Monthly Archives: November 2014

IRS Confirms Advantages to Domesticating Instead of Merging when Relocating a Foundation

When families with foundations relocate to Florida, they oftentimes want to relocate their foundations too. There are several different structures for accomplishing the relocation (i.e., change in state of domicile) of a foundation or other non-profit corporation. For a variety of reasons, the best structure is oftentimes a domestication, which is also sometimes referred to as a “conversion” in jurisdictions outside Florida.

In a recent ruling, the Internal Revenue Service confirmed some of the advantages to using a state law conversion, especially when compared to a merger. The ruling concludes that a non-profit corporation that changes its domicile from one state to another by undergoing a state law conversion does not need to file a new application for tax exemption (Form 1023) and can keep the same taxpayer identification number. These benefits would be obtained in Florida by undergoing a domestication. The ruling also confirmed that this treatment would not apply if a non-profit corporation changed its domicile by forming a new non-profit corporation in the new state, and merging the non-profit corporation from the old state into the new non-profit corporation. In the case of a merger, the old non-profit corporation would cease to exist, and the new non-profit corporation would have to obtain a new taxpayer identification number and seek tax-exempt status by filing a new application (Form 1023).

A link to the ruling is here:

Michael J. Wilson

Applicable Federal Rates for December 2014

The Internal Revenue Code prescribes minimum imputed interest rates and time-value-of–money factors applicable to certain loan transactions and estate planning techniques. These rates are tied formulaically to market interest rates. The Internal Revenue Service updates these rates monthly.

These are commonly applicable rates in effect for December 2014:

Short Term AFR (Loans with Terms <= 3 Years)                                          0.34%

Mid Term AFR (Loans with Terms > 3 Years and <= 9 Years)                     1.72%

Long Term AFR (Loans with Terms >9 Years)                                              2.74%

7520 Rate (Used in many estate planning vehicles)                                     2.0%

Here is a link to the complete list of rates:

E. John Wagner, II

Federal Agencies Issue Warning to Employer Clarifying the Dangers of Reimbursing Employees for the Cost of Individual Health Insurance Premiums and of Offering Cash Incentives to Opt Out of Employer Sponsored Coverage

In recently issued FAQs (which stands for “Frequently Asked Questions”), the three agencies in charge of compliance with the Affordable Care Act (the “ACA”) alerted employers to three practices that will cause the employer to be subject to ACA penalties of $36,500 per year per person. Importantly, this $36,500 per year penalty applies to each individual affected by the ACA failure.  As a result, it can be applied and calculated counting both employees and dependents whose coverage has been affected by the practices described in the FAQs.

Notably, the only small employers excepted from these requirements are employers who have only one employee, and governmental employers.  For this purpose, the number of employees are counted looking at all related controlled group companies together.  The annual $36,500 per affected individual penalty must be self reported and paid by the employer (on IRS Form 8928).

First, the FAQs alert employers that reimbursing employees for the cost of premiums to purchase individual health insurance policies violates the requirements of the ACA.  The FAQs emphasize that the practice violates the ACA regardless of whether the reimbursements are made on a pre-tax or post-tax basis.

Second, the FAQs alert employers that offering a cash incentive to high risk / high claim individuals to opt out of the employer health coverage violates the ACA.  The FAQs emphasize that it does not matter whether (i) the cash incentive is offered on a pre-tax or post-tax basis, (ii) the employer is involved or not involved in the employee’s selection of alternate coverage, or (iii) the employee obtains individual health insurance.  If the cash incentive option is offered to ALL eligible employees, the violation of the ACA will not occur.

Lastly, the FAQs alert employers that cancelling group health policies and setting up instead a reimbursement program to coordinate with individual insurance policies that employees purchase with premium tax credits on the Marketplace exchange is not permissible.  The FAQs point out that the employees who are covered by the reimbursement programs will not be eligible for premium tax credits and that the reimbursement arrangement itself will violate the requirements of the ACA triggering the $36,500 per person per year penalties on the employer.

For more information, see

Carol L. Myers

Court Rules that Florida Department of Revenue Impermissibly Burdened Interstate Commerce in Violation of US Constitution

Yesterday, in American Business USA Corp. v. Department of Revenue, the Fourth District Court of Appeal for Florida ruled that the Florida Department of Revenue could not impose sales tax on sales of flowers and other tangible personal property made by a Florida corporation over the internet to out-of-state customers for out-of-state delivery. The taxpayer would use “local florists” to fill the out-of-state orders, and so the flowers and other inventory items were never stored in or brought into Florida. The court concluded that the sales did not have “substantial nexus” with Florida, and therefore imposing tax on the sales violated the dormant commerce clause of the US Constitution.

A link to the case is below:

Michael J. Wilson

With Republican Election Gains, 2014 Tax Extenders Legislation Could Boost Capital Expenditures, Business Merger and Acquisition Activity

In April we wrote about the pending Tax Extenders legislation, the passage of which is necessary to revive temporary tax relief provisions for the 2014 tax year and for future tax years. The bill prominently features tax breaks that support capital expenditures and business merger and acquisition activity, as well as breaks for some individuals.

The Tax Extenders bills had been sidelined until this month’s election. With the election over and the Republicans taking control of Congress, Congress may take up the Tax Extenders package before the end of the year. If passed, the Tax Extenders legislation may have retroactive effect to the beginning of 2014. If you are affected by the Tax Extenders legislation, whether because you are planning for capital expenditures, you are considering a business sale, or otherwise, monitor the legislation closely so you can take action during 2014 if the legislation passes.

Here is a link to our prior discussion of the Tax Extenders legislation:

E. John Wagner, II