October 2013 Edition of Indian Tribal Governments News
- Director’s message
- Keepseagle settlement payments are taxable
- Requesting comments: employer and insurer reporting under the Affordable Care Act
- ITG Voluntary Closing Agreements
- Park v. Commissioner has no impact on casino information reporting
- Funds from Land Buy-Back Program for Tribal nations is not taxable
- Voluntary Classification Settlement Program (VCSP)
- IRS guidance on sick leave plans
- How to get IRS forms and publications
- Reporting merchant card and third party network payments
- Indian Tribal Settlement Taxes phone forum now available
- Outreach update
- Alaska training opportunities
- Arizona training opportunities
I am excited to draw your attention to the articles on the ITG Voluntary Closing Agreement process and the Land Buy-Back Program. While the closing agreement process itself is not new, it specifically addresses its application in assisting Tribes.
Also, please take a moment to read the article about the Affordable Care Act.
And I hope that you were all able to join us a few weeks back for the ITG phone forum regarding the taxability of Indian Tribal Settlement payments. A recording and transcript of the phone forum is available online. For more information about the phone forum read the article on page 8. You can also read the article below specifically addressing the Keepseagle settlement payments.
You won’t want to miss the other guidance and tips offered in this edition, as well as notification of upcoming training opportunities. If you have any questions or comments on how we can improve our service, you can contact your assigned ITG Specialist, just send us an e-mail.
Indian Tribal Governments Director
Keepseagle settlement payments are taxable
Settlement payments, like other income sources, are generally taxable unless there is a specific exemption. Keepseagle has no exemption. The Keepseagle’s settlement amounts are taxable to the recipients.
Keepseagle was a class action lawsuit claiming that the USDA denied thousands of Indian farmers and ranchers the same opportunities as white farmers and ranchers to get farm loans or loan servicing. The law suit also claimed that the USDA did not communicate to Indian farmers and ranchers or provide them with the technical assistance to prepare applications for loans and loan servicing. The settlement agreement received preliminary approval on Oct. 29, 2010; it is now final.
Individuals may recover by two tracks: Track A or Track B. Track A provides a recovery of $50,000. Track B, which is a lengthy process and requires more evidence, provides a recovery of up to $250,000. Additionally, individuals who may also have their loans with the USDA forgiven are eligible under either Track A or Track B.
Certain recoveries – Track A and loan forgiveness – also include paying an amount to the IRS to offset the taxes owed. Individuals must include a Form 1099 when filing their taxes to receive credit for the amount paid in on their behalf. Additionally, those individuals recovering under Track B should consider making estimated tax payments.
Requesting comments: employer and insurer reporting under the Affordable Care Act
The Department of the Treasury and the IRS have issued proposed regulations to implement the information reporting requirements for insurers and certain employers under the Affordable Care Act. The public is invited to submit comments on these proposed rules through early November. For more information, please read this article.
Below are the proposed rules:
REG-136630-12, Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans
REG-132455-11, Information Reporting of Minimum Essential Coverage
ITG Voluntary Closing Agreements
If your Tribe discovers an accounting error that could affect its federal tax liabilities or the liabilities of the tribal members, you can correct the problem using the Voluntary Closing Agreement process.
A Voluntary Closing Agreement allows taxpayers to approach the IRS with self-identified violations or deficiencies, and work with the IRS towards a mutual resolution to correct the issues. ITG has successfully worked with tribal representatives to resolve errors and bring tribal entities into compliance with their federal tax matters in a non-examination manner.
Park v. Commissioner has no impact on casino information reporting
This Park v. Commissioner case decision does not affect the information reporting requirements casinos have for reporting gaming winnings. Casinos should continue to report and withhold on foreign persons and U.S. patrons.
The District of Columbia Circuit Court asked the U.S. Tax Court to review Park v. Commissioner to determine the amount of “gains” (winnings and losses) on a per-session basis.
The case addressed reporting gains and calculating the taxes on an individual’s Form 1040, U.S. Individual Income Tax Return. Gains that are reported on an individual’s Form 1040 don’t affect a casino’s reporting and withholding requirements for a win based on an individual bet or wager.
The following forms base information reporting on gross income (total amount individuals win from their bets):
- Form W-2G, Certain Gambling Winnings
- Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding
Casinos should not make any changes in their information reporting or withholding processes.
Funds from Land Buy-Back Program for Tribal nations is not taxable
If you receive any funds from the Land Buy-Back Program, you do not have to pay any federal income taxes. See Revenue Ruling 57-407 for more information.
