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July 2011 Edition of Indian Tribal Governments News

ITG News Home Page

 

Table of Contents

  • Message from the Director
  • Information Reporting Webinar for Indian Tribal Governments
  • July 1st is Due Date for Filing Forms 11-C
  • A Notice from the IRS: What Should a Tribe Do?
  • Expanded Form 1099 Requirements Repealed
  • Optional Standard Mileage Rates
  • Bank Secrecy Act Findings
  • FinCEN Simplifies Structure of its Rules and Regulations
  • New Instructions for Form 941
  • Special Rules for Reporting Election Worker Compensation Earned Income Credit – Don’t Overlook It
  • Casino’s Trade Name and Legal Name
  • Federal Tax Deposit Penalties
  • Deceased Employee's Wages - General Instructions for Forms W-2 and 1099-MISC
  • The Importance of Form W-9
  • Reissuance of Debt Obligations: Some Basic Concepts
  • The Volunteer Income Tax Assistance (VITA) Program
  • Outreach Successes
  • Alaska Training Opportunity

Scroll down the page to view each of the articles

 

 

Message from the Director

We are excited to finally be issuing the ITG News via the Gov Delivery system! Those of you who traditionally have received your copy of the news through e-mail were automatically added to the subscription list. If you change email addresses or have colleagues who wish to subscribe, simply click here and subscribe with just a few clicks!

We are also taking advantage of technology to deliver training to Indian Country. ITG will be holding its first ever webinar on August 25 at 2:00 p.m. Eastern Time. The subject will be Information Reporting, an area in which we often find errors or confusion. We will be covering a wide variety of topics to include payments to foreign entities, employer treatment of employee’s business expenses, and how to determine withholding. If you view the webinar when it’s broadcast live, you can also receive CPA CPE credits. Please take a look at the end of my message below and enter a reminder on your calendars! For those of you who may not be able to attend the live broadcast, we will send you a link – via Gov Delivery - to the recording when it’s available.

Budgets are tight for all governments. By utilizing web-based tools, our office is hopeful that we can continue to provide important training classes to you in these tough economic times. We welcome your suggestions for future webinar topics and other ways that we can get information out to you.

Finally, we are aware that many of you are experiencing challenges due to recent severe weather and related events occurring across the country. It seems that every corner of Indian Country has been affected in some way. We hope that everyone can stay safe. Please contact your ITG Specialist if you need assistance with any of your tax filings during this challenging summer.

Sincerely,
Christie Jacobs, Director

 

 

 

 

Information Reporting Webinar for Indian Tribal Governments

The office of Indian Tribal Governments will be presenting a free webinar titled The DOs and DON'Ts of Reporting Requirements for Indian Tribal Governments on August 25 at 2:00 p.m. Eastern Time.

ITG Specialists Judy Pearson and Mark Holburn will discuss a variety of topics to include:

  • Tribes making payments to foreign entities
  • Special Rules for Tribal Council Pay
  • How an employer should treat employee business expenses
  • Filing Forms W-2 and 1099-MISC
  • Verifying a Taxpayer Identification Number (TIN) or Social Security Number
  • When do you withhold FICA, FITW and FUTA?
  • And more!

The webinar is free! To register click here. To attend the webinar, you would use the same link.

If you cannot attend the webinar, we will have it available for viewing approximately two weeks after the date of the event. Please visit www.irs.gov/tribes.

If you have any questions, do not hesitate to contact your ITG Specialist.

 

July 1st is Due Date for Filing Forms 11-C

Tribes selling pull-tabs are required to file:

  • Form 11-C, Occupational Tax and Registration Return for Wagering and
  • Form 730, Monthly Tax Return for Wagers

Form 11-C is an annual return which applies to persons receiving taxable wagers whether they receive compensation or are volunteers. Both the tribal government and agents (persons who accept taxable wagers on behalf of the tribe) must file Form 11-C to register and to pay the occupational tax before wagers are accepted and annually thereafter. Each agent has a unique Employer Identification Number (EIN) for purposes of the Form 11-C Occupational Tax.

Generally, the amount of the occupational tax is $50 per year per person.

The due date for Form 11-C for the period July 1, 2011 through June 30, 2012 is July 1, 2011.

 

 

A Notice from the IRS: What Should a Tribe Do?

When a Tribe receives a notice from the IRS, it is important to open, read and respond to it. However, before responding to the person listed on the notice, the Tribe should do two things:

  1. Research the matter
  2. Contact their ITG Specialist

The IRS sends notices for many reasons:

  • The tax return is missing information.
  • If the notice is about an examination or audit, the tribe will be asked to produce certain information for the examination at a specified time and place.
  • The notice may ask for payment of a tax bill.

Most notices include a deadline to respond. Responding to the IRS lets them know the notice has been received and the Tribe is doing something about it.

Putting off contacting the IRS, especially in the case of notices requesting payment, can increase the amount a Tribe can owe because penalties and interest keep accruing.

 

 

Expanded Form 1099 Requirements Repealed

Since the April edition of the ITG News, the President signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. This law repeals the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation – the 2010 Patient Protection and Affordable Care Act and the 2010 Small Business Jobs Act. What this means is that Form 1099 reporting requirements revert to what they were before the 2010 Act.

