Client Services / Tax / Fringe Benefits

Fringe Benefits

Fringe benefits and payroll tax compliance and planning issues impact every employer and employee within the United States. The Internal Revenue Service considers fringe benefits and payroll taxes, as well as the related field of the contingent workforce, as a single practice area within its National Office. Due to this subject matter treatment and intensive internal IRS training, these issues are receiving increasing IRS scrutiny, as evidenced by the level of IRS audit activity and the prominence of these issues in the IRS’ new executive compensation audit initiative. McDermott Will & Emery has structured an integrated practice group to provide our clients with comprehensive analysis and strategic planning to address and limit the potentially adverse effects of these IRS training and audit efforts, as well as to structure and implement tax minimization and refund strategies.

One of the unique features and major strengths of our Fringe Benefits and Payroll Tax Practice is that the group is led by tax lawyers who formerly directed the IRS National Office’s efforts in these important areas prior to pursuing private sector careers. At least one or more of our lawyers was involved with crafting virtually every piece of significant IRS guidance in the fringe benefits, payroll tax and contingent workforce areas from 1985 to 2002, and several of our lawyers actively advised and trained the IRS lawyers, officials and auditors these matters. One such lawyer—who has been recognized and described by many tax officials within the IRS, the U.S. Treasury Department and the Tax Division of the Department of Justice as the country’s "foremost expert" on these issues—joined our practice group after leading the IRS’ fringe benefits and payroll tax group for approximately 15 years.

Drawing on our distinctive background, we actively represent hundreds of clients (ranging from Fortune 500 to start-up companies) on executive perks, fringe benefits and payroll tax matters, as well as on contingent workforce issues. We conduct compliance checks and resolve issues for our clients with multiple goals of decreasing the potential for IRS audits, increasing reliance on statutory and regulatory relief provisions and decreasing tax exposure, all while limiting our clients’ costs and administrative burdens and looking for tax savings opportunities. More specifically, our lawyers are widely recognized and respected as leading authorities within and outside the IRS on tax planning, controversy and IRS ruling matters in the following areas:

FRINGE BENEFITS ~ McDermott Will & Emery’s specific areas of experience encompass the exclusion, substantiation and valuation of fringe benefits and related matters, such as the following:

• Qualified transportation fringes

• Working condition fringes

• Expense reimbursement plans

• No-additional-cost fringes

• Meals and lodging

• Housing assistance and relocation benefits

• Employee prizes and awards

• Employer-provided automobiles

• Employee discounts

• Security programs and corporate aircraft

• Adoption assistance

• Intermediate sanctions

• Executive loans

• Compliance audits

• Use of executive jets and SIFL computations

• Safe harbor relief provisions

• Executive compensation audits

• Company cafeterias and athletic facilities

• Income minimization techniques and tax planning opportunities

• Employee computers

Frequent speakers and writers, two of our lawyers are also the co-contributing editors to Thompson Publishing Employer’s Guide to Fringe Benefit Rules, a leading fringe benefits publication in the United States.

PAYROLL TAXES ~ Three lawyers in our practice were instrumental while at the IRS National Office in the development and release of employment tax guidance projects that affect virtually every corporation, executive and employee in the United States. We continue to try to shape these efforts in the private sector on behalf of our clients. As one example, we are tracking and advising on the statutory stock option withholding issue and the nonstatutory stock option next-day deposit issue that currently threaten these stock option payroll tax issues, including the following:

• Interest-free adjustments

• Penalty abatements

• IRS audits

• Section 530 relief

• FICA taxes

• Payroll tax adjustment and refund processes

• Supplemental unemployment compensation benefit (SUB-Pay) plans

• Payroll tax treatment of corporate mergers, acquisitions and reorganizations

• Internal compliance audits

• Federal income tax withholding

• Impact of pass-through entities

• Payroll information reporting

• Shifting payroll tax liability

• Litigation settlement payments

• Reporting and withholding issues on statutory and nonstatutory stock options

• FICA tax treatment of nonqualified deferred compensation under Section 3121(v)

• Employer Identification Numbers (EINs)

• Accountable plans

• Social Security and totalization agreements

• Intercompany employee transfers

• Form W-2 and Form 1099 reporting

• Payroll tax treatment of expatriates

CONTINGENT WORKFORCE MATTERS ~ The IRS often raises fringe benefits, retirement plan and payroll tax issues when auditing independent contractor, employee leasing and other contingent workforce relationships. Since theIRSaggregates these practice areas in its audit activity, McDermott, Will & Emery follows a similar structure to assist our clients and to respond more directly to the IRS’ audit efforts. Areas of particularfocusincludethefollowing:

• Employee-independent contractors

• Worker reclassification audits

• Co-employment

• Temps and perma-temps

• Employee leasing

• Payrolling arrangements

• Statutory employers and statutory employees

• Section 530 relief, safe harbors and compliance

• Professional employer organizations (PEOs), administrative service organizations (ASOs), human resource outsourcing (HRO) and other outsourcing arrangements

• Classification Settlement Program (CSP) agreements

• Employee benefits or Microsoft issues

• Authorized agents and common paymasters

LITIGATION AND DISPUTE RESOLUTION ~ Our Firm closely monitors and actively responds to IRS audit and litigation activities in the areas of fringe benefits, payroll taxes and the contingent workforce, as most recently evidenced by our hiring the IRS’ most senior, experienced and well-respected tax controversy lawyer in all three of these practice areas. When the IRS raises any of these issues, our Firm is able to provide the assistance and support necessary to resolve the controversy on a satisfactory and cost-effective basis. Most cases can be settled at an administrative level with the examination agent or an IRS Appeals Officer. In fact, we have resolved numerous cases for our clients with no resulting tax liability only a fraction of the liability that our clients expected to pay to the federal government. In the few instances where a favorable administrative solution cannot be reached due to IRS intransigence, our Firm can litigate the case with one of the United States’ largest and most well-respected tax controversy groups. This group has achieved numerous noteworthy successes in recent years.

McDermott, Will & Emery is dedicated to monitoring and responding to all fringe benefits, payroll tax and contingent workforce issues that may currently affect or prospectively interest our clients, including actively tracking developments within the IRS and the U.S. Treasury Department on such matters. With forces of change converging on executive compensation, we are currently monitoring and responding to the IRS’ executive compensation audit initiative in which executive perks and payroll tax issues are taking a predominant role. As is a hallmark of our Firm, we are dedicated to providing our clients ready access to a practice with the type of depth, breadth, reputation and vision to meet not only today’s client needs, but also tomorrow’s challenges and planning opportunities.

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Tax Client Services

McDermott Will & Emery

McDermott Will and Emery