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.

Here are some key points from each presentation:

Best Practices for Document Retention: One Size Does Not Fit All

Margaret Dale presented on document retention policies and how one size does not fit all.  She started by explaining the purpose and importance of having a policy, both from a good governance perspective and for basic operational efficiency.  She highlighted some of the core issues surrounding the adoption of a policy; for example, understanding where the organization’s data is located and how it is being used.  The answers to those questions, which will differ for each organization, will guide the adoption of the policy.  Margaret also provided a checklist of the steps for any organization considering adopting a policy, and cautioned the attendees not to take a form document retention policy “off the shelf” and expect it to work for their organization.  Federal, state and local laws and regulatory guidance all need to be considered before crafting a policy that will work for your organization.

An Overview of Unrelated Business Taxable Income

David Miller discussed the “unrelated business taxable income” (“UBTI”) rules.  Although tax-exempt entities are generally tax-exempt, they are subject to tax on their UBTI.  UBTI typically arises either because (i) a tax-exempt organization regularly operates a for-profit business that is unrelated to the organization’s exempt purpose or (ii) the organization (or a partnership in which it is a partner) borrows to make an investment that is not directly used in a tax-exempt activity. An organization may avoid UBTI if the activity does not amount to a trade or business (e.g., mere investment), the activity is not regularly carried on (e.g., an annual charity auction), the activity relates to the organization’s exempt purpose (e.g., a hospital receiving fees for caring for patients), or the activity generates certain passive income (like capital gains).  An activity also doesn’t give rise to UBTI if substantially all of the work is performed by volunteers or if substantially all merchandise sold was donated. UBTI can also arise if a tax-exempt borrows to make an investment that is not related to its exempt purpose (or invests in a partnership that borrows to make investments). This UBTI from unrelated debt-financed income can be avoided with respect to a hedge fund or private equity fund if the tax-exempt invests in a foreign corporation “blocker” that in turn invests in the fund.  The tax may also be avoided if the debt is repaid more than twelve months before income or gain is recognized.

New Department of Labor Fiduciary Regulations: The Employer Perspective

Seth Safra discussed the Department of Labor’s (“DOL”) recent fiduciary regulation. He discussed carve-outs from the rule that limit fiduciary responsibility for record keepers and others who provide services to ERISA plans. For example, the final regulations allow service providers to provide model investment portfolios without taking fiduciary responsibility. Seth emphasized the importance of monitoring service providers, whether they accept fiduciary responsibility or not.

Seth also discussed the IRS’s proposed regulation under section 457(f) of the Internal Revenue Code. He discussed new opportunities for employees of tax-exempt organizations to defer income tax on deferred compensation. In particular, Seth discussed proposed rules that would recognize a substantial risk of forfeiture for deferred current compensation, adding new service conditions for deferred compensation, and treating non-compete obligations as a substantial risk of forfeiture. Seth emphasized the requirements under section 457(f) are not the same as the requirements under section 409A—meaning that tax-exempt employers will need to comply with two complex sets of requirements.

Annual Update on Employee Benefits and the Affordable Care Act

Paul Hamburger discussed the latest issues concerning Affordable Care Act (“ACA”) compliance for employers.  He emphasized that, although much of the ACA has already been implemented, employers need to focus on various compliance issues, such as the ongoing efforts at employer reporting as well as how to negotiate staffing agency agreements to mitigate exposure to ACA “pay or play” penalties.  Of particular interest for employers is how to address “opt-out” payments to employees who reject employer-provided coverage.  Another important ACA compliance issue relates to the nondiscrimination rules under ACA section 1557.  These rules impact employers or group health plans that receive federal financial assistance from the Department of Health and Human Services and could mandate significant administrative notice and grievance procedure requirements as well as group health coverage for transgender medical coverage.  Separate from the ACA matters, Paul addressed a number of other employee benefit matters such as the technical rules for wellness programs as well as recent trends in IRS and DOL audits of employee benefit plans.

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