The main provisions impacting Indian Tribal entities are:

  • The repeal of the reporting requirements for merchandise purchased in the aggregate of $600 or more; and
  • The repeal of the reporting requirement for services provided by corporations (in general) in the aggregate of $600 or more.

The repeal has no impact on Forms 1099 for payments to corporations providing medical or legal services, which continue to be required.

Increased Penalties Not Repealed

The 1099 Act did not repeal the increase in the information reporting penalties that were mandated by the Small Business Jobs Act. The increased penalties will be adjusted for inflation every five years. These increases have been in effect since Jan. 1, 2011. For further detail on these penalties, see the April 2011 edition of the ITG News.

 

 

Optional Standard Mileage Rates

The IRS is revising the optional standard mileage rates for using an automobile for business, medical or moving expense purposes. This is due to the rise of fuel costs. The revised standard mileage rates are 55.5 cents per mile for business use and 23.5 cents for use as a medical or moving expense. The mileage rate of 14 cents remains the same for using an automobile as a charitable contribution.

These changes apply to deductible transportation expenses which occur after July 1, 2011. This includes mileage allowances paid to an employee.

Please view Announcement 2011-40 for more information.

 

 

Bank Secrecy Act Findings

The Financial Crimes Enforcement Network (FinCEN) recently announced civil monetary penalties against a Native American casino for violating Bank Secrecy Act (BSA) requirements. The casino, without admitting or denying the allegations, consented to the penalties.

FinCEN Director, James H. Freis, Jr. stated, “As with other recent penalty actions by FinCEN involving banks and money transmitters, today’s casino action highlights the importance for all types of financial institutions to institute and maintain BSA compliance programs commensurate with their operations and risk.”

A Bank Secrecy Act compliance program for a casino must include, but is not limited to, the following elements:

  • A system of internal controls to assure ongoing compliance
  • Internal and/or external independent testing for compliance
  • Training of casino personnel
  • The designation of an individual or individuals responsible for assuring day-to-day compliance
  • Procedures for using all available information to determine and verify name, address, Social Security or taxpayer identification number and other identifying information
  • Procedures for detecting the occurrence of any transaction or patterns of transactions related to suspicious transactions
  • Procedures to determine whether records must be made and retained
  • Use of automated data processing systems to aid in assuring BSA compliance

We want to bring your attention to the specific deficiencies addressed in the FinCEN report. ITG Specialists have also observed many of these same issues during our visits and conversations with tribal casinos.

Internal control deficiencies:

  • Internal Controls lack adequate policies and procedures to address player activity across all parts of the casino, including surveillance, in order to detect suspicious activity.
  • Credit Card advances and checks cashed in excess of $3,000 are not recorded on the monetary instrument log.
  • FinCEN Forms 103, Currency Report by Casinos (CTRC) contains incorrect amounts because the casino failed to record and aggregate all personal checks cashed and credit card cash advances.

Independent testing deficiencies:

  • External auditor reviews do not include BSA compliance.
  • Internal audits are conducted with the participation of the BSA compliance officer, which compromises the independence of the audit function.

BSA training deficiencies:

  • In-house BSA training program is not tailored to specific job and department duties. Exclusive reliance upon general training provided by the Internal Revenue Service’s Indian Tribal Government Specialists is not adequate to ensure compliance with BSA requirements across all gaming activities for a tribal casino.
  • Not consistently maintaining a record of employees that received training.
  • Actions that demonstrate the lack of training include:
    • CTRCs filed in error for incorrect aggregation. For example, combining cash-in and cash-out transactions, each less than $10,000, but over $10,000 when combined.
    • Not recording the full player identification on CTRCs. For example, the driver’s license box was checked but no driver’s license information was recorded on the form.

Designation of BSA Compliance Officer deficiencies:

  • The replacement of BSA compliance staff was not done in a timely manner.
  • The written compliance program did not state the duties and responsibilities of the BSA compliance officer or designate a responsible individual, or individuals, to analyze and report suspicious activity in a timely, complete and accurate manner.

Procedures for using all available information to identify suspicious activity deficiencies:

  • Failure to implement procedures for aggregation of all transactions in all areas of the casino for identifying and monitoring suspicious activity.
  • Examples of not using all available information to identify suspicious activities:
    • No procedures are in place to generate a daily listing of credit card advances for purposes of aggregating a player’s total cash activity.
    • When a table game player ended play, the pit recorded that payer’s transaction information in the casino’s manual and computerized payer rating system, but the casino did not review this information against cage-generated multiple transaction logs to detect suspicious activities.

Additional records to be made and retained by casino deficiencies:

  • Casinos fail to retain a separate record containing a list of each transaction involving monetary instruments having a face value of $3,000 or more. For example, checks cashed for over $3,000 must be recorded on the monetary instrument log.

Requirement to report transactions in currency deficiencies:

  • Failure to aggregate transactions in currency when the casino has knowledge that the transactions are conducted by, or on behalf of, the same person during a single gaming day. For example, the casino must aggregate credit card advances, personal checks cashed, and/or chips redeemed.
  • Failure to file CTRCs within 15 days following the day on which the reportable transaction occurred.
  • Failure to properly record all required information on FinCEN Form 103, Currency Report by Casinos (CTRC), and FinCEN Form 102, Suspicious Activity Reports by Casinos and Card Clubs (SARC).

