1. Presented by David S. Oltman, CRP Presented by David S. Oltman, CRP Ineo/Relocation Taxes, LLC www.relotax.com www.relotax.com Presented by David S. Oltman, CRP Presented by David S. Oltman, CRP Ineo/Relocation Taxes, LLC www.relotax.com www.relotax.com New 2012 Tax Law Changes – Their Impact on Relocation Tax Gross-up Policies and the Transferee NERA 2/9/12

2. New 2012 Corporate Tax & Payroll Issues Tax Credits lost on tax returns – Education Credits and American Opportunity Credits – IRS Form 8863 (Phase-out range “Single” $80,000 - $90,000 and “Married Filing Joint” $160,000 to $180,000), Child Tax Credits ($110,000, $130,000, $150,000…). See RTA p. 11. Repayment of Home Buyer Tax Credit – IRS Form 5405 if moved again within 3 years. All these issues can effect the transferred employee by several hundred dollars, to several thousand dollars, to well over $10,000+. See RTA p. 44. Tax Credits lost on tax returns – Education Credits and American Opportunity Credits – IRS Form 8863 (Phase-out range “Single” $80,000 - $90,000 and “Married Filing Joint” $160,000 to $180,000), Child Tax Credits ($110,000, $130,000, $150,000…). See RTA p. 11. Repayment of Home Buyer Tax Credit – IRS Form 5405 if moved again within 3 years. All these issues can effect the transferred employee by several hundred dollars, to several thousand dollars, to well over $10,000+. See RTA p. 44. Recommendation: Only after doing a complete gross-up audit in 2012 of the employee’s 2011 tax return. Cost usually between $250 to $395 per audit.* The importance of proper tax preparation can not be over stated. For example a FL to OH move – and not allocating state wages properly. * Business Expense. Not taxable. * Business Expense. Not taxable.

3. New 2012 Corporate Tax and Payroll Issues 1)AMT Tax (Alternative Minimum Tax) effects – could effect 10 times more taxpayers, “Target” result is the corporate transferee. (higher gross-ups). See RTA p.10 & page 44 2) All Tax Brackets where indexed for inflation (significant lower gross-ups in 2012 could be higher in 2013) See RTA p.11. Brand new – lower phase-outs of itemized deductions (went from 3% to 2% to 1% to 0% in 2010 and 2011 - and lower phase-out for personal exemption amounts 1/3 reduction and a new minimum of $2,333 ($3,700 x. 66.67%) per personal exception. 0% in 2010 and 2011. Average savings of $375/move. Potential 2013 higher tax rates – gross-up impact. 60% total tax rate = a 150% gross-up. Potential 2013 higher tax rates – gross-up impact. 60% total tax rate = a 150% gross-up. 3) How states are catching employees who do not report their wages. Tax Amnesty. Hotel & credit card gas receipts. IRS Employment Tax Audits Begin in 2010 and will run through 2013. A significant number of audits have been started. 5) New State Sales Tax Deduction – Applies mainly to transferees in nine (9) no income tax states. AK, FL, NV, NH, SD, TN, TX, WA & WY (lower gross-ups) See RTA p.12 Average savings of $600 per move 6) Reduced Home Sale Exclusion & New Home Buyer Tax Credit ($8,000/$6,500). Very Complex. See RTA – p.44 IRS Form 5405 – plus new “Repayment Letter” being sent by IRS based on address changes. If house turned into rental – credit must be repaid. 7) New HUD-1 Form – Special attention should be given to line 801 – See RTA page 36.

