On March 29, 2022, the House of Representatives passed H.R. 2954, Securing a Strong Retirement Act of 2022, also known as SECURE 2.0. The bill, which has bipartisan support, builds upon the SECURE Act of 2019 with the goal “to increase retirement savings, simplify and clarify retirement plan rules, and for other purposes.” SECURE 2.0 expands and clarifies certain provisions of the SECURE Act. Next, the bill will go to the Senate where provisions from the Senate’s version, the Retirement Security and Savings Act of 2021, may be included. The following highlights the primary changes within SECURE 2.0: Increase in beginning age for required minimum distributions The required minimum distribution (RMD) age would increase gradually from 72 to 75, as follows: Age 73, beginning on Jan. 1, 2023 Age 74, beginning on Jan. 1, 2030 Age 75, beginning on Jan. 1, 2033 The objective is to ensure that individuals have retirement savings to use during their lifetime.  Catch-up contributions Certain catch-up contributions required to be Roth contributions: All catch-up contributions to employer-sponsored qualified retirement plans would be subject to after-tax Roth treatment effective Jan. 1, 2023. Catch-up contributions to IRAs would continue to be pre-tax, but are significantly less than catch-up contributions to employer-sponsored plans ($1,000 versus $6,500.) This provision is not included in the Senate’s version. IRAs: Individuals who have attained age 50 are permitted to contribute a catch-up contribution to their IRAs. Under existing law, the catch-up amount is $1,000 and is not indexed. SECURE 2.0 would index the catch-up amount beginning in 2024. Increases catch-up limits for ages 62, 63 and 64: Current law permits employees who have attained age 50 to make catch-up contributions to a retirement plan in excess of certain limits. SECURE 2.0 would allow individuals who have attained ages 62, 63, or 64 (but not 65) during the year to make larger catch-up contributions to their retirement plans. The annual limit would increase to $10,000 compared to the 2022 limit of $6,500, and in the case of SIMPLE plans, the limit would increase to $5,000 from $3,000. Both limits would be indexed. This provision would be effective for taxable years beginning in 2024. Period of service requirement reduced for long-term, part-time employees The SECURE Act expanded eligibility to include long-term, part-time workers to contribute to their employers’ 401(k) plan who complete three consecutive years of service with at least 500 hours of service in each year. SECURE 2.0 reduces the time period to two years. It also provides that pre-2021 service is disregarded for vesting just as such service is disregarded for eligibility purposes under current law. As a result, long-term, part-time employees would become eligible for participation in the elective deferrals for plan years beginning in 2023. Roth contributions expanded Under current law, employer-matching contributions to 401(k) and 403(b) plans must be made on a pre-tax basis. SECURE 2.0 would provide participants of these plans with the option of receiving matching contributions on a Roth after-tax basis. This provision would be effective as of the date of enactment. SIMPLE IRAs may accept employee Roth contributions. SEP IRAs may treat employer and employee contributions as Roth contributions. These provisions would be effective beginning in 2023. Student loan payments treated as deferrals for purposes of matching contributions SECURE 2.0 permits an employer to make matching contributions under a 401(k) plan, 403(b) plan or SIMPLE IRA with respect to “qualified student loan payments.” Qualified student loan payment is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee. Qualified student loan payments made by the employee could be matched up to the annual elective deferral threshold. The employee would be required to certify to the employer making the matching contribution that the employee actually made the student loan payment; the employer may rely on the employee’s certification. This provision would be effective for plan years beginning in 2023. Auto-enrollment in retirement plans expanded Automatic enrollment of eligible employees was first introduced in 1998 and has significantly increased participation in 401(k) plans, particularly among younger, lower-paid employees, providing them with the opportunity to save for retirement. SECURE 2.0 would require 401(k) and 403(b) plans to automatically enroll an employee once the employee is eligible to participate. All 401(k) and 403(b) plans currently in place would not be subject to this requirement. Automatic enrollment would also include an automatic escalation in an employee’s annual rate of deferral. The initial rate would be at least 3% and would increase by 1% each year up to 10%. Employees would have the opportunity to change their deferral rates as well as opt out of participating in the plan. This provision would be effective for plan years beginning in 2024. Retirement plan amendments SECURE 2.0 conforms the plan amendment dates under the SECURE Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act to the first plan year beginning in 2024 (2026 for governmental plans) rather than 2022 and 2024. Other provisions of interest Safe harbor for corrections of employee elective deferral failures Reduction in excise tax for failure to take RMD Expansion of Employee Plans Compliance Resolution System to allow self-correction of plan loan errors Defined contribution plans required to provide paper statement to participant at least once per year unless participant elects out Repayment of qualified birth or adoption distribution (QBAD) limited to three years Employer may rely on employee certifying that hardship distribution conditions are met Family attribution rules updated for spouses in community property states and for attribution of stock between parents and minor children We encourage you to connect with your Baker Tilly advisor regarding how any of the above may affect your tax situation.