Requirement to report suspicious activities deficiencies:

  • Failure to report transactions involving at least $5,000 that the casino “knows, suspects, or has reason to suspect” are suspicious. For example, players cashing in chips below the $10,000 threshold in order to avoid having a CTRC filed.
  • Failure to file SARCs within 30 calendar days (or 60 days if further information to identify the subject is necessary) after the date of initial detection

For additional information, visit the Financial Crimes Enforcement website or contact your local ITG Specialist.

 

FinCEN Simplifies Structure of its Rules and Regulations

Because FinCEN regulations developed over many years and its authority expanded, it became more difficult to navigate the regulations. Therefore, the Financial Crimes Enforcement Network (FinCEN) transferred its regulations within the Code of Federal Regulations (CFR) to a separate chapter on March 1, 2011. FinCEN’s rules are now reorganized and renumbered into a new tenth chapter of Title 31 which appears as “Title 31 Chapter X - Financial Crimes Enforcement Network.” The regulations moved from 31 CFR Part 103 to 31 CFR Chapter X. A financial institution can now more easily identify its obligations under the Bank Secrecy Act (BSA).

“In reorganizing these regulations, FinCEN is making BSA rules more accessible, easier to research and easier to understand,” said FinCEN Director James H. Freis, Jr. “This change will promote the goals of the Bank Secrecy Act to protect the financial system from criminal abuse by facilitating compliance by regulated financial institutions.”

Documents published prior to March 1, 2011 will continue to contain citations to 31 CFR Part 103; those published on or after March 1, 2011 will contain citations to 31 CFR Chapter X. FinCEN has updated the regulatory citations found in its forms to 31 CFR Chapter X. Please note that after March, 1, 2011 FinCEN will continue to accept and process all currently acceptable forms that contain citations to 31 CFR Part 103.

FinCEN has made available a web tool created to facilitate making the transition from the former structure to the new Chapter X. The tool, Chapter X Citation Translator, will provide an automated way for financial institutions to translate a regulatory citation from 31 CFR Part 103 to 31 CFR Chapter X and vice versa.

 

New Instructions for Form 941

Form 941 Instructions includes some changes which are listed below:

Previously you would record the tax on unreported tips on the line for “Current quarter’s adjustments for tips and group-term life insurance.” Now, you record this tax on line 5e, “Section 3121 (q) Notice and Demand – Tax due on unreported tips.”

  1. The qualified employer’s exemption for Social Security taxes paid to qualified employees expired on December 31, 2010.
  2. The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008 and May 31, 2010, and to premiums paid for up to 15 months. See COBRA Premium Assistance Payments on page 7 of Form 941 Instructions.
  3. After December 31, 2010, employees can no longer receive Earned Income Credit (EIC) advance payroll payments. Those who received advance EIC payments in 2010 must file a 2010 Federal income tax return. 2011 eligible employees can still claim EIC when they file their Federal income tax return.
  4. As of January 1, 2011, the IRS no longer accepts Federal tax deposits by mail; you must accomplish this electronically. You can transfer funds electronically using the Electronic Federal Tax Payment System (EFTPS). If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf.

For a more detailed explanation of these changes, please read the What’s New section of the Form 941 Instructions.


 

Special Rules for Reporting Election Worker Compensation

Election workers are individuals who are generally employed to perform services for state, local or tribal governments at election booths in connection with national, state, local, or tribal elections.  Election workers are classified as “common-law employees.” However, there is an exception from FICA taxes provided for those who earn less than $1,500 for the year (exemption amount is $1,500 for 2011 and is indexed for inflation).

Election workers’ wages are NOT subject to Federal income tax withholding regardless of the amount…but all wages are taxable to the employee.

Confused?  Let’s use the following examples:

  1. If an election worker’s wages paid during the year are less than $600, the wages are not subject to FICA or Federal income tax withholding.  No Form W-2 is required to be issued.  The election worker must report the earnings as wages on his/her tax return.  Unlike other regular wages, election wages are not reported on Form W-2 until total wages are $600 or more.
    • Example:  an individual earns $200 in a calendar year for services as an election worker.  That individual is also employed by the same employer in another capacity in which earnings of $300 were subject to income tax withholding, FICA, and Medicare tax withholding.  The Form W-2 would report $300 of wages.  The $200 election wages are not required to be reported because the total of the two payments is less than $600 for the calendar year.  The worker is required to report $500 on his/her tax return.
  2. If an election worker’s wages paid during the year are between $600 and $1,499, those wages are exempt from FICA and no income tax withholding is required.  However, a Form W-2 should be issued and the election worker must report the earnings as wages on his/her tax return. On Form W-2, Box 14, Other, you can explain the absence of Social Security tax and Medicare tax withheld on election wages less than $1,500.  Enter “Election Pay Revenue Ruling 2000-6”.
  3. If an election worker’s wages paid during the year are $1,500 or more, FICA is required on the full amount of wages (not just those over $1,500).  Federal income tax withholding is not required.  A Form W-2 should be issued and the election worker must report the earnings are wages on his/her tax return.
    • If it is anticipated that an election worker may earn $1,500 or more in a calendar year, a tribal government employer may choose to begin withholding FICA taxes on the first dollar earned. If the worker then earns less than $1,500 in the calendar year, the worker would be entitled to a refund of the erroneously withheld FICA taxes. If the employer chooses not to begin withholding until after the worker earns $1,500, the employer would be liable for the total amount of FICA taxes due. The employer could recover the employee’s share of the FICA from the employee by withholding from future earnings or by other arrangements with the employee.