4. 2012 Hot Federal/State Tax Issues Temporary Assignments – 1 year rule – business vs. taxable. See RTA pages 8 & 9 also Revenue Ruling 93-86. New Trend to “reconcile” state taxes – “Keep Employee Whole For State Income Tax ”. New Proposed Tax Bill – H.R. 1864 – “30 Day Rule” (was H.R. 3359 & 2110 - 60 day rule). “Mobile Workforce State Income Tax Fairness and Simplification Act”. The methodology used is to calculate what the employee “would have paid” in Federal and State/Local taxes (in the “live state”) – then compare that amount to what the employee “actually paid” in Federal and State/Local taxes (in the temp. “work state”). The difference between those two amounts is the amount due the employee. Issues to consider: Temporary Assignments – 1 year rule – business vs. taxable. See RTA pages 8 & 9 also Revenue Ruling 93-86. New Trend to “reconcile” state taxes – “Keep Employee Whole For State Income Tax ”. New Proposed Tax Bill – H.R. 1864 – “30 Day Rule” (was H.R. 3359 & 2110 - 60 day rule). “Mobile Workforce State Income Tax Fairness and Simplification Act”. The methodology used is to calculate what the employee “would have paid” in Federal and State/Local taxes (in the “live state”) – then compare that amount to what the employee “actually paid” in Federal and State/Local taxes (in the temp. “work state”). The difference between those two amounts is the amount due the employee. Issues to consider: –a) Any State income tax dollars that were “advanced” or “loaned” –b) The taxability of “advances” or “loans” –c) Multi-state tax credits taken or not taken on state tax returns –d) Non-Resident and Part-Year Resident state tax returns –e) Administration of the program – “loans”, “advances” and “repayments” * Proposed Effective Date retroactive to 1/1/2013 – See RTA p. 13

5. Global Assignments – Stealth Expatriates – tracking issues. See RTA pages 14 thru 19. Global Assignments – Stealth Expatriates – tracking issues. See RTA pages 14 thru 19. E-Solutions – New trends – Lots of software on the market – average cost $50 - $75 per move. From Gross-ups to Int’l Hypo Taxes, to Lump Sum software. E-Solutions – New trends – Lots of software on the market – average cost $50 - $75 per move. From Gross-ups to Int’l Hypo Taxes, to Lump Sum software. US Government (WITA/RITA) - Sen. Grassley - GRAB. See RTA pages 38 & 39 US Government (WITA/RITA) - Sen. Grassley - GRAB. See RTA pages 38 & 39 Capital Losses on home sales are NOT deductible. See RTA page 2 Capital Losses on home sales are NOT deductible. See RTA page 2 The Mortgage Forgiveness Debt Relief Act. “Short Sales” no longer taxable, Negative Equities and Loss on Sales. The Mortgage Forgiveness Debt Relief Act. “Short Sales” no longer taxable, Negative Equities and Loss on Sales. IRS Revenue Ruling 2005-74 (updates 72-339) – Corporate home sale procedures clarified. Third Party home sales NOT taxable. IRS Revenue Ruling 2005-74 (updates 72-339) – Corporate home sale procedures clarified. Third Party home sales NOT taxable. First Time Homebuyers Credit: $8,000/$6,500 (MFJ $225,000; SNG $125,00) start of phase out range. Three year pay back period. See IRS Form 5405 Very complex. Three (3) year payback provision. IRS has just started sending out repayment request letters, to employees who have “changed their address” or “moved” or have “rented their house”. First Time Homebuyers Credit: $8,000/$6,500 (MFJ $225,000; SNG $125,00) start of phase out range. Three year pay back period. See IRS Form 5405 Very complex. Three (3) year payback provision. IRS has just started sending out repayment request letters, to employees who have “changed their address” or “moved” or have “rented their house”. Commuters – Expenses & Salary taxable in both “live” and “work” states. Commuters – Expenses & Salary taxable in both “live” and “work” states. Making Work Pay Credit: – Between $400 to $800 credit Phase out range (Single $75,000 - $95,000 and then MFJ $150,000 - $190,000) Replaced in 2012 by lower FICA - was 6.20% currently 4.20%. Making Work Pay Credit: – Between $400 to $800 credit Phase out range (Single $75,000 - $95,000 and then MFJ $150,000 - $190,000) Replaced in 2012 by lower FICA - was 6.20% currently 4.20%. Average Gross-up Percent's – Could go from 60% to over150% based on proposed 2013 tax changes. Average Gross-up Percent's – Could go from 60% to over150% based on proposed 2013 tax changes. –C o m p a n i e s s h o u l d F o c u s o n “ T o t a l C o s t s ” – n o t j u s t a f e e ( i. e. $ 5 0 / m o v e v s. $ 1 2, 0 0 0 G r o s s - u p ) 2012 Tax and Payroll Issues

