10/26/2016 1 Tax Law Update Kristy Maitre – Tax Specialist Center for Agricultural Law and Taxation October 20, 2016 Legislation that Will Impact 2017 Filing Season • The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) December 15, 2015 • The Consolidated Appropriations Act, 2016 (CAA of 2016) were signed into law on December 18, 2015 • The Trade Preferences Extension Act of 2015 (Public Law 114‐27), Enacted June 29, 2015 • The Bipartisan Budget Act of 2015 (BBA)
Transcript
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Tax Law Update
Kristy Maitre – Tax SpecialistCenter for Agricultural Law and TaxationOctober 20, 2016
Legislation that Will Impact 2017 Filing Season
• The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) December 15, 2015
• The Consolidated Appropriations Act, 2016 (CAA of 2016) were signed into law on December 18, 2015
• The Trade Preferences Extension Act of 2015 (Public Law 114‐27), Enacted June 29, 2015
• The Bipartisan Budget Act of 2015 (BBA)
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Administrative and Procedural Issues
POWER of ATTORNEY Needed to Assist Client with “Disable Online Account”
• Scenario:
– Your client receives a letter concerning opening an IRS online account or they go into their account and can see the last date accessed and they never accessed
– You can assist with the termination of the online account using a POA that states “ "disable online account"
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Form 2848
New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies; Taxpayer
Rights Protected
• Private collection of certain overdue federal tax debts will begin next spring
• IRS has selected four contractors to implement the new program
• The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables
• As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act
• The IRS has selected the following contractors to carry out this program:
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The IRS Has Selected the Following Contractors to Carry out the Program
• CBE Group 1309 Technology Pkwy Cedar Falls, IA 50613
• Conserve 200 CrossKeys Office park Fairport, NY 14450
• Performant 333 N Canyons Pkwy Livermore, CA 94551
• Pioneer 325 Daniel Zenker Dr Horseheads, NY 14845
New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies; Taxpayer
Rights Protected
• These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts
• Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases
• The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency
• The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer
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New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies; Taxpayer
Rights Protected
• Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes
• Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act and must be courteous and respect taxpayer rights
• The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment
New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies; Taxpayer
Rights Protected
• Private collection agencies will not ask for payment on a prepaid debit card
• Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov/Pay Your Tax Bill
• Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency
• The IRS will continue to keep taxpayers informed about scams and provide tips for protecting themselves
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New Address to Send Applications for Discharge of the Estate Tax Lien
• As of June 2016, send all applications for discharge of any estate tax lien to the IRS’s Advisory Estate Tax Lien Group for processing
• Submit the application and required documentation on Form 4422, Application for Certificate Discharging Property Subject to Estate Tax Lien. Send the completed Form 4422 and all supporting documents to:– Internal Revenue Service– Advisory Estate Tax Lien Group– 55 South Market St.– Mail Code 5350– San Jose, CA 95113 ‐ 2324– Attn: Group Manager
Employment Related Identity theftW
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Letter 4491C
Letter 4491C
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New Installment Agreement Fees
• IRS Installment agreements are just one way for taxpayers to pay off their federal income tax debt, and many Americans take advantage of the option
• IRS has proposed a change to the cost of implementing an installment agreement, reinstating or restructuring the agreement, and offering a lower fee for using the online installment agreement effective January 1, 2017
• The change reflects a modified user fee schedule, to recover the cost of providing certain services that confer a special benefit to the recipient. Installment agreements are just one example of a special benefit to eligible taxpayers
• The proposed fee schedule will recover the full cost of the implementation and administration of the program
Options
• Regular Installment Agreements – A taxpayer contacts the IRS in person, by phone, or by mail and sets up an agreement to make manual payments over a period of time either by mailing a check or electronically through the Electronic Federal Tax Payment System (EFTPS)– The proposed fee for entering into a regular installment agreement is
$225
• Direct Debit Installment Agreements – A taxpayer contacts the IRS by phone or mail and sets up an agreement to make automatic payments over a period of time through a direct debit from a bank account– The proposed fee for entering into a direct debit installment agreement is
$107
• Online Payment Agreements – A taxpayer sets up an installment agreement through http://www.irs.gov and agrees to make manual payments over a period of time either by mailing a check or electronically through the EFTPS– The proposed fee for entering into an online payment agreement is $149
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Options
• Direct Debit Online Payment Agreements – A taxpayer sets up an installment agreement through http://www.irs.gov and agrees to make automatic payments over a period of time through a direct debit from a bank account– The proposed fee for entering into a direct debit online payment agreement is
$31
• Restructured/Reinstated Installment Agreements – A taxpayer modifies a previously established installment agreement or reinstates an installment agreement on which the taxpayer has defaulted– The proposed fee for restructuring or reinstating an installment agreement is
$89
• Low‐Income Rate – A rate that applies when a low‐income taxpayer enters into any type of installment agreement, other than a direct debit online payment agreement, and when a low‐income taxpayer restructures or reinstates any installment agreement– A low‐income taxpayer is a taxpayer that has income at or below 250 percent