Revenue Ruling 2000-6 also states that the definition of election wages does not include compensation earned by a worker for administrative work done at locations other than at the polling place on the day of the election. Thus duties such as mailing absentee ballots or doing administrative duties after the Election Day would not be considered “pay to an election worker.” However, training specific to the duties performed at the polls on Election Day is included under the definition of election wages.

 

Earned Income Credit – Don’t Overlook It

The Earned Income Credit (EIC) is a financial boost for workers earning less than $49,078 in 2011. Four of five eligible taxpayers filed for and received their EIC last year. The IRS wants you to get what you earned also, if you are eligible.

Here are the top 10 things the IRS wants you to know about this valuable credit, which has been making the lives of working people a little easier for 36 years:

  1. As your financial, marital or parental situations change from year to year, you should review the EIC eligibility rules to determine whether you qualify. Just because you didn’t qualify last year doesn’t mean you won’t this year.
  2. If you qualify, the credit could be worth up to $5,666. EIC reduces the Federal tax you owe and could result in a refund. The amount of your EIC is based on your earned income and whether or not there are qualifying children in your household. The average credit was around $2,100 last year.
  3. If you are eligible for EIC, you must file a Federal income tax return and specifically claim the credit – even if you are not otherwise required to file. Remember to include Schedule EIC (Earned Income Credit), if required, when you file your Form 1040. Use and retain the EIC worksheet, located in the 1040 Instructions.
  4. You do not qualify for EIC if your filing status is “Married Filing Separately.”
  5. You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
  6. You must have “earned income” to be eligible. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income. Child support, unemployment insurance income, and distributions of tribal gaming profits (“per-capita”) are not considered “earned income” for eligibility purposes.
  7. Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
  8. Special rules apply to members of the U.S. Armed Forces in combat zones.  Members of the military can elect to include their nontaxable combat pay in earned income for the purpose of calculating the EIC. If you make this election, the combat pay remains nontaxable.
  9. It’s easy to determine whether you qualify. The EIC Assistant, an interactive tool available on the IRS website, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EIC.
  10. Free help is available at Volunteer Income Tax Assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EIC. If you are preparing your taxes electronically, the software program you use will figure the credit for you.

For more information about the EIC, see IRS Publication 596, Earned Income Credit.  You can also order the publication by calling 800-TAX-FORM (800-829-3676).

 

Casino’s Trade Name and Legal Name

Since publishing “Common Errors on Filing FinCEN Form 103” article in the April edition of the ITG News, we have received several questions, giving rise to this clarification article.  FinCEN is finding tribal casinos are not correctly reporting their Trade Name and Legal Name on FinCEN Form 103, Currency Report by Casinos (CTRC), and FinCEN Form 102, Suspicious Activity Reports by Casinos and Card Clubs (SARC).

To avoid the assessment of penalties for failing to file accurate CTRCs and SARCs, casinos must consistently enter the precise legal name, trade name and EIN as required by the BSA.  Below is a chart you can reference to help you complete the forms accurately:

 

The organizational structure of the casino is:

The legal name for purposes of CTRC and SARC is:

The EIN to use on CTRC and SARC is:

The trade name is:

Federally chartered corporation under section 17 of the Indian Reorganization Act, or Section 3 of the Oklahoma Indian Welfare Act

Legal name is the name on the corporate charter

Use EIN of the corporation

The name by which the casino does business and is commonly known

 Tribally chartered corporation

Legal name is the name on the corporate charter

Use EIN of the corporation

The name by which the casino does business and is commonly known

State chartered corporation

Legal name is the name on the corporate charter

Use EIN of the corporation

The name by which the casino does business and is commonly known

Conducting business as the tribe, an unincorporated instrumentality of the tribe, or a tribal enterprise
 

Legal name is the tribe’s legal name as listed on the Federally Recognized Indian Tribe List issued annually from the Department of Interior.

Use EIN of the enterprise.  If enterprise does not have its own EIN assigned by the IRS, then use the EIN of the tribal government.
 

The name by which the casino does business and is commonly known

 Limited Liability company (LLC)

Legal name is the name listed in the articles of organization

Use EIN of the LLC

The name by which the casino does business and is commonly known

 Partnership

Legal name is the name shown in the partnership agreement
 

Use EIN of the partnership

The name by which the casino does business and is commonly known

If you are unsure of your specific situation, please contact your local ITG Specialist.

