Friday, June 28, 2019

IR-2019-120: IRS issues guidance on the tax on the net investment income of certain private colleges and universities

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IRS Newswire June 28, 2019

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Issue Number:    IR-2019-120

Inside This Issue


IRS issues guidance on the tax on the net investment income of certain private colleges and universities

WASHINGTON — The Internal Revenue Service today issued proposed regulations for the new 1.4 percent excise tax on the net investment income of certain private colleges and universities.

The proposed regulations define several of the terms necessary for educational institutions to determine whether the section 4968 excise tax applies to them. 

The tax applies to any private college or university that has at least 500 full-time tuition-paying students (more than half of whom are located in the U.S.) and that has assets other than those used in its charitable activities worth at least $500,000 per student. An estimated 40 or fewer institutions are affected. 

For affected institutions, the guidance clarifies how to determine net investment income, including how to include the net investment income of related organizations and how to determine an institution's basis in property.

These proposed regulations incorporate the interim guidance provided in Notice 2018-55, that for property held by an institution at the end of 2017, generally allows the educational institution to use the property's fair market value at the end of 2017 as its basis for figuring the tax on any resulting gain.

Updates on the implementation of this and other TCJA provisions can be found on the Tax Reform page of IRS.gov.

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Updated forms on Pay.gov for the Voluntary Correction Program; pre-approved cash balance plans

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Employee Plans News June 28, 2019

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Changes to forms used on Pay.gov for IRS Voluntary Correction Program submissions  

The IRS updated Forms 8950 and 8951 on Pay.gov used for Voluntary Correction Program (VCP) submissions. 

 

Form 8950, Application for VCP Submission:

Updates to the "Before you begin" landing page include:

  • Employers or authorized plan representatives may use the same Pay.gov username to submit multiple Forms 8950 for different plans or employers.
  • Applicants may now submit larger faxes, up to 150MB. Include the Pay.gov tracking ID number, the applicant's name and EIN, and plan name on the fax coversheet.
  • Updated citations and edits for clarity.

Form 8950, page two - Penalty of Perjury Statement

Revised the penalty of perjury statement to clarify:

  • Authorized representatives submitting a VCP submission on behalf of an employer are not signing under penalty of perjury.
  • Instead, they are certifying their status as documented on an included Form 2848, Power of Attorney.
  • The VCP submission must include a signed and dated penalty of perjury statement completed by the employer.

Form 8951, Additional Payment for Open VCP

Updates to the "Before you begin" landing page include:

  • Employers or authorized plan representatives may use the same Pay.gov username to submit multiple Forms 8951 for different plans or clients.

Learn more about VCP at Correcting Plan Errors.

 

Pre-approved Second Cycle Cash Balance Plan - use of a lookback month and stability period when using a Treasury-based interest crediting rate

Pre-approved Cash Balance plans were first permitted for the second Cycle. Announcement 2018-05 gives adopting employers of pre-approved plans Cash Balance until April 30, 2020, to restate their plans to be timely for the second Cycle.

The Defined Benefit Listing of Required Modifications (LRM) Cash Balance Supplement provides language that meets the requirements of the pre-approved program. Section 26CB.I.B.4. of the LRM contains Treasury-based interest crediting rates for purposes of a cash balance plan's hypothetical account. 

A plan is permitted to specify a look back month and stability period for purposes of determining the Treasury-based interest rate for the interest credit period; however, this is not currently addressed in the LRM.

If a sponsor, practitioner, or employer amends their pre-approved cash balance plan to specify a look back month and stability period, reliance on the second cycle (PPA) opinion or advisory letter will not be jeopardized.


 


Find answers to many retirement plan questions on IRS.gov at Retirement Plans and Retirement Plan Forms and Publications.

If you need help with an account-specific question, basic information about retirement plan forms or the status of pending applications, call our Customer Account Services at 877-829-5500.

If you know someone who might want to subscribe to this mailing list, please forward this message to them so they can subscribe.

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