On April 6, 2016, the Department of Labor under the Obama administration issued a new final rule and exemptions addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a “fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. The fiduciary rule aimed to reduce the allegedly conflicted investment advice given to retirement savers, and was scheduled to become applicable on April 10, 2017. See our client alert here outlining the significance of the rule and the implications of the expanded definition of “fiduciary” for investment advisors and other related service providers. Continue Reading
Not-for-Profit Corporation Law (“NPCL”) § 715-b, enacted as part of the New York Nonprofit Revitalization Act (covered here and here), requires New York not-for-profit corporations with 20 or more employees and annual revenue in excess of $1 million to adopt whistleblower policies “to protect from retaliation persons who report suspected improper conduct.” Although the statute does not expressly authorize suits by whistleblowers, in Pietra v. Poly Prep Country Day School, No. 506586/2015 (N.Y. Sup. Ct., Kings Cty. October 1, 2016), acting Brooklyn Supreme Court Justice Loren Baily-Schiffman held that a former employee of Poly Prep Country Day School (the “School”), a New York not-for-profit corporation, had a private action against the School to recover damages resulting from the School’s alleged failure to adopt a whistleblower policy in accordance with NPCL § 715-b. Continue Reading
While speaking at the National Prayer Breakfast on February 2, 2017, President Trump reaffirmed his commitment to repeal the law that restricts organizations that are tax exempt under Section 501(c)(3) of the Internal Revenue Code (“Code”) from engaging in political campaign activities. This law, enacted in 1954, is commonly known as the Johnson Amendment since it was proposed by then-Senator Lyndon B. Johnson. During the breakfast, President Trump stated: “I will get rid and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution. I will do that. Remember.” This statement is in line with President Trump’s campaign promises. In his acceptance speech at the Republican National Convention, Trump expressed his commitment to repeal the Johnson Amendment to provide freedom of speech to all Americans. Continue Reading
Form Deadline Is March 3, 2017
The U.S. Department of the Treasury recently released a revised Form SHC (with corresponding instructions), which is part of the Treasury International Capital (TIC) data reporting system. Form SHC is the mandatory five-year benchmark survey of the ownership of foreign securities (including selected money market instruments) by U.S. residents. The report is due to the Federal Reserve Board of NY (the FRBNY) by March 3, 2017 for data reportable as of December 31, 2016. U.S. persons who meet the reporting thresholds are required to file Form SHC even if they have not otherwise been contacted by the FRBNY.
Who Must Report
Form SHC must be filed by all U.S. persons (including U.S. person affiliates of foreign entities) who are:
- U.S.-resident end-investors who invest for their own portfolios (such as pension plans, foundation, endowments and other institutional investors) and/or invest on behalf of others (such as investment managers and fund sponsors) at least $200 million of reportable foreign securities as of the close of business on December 31, 2016;
- U.S.-resident custodians who hold in safekeeping at least $200 million of reportable foreign securities for U.S. persons as of the close of business on December 31, 2016; or
- U.S.-resident end-investors and custodians who receive a letter from the FRBNY requiring them to report, even if the recipient of the letter does not meet the $200 million reporting threshold. The FRBNY has recently begun sending such letters to certain U.S. persons who are required to report on Form SHC.
In general, reportable securities include foreign equity securities, short-term debt securities (including selected money market instruments), long-term debt securities and asset-backed securities. Equity interests or other securities issued by foreign-resident funds or similar investment vehicles (e.g., interests issued by a non-U.S. master fund to a U.S. feeder fund) qualify as reportable securities. Reportable foreign securities do not include, among other things, direct investments (ownership of 10% or more of the voting securities of an entity); derivatives; loans and loan participation certificates; bank deposits; foreign securities temporarily acquired under reverse repurchase, borrowing or lending arrangements; the underlying security of a depositary receipt; or any U.S. securities.
In the case of an organization, reports should be filed on a consolidated basis by the top U.S.-resident parent entity in the organization and should include all reportable securities held or managed by all U.S.-resident parts of the organization, including all U.S.-resident branches, offices and subsidiaries. Generally, a U.S.-resident investment adviser that is subject to the reporting obligation will be required to file one consolidated report covering the reportable securities for all U.S.-resident parts of its own organization and for all U.S.-resident funds that it manages or sponsors. Furthermore, a U.S.-resident fund managed by a foreign-resident investment adviser that meets the reporting threshold will be required to submit a report.
Information Required by Form SHC
Form SHC is comprised of three schedules:
- Schedule 1 requests identifying information from the U.S. reporter and a summary of Schedules 2 and 3 (if applicable). Schedule 1 must be filed by all U.S. reporters that (i) meet the reporting threshold or (ii) were contacted by the FRBNY to report on Form SHC.
- Schedule 2 requests position-level data from a U.S. reporter on foreign securities for which (i) the U.S. reporter manages safekeeping for itself or its U.S.-resident clients or (ii) a U.S.-resident custodian does not otherwise manage the safekeeping (which includes, for the avoidance of doubt, foreign securities safe-kept directly at a foreign-resident sub-custodian or U.S.-resident or foreign-resident central securities depositories (“CSDs”)). A U.S. reporter must file a separate Schedule 2 for each reportable security. A U.S. reporter is exempt from reporting on Schedule 2 if the total fair value of foreign securities reportable on Schedule 2 is less than $200 million.
