BACKGROUND

With 2011 W-2s due right about now, the IRS is committing manpower and enforcement on compliance relating to 2011 compensation that a grower paid to its foreign agricultural workers admitted into the US on H-2A visas.  See most recent IRS guidance.  The IRS now mandates W-2 reporting of such compensation (and the grower must obtain the worker’s SSN or ITIN when reporting) and possible 28% backup withholding (where the worker fails to provide an SSN or ITIN).

ISSUES

Federal Tax Issues.

• What happens to the grower who filed 1099s for years prior to 2011? 
• What happens to the grower who filed a W-2 or 1099 for prior years, but did not enter a worker’s SSN or ITIN?
• What happens to the grower who filed neither a 1099 nor a W-2 for prior years?
• How real is the IRS-threatened penalty on the grower who failed to backup withhold and remit that 28% (that is, the grower overlooked withholding or wanted to withhold but did not obtain an SSN or ITIN)? 
• What happens to the (Mexican, Jamaican, for example) worker who was required, but never filed, a US tax return for prior years?
• What happens especially where that H-2A worker would have had enough exemptions such that the worker would not have owed any federal income tax?

Other Issues:  State Tax; Immigration; Agricultural Production in the US.

In addition to this federal tax exposure, both grower and worker have exposure with respect to possible state tax issues and immigration concerns.  Visas might be affected; farming operations across the US will suffer.

AN ODD, BUT UNIQUE, SHARED INTEREST?  

The natural stakeholders affected by this enhanced IRS tax compliance effort are the H-2 worker, the H-2A worker advocates, growers, grower associations, and their agents.

Challenges; Logistical Hurdles.  The natural stakeholders affected by this enhanced IRS compliance effort are the H-2 worker, the H-2A worker advocates, growers, grower associations, and their agents.  Given the above interwoven risks/issues/exposures, these various stakeholders – typically on differing sides on H-2A matters – might find themselves aligned.  That is, there is uncertainty with respect to past federal tax issues that threaten the immigration program, staffing operations, and ultimately agricultural production; there are also logistical challenges where contact between grower and H-2A is typically limited to when the worker has entered the country.   

IRS Coordination?  Perhaps there is a need to coordinate at the national level (with IRS officials who drafted the recent H-2A guidance and exam agents), regional level (the regional IRS office that controls operations within each state), and the Taxpayer Advocate professionals.

Perhaps there's room for latitude for both grower and worker for the 2011 (after all, the IRS guidance came out in late 2011) and prior tax years?  It seems like any coordinated program might well involve politicians, the Department of Labor, the Department of Agriculture, the Mexican Consulate, Mexican Employment Agencies, Jamaican Employment Agencies, etc.

In any case, the new guidance is causing growers and their accountants huge consternation as W-2s are being issued for 2011, and perhaps the IRS or Treasury just needs to be apprised in the difficulty of immediate compliance when SSNs and ITINs still have not been obtained or confirmed. 

It's an invitation to the various stakeholders of the H-2A program to weigh in regarding the  enhanced focus on federal tax reporting of and mandatory withholding on H-2A worker compensation (where there is no SSN or ITIN). 

The Supreme Court decided on November 14, 2011 that it will hear several challenges to the health care reform legislation enacted in 2010 (the Patient Protection and Affordable Care Act).  Oral arguments are scheduled for March, 2012 and a decision is likely by next summer (just in time for the run-up to the Presidential election).

The Court will review several challenges that have worked their way through the federal appellate courts.  The actual case selected for review is State of Florida v. U.S. Dept of Health & Human Services, in which 26 states challenged the constitutionality of the individual insurance mandate, which beginning in 2014 will require individuals who do not have other health insurance (such as through their employers) to purchase individual insurance or pay a penalty.  The 11th Circuit Court of Appeals threw out the individual mandate as unconstitutional, concluding that it violated the commerce clause of the U.S. Constitution.

In addition to reviewing the constitutionality of PPACA's individual mandate, the Supreme Court will consider whether that mandate is severable from the other parts of the statute.  If it finds the mandate both unconstitutional, and also finds that it cannot be severed from the rest the statute, it will likely invalidate the entire PPACA.

The Supreme Court will also consider two other issues:  a challenge to PPACA's expansion of Medicaid coverage, and the question of whether the federal Anti-Injunction Act bars the states from challenging PPACA at this time because the individual mandate penalty is to be considered a "tax."

Given the large divisions in opinion at to the value of the health care reform legislation, the imminent political season leading up to the 2012 elections, and the significant impact that PPACA will have on virtually all employers, the Supreme Court's decision will be eagerly awaited.

Today, the Internal Revenue Service announced the cost of living adjustments applicable to dollar limitations for pension plans for the 2012 tax year.  These dollar limitations affect, among other things, the maximum amount that an employee may be contribute on a pre-tax basis into a    401(k) and 403(b) plan (402(g)), the amount of compensation a plan can consider (401(a)(17)), and the compensation threshold that identifies highly compensated employees (414(q)(1)(B)).  Below is a table showing both the limitations for the 2011 tax year and the limitations for the 2012 tax year.   

A devotee of Groupon and Living Social, I am a tax/ERISA geek at heart. . . and this offer from the IRS is the best discount that I have seen in a verrrrry long time. . .

Just two days ago, the IRS unveiled a hard-to-resist deal that allows a company to dodge all but 10 percent of past employment tax liability, all the interest, and all penalties that it would have owed for prior years if the company had treated individuals as "independent contractors," but where the IRS nonetheless had mandated a reclassification as "employees."  See 2011_Voluntary Amnesty_Employee Classification.pdf.

The IRS refers to this amnesty-type program as a "Fresh Start," with the IRS Commissioner, Doug Shulman, confirming that it is a "part of a wider effort" to give a company certainty under the federal tax law for previous 1099ers.  To apply for the tax relief, a company:

1. must have treated the workers as nonemployees in the past;
2. filed all required Forms 1099 for the previous three years; and
3. not be under audit by the IRS, DOL, or state agency with respect to these workers.

In exchange, the company avoids the signicant dollar amounts above by paying the most minimal of sanctions.  It also spares itself an employment tax audit of these workers for prior years.   Prospectively, the company will voluntarily agree to classify these workers as employees (and thus issue W-2s) for future payroll tax periods.

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