 

Federal Tax Deposit Penalties

It is important to make timely Federal tax deposits because most of the money  belongs to your employees.  If you make these deposits late, you will receive a penalty. This penalty is called a “failure to deposit” penalty and is computed by multiplying the amount of tax you have underpaid by a penalty percentage rate based on how many days late you make the deposit.  These penalties for late deposits are expensive.  For amounts not properly or timely deposited, the penalty rates are shown below:
 

 

 Late Period/Reason for penalty

 Penalty Percentage Rate

 Deposits made 1-5 days late

 2%

 Deposits made 6-15 days late

 5%

 Deposits make 16+ days late

 10%

 Taxes unpaid after the 10th days following the 1st IRS bill

 15%

In addition to the above deposit penalties, you will also be subject to penalties if you late file your Form 941, or don’t pay the amount due on the return:

 

 What

 Rate

 Maximum

 Late Filed Tax Return

 5% per month of unpaid tax

 25%

 Late Paid Tax

 1% after Notice of Intent to Levy

 35%

Please review your payroll procedures to determine if you are making timely deposits. When you make timely deposits, you avoid penalties.  When you avoid penalties, money is available for other governmental needs.  Don’t let penalties get out of hand.  They are avoidable!!!

Summary of steps to avoid Failure to Deposit Penalties:

  • Make deposits on or before the deposit due date.
    • Make your deposit any time between the payroll liability incurred date and the deposit due date.
    • You are not required to wait until the due date nor will you receive a penalty for making deposits prior to the due date.
    • For deposits made by EFTPS to be on time, you must initiate the transaction at least one business day before the date the deposit is due.
  • Include a summary of your tax liability with Form 941.

 

Deceased Employee's Wages
General Instructions for Forms W-2 and 1099-MISC

If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death.

You must report on Form W-2 wages the employee constructively received while he or she was alive as any other regular wage payment, even if you may have to reissue the payment in the name of the estate or beneficiary.

If you made the payment after the employee's death but in the same year the employee died, you must withhold Social Security and Medicare taxes on the payment. Report the payment on the employee's Form W-2 only as Social Security and Medicare wages; this ensures he or she receives proper Social Security and Medicare credit.

On the employee's Form W-2, show the payment as Social Security wages (box 3) and Medicare wages and tips (box 5). Enter the Social Security and Medicare taxes withheld in boxes 4 and 6.  Do not show the payment in box 1.

If you made the payment after the year of death, do not report it on Form W-2, and do not withhold Social Security and Medicare taxes.

Whether the payment to the estate or beneficiary is made in the year of death or after the year of death, you also must report it in box 3 of Form 1099-MISC, Miscellaneous Income. Use the name and taxpayer identification number (TIN) of the estate or beneficiary on Form 1099-MISC. However, if the payment is a reissuance of wages the deceased individual constructively received while he or she was still alive, do not report it on Form 1099-MISC.

Example

Before Jane’s death on June 15, 2011, she was employed by Employer X and received $10,000 in wages on which Federal income tax of $1,500 was withheld. When Jane died, Employer X owed her $2,000 in wages and $1,000 in accrued vacation pay. The total of $3,000 (less the Social Security and Medicare taxes withheld) was paid to her estate on July 20, 2011. Because Employer X made the payment during the year of death, X must withhold Social Security and Medicare taxes on the $3,000 payment and must complete Form W-2 as follows:

  • Box a - Jane’s SSN
  • Box e - Jane’s name
  • Box f - Jane’s address
  • Box 1 - 10,000.00 (does not include the $3,000 accrued wages and vacation pay)
  • Box 2 - 1,500.00
  • Box 3 - 13,000.00 (includes the $3,000 accrued wages and vacation pay)
  • Box 4 - 546.00 (4.2% of the amount in box 3)
  • Box 5 - 13,000.00 (includes the $3,000 accrued wages and vacation pay)
  • Box 6 - 188.50 (1.45% of the amount in box 5)

Caution:  Employer X also must complete Form 1099-MISC as follows:

  • Boxes for the estate's name, address, and TIN.
  • Box 3 - 3000.00 (Even though amounts were withheld for Social Security and Medicare taxes, the gross amount is reported here.)

If Employer X made the payment after the year of death, the $3,000 would not be subject to Social Security and Medicare taxes and would not be shown on Form W-2.   However, Employer X would still file Form 1099-MISC.

 

The Importance of Form W-9

The Form W-9 is a very important form to have vendors and other non-employee payees of your Tribal entity to complete and send back to the tribe. If the tribe makes payments to certain vendors/payees without receiving a taxpayer identification number (TIN) prior to payment, the tribe is required to withhold 28% from the payment and submit this backup withholding to the U.S. Treasury. If the tribe fails to backup withhold from the vendor payment, the tribe is still required to deposit the 28% withholding.  The best way to secure the TIN is to require the payee to submit a Form W-9 prior to making any payment, attesting to the validity of the TIN and other information.

To illustrate this point let’s look at the following example:

A business receives a $25,000 invoice from their attorney and immediately pays it without getting a Form W-9. The business would be liable to the U.S. Treasury for the $7,000 withholding ($25,000 times 28%) plus any applicable penalties.  The cost of this transaction just went from $25,000 to $32,000 - $25,000 you paid the attorney plus the $7,000 you failed to deduct from the attorney’s payment and now have to pay yourself!

Note: Though the business did not have the attorney’s Form W-9 information they could have paid the attorney $18,000 and deposit the remaining $7,000 as backup withholding. 