of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services
– The proposed low‐income rate is $43
Appeals Changes
• Effective October 3, 2016, Appeals implemented changes to its case transfer and conference procedures
• These changes are driven by a desire to:
– Clarify procedures for taxpayers
– To better allocate IRS resources, and
– Get the right work to the right Appeals employee
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Key Provisions
• Appeals will continue to offer personal contact for all cases
• Appeals is not eliminating in‐person conferences
• Under the revised procedures, taxpayers continue to have the existing range of conference options ‐‐ telephone, correspondence, virtual service delivery, and in‐person, which includes circuit‐riding; however, Appeals will not transfer cases solely upon taxpayer request
Offer of Compromise
• IRS has propose regulations to increase the OIC User Fee to $300
• It currently sets at $186
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Forms W‐2 New Filing Deadline
• Requires forms W‐2, W‐3, and returns or statements to report non‐employee compensation (e.g., Form 1099‐MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate
• Provides additional time for the IRS to review refund claims based on the earned income tax credit and the refundable portion of the child tax credit in order to reduce fraud and improper payments
• Effective for returns and statements relating to calendar years after the date of enactment (e.g., filed in 2017)
Requirements for the Issuance of ITINs
• All ITINs not used on a federal tax return at least once in the last three years will no longer be valid for use on a tax return as of Jan. 1, 2017
• Additionally, all ITINs issued before 2013 will begin expiring this year, starting with those with middle digits of 78 and 79 (Example: (9XX‐78‐XXXX)
• All expired ITINs must be renewed before being used on a U.S. tax return
• No action is needed by ITIN holders who don’t need to file a tax return next year
• Also, there are new documentation requirements when applying for or renewing an ITIN for certain dependents
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ITINS
• An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service
• It is a nine‐digit number that always begins with the number 9 and has a range of 70‐88 in the fourth and fifth digit
• Effective April 12, 2011, the range was extended to include 900‐70‐0000 through 999‐88‐9999, 900‐90‐0000 through 999‐92‐9999 and 900‐94‐0000 through 999‐99‐9999
• IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA)
Revised Form W‐7
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No Retroactive Claims
• Claims of earned income credit after issuance of social security number
• Claims of child tax credit or additional child tax credit after issuance of social security number
• Claims of American Opportunity Tax Credit after issuance of social security number
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Procedures to Reduce Improper Claims
• Expanded paid‐preparer due diligence requirements with respect to the earned income tax credit, and the associated $510 penalty for failures to comply, to cover returns claiming the:
• Child Tax Credit and Additional Child Tax Credit• American Opportunity Tax Credit• In addition to the current EITC due diligence• Requires the IRS to study the effectiveness of the due
diligence requirements and whether such requirements should apply to taxpayer who file online or by filing a paper form
• Applies to tax years beginning after December 31, 2015
Restrictions on Taxpayers who Improperly Claim Credits in Prior Year
• Expands the rules under current law, which bar individuals from claiming the earned income tax credit for ten year if they are convicted of fraud and for two years if they are found to have recklessly or intentionally disregarded the rules
• The now applies to the :– Child tax credit and – American Opportunity Tax Credit
• The provision adds math error authority, which permits the IRS to disallow improper credits without a formal audit if the taxpayer claims the credit in a period during which he is barred from doing so due to fraud or reckless or intentional disregard
• Applies to tax years beginning after December 31, 2015
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Treatment of Credits for Purposes of Certain Penalties
• Applies the 20‐percent penalty for erroneous claims under current law to the refundable portion of credits (reversing the Tax Court decision in Rand v. Commissioner )
• Eliminates the exception from the penalty for erroneous refunds and credits that currently applies to the earned income tax credit, and the provision provides reasonable cause relief from the penalty
• Applies to returns filed after December 31, 2015
Increase Penalty Applicable to Paid Tax Preparers who Engage in Willful or Reckless Conduct
• Expands the penalty for tax preparers who engage in willful or reckless conduct, which is currently the greater of $5,000 or 50 percent of the preparer’s income with respect to the return, by increasing the 50 percent amount to 75 percent
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IP PIN Business Rules
• If the taxpayer has been issued an IP PIN it must be present on the tax return
• If IP PIN issued and not present on the return, the e‐file will reject or the paper return will be delayed
• The use of Identity Protection PINs for all SSNs with an IP PIN requirement, regardless of whether the SSN is entered for a primary, spouse, or dependent/qualifying individual
Ability to Represent Clients before the IRS became More Limited in 2016
• Unless you are a licensed tax professional or have received a Record of Completion through the Annual Filing Season Program, you will no longer be able to represent your client beginning in 2016, even if you prepared and signed the return
• The PTIN program has been adjusted and no longer allows an LPA status to be entered
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Penalty for Failure to File Correct Information Returns and Provide Payee Statements
Summary of Payment Options
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Summary of Payment Options
Requesting Copy of Fraudulent Returns
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Requesting Copy of Fraudulent Returns
Where to File the Request
Department of the Treasury
Internal Revenue Service
Fresno, CA 93888‐0025
Note: Ensure that all applicable lines are completed prior to signing
If the request is missing any information, it will be rejected as incomplete and returned to secure the missing information
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What Information Will Be Redacted?
