Comments Needed on IRS Proposal to Increase Estate Taxes

On Aug. 2, 2016, the U.S. Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) released proposed regulations under Internal Revenue Code § 2704 that, if finalized, will drastically reduce the ability of franchisees to transfer their businesses to family members. Click here to write to the Treasury Department and express your concerns over their proposed regulations!

Currently, when gifts (during lifetime) or bequests (at death) are made, discounts are typically applied to allow for lack of marketability and for minority ownership. These discounts are commonly used by franchisees when transferring their family business from generation to generation. Treasury’s proposal severely limits the use of valuation discounts for any type of family limited partnership or other family business transfer where the family will retain control before and after the gift or bequest occurs. Specifically, the new rules would include the imposition of a new three-year look-back period to determine whether a minority valuation discount should apply (limiting deathbed transfers used to create a minority interest), expand restrictions in situations where the family will retain control after the transfer, and broaden their scope away from focusing on restrictions that are “more restrictive” than available state law (given that many states have already shifted their laws to become more restrictive in recent decades).

These proposed regulations, if finalized in their current form, will specifically impact franchisees, for whom the value of their business declines with every passing minute due to the pre-determined timeframe set forth in their franchise agreement. Because the franchise model allows a third party – the franchisor – the ability to place substantial restrictions on transfers and sales of franchise agreements, the ability to pass on the business is significantly lessened. For these reasons, and many others, current discounts are particularly valuable to franchisees who cannot as routinely and easily sell their business as larger, publicly-traded and less restricted companies.

Comments on the proposed regulations are due by Nov. 2; it is crucial that franchisees explain why and how this will hurt their business, family and employees. Click here to access a draft comment letter that you can personalize.

Click here to let the Treasury know why this proposal is bad for small business!

IRS Extends Due Dates for 2015 ACA Employer Reporting Information Returns

On Dec. 28, 2015, the Internal Revenue Service (IRS) released Notice 2016-4, which extends filing and distribution deadlines for the employer reporting requirements required under the Affordable Care Act (ACA). This extension will give CFA members more time to ensure full compliance with the law.

ACA’s employer reporting requirements are mandated under Sections 6055 and 6056 of the Internal Revenue Code (IRC). Under IRC Section 6055, self-insured employers must file forms showing the months in which the individuals were covered by “minimum essential coverage.” Under IRC Section 6056, applicable large employers (those with 50 or more full-time equivalent employees) must file forms detailing employee offers and related coverage with the IRS (and distribute to employees). In most cases, employers will use Forms 1094-B and 1095-B and/or Forms 1094-C and 1095-C to comply with IRC Sections 6055 and 6056.

Under Notice 2016-4, the deadline for employers to distribute forms to employees and covered individuals has been extended from Feb. 1 to March 31, 2016. The deadline for employers to file with the IRS has been extended from Feb. 29 to May 31, 2016 (for paper filers) and from March 31 to June 30, 2016 for electronic filers.

FDA Announces Delay in Menu-Labeling Effective Date

The Food and Drug Administration (FDA) formally acknowledged a delay in the Dec. 1, 2016, effective date for enforcement of federal menu-labeling regulations. In its public statement, the agency said the federal menu-labeling rule won’t be enforced until one year after it publishes final guidance on the law.

As you may recall, the menu labeling rule requires caloric information to be included on the menus and menu boards of “covered food establishments,” defined as being a part of 20 or more locations doing business under the same name and offering substantially the same menu items. While the final rule was published in 2014, FDA is also required to publish formalized guidance that helps show companies how to comply with the law; draft guidance was issued in September 2015 but final guidance has yet to be released.

In last December’s spending bill, Congress delayed enforcement of the menu labeling rule until one year after FDA published guidance. However, until yesterday the FDA had not formally confirmed that change. In its statement yesterday, FDA officials said not only would the agency delay enforcement until one year after guidance is issued, but that the guidance language is expected to be published sometime this year.

Legislative Update: DOL Overtime Rule

As you are aware, the U.S. Department of Labor (DOL) recently proposed amendments to its overtime rule, which will greatly affect you, your employees and your business. Last week, efforts to both advance and halt the bill were taken; this issue update serves to provide a summary of both the proposal and recent regulatory and legislative actions on the overtime rule.

Summary of Overtime Proposal

On June 30, DOL issued its initial language amending the overtime rules set forth in the Fair Labor Standards Act (FLSA). The proposal requires overtime pay be granted to employees who earn less than $50,440 a year (or $970 per week) – more than double the current threshold of $23,660 per year (or $455 per week). Further, the language permanently links wage increases to insure that 40 percent of the working population is eligible for overtime pay. While the proposal did not amend the “duties” test, DOL solicited questions from the public about how best to alter the current “duties” exemption.

