Tag Archives: compliance

Significant Changes to Form 5500 Proposed

The Internal Revenue Service “IRS”, the Department of Labor “DOL” and the Pension Benefit Guaranty Corporation “PBGC” (the agencies) recently proposed significant changes to the Form 5500 requirements for employer sponsored benefit plans. If approved, the changes would be the most significant since implementing the EFAST2 electronic filing system in 2009. As such, the filing system has allowed for easier data collection leaving the agencies anxious to obtain more robust data from plan sponsors about their plans. While the new reporting requirements are scheduled to take effect for plan years beginning on or after January 1, 2019, employers, investment companies, custodians, record-keepers, third-party administrators, and trustees, etc. would be impacted by the new requirements, which could cause rollout delays.

The changes are quite ambitious and clearly reflect the agencies’ desire for additional and more valuable data in the areas of concern. The proposed changes focus on the following areas:

Plan investments

There is continued sentiment that many plans include high-risk, hard to value assets. Proposed modifications to the Schedule H Financial Information, would disclose the assets that create the greatest concern. New information would be gathered on derivatives, limited partnerships, private equity and hedge funds.

Service provider fees and expenses

Fees paid by plan participants continue to be a huge focus, along with continued frustration from the agencies as to how these amounts are being reported via the current Form structure. Additional reporting would be required on the Schedule H, while the  Schedule C Service Provider Information, would be modified to more closely align with the 408(b)(2) indirect compensation reporting for covered service providers. Schedule C reporting would also be required for small retirement and welfare benefit plans along with additional new inquires on the Form.

Information on plan operation and compliance

The 2015 Forms included several new questions focused on plan provisions and testing. Shortly after being released, the agencies relented and eliminated the requirement that these questions be answered. It is not clear at this point when answers to these questions will be required, but they remain a reminder of just how much new information the agencies can obtain. The additional proposed compliance questions revolve around other plan administration areas, including service provider compensation, uncashed checks, default investment alternatives and participant disclosures.

New and enhanced reporting requirements for employer sponsored healthcare arrangements

Employers who sponsor welfare benefit plans, including health plans that generally have greater than 100 participants, are required to file Form 5500. This filing typically consists of the Form itself along with Schedule A Insurance Information, and sometimes Schedule C. Small welfare benefit plans have been exempt from this requirement. However, under the proposed rules, the exemption would be modified. ERISA covered group health plans, regardless of size, would be required to file Form 5500. Additionally, applicable employers would be subject to filing the new Schedule J Group Health Plan Information, which includes a myriad of questions required under the Public Health Service Act.

Other areas impacted by the proposed changes include: additional ESOP questions on Schedule E ESOP Annual Administration, enhanced reporting on Form 5500-SF, new reporting requirements for small plans not eligible for Form 5500-SF, revised Schedule G Financial Transaction Schedules, merger and termination reporting on Schedule H, and changes to Direct Filing Entity “DFE” reporting.

Employers sponsoring ERISA covered plans have been quite fortunate that Form 5500 reporting requirements have generally been reduce over the last 10 to 15 years. This is the first time in quite a while that enhanced Form 5500 reporting requirements are likely. Given the expansive nature of the proposal, some increases are almost certain to be enacted. As previously stated, the proposed reporting changes are a huge undertaking that would greatly impact employers that sponsor retirement plans and/or group health plans. The new reporting for group health plans in particular could present challenges as generating the additional proposed information by health insurance vendors would not be an easy task. Enhanced retirement plan investment fee reporting would also pose difficulties. These challenges will likely result in significant push back from the impacted plan service providers, which has historically resulted in modifications prior to release of the final version.

Employers and service providers have been afforded ample time to prepare for the changes and how the agencies respond to the public’s comments is worth watching. There is no doubt that it is much easier for the agencies to gather and analyze information on employer sponsored plans and they are very interested in the benefits and associated costs of that which is being provided. As an employer, be preparing for change.

Please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301-231-6257 to further discuss the impact of the proposed Form 5500 changes.

Tax Compliance Series for Construction Contractors: Long-Term Contract Adjustment

compliance-series-cisg-icon-01In the first two articles in Aronson’s Tax Compliance Series for Construction Contractors, we explored the various methods of accounting available, as well as the lookback provision. This article will focus on the Long-Term Contract Adjustment (LTCA).

