October 8, 2007
Tax preparer penalties | Payroll services regulation | SCHIP legislation | Mental parity legislation | DHS delay
IRS: Reporting agents may be subject to tax preparer penalties
Senate plans to consider legislation regulating payroll services firms
New reporting requirements in congressional SCHIP legislation, vetoed by Bush
Mental parity legislation makes progress
Judge delays DHS "no-match" rule
IRS: Reporting agents may be subject to tax preparer penalties
In yet another example of the U.S. government's determination to correct the $500 billion annual "tax gap" between taxes owed and taxes paid, IRS draft rules would subject reporting agents to tax penalties targeted at "tax preparers." In implementing recently passed legislation, the IRS interprets "advice" and "taking a position" to include routine filing services that reporting agents like Ceridian provide to their clients.
In an effort to prevent this rulemaking, the National Payroll Reporting Consortium (NPRC), with input from ADP, Ceridian, Paychex and Fidelity, has drafted public comments expressing the view that (a) reporting agents do not offer "tax advice" and (b) qualify for the statutory exemption in the new law available to those providing "mechanical services."
NPRC members are deeply concerned that the IRS intends to position reporting agents as key players in influencing taxpayers to accurately report all sources of income and not overstate tax deductions.
Senate plans to consider legislation regulating payroll services firms
Maine Senator Olympia Snowe has signaled her intention to move legislation at the next available opportunity in the Senate Finance Committee that would impose new regulatory requirements on payroll services providers. The National Payroll Reporting Consortium (NPRC) has tracked this legislation for the last two years and has met several times with the Senator's staff and staff of the Finance Committee in an effort to put the focus on disclosure to clients. Nevertheless, it appears that this legislation is likely to require some new audit or bonding requirements.
Meanwhile, committee ranking member Senator Chuck Grassley has offered an alternative approach, modeled after Superfund, to create an insurance-like "sinking fund" that would indemnify payroll services clients bilked by unscrupulous firms. NPRC has strongly advised Congressional staff against this approach.
New reporting requirements in congressional SCHIP legislation, vetoed by Bush
Included in children's health insurance legislation recently vetoed by President Bush, but likely to become law in a later compromise, is a new employer reporting obligation. To assist states in determining whether to subsidize insurance coverage in employer plans or special state plans, the legislation would require employers to report to the states the type and cost of health coverage available to the children of their employees. Employers likely would also be required to inform their employees that state-subsidized coverage is available under the new SCHIP program.
President Bush's objection to expansion of the SCHIP program is that it would extend government-subsidized health insurance to the middle class and encourage people to drop private coverage for public aid and in some ways represents an omen for COBRA. Going forward it's likely that expansion of federal and state programs to extend coverage to the uninsured and under-insured is likely to crowd out the COBRA program as individuals find a more attractive alternative to paying 102 percent of the previous employer premium.
Mental parity legislation makes progress
The House Ways and Means Committee approved legislation that requires employers to offer in their health plans mental health care and addiction disorders benefits as they do for medical and surgical services. The measure (H.R. 1424), passed by a vote of 27-13, goes further than the Senate bill (S. 558) approved on September 18th by mandating that all plans offer mental health services to cover a broad range of mental illnesses and disorders.
Unlike the Senate bill, the House bill requires health plans offering mental health to allow for out-of-network coverage on par with other medical services and would be effective January 1, 2008 as opposed 2009 which was proposed in the Senate. The Congressional Budget Office has stated the bill would cost $1.1 billion in five years and $3.1 billion in 10 years, most of which would be attributed through a drop in taxable income among employees.
President Bush has signaled his support for the Senate version. The House bill still awaits approval by the Energy and Commerce Committee before going to the floor.
Judge delays DHS "no-match" rule
As previously reported, the Bush administration in August finalized a rule that would require employers to take certain steps to verify the work eligibility of employees who are the subjects of "no-match" letters from the SSA. Starting September 14, SSA no-match letters were to include a document from the Department of Homeland Security outlining these steps. View this document.
Several labor unions and employer groups immediately filed a suit in the San Francisco federal district court to prevent the government from implementing the rule. The suit claims that the DHS is overstepping its authority by using SSA no-match letters to help enforce immigration law. At a hearing on October 1, the court decided to postpone ruling for 10 days in order to allow for more time to review the rule and the suit's claims.
Regardless of how the court rules, we expect that the decision will be appealed, which will further delay implementation of the no-match rule. Even if the rule is blocked, the government will continue to escalate its efforts to crack down on employers who hire illegal workers. And employers will continue to look for solutions to ensure that they are in compliance with the law.