No More Levy on Social Security Disability Benefits for Unpaid Taxes
• As of October 5, 2015, IRS will no longer systemicallylevy the SSA Disability Insurance Benefits through the FPLP
• The Old Age and Survivors Benefits will continue to be levied at 15% through the FPLP to pay your delinquent tax debt
• The lump sum death benefits and benefits paid to children are not included in the FPLP
• Additionally, Supplemental Security Income (SSI) payments, under Title XVI, and payments with partial withholding to repay a debt owed to Social Security are not levied through the FPLP
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Prior‐Year Adjusted Gross Income Amount May Be Needed to File Electronically
• The IRS is phasing out the use of the Electronic Filing PIN, which is no longer available as an alternative except for those taxpayers who had obtained an e‐file PIN earlier this year
• The IRS emphasizes that those filers may use their e‐file PIN for this year only
• Generally, tax‐preparation software automatically generates the prior‐year AGI and/or self‐select PIN for returning customers
• However, taxpayers who are new to a software product must enter the prior‐year AGI or prior‐year Self‐Select PIN themselves
Tax Changes and Reminders
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H. R. 5946 United States Appreciation for Olympians and
Paralympians Act
• Signed in to law on October 7, 2016
• Gross income “exclusion” for medals and prizes awarded to Olympians and Paralympians
• Conditions for the non taxable income
• Applies to those who do not sign endorsement deals or professional contracts
Standard Deduction
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Additional Standard Deduction
Personal Exemption for 2016
• For tax years beginning in 2016, the personal exemption amount is increased to $4,050 for taxpayers with adjusted gross incomes below $155,650
• The personal exemption amount for taxpayers with adjusted gross incomes above this amount may be reduced
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Limitation on Itemized Deductions
• For tax year 2016, itemized deductions for taxpayers with adjusted gross income above $155,650 may be reduced
Social Security Tax
• For 2016, the maximum amount of earned income (wages and net earnings from self‐employment) subject to the social security tax is $118,500
• 2017 wage base announced this morning $127,200
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Cancellation of Home Mortgage Debt
• Generally, applies to discharges of indebtedness after December 31, 2014
• The provision relating to discharges pursuant to a binding written agreement applies to discharges of indebtedness after December 31, 2015
• Taxpayers whose acquisition debt for their main homes is forgiven qualify for an income exclusion through 2016
• This also provides for an exclusion from gross income for taxpayers whose qualified principal residence indebtedness was discharged on or after January 1, 2017, if the discharge was pursuant to a binding written agreement entered into prior to January 1, 2017
IRA Rollover Reminder
• Announcement 2014‐15, Application of One‐Per‐Year Limit on IRA Rollovers
• The result is that a distribution from any IRA invalidates other IRA rollovers within a one year time frame beginning on the date that the first distribution occurs from the first IRA. Beginning in 2015, if an IRA rollover occurs from one IRA, the taxpayer cannot do another rollover from either that IRA or a different one
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Health Coverage Tax Credit
• The Trade Preferences Extension Act of 2015 (Public Law 114‐27), enacted on June 29, 2015, extended and modified the expired Health Coverage Tax Credit
• Previously, those eligible for HCTC could claim the credit against the premiums they paid for certain health insurance coverage through 2013
• The HCTC can now be claimed for coverage through 2019
• Form 1099‐ H will be issued
Health Coverage Tax Credit (HCTC) Advance Payments Form 8885
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Charitable Donations from IRAs
• The PATH Act reinstates and makes permanent the exclusion from gross income for qualified charitable distributions from an IRA
• Otherwise taxable IRA distributions from a traditional or Roth IRA are excluded from gross income to the extent they are qualified charitable distributions
• The exclusion may not exceed $100,000 per taxpayer per tax year in addition the taxpayer has to be age 70 ½ or older
• Use “QCD” on the IRA line to notate this kind of contribution
2016‐2017 Food Program Reimbursement RatesFor Child Care providers
July 1, 2016 – June 30, 2017
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Section 179 Expense
FICA and Self‐Employment
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15‐Year Property
• Effective for property placed in service after December 31, 2014
• The 15‐year recovery period is reinstated and made permanent for qualified leasehold improvement property, qualified retail improvement property, and qualified restaurant property