The Secretary of the Interior established the Land Buy-Back Program for Tribal nations (Buy-Back Program) to implement the land consolidation provisions of the Cobell Settlement Agreement.
For more information about the Land Buy-Back Program read this article.
Voluntary Classification Settlement Program (VCSP)
The VCSP is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes. Read this article to find out more about this program and how to apply.
IRS guidance on sick leave plans
Accumulated sick leave plans
Employers have used a variety of plans that provide a retirement benefit for employees based on credit for accumulated unused sick leave. If you are considering or already administer a plan with this feature, employers should be aware of how different features of these plans may affect the tax treatment of these benefits.
General rule for recognizing income
In general, employees receive compensation when it is included in wages, unless a specific exception applies. Internal Revenue Code section 106 provides an exemption. It says that employers who provide contributions to a health or hospital insurance plan for their employees’, former employees, their spouses and dependents must not withhold from those amounts for federal tax, social security and Medicare.
When is income considered received? Under IRC section 451, individuals recognize income when they have control over it. This is the “constructive receipt” rule. Under section 106, the employees don’t have constructive receipt of income through this benefit when their employers directly pay for their health insurance benefits.
According to section 106, employers can provide health and medical benefits tax-free. However, if the employees can choose to receive cash or another benefit, this may result in taxable wages, even if they don’t elect to receive the cash. Employers who have or are considering a plan that provides such a feature should review if these amounts can be excluded from their employees’ or former employee’s wages.
Note: Internal Revenue Code section 125 (“cafeteria plans”) provide a partial exception to the constructive receipt rules. These plans help you decide between cash wages and a salary reduction to receive an excludable benefit. If the employee chooses the benefit, the value is not included in wages. A section 125, or cafeteria plan cannot provide for deferred compensation. Tax-free treatment includes only those benefits specifically indicated in section 125.
Revenue Ruling 75-539
Revenue Ruling 75-539 addresses the constructive receipt rules for plans that involve benefits for accumulated sick leave. This ruling determines the tax treatment of various plans and has been cited many times since it was issued in 1975. The two situations below demonstrate how the ruling is applied.
Situation 1: Upon retirement, employees will have the option to receive either a cash payment representing a part of unused sick leave, or apply it to the their share of the cost for participating in a health plan until the funds are exhausted. Employees received income for the benefit in cash even if they don’t choose that option. Therefore, the value of the benefit is included in gross income.
Situation 2: Upon retirement, an escrow account contains the value of a portion of accumulated unused sick leave to pay the full premiums of continued participation in the health plan until the funds are exhausted. Employees cannot receive funds in cash. Any unused part of the escrow amount reverts to the employer. Because the employees don’t receive these amounts directly, they constitute employer contributions to a health plan and are excludable from income under section 106.
You should review your current or proposed retirement incentive plan to determine whether the benefits being offered will result in taxable compensation. For more information, contact your ITG specialist.
How to get IRS forms and publications
The Internal Revenue Service provides free tax forms and publications on a wide variety of topics – from tax credits for individuals to a tax guide for small businesses. Here are four easy ways to obtain tax forms and publications from the IRS.
Reporting merchant card and third party network payments
Since 2011, if you pay vendors with a payment card, credit card, or through a third party network, you are not required to file a Form 1099-MISC. The company that processes the payment owns responsibility for reporting it with a Form 1099-K.
Normally, you would use Form 1099-MISC to report payments you make to vendors. However, Internal Revenue Code 6050W contains the legislation that relieves you of the responsibility to report payments made with a credit card, a payment card, or through third party network. You can review this section to help you become more familiar with the new terms and what they mean.
Internal Revenue Code 6050W contains the legislation and can help you become more familiar with the new terms and what they mean.
Below are other sources you can review:
- Third Party Reporting Information
- General FAQs on Payment Card and Third Party Network Transactions
- Form 1099-K Payment Card and Third Party Network Transactions
These sites offer answers to the following:
- Who is required to prepare and file the 1099-K
- The amount to report, and when
- Who’s responsible for Backup Withholding, when necessary
- Whether de minimus exceptions exist
- Whether stored-value cards or gift cards are reportable transactions
You may contact your ITG Specialist if you have further questions.