6. IRS 2012 Tax Forms: RTR - "Relocation Tax Report" - replaces old "IRS Form 4782“. See RTA p. 25 RTR - "Relocation Tax Report" - replaces old "IRS Form 4782“. See RTA p. 25 3903 - "Moving Expenses" - taxpayer required. See RTA p. 29 3903 - "Moving Expenses" - taxpayer required. See RTA p. 29 Sch. D - "Capital Gains and Losses" - replaces old "IRS Form 2119“ Sch. D - "Capital Gains and Losses" - replaces old "IRS Form 2119“ – Similar to TD F 90-21.1 – Report Foreign Bank Accounts and Interests, >$10k, or $50K or $100k New Form 8938 – Similar to TD F 90-21.1 – Report Foreign Bank Accounts and Interests, >$10k, or $50K or $100k New 2011 Federal, State, Local and F.I.C.A. (Social Security – 4.20%) $106,800 & Medicare 1.45% unlimited) tax brackets. The 2011 FICA/Medicare brackets – have changed. The longtime OASDI rate for the employee of 6.20% has changed in 4.20% in 2011 and 2012. The employer rate remains 6.20%. This represents a potential several hundred dollar per move gross-up savings. New 2011 Federal, State, Local and F.I.C.A. (Social Security – 4.20%) $106,800 & Medicare 1.45% unlimited) tax brackets. The 2011 FICA/Medicare brackets – have changed. The longtime OASDI rate for the employee of 6.20% has changed in 4.20% in 2011 and 2012. The employer rate remains 6.20%. This represents a potential several hundred dollar per move gross-up savings. New 2012 FICA Limit $110,100. New 2012 FICA Limit $110,100. States that follow the pre-1994 "rules" allowing the final move meal deduction / exclusion. States that follow the pre-1994 "rules" allowing the final move meal deduction / exclusion. NJ* / PA** NJ* / PA** * Allows only a 100% exclusion of Final Move Meals on NJ-1040 * Allows only a 100% exclusion of Final Move Meals on NJ-1040 ** Allows a 100% deduction of Final Move Meals on PA-40R-UE-1 ** Allows a 100% deduction of Final Move Meals on PA-40R-UE-1

7. Penalties for Failure to Withhold taxes on a timely basis. Most all relocation expense reimbursements or supplemental wage payments are subject to withholding at the time of payment. Most companies use the Supplemental rate of 25% and apply a gross-up percentage. Accountable Plan rules apply, using the 30/60/120 rule. Taxable moving expenses (lump sums) are treated as if they were paid under a "non- accountable" plan. An average penalty of $8,000 per move could cost a company that relocates 200 employees per year, 1.6 million dollars for each year of non-compliance. Most all relocation expense reimbursements or supplemental wage payments are subject to withholding at the time of payment. Most companies use the Supplemental rate of 25% and apply a gross-up percentage. Accountable Plan rules apply, using the 30/60/120 rule. Taxable moving expenses (lump sums) are treated as if they were paid under a "non- accountable" plan. An average penalty of $8,000 per move could cost a company that relocates 200 employees per year, 1.6 million dollars for each year of non-compliance.

8. Tax Saving Strategies (Withhold/Gross-up) (1) When ever possible, always look for a business purpose for an expense. For example, Moves less than 1 year (temporary assignments), a Pre-employment physical, House Hunting Trips as business trips (breakout spouse expenses). Use a TP Home Sale Company or Qualified In-House Program. Tax Gross-up Savings over $9,000 per move. (2) Have trained accounting/relocation tax expense professionals tax code and audit all expenses entered from the transferee's expense report. Average cost is $300 to $500 per move (3) Do not include either Van Line or Final Move expenses in a "Lump-Sum" allowance. Why? Because not taxable when receipts are provided. Employees can still deduct their moving expenses even if they receive a lump sum that is taxable and grossed-up. Lumps Sum Software $50 to $75 per move. (4) Re-capture any FICA overpayments – Year-end “true-up” – only adjust for “negatives” differences. Tax Gross-up Savings over $1,000+ per move. (5) Explain/Educate employees with regard to how their gross-up was calculated. Priceless!!!!!