• Buildings and building improvements that are qualified leasehold improvement property, qualified retail improvement property, or qualified restaurant property are 15‐year property for the MACRS General Depreciation System (GDS)
• This is now a permanent provision
Enhanced Deduction for Donation of Food
• Generally effective for contributions made after December 31, 2014; the modifications to increase the corporate percentage limit and to provide for presumptions relating to basis and valuation are effective for tax years beginning after December 31, 2015
• The enhanced deduction for donation of food inventory is reinstated for 2015 and made permanent
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Enhanced Deduction for Donation of Food
• Any business taxpayer may claim an enhanced deduction if it donates “apparently wholesome food” from its inventory to a charity for human consumption
• The deductible amount is the lesser of twice the property’s basis or its basis plus one‐half of the amount that would be ordinary income if the donated inventory items were sold
• For tax years beginning after December 31, 2015, the PATH Act modifies the enhanced deduction for food inventory contributions by:– 1. Increasing the charitable percentage limitation for food inventory
contributions and clarifying the carryover and coordination rules for these contributions
– 2. Including a presumption concerning the tax basis of food inventory donated by certain businesses and
– 3. Including presumptions that may be used when valuing donated food inventory
Enhanced Deduction for Donation of Food
• First, the 10% limitation applicable to taxpayers other than C corporations is increased to 15%
• For C corporations, these contributions are made subject to a limitation of 15% of taxable income The general 10% for a C corporation does not apply to these contributions, but the 10% limitation applicable to other contributions is reduced by the amount of these contributions
• Qualifying food inventory contributions in excess of these 15% limitations may be carried forward and treated as qualifying food inventory contributions in each of the 5 succeeding tax years in order of time
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Enhanced Deduction for Donation of Food
• Second, if the taxpayer does not account for inventory under I.R.C. § 471 and is not required to capitalize indirect costs under I.R.C. § 263A, the taxpayer may elect, solely for computing the enhanced deduction for food inventory, to treat the basis of any apparently wholesome food as being equal to 25% of the fair market value of such food
Enhanced Deduction for Donation of Food
• Third, in the case of any contribution of apparently wholesome food that cannot or will not be sold solely by reason of internal standards of the taxpayer, lack of market, or similar circumstances, or by reason of being produced by the taxpayer exclusively for the purposes of transferring the food to an organization described in I.R.C. § 501(c)(3), the fair market value of such contribution shall be determined
• 1. Without regard to such internal standards, such lack of market or similar circumstances, or such exclusive purpose, and
• 2. By taking into account the price at which the same or substantially the same food items (as to both type and quality) are sold by the taxpayer at the time of the contributions (or, if not so sold at such time, in the recent past)
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Work Opportunity Credit
• Generally effective for individuals who begin work for the employer after December 31, 2014
• The provision relating to wages paid to qualified long‐term unemployment recipients is effective for individuals who begin work for the employer after December 31, 2015– Individuals who have been certified by the designated local agency as
being in a period of unemployment of 27 weeks or more, which includes a period in which the individual was receiving unemployment compensation under state or federal law
• The jobs credit is reinstated for employers hiring members of other targeted groups (in addition to veterans) during 2015 through 2019
• Employers are eligible for a 40% credit on the first $6,000 of wages paid to such individual, for a maximum credit of $2,400 per eligible employee
Reservist Pay Credit
• Effective after December 31, 2014• The provision making the credit available to employers of any
size applies to tax years beginning after December 31, 2015• The 20% differential wage payment credit is reinstated for
2015, modified, and made permanent• Employers who make differential wage payments may take a
20% credit for those payments• Differential payments compensate reservists called to active
duty for all or part of the difference between their private‐sector wages and their earnings from the U.S. military
• It also permanently modifies the credit by making it available to an employer of any size, rather than only to eligible small business employers
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New Markets Tax Credit
• Law authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 through 2019
• .