Indian Tribal Settlement Taxes phone forum now available
The thirty-minute presentation covers the following:
- Settlement payments in the Cobell case
- Settlement payments covered in Notice 2013-1
- Payments made in response to discrimination claims in the Keepseagle case
Phone Forum: Information Return Training Session: ITG partnered with the IRS office of Federal State & Local Governments (FSLG) on August 7th to conduct the session. They offered this training opportunity as a conference call to tribal casino employees in the Southwest, North Central, and Pacific Northwest areas of the country along with federal, state, and local governments. The free “virtual” training was a great success with the over 75 attendees calling into a toll free number. Covered topics included information about Notice CP2100 and on-line TIN Matching.
ITG and FSLG offered two training sessions to make this type of virtual training available to as many tribal customers as possible. We look forward to hosting more phone forums in the future in an effort to bring our tribal customers the needed and requested training in the fastest manner possible at no cost to the tribes.
An ITG specialist from Rapid City conducted an employment tax outreach for various districts within one Tribe. Topics included defining employees vs. independent contractors, payroll taxes, making federal tax deposits, due dates and avoiding penalties.
Gaming Issues and Title 31 reporting were topics covered for a Tribe in Nebraska that opened a new Casino. An ITG specialist from the Sioux Falls IRS office presented the workshop to 29 Casino personnel. Covered topics included required tax reporting for gaming-related payments/activities, completing various IRS forms, tax deposit schedules and Title 31 obligations.
Employment Tax Workshop for Navajo Nation Chapter Officials at the University of New Mexico campus in Gallup, N.M. ITG successfully hosted its first one-day workshop on July 11. Seventy-two representatives attended this workshop representing three Navajo Nation Chapter Governments from the Eastern, Ft. Defiance, and northern agencies.
An ITG specialist from Albuquerque and a southwest group manager educated newly elected and re-elected chapter officials on its federal tax responsibilities, independent contractors vs. employees, the Taxpayer Advocate Service (TAS), employment tax requirements, examinations and compliance checks, avoiding penalties, tribal per capita and general welfare distributions.
Gaming Issues and Reporting Workshop in Tucson, Ariz. ITG held the workshop in July at the Federal Building. Twenty representatives from various tribes and tribal entities attended the workshop. ITG specialists from the Tucson IRS office presented the workshop. Covered topics included required tax reporting for gaming-related payments/activities, completing various IRS forms, tax deposit schedules and how to avoid penalties and interest.
Mini-Advanced Employment Tax Workshop in Tucson, Ariz. ITG held the three-day workshop in September at the Federal Building. Twenty-four representatives from various tribes and tribal entities attended. ITG specialists from the Tucson IRS office covered different topics such as defining employees vs. independent contractors, payroll taxes, making federal tax deposits, due dates and avoiding penalties.
Alaska training opportunities
ITG will be offering the following workshops at the IRS office located at 949 East 36th Avenue in Anchorage.
Basic Employment Tax Workshop – offered two different weeks!
- March 25 - 27, 2014; 8:30 a.m. - 4:30 p.m.
- April 1 - 3, 2014; 8:30 a.m. - 4:30 p.m.
- Defining employees vs. independent contractors
- Computing the correct taxes for payroll
- Completing Form 941, Employer's Quarterly Employment 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
- Alaska Department of Labor Quarterly Contribution Report - guest speaker
Pull Tab/Gaming Workshop – offered two different weeks!
- March 24, 2014; 8:30 a.m. - 4:30 p.m.
- March 31, 2014; 8:30 a.m. - 4:30 p.m.
- IRS Forms 730 & 11-C
- IRS information return reporting requirements for gaming
- State of Alaska speaker – charitable gaming overview
Please call 907-271-6949 or e-mail Judy Pearson for additional information and to register.
Please respond by Feb. 15, 2014.
Arizona training opportunities
ITG will be offering the following workshop at the IRS office located at 300 West Congress Street, Conference Room B, Tucson, Arizona 85701.
Gaming Issues and Reporting Workshop:
Nov. 7, 2013; 9 a.m. to 4:30 p.m.
- Required tax reporting for gaming-related payments/activities
- U.S. residents – W-2Gs, Forms 1099-MISC, 1096, and 5754
- Foreign persons – Forms 1042, 1042-S, 1042-T, W-7, W-8BEN, and Pub 515
- Tax deposit schedules
- Avoiding penalties and interest
- End of year reconciliation of Forms 945 to W-2G and 1099-MISC and the various 1042 Forms
- Tip compliance – Form 8027, TRDA and GITCA Tip Agreements
- Title 31
Please contact Michelle Risk for additional information and register.