also furnish statements to their employees. With the deadline approaching, companies should review their information to determine whether they will be able to meet these new requirements. Read our Alert for more details.
Section 83(b) Proposed Changes
Recently, the IRS released proposed regulations that would effectively eliminate the need for taxpayers to attach a copy of their paper filed Section 83(b) election (used when exercising stock options) to their individual tax return for the year in which the election was filed. The rules for making the 83(b) election will remain the same in that it must be filed with the IRS within 30 days of the taxpayer receiving the property subject to restrictions. The IRS will then scan a copy of the election and keep it on file electronically as evidence that the election was made. This change will allow taxpayers to e-file their return as opposed to paper filing only to attach their 83(b) election.
Although this change is proposed to apply as of January 1, 2016, taxpayers are told they may rely upon the proposed rule change for property transferred to them on or after January 1, 2015 (so effectively for 2015 calendar year 1040s).
California Multistate Tax Compact Update
Oral arguments from both sides were heard by the California Supreme Court on October 6, 2015, in the case of Gillette Company v. Franchise Tax Board. At issue is whether the Multistate Tax Compact’s election to apportion income within and outside of California using a three-factor, evenly weighted apportionment formula was available to Gillette, or whether California's membership in the Multistate Tax Compact was nonbinding, giving the state the right to deny Gillette the apportionment election. A decision is expected within 90 days from the date of the oral arguments, or January 4, 2016.
New York Sourcing Changes
Draft market sourcing regulations were posted to the New York State Department of Finance’s Web site on October 15, 2015. The regulations address sourcing of receipts from digital products, services, and other business activities, for purposes of apportioning income within and outside the state of New York. The draft regulations aren’t yet final and can’t be relied upon, but they do provide insight on how New York is likely to take in sourcing services and digital products revenue upon finalization of the regulations.
OECD Action on BEPS
The Organisation for Economic Co-operation and Development (OECD) recently issued action items for its Base Erosion and Profit Shifting Project originally tasked by the G20. The action items and the findings are now available for each country to consider how to implement and integrate them into local tax frameworks.
The OECD had 15 action items that it considered in the areas of international tax structures, transfer pricing, tax treaties, taxation of the digital economy, and transparency with taxing authorities. Overall, countries need to require more substance in international tax structures such that there are no longer “cash boxes” in tax havens, but rather that the income is aligned to where a company has its people, assets, and functions. Additionally, the OECD has called for greater transparency by taxpayers with taxing authorities.
Because the OECD isn’t a law-making body, it’s up to each country to determine how and which recommendations it wishes to implement. Some countries, such as the United Kingdom and Australia, have gotten out ahead of the BEPS project and have already started introducing reforms. Others, such as the United States, have taken a more measured approach and think their existing rules and regulations may already be BEPS compliant.
2015 Year-End Tax Planning Guide
The calendar year is quickly coming to a close, but there’s still time for companies (and individuals) to take some key actions before year-end that can significantly reduce 2015 liability. Moss Adams just released its annual year-end tax planning guide, covering key opportunities and developments that individuals, businesses, and business owners need to be aware of going into 2016.
Tangible Property Safe Harbor Changes
The IRS increased the de minimis safe harbor requirement for deductible property repair expenses for small businesses to $2,500 after commenters said a $500 limit was too low.
ASC 740 Changes
In a rare simplification, the Financial Accounting Standards Board (FASB) changed the rule so that all deferred tax assets and liabilities will be classified as noncurrent. This was issued as Accounting Standards Update (ASU) 2015-17. As a result, companies won’t need to split the deferred tax assets and liabilities between current and noncurrent.
The rule doesn’t officially take effect until 2017 for public companies and 2018 for nonpublic companies, but early adoption is allowed. We recommend that companies discuss this with their tax providers—and probably auditors—to help decide when to start using the new rule.
We're Here to Help
Moss Adams continuously reviews the regulatory and tax landscape for technology, clean technology, life sciences, and communications and media companies. For more information about any of the issues discussed above, or for insight on how they may impact your business, contact your Moss Adams professional.