As you can tell from the example, the best way to avoid this potential liability is to have your purchasing and accounts payable personnel know the appropriate W-9 requirements prior to issuing payments.  Those requirements are outlined below:

Identify to whom you will need to send a Form W-9. The Form W-9 instructions clearly states: “Use Form W-9 to request the taxpayer identification number (TIN) of a U.S. person (including a resident alien) and to request certain certifications and claims for exemption.”  “For Federal purposes, a U.S. person includes but is not limited to: an individual who is a U.S. citizen or U.S. resident alien, a partnership, corporation, company, or association created or organized in the United States or under the laws of the United States …”

Require the vendor/payee complete and return a valid Form W-9 prior to processing and issuing payment.  This simple step will eliminate most backup withhold requirements.

Understand which entities are exempt from backup withholding, even if the payee does not provide a TIN in the manner required.  The Form W-9 instructions list 15 entities that are exempt. The most common entities encountered are:

  • Tax exempt organizations under section 501(a);
  • Government entities;
  • Corporations (payments for medical/health care or attorneys’ fees to corporations are subject to backup withholding).

An excellent way for you to determine what type of entity you are doing business with and determine their eligibility for this exemption is to have them submit a Form W-9.

Identify the types of payments exempt from backup withholding.  The most common exempt payments are:

  • Wages
  • Gambling winnings if regular gambling winnings withholding is required under section 3402(q).

However, if regular gambling winnings withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN.”  Please see the Form W-9 instructions for the complete list.

Use the information you obtain from Forms W-9 to correctly complete the required information reporting forms, 1099 and W-2G.

In summary, using a Form W-9 provides an easy method to obtain the required information from your vendors and patrons.  Receiving a properly completed Form W-9 prior to payment will help insure you minimize the tribe’s exposure to funding your vendor’s backup withholding deposits.

 

Reissuance of Debt Obligations: Some Basic Concepts

Generally

The Office of Tax Exempt Bonds (“TEB”) has created a Financial Restructuring Compliance Team to: (1) identify potential compliance risks and potential violations of Federal tax laws related to tax-exempt and tax credit bonds that could result from actions taken, or proposed to be taken, by entities experiencing financial distress; and (2) create enforcement and education programs that protect the Federal government’s interests while being sensitive to the needs of such distressed entities.

As part of this service, the Team is providing the following information for issuers of tax-exempt bonds including Indian Tribal Governments issuing bonds under § 7871 of the Internal Revenue Code (the “Code”).  This information is not intended to be cited as an authoritative source on these requirements.  TEB recommends that issuers of tax-exempt bonds review § 1001 of the Code and the corresponding Income Tax Regulations (the “Regulations”) in consultation with their counsel. 

What is a reissuance?

Generally, a reissuance occurs under Federal tax law when there are significant modifications to the terms of a bond so that the bond ceases to be the same bond for tax purposes.  A reissuance is a deemed exchange of the modified bond for the original bond.

In the current financial climate, some issuers are contemplating restructuring the debt service on their tax-exempt bonds by entering into certain contractual agreements that modify the terms of the bonds.  The reissuance rules apply to all tax-exempt bonds from a large bond issue to a small lease entered into to acquire equipment as well as a tax-exempt note held by a local bank.

Why does reissuance matter? 

The consequences of a reissuance apply to issuers, conduit borrowers and to bondholders.  Reissuance of a tax-exempt bond generally triggers retesting of all the various tax requirements that apply to a new issue.  Specific potential consequences include, among other things, a change in yield affecting arbitrage investment restrictions, acceleration of rebate payments, new public approval requirements for qualified private activity bonds, deemed terminations of integrated interest rate swaps under the qualified hedge rules for arbitrage purposes, and a required filing of a new information return.  Moreover, reissuance can present a problem for certain types of bonds which must be issued by a statutory deadline (i.e., Tribal economic development bonds issued under Code § 7871(f) which for the first tranche of allocated national limitation of $1 billion cannot be issued after June 30, 2011 unless a written request extended that date to December 31, 2011, and for the second tranche of allocated national limitation of $1 billion cannot be issued after December 31, 2011.)

What causes a reissuance?

The standard for determining whether tax-exempt bonds are reissued, retired or modified significantly enough to trigger a retesting of the program requirements for new issues of tax-exempt bonds is based on the general Federal tax standards for debt exchanges under § 1001 of the Code and the Regulations thereunder.  Generally Regulations § 1.1001-3 employs a significant modification standard to determine whether modifications to a debt instrument are significant enough to cause the debt instrument to be treated as reissued for Federal tax purposes.  In general, a modification (or series of modifications) is a significant modification only if, based on all facts and circumstances, the legal rights or obligations that are altered and the degree to which they are altered is economically significant.  However, there are special rules for specific types of modifications to determine if there has been a significant modification. Because the consequences of a reissuance may be important, TEB encourages issuers to contact their counsel before any of the following actions listed below are taken to modify the terms of any bond that it has issued:

Specific Types of Significant Modifications

Change in annual yield.  Generally, a change in the annual yield of a tax-exempt bond by more than the greater of ¼ of one percent or 5% of the annual yield of the unmodified instrument will trigger a reissuance.

Change in timing of payments.  Depending on the circumstances, a reissuance may occur if there is a change in the timing of the payments due under the tax-exempt-bond such as an extension of the final maturity or a deferral of payments prior to maturity.

Substitution of a new obligor or the addition or deletion of a co-obligor.  If there is a change in payment expectations, the addition or deletion of a co-obligor on a tax-exempt bond may cause a reissuance.  The substitution of a new obligor on tax-exempt bonds is not a significant modification if the new obligor is related to the issuer and the collateral for the bonds includes the original collateral. 