Bonus Depreciation
• Bonus depreciation is extended for property acquired and placed in service during 2015 through 2019(with an additional year for certain property with a longer production period)
• The bonus depreciation percentage is 50 percent for property placed in service during 2015,2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019
• The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015
• The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation
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Bonus Depreciation
• In addition bonus depreciation is modified to include qualified 5 year improvement property and
• Permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service
Classification of Certain Race Horses as 3 year Property
. T
• The law extends the 3‐year recovery period for race horses to property placed in service during 2015 or 2016
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Improvements to § 529 Accounts
• Expands the definition of qualified higher education expenses for which tax‐preferred distributions from 529 accounts are eligible to include computer equipment and technology
• The provision modifies 529‐account rules to treat any distribution from a 529 account as coming only from that account, even if the individual making the distribution operates more than one account
• The provision treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re‐contributed to a 529 account within 60 days
• The provision is effective for distributions made or refunds after 2014, or in the case of refunds after 2014 and before the date of enactment, for refunds recontributed not later than 60 days after date of enactment
Six year Statute on Overstated Basis
• Congress overruled a 2012 Supreme Court case decision stating IRS now has six years to seek back taxes based on an overstated tax basis when the corresponding understatement of income exceeds 25% of gross income
• The case, United States v. Home Concrete & Supply, LLC held that the six‐year statute of limitations applicable to unreported income, IRC 6501(e), did not apply when a taxpayer overstated basis, and thus understated income
• The Supreme Court’s decision determined the straightforward question of whether an understatement of basis extends the traditional 3‐year statute of limitations to 6 years under IRC 6501(e)
• The change affects returns filed after July 31, 2015• Some returns filed prior to Aug. 1, 2015, can also be affected, but
only if the three‐year statute of limitations remained open on July 31, 2015
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Foreign Income Understatement – Six‐Year Statute Issue
• Income earned from foreign assets (e.g. Interest earned on foreign bank accounts) that is omitted in excess of $5,000 will also get the same 6‐year statute of limitation treatment for examination or audit of the entire tax return
Form 8971
• Executors of taxable estates now must inform heirs of the basis of inherited assets using Form 8971
• For Forms 706 filed after July 31, 2015, heirs are required to use the value shown on the Form 706 as their basis for the asset, or the value as adjusted by the IRS or by a court ruling
• A penalty of 20% can be assessed for using a higher basis
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Exclusion for Wrongfully Incarcerated Individuals
• Allows an individual to exclude from gross income civil damages, restitution, or other monetary awards that the taxpayer received as compensation for a wrongful incarceration
• A “wrongfully incarcerated individual "is either:• (1) an individual who was convicted of a criminal offense under
Federal or state law, who served all or part of a sentence of imprisonment relating to such offense, and who was pardoned, granted clemency, or granted amnesty because of actual innocence of the offense; or
• (2) an individual for whom the conviction for such offense was reversed or vacated and for whom the indictment, information, or other accusatory instrument for such offense was dismissed or who was found not guilty at a new trial after the conviction was reversed or vacated
• The provision applies to tax years beginning before, on, or after the date of enactment
Education
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Form 1098‐T
• Payee Statement Required to Claim Certain Education Tax Benefits – no credit shall be allowed under unless the taxpayer receives Form 1098‐T
• This applies to the American Opportunity Credit, the Hope Credit the Lifetime Learning Credit, and the Tuition and Fees adjustment to income
• A statement received by a dependent will be considered received by the taxpayer
• The change applies is for tax years after 2015
Tuition and Fees
• Extended through 2016 the deduction for qualified tuition and related expenses for higher education
• The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers)
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Higher Education information Reporting only to Include Qualified Tuition and Related Expenses Actually Paid
• Reforms the reporting requirements for Form 1098‐T so that educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed
• The provision applies to expenses paid after December 31, 2015 for education furnished in academic periods beginning after such date
Educator’s Expense Deduction
• Generally effective for tax years beginning after December 31, 2014
• Modification is effective for tax years beginning after December 31, 2015
• The classroom expense deduction for elementary and high school employees is reinstated for 2015, modified beginning in 2016, and made permanent