- Schedule 3 is used to report summary amounts for all foreign securities entrusted to an unaffiliated U.S.-resident custodian (excluding those entrusted to a U.S.-resident CSD). A U.S. reporter (including a U.S.-resident end-investor) must file a separate Schedule 3 for each U.S.-resident custodian with which the reporter has holdings of foreign securities that exceed $200 million, aggregated over all accounts with such custodian.
Completed reports may be submitted to the FRBNY on paper or electronically through the Federal Reserve Reporting Central System. The information collected on Form SHC reports may be used only for analytical and statistical purposes and to enforce the International Investment and Trade in Services Survey Act. The information may only be accessed by officials and employees (including consultants, contractors and their employees) designated to perform functions under such Act. Aggregate data obtained from reports on Form SHC will be publicly disclosed, but only in a manner that will not reveal information as reported by any individual respondent.
Additional information and guidance, including a copy of Form SHC and the Instructions, are available here. If you have any questions about Form SHC or the reporting requirements, please contact your Proskauer attorney.
The Internal Revenue Service recently issued Revenue Procedure 2017-18, which provides that the last day of the remedial amendment period for Code Section 403(b) retirement plans will be March 31, 2020. As discussed below, this means that a sponsor of a Code Section 403(b) plan who timely adopted a Code Section 403(b) retirement plan document that was intended to comply with the Code will have until March 31, 2020 to retroactively correct any defects to the form of the plan document, either by amending its plan document or adopting a pre-approved plan document.
Under final Treasury regulations that were issued in 2007, effective January 1, 2009, a sponsor of Code Section 403(b) retirement plan is generally required to maintain its plan pursuant to a written plan document that complies with the requirements of these final Treasury regulations in both form and operation.
In March of 2013, the IRS issued Revenue Procedure 2013-22, which set out new procedures for the IRS to issue opinion and advisory letters for pre-approved plan documents for Code Section 403(b) retirement plans (i.e., prototype and volume submitter plan documents). The IRS does not issue determination letters on individually designed Code Section 403(b) retirement plans.
Revenue Procedure 2013-22 also included information about a remedial amendment period that would allow a plan sponsor to retroactively correct defects in the form of its Code Section 403(b) plan document, provided that the correction is made prior to the end of the remedial amendment period. For this purpose, a “defect” is a provision, or absence of a required provision, that causes the plan to fail to satisfy the requirements of Code Section 403(b). Generally, the remedial amendment period is available only if an employer adopted a written plan document intended to satisfy the requirements of Code Section 403(b) on or before January 1, 2010 or, if later, the first day of the plan’s effective date. Revenue Procedure 2013-22 provided that any defect must be corrected on or before the last day of the remedial amendment period. However, the guidance did not state when the last day of the remedial amendment period would occur.
The Last Day of the Remedial Amendment Period Announced
With the issuance of Revenue Procedure 2017-18, the IRS announced that the last day of the remedial amendment period for Code Section 403(b) retirement plans will be March 31, 2020. Therefore, if the form of a Code Section 403(b) retirement plan does not satisfy the requirements of Code Section 403(b) during the remedial amendment period but is properly retroactively amended by March 31, 2020, the plan will be considered to have satisfied the requirements for the entire remedial amendment period (which begins on January 1, 2010 or, if later, the effective date of the plan). Generally, a Code Section 403(b) retirement plan will automatically satisfy the IRS requirements that the form of the document complies with the Code Section 403(b) if the plan sponsor adopts a pre-approved plan document on or before the last day of the remedial amendment period.
According to Revenue Procedure 2017-18, the Department of Treasury and IRS intend to issue future guidance with respect to the timing of Code Sec. 403(b) retirement plan amendments made after Mar. 31, 2020.
Proskauer’s 21st Annual Trick or Treat Seminar was held on Thursday, October 27.
The Seminar discussed:
- Best Practices for Document Retention: One Size Does Not Fit All
- An Overview of Unrelated Business Taxable Income
- New Department of Labor Fiduciary Regulations: The Employer Perspective
- Annual Update on Employee Benefits and the Affordable Care Act
Amanda Nussbaum welcomed everyone to the 21st Annual Trick or Treat Seminar, commented on the IRS Tax Exempt and Government Entities FY 2017 Work Plan and FY 2016 compliance results (including, examinations and revocations), and introduced the presenters. Continue Reading
The Protecting Americans from Tax Hikes (“PATH”) Act of 2015, enacted in December 2015, requires organizations to notify the IRS if they desire to operate under Section 501(c)(4) of the Internal Revenue Code (“Code”). (Only organizations described in Section 501(c)(3) of the Code are required to apply for and receive recognition of their tax-exempt status; other organizations, such as social welfare organizations described in Section 501(c)(4), may apply to the IRS for recognition of exempt status but are not required to do so in order to be exempt.) Continue Reading
On June 21, 2016, the Internal Revenue Service (IRS) issued anticipated proposed Treasury Regulations prescribing rules under Section 457 of the Internal Revenue Code for the income taxation of deferred compensation arrangements for employees of tax-exempt organizations and state and local governments. The IRS also released new proposed Treasury Regulations under Code Section 409A.
Our colleagues over at our Tax Talks blog covered Proskauer’s recent work in connection with the widely-publicized forgiveness of nearly $15 million in medical debt by John Oliver on his June 5th show. Continue Reading
On February 19, 2016, the IRS and Treasury Department issued proposed regulations regarding (i) prohibitions on certain contributions to Type I and Type III supporting organizations and (ii) requirements for Type III supporting organizations. These proposed regulations reflect changes to the law made by the Pension Protection Act of 2006, which changed the requirements an organization must satisfy to qualify as a Type III supporting organization.