The House passed SECURE 2.0, building on the first act, which passed in 2019 with the purpose of increasing participants in retirement savings plans as well as simplifying the process of contributing to plans.

Federal Tax

SECURE 2.0 is passed by the House 

The IRS is planning to hire an additional 10,000 employees over the coming weeks and months. These new personnel will concentrate on an ever-increasing focus on partnership audits as well as assisting with return backlog and technology modernization. Open positions, which the IRS will begin posting later this month, will range from entry-level clerical jobs to tax specialists and attorneys to engineers. Staffing has been a major obstacle for the IRS over the last decade. The agency has lost approximately 20,000 employees since 2010, dwindling their workforce to the current level of 74,000. If the IRS is successful in hiring 10,000 new employees, it will represent an increase of 14%. In an effort to expedite the hiring process, the IRS requested and was granted direct hiring authority from the Office of Personnel Management. This permission will allow the agency to bypass some of the more onerous procedures typically required for federal positions. In addition, there are reports of exemptions to federal salary caps that will help the IRS recruit experts who are currently working in the private sector. While the omnibus legislation currently making its way through Congress does increase the IRS’ annual budget, it is unclear how much of the proposed $12.6 billion is stipulated for employee hiring and retention. Focus on partnership audits The IRS is ramping up scrutiny of pass-through entities, with a particular focus on partnership taxation. According to a recent Bloomberg article, Lauren Troderman, team manager for pass-through entities at the IRS, said the agency is trying to increase its number of partnership audits since its need to look at partnerships has intensified in response to the rising number of partnership filings.   Audits of large partnerships are expected to escalate as the IRS implements the Large Partnership Compliance (LPC) Pilot Program. The LPC program, which began in late 2021, targets partnerships with over $10 million in assets. Under the new system, data analytics of certain criteria are used to identify partnerships with the highest risk of noncompliance. Entities selected for audit will not center on a single issue; instead, the entire return will be subject to examination. The LPC audit process will focus on not only the current examination, but also the collection of data. The IRS will use LPC audit findings to refine algorithms, further improve methods of identifying issues and assess the compliance risk of partnership tax filings.  The Large Business and International (LB&I) Division of the IRS also has two active partnership campaigns: Partnership losses in excess of basis: focuses on the section 705 outside basis requirements needed to claim flow-through losses from partnerships Sale of partnership interest: addresses taxpayers who do not report the sale or do not correctly compute the gain or loss of a partnership interest disposition  The IRS is searching for attorneys, revenue agents, tax law specialists and other experts to fill out their partnership team. Accordingly, partnership filers, particularly large partnerships, should ultimately expect to see an increased rate of audit. IRS backlog The IRS began the 2022 filing season with a backlog of almost 24 million items — 17.6 million tax returns and 6 million items of unaddressed taxpayer correspondence, according to the National Taxpayer Advocate, Erin Collins. The accumulation of unprocessed tax returns and correspondence has drawn the criticism of taxpayers, tax professionals and Congress.  While a majority of the 10,000 new IRS openings will be in positions to assist with processing the backlog, it is unlikely the agency will be able to catch up in the short term. A recent Washington Post article reported that “a government official said the IRS does not expect the backlog to resolve until the end of 2022.” Hiring obstacles The IRS has struggled to hire staff in recent years. Collins pointed out in her Feb. 17, 2022, congressional testimony that the IRS had only successfully filled 179 of the 5,000 open positions for customer service representatives. She further testified that low pay is affecting the IRS’ ability to hire employees. The previously mentioned Washington Post article examined some of the IRS’ staffing issues, reporting that at the agency’s tax processing center in Kansas City, Missouri, “employees are working six-day weeks with mandatory overtime.” In addition, that center is facing wage competition; entry-level employees make $15 per hour but nearby retailers are offering 25%-60% more in starting hourly wages.  Exacerbating the IRS’ current staffing issues is the fact that almost 25% of the agency’s current national workforce of 74,000 employees are eligible for retirement. While the IRS is looking to hire 10,000 people in the short term, an additional 18,000 positions could see vacancies if experienced employees choose to retire. We encourage you to connect with your Baker Tilly advisor regarding how any of the above may affect your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The IRS announced plans to tackle its workforce problem by hiring 10,000 employees over the next few months. The agency, plagued by complaints about slow response time after losing about 20,000 employees since 2010, will also put a bigger emphasis on looking into partnership filings.