• School employees working with children in grades kindergarten through 12 may deduct up to $250 each year of substantiated out‐of‐pocket expenses for classroom materials as an adjustment to gross income
• This provision is permanent beginning in 2015• For tax years beginning after December 31, 2015, qualifying
expenses include qualifying professional development expenses and the $250 limit is indexed for inflation
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Exclusion for Amounts Received under the Work Colleges Program
• Exempts from gross income any payments from certain work‐learning‐service programs that are operated by a work college as defined in section 448(e) of the Higher Education Act of 1965
• The provision is effective for amounts received in tax years beginning after date of enactment
Filing Deadline Changes
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Partnership and S Corporation Returns
• Taxation occurs at the owners’ level for both of these types of returns, and income is reported via Form K‐1
• These entities will now be required to file tax returns (Form 1065 / 1120S) on the same date
• The returns must be filed on the 15th day of the third month after the close of the taxable year, with an allowable six‐month extension
• It is a month earlier for partnership filings
FBAR – FINCEN
• Form 114 must be filed by April 15th instead of the current June 15th
• However, taxpayers may request an extension to October 15
• The IRS can waive any penalty for late filing by a first‐time filer
• This filing requirement applies to owners of foreign accounts with over $10,000 of assets
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Trust Returns
• The due date for trust returns is still April 15th
• However, the extended due date will change from September 15th to September 30th
Partnerships
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Reasonable Cause ExceptionPartnership Returns
• There is a reasonable cause exception to the $195.00 per partner per month up to 12 months concerning a partnership return, if the partnership qualifies as a small partnership
• Using this Rev. Proc., it is possible that an abatement of the penalty would apply if all the criteria have been met
• The IRS does not check each partner’s returns, and the partner must request the abatement noting the Rev. Proc. 84‐35
What Constitutes a Small Partnership?
• The partnership must be a domestic partnership• The partnership must have 10 or fewer partners • All of the partners must be natural persons (other than a
nonresident alien) or an estate of a deceased partner • Each partner’s share of each partnership item must be the
same as the partner’s share of every other item• All of the partners must have filed their income tax returns
in a timely manner• All of the partners must have establish that they reported
their share of the income, deductions and credits of the partnership on their timely filed income tax returns if the IRS requests
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Partnership Returns
• The BBA repeals certain aspects of the existing partnership audit rules and sets up new rules concerning the examination for partnerships effective on or after January 1, 2018
• However, a taxpayer can elect to have the BBA provisions apply to any partnership return filed after the date of enactment (November 2, 2015)
Partnership Returns
• A partnership will pay a tax assessment at the end of any partnership examination rather than a tax being assessed at the partner level
• This tax will be assessed to the partnership in the year that the audit is completed (the adjustment year), rather than the year of the examination (the reviewed year)
• The tax will be computed at the highest income tax rate applicable to corporations and individuals (currently the individual rate, at 39.6%)
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Partnership Returns
• BBA has also changed the definition of a “small partnership” ‐ currently one with fewer than 100 partners
• A small partnership can elect to not be covered by the new partnership examination rules and still be able to use the reasonable cause exception for failing to file a partnership return
• Certain requirements must be met
Partnership Returns
• The partnership must make the election out of the BBA partnership audit provisions
• The partnership must be required to furnish 100 or fewer K‐1s for the year
• Every partner of the partnership must be an individual, C corporation (or any foreign entity that would be considered to be a C corporation if it was domestic), S corporation or estate of a deceased partner
• The election must be made on a timely filed return (i.e., the election is made when the partnership return is originally filed, and not later upon receiving a notice of examination) and include the name and identification number of each partner
• The partnership must notify each partner that the election has been made and
• For S corporation partners, the partnership must disclose the name and taxpayer identification number of each S corporation shareholder
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Partnership Returns
• Key issues here are the increased number of partners (100) that are now termed a small partnership and the fact that the reasonable cause exception for failure to file is by election
• The IRS will need to issue regulations concerning how to make the election
Partnership Returns
• The BBA eliminates the TEFRA “tax matters partner” and renamed it “designated representative”
• If the partnership fails to designate a representative, the IRS can appoint one
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Corporations