9. Year-end “true-up” or “difference” or “delta” calculation. Negatives only “adjustments”. Big savings in gross-ups Average gross-up is over $10,000. (Average savings over $2,000 per move). Year-end “true-up” or “difference” or “delta” calculation. Negatives only “adjustments”. Big savings in gross-ups Average gross-up is over $10,000. (Average savings over $2,000 per move). Only gross-up at supplemental rate [ 25% ], let transferees come back and request more. Gross-up Audit after the fact. (Average savings over $1,000 per move). Only gross-up at supplemental rate [ 25% ], let transferees come back and request more. Gross-up Audit after the fact. (Average savings over $1,000 per move). Companies no longer automatically grossing-up for FICA (4.20% + 1.45%) $110,100 maximum. Companies no longer automatically grossing-up for FICA (4.20% + 1.45%) $110,100 maximum. Lump Sums – Becoming very popular, software is available. $50 - $75 Lump Sums – Becoming very popular, software is available. $50 - $75 Expense Management Audits – Relocation Accounting Audits. (Average costs $395 per audit or several thousand dollars to audit a “batch” of records). Expense Management Audits – Relocation Accounting Audits. (Average costs $395 per audit or several thousand dollars to audit a “batch” of records). Reconcile State Taxes for employees who go on a temporary assignment or Commuter assignments. Gross-up wages for extra state taxes when needed. Gross-up Audits – for AMT, Home Buyer Credit and Other Lost Credits. Cost $395 per move. Reconcile State Taxes for employees who go on a temporary assignment or Commuter assignments. Gross-up wages for extra state taxes when needed. Gross-up Audits – for AMT, Home Buyer Credit and Other Lost Credits. Cost $395 per move. Hot 2012 Relocation Trends Hot 2012 Relocation Trends

10. 1) Income will be inflated due to moving expenses paid by your company. Make sure that federal and state withholdings are sufficient to cover the increase. Also, the year after the move, most transferees are more likely to be under withheld. If in doubt, contact your tax advisor. See RTA p.7 Also, If your company paid your Van Line bill, you can NOT deduct it on IRS Form 3903. If you rent out your house, you will have to repay the Home Buyer Tax Credit. 2) Make sure that a state W-4 form has been prepared and given to your payroll department so that withholding is being taken out in the proper state. YOU ARE REQUIRED TO HAVE WITHHOLDING TAKEN IN THE STATE THAT YOU WORK IN, EVEN IF YOU ARE A RESIDENT OF ANOTHER STATE! This should become effective the first paycheck received in the new place of employment. See RTA p.7, 12 and 13 3) In addition to the state, your new city may also require tax to be withheld. Review your first pay stub to make sure that this is being done (if applicable). 4) Keep in mind that excess FICA withheld from two or more employers is refundable, Line 69 IRS tax form 1040. Affects both working spouses. 5) You have up to two years to satisfy the time test, to establish permanent residency, in order to deduct moving expenses. 10 Things Every Employee Should Know Before Considering a Move

11. 6) Special costs, that are unique to you, are also deductible as moving expenses such as pets, horses, aquariums and tips paid to “movers & packers. No limit on the number of cars that can be moved and deducted. See RTA p.4 7) The cost of moving students, from their college to the new location, is deductible. 8) In the year that you move, remember that any non-amortized points on a refinanced loan can be deducted if you sell your house. See RTA p.8 9) Premature distributions from pension plans are not only taxable as income but incur a 10% penalty unless rolled over within 60 days. There is often a misconception how the rules for first time homebuyers work. Also in the year of a move, income is inflated and this is probably not a good time to take an early distribution. 10) The year after the move, significant potential for under withholding penalties exist. It could be hard to meet any of the safe harbor rules: Owe $150k, then pay 110% of last years liability. See RTA p.7 10 Things Every Employee Should Know Before Considering a Move

12. Gross-up Audits “With/Without Move Analysis” Gross-up Audits “With/Without Move Analysis” Common mistakes CPAs make with transferees' tax returns with regard to “Keeping The Transferee Whole" Common mistakes CPAs make with transferees' tax returns with regard to “Keeping The Transferee Whole" (1)The tax return is prepared incorrectly!!!. Excludables (W-2 Box 12 – Items preceded by the letter “P”) are not properly reported and carried forward to the 1040 Federal tax return. IRS Form 3903 “Moving Expenses” is not completed properly, or not at all. Points / Loan Origination fees are not deducted properly on IRS Schedule A. Part year and non-resident State Tax Returns are not completed properly, or not at all. (2)Accountant is not familiar with the company's relocation tax gross-up policy. For example, what expenses are Grossed-up and which expenses are not subject to tax assistance. (3)Other income (spouse income) is used to establish tax brackets both "with" and "without" the move. (4)Points are deducted both "with" and "without" move.