Change in security or credit enhancement.  If there is a change in payment expectations, the substitution of new collateral for existing collateral of a tax-exempt bond may cause a reissuance.  Generally, however, the substitution of a similar commercially available credit enhancement contract on a nonrecourse tax-exempt bond will not cause a reissuance. See below for defeasances of tax-exempt bonds.

Change in priority of an obligation.  If there is a change in payment expectations, the subordination of a tax-exempt bond to another obligation may cause a reissuance.

Change in the nature of a debt instrument.   For example, changing a tax-exempt bond from a recourse obligation to a nonrecourse obligation or vice versa may cause a reissuance.  Generally, a legal defeasance of a debt instrument in which the issuer is released from all liability to make payments on the debt instrument is a significant modification.  However, there is an exception for tax-exempt bond defeasances under the circumstances described in Regulation § 1.1001-3(e)(5)(ii)(B). 

Change in payment expectations.  Depending on the circumstances, a change in payment expectations may cause a reissuance.  A change in payment expectations may occur if there is a substantial enhancement or substantial impairment of an issuer’s capacity to meet its payment obligations.  An issuer’s payment capacity for a set of bonds includes all of its sources of payment on the bonds, including collateral, guarantees, or other credit enhancement. 
Regulations § 1.1001-3(f)(6) provides special rules for certain tax-exempt bonds (for example, conduit loans).

Remedial Actions May Cause a Reissuance

Issuers and borrowers should take special note that, in addition to identifying those post-issuance changes to terms of bonds which could be a reissuance, a remedial action in connection with a change in use could cause a reissuance depending on the circumstances.  Thus, a reissuance may occur if the issuer takes a remedial action which involves the alternative use of the disposition proceeds.  For example, an issuer that uses cash proceeds from the sale of its tax-exempt bond financed facility to acquire another qualified facility may cause the bonds to have substituted collateral or may cause a change of payment expectations either or both of which could cause a reissuance.

Certain Tax Credit and Build America Bonds

Regulations § 1.1001-3 applies to modifications of debt instruments.  Thus, the principles discussed above may also apply to certain other types of tax favored obligations including tax credit bonds issued under section 54A and build America bonds issued under section 54AA.  Consequently, modifications of these debt instruments may also present problems to issuers.  For example, issuers of build America bonds must avoid making significant modifications that result in a reissuance as build America bonds have a statutory deadline and cannot be issued after December 31, 2010. TEB recommends that issuers of tax credit bonds and build America bonds also consult with their counsel about the possible effects of a reissuance. 

TEB Links

Visit TEB’s internet site for frequently asked questions (TEB FAQs) regarding reissuance and other TEB Topics.  Also, view the Team’s full reissuance article on TEB’s website which includes links to relevant notices and more information on remedial actions that may cause a reissuance. For further questions, please put your topic in the subject line and submit them to TEB’s question e-mail box:.

 

The Volunteer Income Tax Assistance (VITA) Program

The VITA Program offers free tax help to low-to-moderate income (generally, $49,000 and below) people who cannot prepare their own tax returns. Certified volunteers sponsored by various organizations receive training to help prepare basic tax returns in communities across the country.  Tribal governments are encouraged to set up their own VITA sites.

In 2010, the Cherokee Nation was honored for 30 years of volunteer service for its very successful VITA program.  In 2010, over 2,000 returns were prepared by VITA volunteers at this site.  Numerous tribal VITA sites located in the Southwest have been successfully preparing returns for 10 years.  The Southwest VITA sites are coordinated with the IRS Office of Indian Tribal Governments (ITG) and the Office of Stakeholder Partnerships, Education and Communication (SPEC).

SPEC, working in conjunction with ITG, has developed tribal protocol training for all of the SPEC Tax Consultants.  These consultants are IRS Employees that assist organizations in establishing their own VITA Program.  This training is scheduled to occur during the month of August.  The purpose of the training is to open the lines of communication between SPEC and ITG in order to facilitate the process of additional tribal entities hosting VITA sites.

VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations. Most locations also offer free electronic filing.  Tribal governments, housing departments or job training programs are perfect locations to set up a VITA site.  If you are interested in setting up a VITA site, the time to act is now.  If you click here, you can view a listing of the SPEC partners in your area to contact if you are interested in setting up a VITA site. 

The IRS Needs You - Become a Volunteer

Are you interested in giving back to your community, but are unsure how?  The IRS has the Free Tax Return Preparation for You by Volunteers available just for you. If your tribal government does not currently have a VITA program, encourage your tribal officials to commit to setting up a VITA site. Alternately, you can become a volunteer at an established VITA site.  Assisting others is the most rewarding feeling that you will ever receive.

