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July 29, 2016
In This Issue of NSAlert:
Property Received For Services Rendered? No More Section 83(b) Filing Requirement
Individuals who receive property related to the performance of services and choose to include the value in their income no longer have to file a copy of the written election statement with their tax returns, the IRS said in final regulations issued on July 25. The regulations, contained in T.D. 9779, make no changes to proposed rules (REG-135524-14) issued in July of last year.
Under Section 83(b), a taxpayer who provides services and received payment in the form of property may make an election to include in income, as ordinary income the fair market value of the property on the date of the election. Under the final regulation, no written election statement needs to be filed. Previously, the statement had to be filed with the IRS no later than 30 days after the date of the transfer.
The final regulations apply to property transferred on or after Jan. 1, 2016. For property transfers in 2015, taxpayers can also rely on the guidance on the final regulations, the IRS said.
A copy of T.D. 9779 is available here.
FASB Proposal Would Require Disclosure Of Reinvested Foreign Earnings
U.S. multinationals and other companies would need to disclose cash, cash equivalents and marketable securities held by foreign subsidiaries under a Financial Accounting Standards Board proposal issued on July 26.
According to discussion at the July 26 meeting, the FASB intends for its proposal to bring greater transparency in the area of indefinitely reinvested foreign earnings. Under current rules, a company is required to provide the deferred tax liability for indefinitely reinvested foreign earnings. Indefinitely reinvested foreign earnings considered to be permanently reinvested must be disclosed under current U.S. tax accounting rules.
If a company says it is "indefinitely reinvesting" its earnings, it does not have to recognize a liability. When the company changes that assertion, however, the proposed disclosures would require the company to explain the circumstances that caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings and the amount of earnings that correspond to the change.
The new rules are contained in a package of changes to disclosure requirements for income taxes under ASC 740 issued by FASB. Other proposed changes in the package include:
- description of an enacted change in tax law that would have an effect on the company in a future period;
- income tax expense or benefit from continuing operations broken out between domestic and foreign; and
- income taxes paid broken out between domestic and foreign and the amount of income taxes paid to a particular country that is significant relative to total income taxes paid.
FASB said the proposed disclosures will provide financial statement users with better information about income taxes, thereby enabling them to make better assessments of a company's economic health.
The work is part of the board's broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements.
FASB is seeking comments by Sept. 30 on the package. A copy of the proposed Accounting Standards Update is available here.
States Focus On Sharing Economy Tax Liabilities
One of the main areas of focus at the recent annual meeting of the MultiState Tax Commission is the sharing economy and how to address the growing tax gap problems for the IRS and states. The issue? Tax liabilities for Uber Technologies Inc., Airbnb Inc. and other peer-to-peer companies and the many independent contractors who work for them.
The tax gap is growing because on-demand service providers such as Lyft Inc. and TaskRabbit are a growing part of the economy according to a number of speakers at the meeting. One study delivered to Congress in May estimated that more than 2.5 million Americans earned income via on-demand platforms like Airbnb, Etsy Inc. and Lyft in 2014, and the companies generated an estimated $15 billion in revenue. But tax dollars on much of that revenue could be lost because the companies don't withhold taxes on the income they pay to people who provide services or sell items via their platforms, the study said.
Annette Nellen, director of San Jose State University's graduate tax program, noted that code Section 6050W, which addresses returns relating to payments made in settlement of payment card and third-party network transactions, requires processors of credit cards and debit cards to issue a Form 1099-K to vendors and the Internal Revenue Service, she said. The section also requires Form 1099-K reporting for third-party network transactions in which a third party—such as PayPal Inc.—processes payments. The statute includes a threshold for these transactions so that a Form 1099-K needs to be issued only when service providers have at least 200 transactions in a year and earn at least $20,000, Nellen said. "There are a lot of people working in the sharing economy where the number of transactions fall below that."
Generally, Nellen questioned whether there is enough guidance for taxpayers working in the sharing economy, including on "long-standing" issues like worker classification. The debate has been couched as a labor law issue, Nellen said, and "a lot of people are saying, once the labor law gets solved, everything is done. I think they will be very surprised if the IRS comes in and says maybe they aren't contractors for tax purposes."
Panelists at the meeting agreed that the barriers to entry in the sharing economy are so minimal that many participants have no idea of the tax consequences involved. Why don't Uber and Lyft and Airbnb provide the necessary tax guidance to their service providers? Uber and Lyft don't want to give the information to them "because it will look like they're training them and they are employees rather than independent contractors," Nellen said.
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