IRS: Reporting agents may be subject to tax preparer penalties
Senate plans to consider legislation regulating payroll services firms
New reporting requirements in congressional SCHIP legislation, vetoed by Bush
Mental parity legislation makes progress
Judge delays DHS "no-match" rule
IRS: Reporting agents may be subject to tax preparer penalties
In yet another example of the U.S. government's determination to correct the $500 billion annual "tax gap" between taxes owed and taxes paid, IRS draft rules would subject reporting agents to tax penalties targeted at "tax preparers." In implementing recently passed legislation, the IRS interprets "advice" and "taking a position" to include routine filing services that reporting agents like Ceridian provide to their clients.
In an effort to prevent this rulemaking, the National Payroll Reporting Consortium (NPRC), with input from ADP, Ceridian, Paychex and Fidelity, has drafted public comments expressing the view that (a) reporting agents do not offer "tax advice" and (b) qualify for the statutory exemption in the new law available to those providing "mechanical services."
NPRC members are deeply concerned that the IRS intends to position reporting agents as key players in influencing taxpayers to accurately report all sources of income and not overstate tax deductions.
Senate plans to consider legislation regulating payroll services firms
Maine Senator Olympia Snowe has signaled her intention to move legislation at the next available opportunity in the Senate Finance Committee that would impose new regulatory requirements on payroll services providers. The National Payroll Reporting Consortium (NPRC) has tracked this legislation for the last two years and has met several times with the Senator's staff and staff of the Finance Committee in an effort to put the focus on disclosure to clients. Nevertheless, it appears that this legislation is likely to require some new audit or bonding requirements.
Meanwhile, committee ranking member Senator Chuck Grassley has offered an alternative approach, modeled after Superfund, to create an insurance-like "sinking fund" that would indemnify payroll services clients bilked by unscrupulous firms. NPRC has strongly advised Congressional staff against this approach.
New reporting requirements in congressional SCHIP legislation, vetoed by Bush
Included in children's health insurance legislation recently vetoed by President Bush, but likely to become law in a later compromise, is a new employer reporting obligation. To assist states in determining whether to subsidize insurance coverage in employer plans or special state plans, the legislation would require employers to report to the states the type and cost of health coverage available to the children of their employees. Employers likely would also be required to inform their employees that state-subsidized coverage is available under the new SCHIP program.
President Bush's objection to expansion of the SCHIP program is that it would extend government-subsidized health insurance to the middle class and encourage people to drop private coverage for public aid and in some ways represents an omen for COBRA. Going forward it's likely that expansion of federal and state programs to extend coverage to the uninsured and under-insured is likely to crowd out the COBRA program as individuals find a more attractive alternative to paying 102 percent of the previous employer premium.
Mental parity legislation makes progress
The House Ways and Means Committee approved legislation that requires employers to offer in their health plans mental health care and addiction disorders benefits as they do for medical and surgical services. The measure (H.R. 1424), passed by a vote of 27-13, goes further than the Senate bill (S. 558) approved on September 18th by mandating that all plans offer mental health services to cover a broad range of mental illnesses and disorders.
Unlike the Senate bill, the House bill requires health plans offering mental health to allow for out-of-network coverage on par with other medical services and would be effective January 1, 2008 as opposed 2009 which was proposed in the Senate. The Congressional Budget Office has stated the bill would cost $1.1 billion in five years and $3.1 billion in 10 years, most of which would be attributed through a drop in taxable income among employees.
President Bush has signaled his support for the Senate version. The House bill still awaits approval by the Energy and Commerce Committee before going to the floor.
Judge delays DHS "no-match" rule
As previously reported, the Bush administration in August finalized a rule that would require employers to take certain steps to verify the work eligibility of employees who are the subjects of "no-match" letters from the SSA. Starting September 14, SSA no-match letters were to include a document from the Department of Homeland Security outlining these steps. View this document.
Several labor unions and employer groups immediately filed a suit in the San Francisco federal district court to prevent the government from implementing the rule. The suit claims that the DHS is overstepping its authority by using SSA no-match letters to help enforce immigration law. At a hearing on October 1, the court decided to postpone ruling for 10 days in order to allow for more time to review the rule and the suit's claims.
Regardless of how the court rules, we expect that the decision will be appealed, which will further delay implementation of the no-match rule. Even if the rule is blocked, the government will continue to escalate its efforts to crack down on employers who hire illegal workers. And employers will continue to look for solutions to ensure that they are in compliance with the law.
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