LTCA comes into play with our dear old friend, the Alternative Minimum Tax (AMT). The LTCA is an adjustment that must be computed on contracts that do not use the percentage of completion method of accounting. You must compute the gross profit earned on these contracts as if you were using the percentage of completion method and then compare it to your normal method. The difference between the two gross profits is the LTCA (positive or negative) used to determine your AMT.

There are two exceptions that exempt a contractor from computing this adjustment:

  1. The contract qualifies as a home construction contract
  2. The company is deemed a small corporation

Compliance in this area is often overlooked or, due to their complexities, computations are performed incorrectly. You should determine if you are subject to the LTCA provisions each year considering your method of accounting and revenue threshold.

For more information on these common tax reporting issues, or to discuss how they may impact your construction business, please reach out to Chavon Wilcox, CPA, CCIFP, partner in Aronson LLC’s Construction and Real Estate Group at 301.231.6288.

 

Related Reading:

Tax Compliance Series for Construction Contractors: Methods of Accounting

compliance-series-cisg-icon-01In addition to compliance requirements and specific rules directly aimed at the construction industry, ever-changing tax rules and regulations can make it difficult to recognize exactly where your contracting business could be vulnerable or exposed to IRS penalties. The implications of how you report revenue or account for your labor force can vary from year-to-year and change when certain financial milestones are achieved.

A Certified Public Accountant (CPA) specializing in the construction industry should keep you informed and help you plan ahead to take advantage of the benefits available to your construction business and ensure you are in compliance. This six-part blog series on tax compliance for construction contractors will give you a glimpse into the most common IRS tax reporting issues impacting businesses in the industry.

In this first post, we focus on methods of accounting. Just as there are various types of contractors, there are multiple methods of tax accounting at a contractor’s disposal. Methods include: cash, accrual (with variations), completed contract, percentage of completion (with variations) and a hybrid of these methods. Reaching certain revenue thresholds determines what method you will be permitted or required to use from one year to the next.

It’s likely that you will use at least two methods of accounting, one for your overall method and one for your long-term contracts. Once a contractor reaches or exceeds revenue over $10 million in average gross receipts for the previous three tax years, long-term contracts are required to be reported using the percentage of completion method under Internal Revenue Code (IRC) Section 460, “Special Rules for Long-term Contracts.”

The intricacies of IRC Section 460, along with other rules of the IRC (e.g., whether or not you have inventory), can complicate which method you use for your construction business. Careful consideration should be given, as once a method of accounting is adopted, that method must be used as your overall method going forward unless a method change is requested from the IRS Commissioner. You should work with your accountant to assess and monitor the status of your business to help you plan for the next tax year to avoid any surprises.

For more information on these common tax reporting issues, or to discuss how they may impact your construction business, please reach out to Chavon Wilcox, CPA, CCIFP, partner in Aronson LLC’s Construction and Real Estate Group at 301.231.6288.

Stay tuned for the next post in our tax compliance series, which will focus on lookback.

IRS Releases New Guidance for ACA Compliance

The IRS released fact sheets 2014-09 discussing the Affordable Care Act (ACA) as it pertains to individuals, and 2014-10 discussing the ACA as it pertains to employers.  These fact sheets provide a helpful overview in gaining a broad understanding of essence of the ACA.

In short, all individuals, with very limited exceptions, must have insurance meeting minimum standards, and all employers with 50 or more full-time employees must offer affordable insurance.  Businesses with part-time employees should be especially cautious to compute the number of full-time equivalent employees, which could very well push the business over the compliance threshold.

Due to the complexity of the ACA, professional guidance should be sought. One misstep can result in significant penalties.  For further information or to discuss your specific situation, please contact your Aronson tax advisor at 301.231.6200.

Is Your Business Susceptible to Cybercrime?

cybercrimeThere are many forms of cybercrime that can affect a small-to-medium-sized business.  The AICPA recently released a study of the top five cybercrimes in virtual environments.  They include:

  1. Tax refund fraud
  2. Corporate account takeover
  3. Identity theft
  4. Theft of sensitive data
  5.  Theft of intellectual property

While all are to be taken seriously and need to be considered, corporate account takeover and theft of sensitive data are particularly important concerns for businesses.

In a corporate account takeover, network login credentials are

Read more ...

View Archives

Blog Authors