By Andy Biebl
DTN Tax Columnist
DTN Tax Columnist Andy Biebl is a CPA and tax partner with the accounting firm of CliftonLarsonAllen LLP in New Ulm and Minneapolis, Minn., and a national authority on agricultural taxation. He writes for both DTN and our sister publication, The Progressive Farmer. To pose questions for upcoming columns, email AskAndy@dtn.com.
I bought land 10 years ago on a contract which has a fixed interest rate and annual payments due over 15 years. Now, 10 years down the line, the land value has tripled, but there is no prepayment or assignment clause without permission from the seller. I have significant equity in the property that I cannot use. Could the seller agree to have what I owe placed in escrow, and draw the same payment out of that escrow account over the final five years of the contract, in order to transfer title to me now? Or would the seller have tax consequences?
The proposal you describe would cause acceleration of the remaining gain to the seller. The seller would be required to report the remaining capital gain at the point the arrangement was changed to the escrow account as the obligor on the note rather than you, the purchaser of the land. One of the conditions for an installment sale is that the purchaser of the property remain as the obligor. Any attempt to substitute an escrow account or similar collateralized arrangement can blow up the tax deferral to the seller.
In your June/July Progressive Farmer column about the Affordable Care Act, you talked about Medical Reimbursement Plans having to pay an excise tax. Does this apply to a farm couple where the husband pays a wife a wage and also reimburses for medical expenses? Would it also apply if the only reimbursement was for health insurance?
The new excise tax applies to all medical reimbursement plans, from the smallest to the largest. So yes, a husband who pays a wife for farm services, and includes a Section 105 medical reimbursement plan as part of the compensation package, would be required to remit the tax. The tax is $1 for the 2012 plan year and $2 for the 2013 plan year, and is assessed per covered life. Thus, if both the husband and wife are participants in the medical reimbursement plan, a $2 fee is owed this year (2 lives at $1 each). If it is a family of four, the tax due is $4.
But there is no tax paid by the employer on a health insurance policy. The insurance company is required to pay this fee with respect to an insured arrangement.
For this new fee or excise tax on medical reimbursement plans, I cannot find a line on the Form 720 for paying the tax. And what Code Section has the rules on this?
It took the IRS until the first week of June to update the Form 720 for this new fee on medical reimbursement plans. The first filing is due July 31, 2013, for the calendar year 2012 (technically, due July 31, 2013, for a plan year ending Oct. 31, Nov. 30 or Dec. 31 of 2012). A fiscal year plan ending in 2013 would have its first Form 720 due July 31, 2014. The line for paying this tax is under Part II of the form, at No. 133. The employer simply enters the number of lives covered under the plan and multiples by the $1 tax rate.
This tax is imposed under Code Section 4376. If you are interested in more detail, see IRS Regulation 46.4376-1. Whether the plan is self-administered by the employer, as we often see in farm C corporations, or if using a third-party administrator, such as through AgriPlan, the Form 720 is required.
Administrators such as AgriPlan are generally preparing the form for their customer/employers to sign and file. Finally, the IRS recently announced that this fee is tax deductible, even though remitted as an excise tax to the IRS.
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