In order to become a volunteer, you will complete a training program.  The volunteer tax preparation training is performance-based and uses a process-based approach to engage each student in the return preparation process.   Role-playing and demonstrations on how to use the technical tools to complete an accurate return are used extensively. Volunteers can certify as a VITA Tax Preparer by completing on-line modules and tests using the Link & Learn Taxes Program.  Students will require one of the following kits for training in the Basic, Intermediate, Advanced, Military and International courses:

  1. Publication 4480 - Link & Learn Taxes Kit consists of the exercise workbook (Publication 4491-W); Volunteer Resource Guide (Publication 4012) which should also be used at the site; and Form 6744 - Test/Retest. Publication 4480 is the cover transmittal for the kit. The electronic course evaluation form is part of Link & Learn Taxes online.  Please contact your SPEC Partner tax consultant listed below to request this training kit.
  2. Publication 4491 - Student Training Kit, consists of the Student Training Guide (Publication 4491), workbook (Publication 4491-W), Volunteer Resource Guide (Publication 4012), Form 6744 - Test/Retest, and a carrying bag (Publication 1278). Students and instructors can evaluate the materials in the kits using the electronic course evaluation module in Link & Learn Taxes online.

For ordering guidance and other information, please consult your local SPEC Partner tax consultant.

 

Outreach Successes

Annual Employment Tax/Gaming Training in Anchorage

The office of Indian Tribal Governments (ITG) held three different Employment Tax Workshops at the Anchorage office of the Internal Revenue Service.  A full-day session for pull tab, bingo, and gaming issues was also offered.  Originally, a single 4-day workshop was offered for March 28 – 31.  The response was so great that the workshop quickly filled up.  Therefore, second and third workshops were offered for April 4 – 7 and April 11 – 14.

Throughout the three different sessions eighty-three individuals attended.  Below is the attendee representation:

  • Forty-two tribal governments (61)
  • Six cities (11)
  • Two village corporations (3)
  • Two nonprofits (4)
  • State of Alaska (4)

The participants gave very favorable feedback.  ITG Specialists from the Anchorage office presented the workshops.  The state of Alaska Department of Labor and Workforce Development provided guest speakers who discussed employment issues related to Alaska's filing requirements and online filing.  Meanwhile, the state of Alaska Department of Revenue Tax Division (Gaming Unit) provided a guest speaker who discussed state gaming issues and regulations.

Covered topics:

  • Defining Employees vs. Independent Contractors
  • Computing the correct taxes for payroll
  • Completing Form 941, Employer’s Quarterly Federal Tax Return
  • Making Federal tax deposits
  • Due Dates on Tax Returns
  • Completing Forms W-2/W-3 and 1099/1096
  • Reconciling Forms 941 and W-2 at year end
  • Avoiding penalties
  • Meeting rules for an Accountable Plan for Per Diem & Travel Reimbursements
  • Pull tab and gaming excise tax filing requirements

We are available upon invite to present similar training throughout Alaska as long as (1) our audience consists of a sufficient number of tribal governments to justify our time and travel costs, and (2) a space is available (free of charge) for us to hold the training. 

If you are interested in co-sponsoring similar training in your area, encourage your regional nonprofit association or other local organizations to sponsor a workshop and provide a venue for the training. Please e-mail Judy Pearson,  phone 907-271-6949, or fax 907-271-6664 for further information.

Successful Training in Portland

On May 17-18, 2011, the office of Indian Tribal Governments (ITG) held a Payroll Tax/ Information Return Workshop in Portland, OR.  The event was held at the Portland office of the Internal Revenue Service. 

In conjunction, a Gaming Information Return Workshop was also offered on May 19, 2011. 

Over the two different sessions thirty individuals attended.  Five tribal governments were represented along with eleven tribally owned casinos.

Once again, the participants offered positive feedback. ITG Specialists from the Vancouver, WA office presented topics covering

  • Penalties and interest;
  • Independent Contractors versus Employees;
  • IRS Collection Process;
  • Calculating employment tax liabilities;
  • How to handle travel expenses;
  • Employment tax deposit schedules;
  • Preparation and filing Forms 941, 945, W-2, 1099;
  • Year-end reconciliation of Forms 941 and W-2;
  • How to file W-2s electronically with the Social Security Administration; and
  • Tax reporting requirements related to gaming activities.

If you are interested in co-sponsoring a similar employment tax workshop in your region of the Pacific Northwest, please e-mail Douglas Wellington, phone (503) 415-7315 or fax (360) 699-1060.

 

Alaska Training Opportunity

The office of Indian Tribal Governments (ITG), will be offering an Advanced Payroll Topics Workshop for our Tribal Customers.  It will be held in Room 210 (2nd floor) at the IRS offices located at 949 East 36th Avenue, Anchorage.

The dates, times, and topics are listed below:

Date: September 19 - 23, 2011
Time: Mon 1-4:30/Tue, Wed, Thu: 8:30-4:30/Fri 8:30-12:30

Topics:

  • Detecting Fraud (guest speaker)
  • Foreign Workers
  • Fringe Benefits
  • IRS Collection & Notices
  • Job Training Payments/Compensation
  • Loans to Tribal Members
  • Money Service Businesses (MSB)
  • Non-employee Honorariums & Travel Reimbursements
    Payroll Advances
  • Scholarships
  • State of Alaska—Wage & Hour Laws (guest speaker)
  • Third-Party Sick Leave
  • Tips & Tip Reporting

Space is limited; only 30 reservations will be accepted. 
Attendees must have at least 2 years experience in payroll taxes.

Contact Diane Nesvick for additional information or to register:
907-271-6917 phone
907-271-6664 fax
Diane.M.Nesvick@irs.gov

Please respond by August 15th.

Page Last Reviewed or Updated: 18-Apr-2014