Regulatory Developments

On March 17, DOL forwarded its most updated language to the Office of Management and Budget (OMB) and Office of Information and Regulatory Affairs (OIRA) for review. This completes the last mandatory step the DOL has to take before issuing the final regulations. This means the final overtime rules could be released as early as April or May, followed by a 60- or 90-day implementation period.

Legislative Developments

On the same day (March 17), legislation was introduced calling for the overtime rule to be stopped in its tracks. The Protecting Workplace Advancement and Opportunity Act, introduced by Sens. Tim Scott (R-SC) and Lamar Alexander (R-TN) (S. 2707) and Reps. Tim Walberg (R-MI-07) and John Kline (R-MN-02) (H.R. 4773), does the following:

  • Nullifies the proposed rule;
  • Requires DOL to conduct a comprehensive economic analysis on the impact of mandatory overtime expansion on small businesses, nonprofit organizations and public employers;
  • Prohibits automatic increases in the salary threshold; and
  • Requires that proposed amendments to the duties test be subject to the notice and comment period.

While the bill is sponsored by both the House and Senate labor committee chairmen, it is not likely to garner the 60 votes needed to pass the Senate. Click here to view the bill in its entirety.

CFA members should expect final regulations to be issued in the next several months and prepare their employee schedules and salaries accordingly.

DOL Releases Final Persuader Rule

This morning, the U.S. Department of Labor (DOL) released its final Persuader Rule. While the language is currently being reviewed, CFA members should be prepared to provide disclosures to DOL in regard to conversations with legal counsel or other experts on unionization issues as well as employee relations, human resources and related topics.

Prior to the issuance of the final rule, employers had to disclose discussions about unionizing if their consultants or attorneys directly communicated with their employees. If the attorney or consultant did not communicate directly with the employees, but rather only advised the employer about how to legally communicate with employees, then no disclosure was required. If the final rule reflects the proposed language, this “advice” exemption is significantly narrowed so that virtually all interaction between employers and labor lawyers or consultants will be subject to the disclosure requirements. The consequences of this rule will likely result in limited employer access to counsel, increased lawsuits, less employer-employee communication and more paperwork requirements.

Click here to view the final rule; click here to view DOL’s fact sheet on the final rule.

Persuader Rule Effective Date

As you may know, the U.S. Department of Labor (DOL) finalized and issued its persuader rule on March 24, 2016. A key legislative priority for CFA, the rule greatly increases the disclosure requirements for employers, attorneys and consultants (“persuaders”) when discussing labor issues, substantially interfering with both an employers’ access to legal advice and attorney-client privilege.

The final persuader regulation states, “This final rule is effective on April 25, 2016. The rule will be applicable to arrangements and agreements as well as payments (including reimbursed expenses) made on or after July 1, 2016” (emphasis added). DOL recently clarified this to mean that, the rule is only applicable to arrangements and agreements made on or after July 1, 2016, and to payments made pursuant to arrangements and agreements entered into on or after July 1, 2016.

Per the U.S. Chamber of Commerce,

It appears that agreements entered into prior to July 1, 2016, are not reportable, even if activities undertaken (and payments made) pursuant to such an agreement occur after July 1 (this applies to indirect persuader activity only; direct persuading will always require reporting). Thus, one could interpret this to mean that indirect persuading activities that occur after July 1, 2016 (even months or years after) are not reportable if they are made pursuant to an open-ended or multi-year agreement entered into prior to July 1, 2016.

This means that employers may have until July 1 to finalize agreements with labor counsel or consultants regarding labor services, as actions taken arising out of these contracts may not be reportable under the new persuader rule. Note that this should not be interpreted as legal advice, and you should check with competent legal counsel before making any final decisions.

Injunction of DOL Persuader Rule

On Monday, the U.S. District Court for the Northern District of Texas enjoined the Department of Labor’s “persuader” rule. The nationwide injunction prevents DOL “on a national basis from implementing any and all aspects of [DOL’s persuader rule] pending a final resolution of the merits of this case or until a further order of this Court, the United States Court of Appeals for the Fifth Circuit or the United States Supreme Court.”

We expect the Department of Labor to appeal this ruling but for the immediate future the DOL is prohibited from enforcing the new rule beginning July 1.

We will continue to provide updates as they become available. In the meantime, while you no longer need to have an executed representation agreement on file with labor counsel by July 1, 2016, there is no harm in continuing to be proactive by signing a letter with your current labor counsel.