13. (5) State and Local Gross-up tax dollars are deducted "with" and "without" the move. (6) Recapture Excess FICA taxes Withheld. Comment: If the transferee "partially loses the benefit of their Standard Deduction", or the new “General Sales Tax Deduction”; in other words, is forced to itemize; the transferee has been adversely affected. For example, the maximum "Standard Deduction Loss" exposure: Standard Deduction Married Filing Jointly $11,900 (MFJ).25%.25% $ 2,975 "Extra Tax Owed Because of Move" Additionally, transferee’s who exercise stock options, have rental properties, AMT and generally more complex tax issues should consider having “professional” tax preparation and review” by trained relocation tax experts. Additionally, transferee’s who exercise stock options, have rental properties, AMT and generally more complex tax issues should consider having “professional” tax preparation and review” by trained relocation tax experts. Gross-up Audits – With/Without Move Analysis

14. 2012 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* 2012 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* Use Tax Tables _____ Several Thousand Dollars Use Tax Tables _____ Several Thousand Dollars State Taxes_____Moved To / From / Both ? $1,000 State Taxes_____Moved To / From / Both ? $1,000 Include Fed. in State_____$350 Include Fed. in State_____$350 Local Taxes_____$150 Local Taxes_____$150 F.I.C.A. Taxes _____SS / Med / Both SS $1,000 / Medicare$250 F.I.C.A. Taxes _____SS / Med / Both SS $1,000 / Medicare$250 F.I.C.A. Circular Logic_____$400 F.I.C.A. Circular Logic_____$400 Money Saving Gross-up Policy Administrative Opportunities

15. Money Saving Gross-up Policy Administrative Opportunities Money Saving Gross-up Policy Administrative Opportunities –2012 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* –Deduction/Exempt. Phase-out____$275 (No 2012 phase-out) –Assume Itemized Deductions ____$600 (New GST) –Gross-up "Unqualified" Moves____$5,800 –Misc. Expense Allowance____$4,000 –COLA / MIDA____$6,000 –$0.555/$0.23 cents per mile____$150 –Loss on Sale____$10,000 to $50,000+ –AMT, WPC, First Time HB Credits____$1,000 - $20,000+ –Annualize New Hire Salaries ____Several Thousand Dollars

16. Money Saving Gross-up Policy Administrative Opportunities Money Saving Gross-up Policy Administrative Opportunities 2012 GROSS-UP DECISIONS YES/NOAdditional Cost Per Move* Look at Non-itemizers (Renters)____$500+ Look at Non-itemizers (Renters)____$500+ Economic Stimulus Package____$0 to $2,000+ Economic Stimulus Package____$0 to $2,000+ Third Party Home Sale Company____$9,000 Third Party Home Sale Company____$9,000 Other____58% to 60% of Benefit Paid - Commuters Other____58% to 60% of Benefit Paid - Commuters The dollar amounts presented are estimates only. The actual dollar amount will vary based on the total cost of the move, what state is used for tax purposes, and of course the company's relocation tax gross-up policy. The dollar amounts presented are estimates only. The actual dollar amount will vary based on the total cost of the move, what state is used for tax purposes, and of course the company's relocation tax gross-up policy. * Savings documented well over $2,000 per move. Copyright Ineo/Relocation Taxes, LLC 2012

17. David S. Oltman Chief Compliance Officer & Company Co-Founder Ineo/Relocation Taxes, LLC Chief Compliance Officer & Company Co-Founder Ineo/Relocation Taxes, LLC 372 Danbury Road Wilton, CT 06897 (203) 529-3020 Oltman@relotax.comOltman@relotax.com – e-mail address Oltman@relotax.com www.relotax.com Speaker Contact Information Speaker Contact Information