2016 Federal Rates for Corporations
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Basis Adjustment of S Corporation Stock
• Effective for contributions made in tax years beginning after December 31, 2014
• The pre‐2015 rule relating to the basis reduction on account of charitable contributions of property is made permanent
• Under prior law, if an S corporation donated appreciated property to charity during its tax years beginning after 2011 and before 2015, each shareholder’s basis in the corporation was reduced by only his or her pro rata share of the corporation’s basis in the property, rather than by the property’s fair market value
Built‐in Gains Lookback Period
• The 5‐year lookback rule is permanent
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Farmers
FarmersProduction Costs for Self‐Use
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Itemized Deductions
Medical Deduction Offset is now 10% for Most Taxpayers
• The primary exception is that the 10% threshold does not yet apply to taxpayers who are over the age of 65
• These taxpayers may continue to use the 7.5% threshold through tax year 2016, at which time they will default to the 10% framework along with everyone else
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State and Local Sales Taxes
• Taxpayers who itemize deductions may choose between deducting state and local general sales taxes and deducting state and local income taxes
• Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have a state income tax, but this option can also benefit some residents of other states
• Form 1098 will include more information to be reported beginning with the 2016 forms
• Lenders must report more data including the amount of the mortgage principal at the start of the year, the mortgage origination date, and the address of the property securing the loan
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Form 1098
Mortgage Insurance Premiums
• The PATH Act extends the deduction for private mortgage insurance premiums for 2 years (with respect to contracts entered into after December 31, 2006)
• Thus, the extension applies to amounts paid or accrued in 2015 and 2016 (and not properly allocable to any period after 2016)
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Mortgage Insurance Premiums
Tax Credits
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Earned Income Credit
• Investment income must be $3,400 or less for the year
• The maximum amount of credit for Tax Year 2016 is:
• $6,269 with three or more qualifying children
• $5,572 with two qualifying children
• $3,373 with one qualifying child
• $506 with no qualifying children
Earned Income Credit
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Credit for Nonbusiness Energy Property
• Main home energy credit is extended through 2016
• The law allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500
ACA
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Affordable Car Act and the Patient Protection Act
• The first part of the comprehensive health care reform law enacted on March 23, 2010
• The law was amended by the Health Care and Education Reconciliation Act on March 30, 2010
• The name “Affordable Care Act” is usually used to refer to the final, amended version of the law
• The law provides numerous rights and protections that make health coverage more fair and easy to understand, and more affordable
• The law also expands the Medicaid program to cover more people with low incomes – in certain states
States and Medicaid Status as of July 6, 2016
• States expanding Medicaid – AK, AZ, AR, CA, CO, CT, DE, DC, HI, IL, IA, IN, KY, LA, MD, MA, MI, MN, MA, MT, NV, NH, NJ, NM, NY, ND, OH, OR, PA, RI, VT, WA, WV
• States not expanding Medicaid at this time –AL, FL, GA, ID, KS, ME, MO, MS, NE, NC, OK, SC, SD, TN, TX, UT, VA, WI, WY
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The Law Introduced new Forms and Filing Requirements
• Form 8962 the Premium Tax Credit
– If subsidies are received it creates a filing requirement
• Form 8965 Health Coverage Exemptions
• Form 1095 series
– Form 1095‐A Health Insurance Marketplace Statement
– Form 1095‐B Health Coverage
– Form 1095‐C Employer‐Provided Health Insurance Offer and Coverage
Minimum Essential Coverage
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Who Must File
• The client must file Form 8962 with the income tax return (Form 1040, Form 1040A, or Form 1040NR) if any of the following apply to the client– They took the Premium Tax Credit– APTC was paid to the client or another individual in the tax family
– APTC was paid for an individual (including the client) for whom the client told the Marketplace they would claim a personal exemption and neither the client nor anyone else claims a personal exemption for that individual
The Affordability Factor
• 2016 = 8.13%
• Household income X 8.13% = affordability factor
• The affordability factor in 2017 will be 8.16%
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2015‐2017 Federal Poverty Level48 Continuous States
2016‐2017 Federal Poverty LevelAlaska
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2015‐2017 Federal Poverty LevelHawaii
Repayment and Caps
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Repayment Cap SituationsLine 28
• The excess APTC the client must repay may be limited
• If one of the situations applies, there is no repayment limitation and the client must repay the full amount shown on line 27
Repayment Cap SituationsLine 28
• The entry on Form 8962, line 5, is 401%
• The client is electing to take the HCTC on Form 8885 for the same coverage that they received APTC