IRS expands hiring efforts, focuses on partnership audits

Baker Tilly’s e-book, Innovation culture, reveals strategies and key considerations in creating something new, adding value, improving performance and fueling future success with a culture of innovation. It’s human nature to continually think of new ways to do things. In its simplest form, innovation occurs when a company or organization does something new or different that creates value. Innovation takes time and resources. If an organization has a dollar or an hour to spend, they will spend it servicing a customer, client or constituent. That’s a “today” goal, while innovation is about the future. The focus on near-term profitability and growth or servicing immediate client or constituent needs may distract an organization from realizing that innovation will fuel business growth or an organization’s long-term mission. When organizations allow employees at all levels to be stakeholders in the decision-making process, they foster a culture of innovation. To have an innovation mindset, organizations must recognize the need for change and be committed to supporting change through action. Talent development and data maturity are two primary initiatives that organizations can adopt to start on their innovation journey.
Baker Tilly’s wide array of advisory services can help executives looking to innovate and differentiate their organizations. Our specialists have the experience to help you determine opportunities for innovation and develop a culture of innovation. Baker Tilly’s Value Architects™ can help.

Innovation occurs when an organization does something new or different that creates value. Creating a culture of innovation is essential for organizations.

Higher Education

Risk Advisory

Application Services

Digital Strategy

Enterprise Solutions 

Global Trade Management

Human Capital

Municipal Advisory

Nearshoring Services

Supply Chain & Manufacturing Consulting

Supply Chain Strategy, Planning & Optimization

Innovation culture – jumpstarting new ideas to drive organizational success

Commercial real estate experienced another booming quarter, driven by a large volume of property-level transactions coupled with major entity-level merger-and-acquisition activity increasing broadly across all sectors. Vaccination mandates and increased restrictions such as requirements to provide proof of vaccination at restaurants and public events are a cause for uncertainty, but investors have proven to be willing to absorb risks related to COVID-19-driven uncertainties. While unexpected events like a global pandemic may change the course and face of progress, it continues apace, and those that remain flexible and open-minded will be in the best position to succeed. This holds especially true for commercial real estate markets, where investors have shown an ability to pivot on their investment strategies and get creative in how they generate returns for themselves and their partners. Continue reading the Q4 2021 report for further analysis, insight and outlook into the multifamily housing, office, retail, industrial and capital market industries.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Read the fourth quarter of 2021’s real estate market trends, transactions, analysis and outlook as you prepare for the year ahead. 

SECURE 2.0 is passed by the House

IRS expands hiring efforts, focuses on partnership audits

Innovation culture – jumpstarting new ideas to drive organizational success

Commercial real estate market report: Q4 2021

SECURE 2.0 is passed by the House