Photo of S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Mr. Chittenden advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Mr. Chittenden counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Mr. Chittenden is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.

The IRS recently published new guidance on the tax withholding and reporting consequences associated with qualified retirement plan distributions to state unclaimed property funds.  In Revenue Ruling 2020-24, the IRS clarified that distributions from qualified retirement plans to state unclaimed property funds are subject to both federal income tax withholding and 1099-R reporting requirements.  In a companion revenue procedure, Rev. Proc. 2020-46, the IRS permitted taxpayers to self-certify for a waiver of the 60-day deadline for rolling over funds between qualified plans when the funds had been distributed to a state unclaimed property fund.

Continue Reading IRS Updates Guidance on Qualified Plan Distributions to State Unclaimed Property Funds

On May 22, 2020, the IRS released a Generic Legal Advice Memorandum, GLAM 2020-004, which addresses the timing of the taxation and withholding of payroll taxes on certain stock-settled awards issued to employees.  Specifically, the GLAM focuses on the treatment of stock options, stock-settled stock appreciation rights (SARs), and stock-settled restricted stock units (RSUs).

Employers should be aware that the GLAM does not appear to alter the Service’s existing position with respect to such awards — the fair market value of the stock underlying the award is includible in gross income when the stock is deemed transferred to the employee.  However, the GLAM does appear to offer some additional insight into the timing of income inclusion with respect to RSUs.  Perhaps most importantly, the GLAM reiterates the IRS’s 2003 administrative position regarding the application of late deposit penalties to payroll tax deposits due on the exercise of nonqualified stock options.  A question had arisen regarding whether SEC guidance shortening the standard settlement cycle for securities transactions to two business days had the effect of shortening the period for depositing payroll taxes.  Deposits owed with respect to option exercises will continue to be deemed timely if deposited within one day of settlement, so long as settlement occurs within three days of the exercise date.


Continue Reading Much Ado About Nothing Much New: IRS Issues GLAM Addressing Payroll Taxation of Equity Compensation

Last night (Wednesday, March 18, 2020) the President signed the Families First Coronavirus Response Act after it passed the Senate in the afternoon by a vote of 90-8.  The Act requires all private health plans to cover COVID-19 diagnostic testing—coverage that most insured and large self-insured health plans already are providing.  The Act also requires employers with fewer than 500 employees to provide up to ten weeks of paid FMLA leave and two weeks of paid sick leave to employees affected by COVID-19.  For small employers subject to these new leave mandates, the Act provides tax credits to help offset the cost of the mandates.  This means that the tax credits are not available to employers with 500 or more employees, even if they provide paid leave equal to or in excess of that required of smaller employers under the Act.  It is noteworthy that the Senate voted down amendments that would have expanded the bill’s paid FMLA leave or replaced the bill’s paid leave with state unemployment benefits.

Continue Reading Impact of New Coronavirus Mandatory Leave and Testing Legislation Largely Limited to Smaller Employers

On March 13, 2020, the President declared the COVID-19 pandemic to be an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).  The decision to declare an emergency is addressed in a letter from the President to Administration officials in which he explained that his decision to issue an emergency declaration was “based on the fact that our entire country is now facing a significant public health emergency.”

Employers may be wondering whether this declaration provides an opportunity to offer “qualified disaster relief payments” under Internal Revenue Code § 139 to employees as a means of mitigating the pandemic’s effects.  It is not entirely clear.  Because the President declared an emergency—not a major disaster—it is not clear, until we get further guidance from the IRS that employers that they may rely on Code § 139 as a means of providing tax-free benefits to their employees.  Section 139 refers specifically to a declared disaster as do the regulations under section 165(i), which are cross-referenced in the section 139 rules.  Less formal IRS guidance in the form of revenue procedures have conflated the two types of declarations in the past, however, and the IRS has indicated that for purposes of section 165(i), “a disaster includes an event declared a major disaster or an emergency.”  However, in the interim, employers may still adopt other policies, such as leave-sharing, that will ease the pandemic’s toll on affected employees.


Continue Reading COVID-19 Emergency Declaration: Code § 139 Uncertain; Leave-Sharing Policies Permitted

In May, the IRS issued a private letter ruling to an individual taxpayer regarding the deductibility of 23andMe’s at-home DNA test kits under section 213(d) of the Code, which permits the deduction of medical expenses.  In the ruling, the IRS determined that an allocable portion of the purchase price may be treated as a deductible medical expense and the taxpayer may use a medical flexible spending account to purchase the kit.

23andMe provides a DNA collection kit that is used to collect a DNA sample from an individual and to send the sample to 23andMe for genetic testing.  The sample is then tested by a third-party laboratory.  The genetic information from the test is then analyzed by 23andMe and a report is provided to the individual with results from the laboratory and general information regarding genetic health risks, carrier status, wellness, and traits. The individual may then provide the information to a healthcare provider for additional testing, diagnosis, or treatment.

The IRS determined that the health services provided by 23andMe may be deductible medical expenses based on three revenue rulings, Revenue Ruling 54-457Revenue Ruling 71-282, and Revenue Ruling 2007-72.  Revenue Ruling 54-457 determined that an allocable share of a lump-sum fee charged by a university for medical care and other expenses is eligible for deduction under section 213(d). Revenue Ruling 71-282 holds that the fee paid for storage of medical information in a computer data bank is deductible under section 213(d). Revenue Ruling 2007-72 determined that full-body scans performed without a doctor’s recommendation and for an individual experiencing no symptoms falls within the broad definition of “diagnosis,” which encompasses determinations that a disease may or may not be present, and includes testing of changes to the function of the body that are unrelated to disease.


Continue Reading IRS Rules 23andMe’s Home DNA Kit Eligible for Partial FSA Reimbursement