• If either of these situations apply, leave line 28 blank and enter the amount from line 27 on line 29
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Repayment Cap SituationsLine 28
• If neither situation applies enter the appropriate amount from Repayment Cap Table on line 28
• If the client was married at the end of 2016 but is filing separately from the spouse, the repayment applies to the client and the spouse based on the household income reported on each return
Repayment Cap Table
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Exemptions
Form 8965
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Form 8965
Form 8965 Exemptions
• Individuals must have health care coverage, have a health coverage exemption, or make a shared responsibility payment with their tax return
• Form 8965 is used to report a coverage exemption granted by the Marketplace (also called the “Exchange”) or to claim a coverage exemption on the tax return
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Exemptions
Exemptions
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Change
• As of September 1, 2016, the coverage exemptions for members of health care sharing ministries, members of Indian tribes, and those who are incarcerated are no longer granted by the Marketplace, except in Connecticut
• Taxpayers who have an ECN issued by the Marketplace for one or more of these three exemptions may report the ECN on a Form 8965 filed with their income tax return for 2016
• Taxpayers who qualify for one or more of these exemptions but who do not have an ECN issued by the Marketplace may claim these exemptions on Part III of Form 8965
Penalties
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Chart
Filing Requirement for 2016
• Single—$10,350
• Head of household—$13,350
• Married filing jointly—$20,700
• Married filing separately—$4,050
• Qualifying widow(er) with dependent child—$16,650
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National Average Bronze Plan for 2016
Comparison Worksheet
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Form 1040
Marketplace Opens
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CALT Website
http://www.calt.iastate.edu/
Tour of the CALT Website
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Fall Tax Schools
• Though they are named the Farm and Urban Tax Schools the schools cover more than farm issues
• Common return issues for all kinds of returns are covered• All kinds of business entities• Problematic issues• Sometimes we even get into to issues that you many
encounter only once or twice a year or tax season• The Tax Schools are a blend of diverse topics of interest to
all tax professionals• This year: New instructors with diverse backgrounds• Your adventure awaits at Iowa State’s Center for
Agricultural Law and Taxation
Farm and Urban Tax Schools 2016
• November 2, 2016 to December 13, 2016 • 8 Locations in Iowa and Online Webinar• Save the Date for the 2016 Annual Farm and Urban Income Tax
Schools• The program is intended for tax professionals and is designed to
provide up‐to‐date training on current tax law and regulations– November 2‐3: Maquoketa– November 7‐8: Red Oak– November 9‐10: Sheldon– November 14‐15: Mason City– November 17‐18: Ottumwa– November 21‐22: Waterloo– December 5‐6: Denison– December 12‐13: Ames and Live Webinar
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Winter Ethics Classes
• Monthly Ethics Classes• Part 1 ‐ 11:30 AM to 12:30 PM (CST) • This webinar will provide an understanding of the requirements of Circular 230
(first part of key elements)– Topics include: what is ethics, ethical decision making, representation before the
IRS, why is circular 230 important, how to keep clients information safe (having a security plan), what are your ethical obligations, return preparation, supervised employees (Notice 2011‐6), due diligence and prompt disposition pending matters
– Publication Cir 230 will need to be download for this class – Approved for 1 hour of Ethics CPE (Program # Y7WRM‐E‐00130‐16‐O)– Approved for 1 hour of Ethics CLE
• Part 2 ‐ 1:00 PM to 2:00 PM (CST) ‐– This webinar will continue to review the requirements of Circular 230. Topics
include: conduct standards, contingent fees, return of client records, conflicts of interest, negotiation of checks, competence, procedures to ensure compliance, requirements of written advice and sanctions for violation of the regulations. Publication Cir 230 will need to be download for this class.
– Approved for 1 hour of Ethics CPE (Program # Y7WRM‐E‐00131‐16‐O)– Approved for 1 hour of Ethics CLE
Winter Ethics Classes
• These ethics webinars will be offered on the following dates:
• October 21
• October 31
• December 16
• December 19
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Form 8867 Due Diligence Seminar
• Form 8867 Due Diligence Webinar December 14, 2016– What information must you have in your files– What questions do you need to ask and what explanations or
information do you need to share with your client – Tax Season 2017 will require “Due Diligence” for not only the Earned
Income Tax Credit, but also the Child Tax Credit and the American Opportunity Tax Credit
– Be prepared to address the new requirements this coming tax season to be in compliance with the due diligence requirements and avoid a $505.00 penalty for each return
• We will also review: – Form 8867– Provide tips for the “interview”– Review the Child Tax Credit, American Opportunity Credit and the
Tie breaker rules which you are now required to explain to your clients in certain circumstances
The Scoop
• Throughout the filing season two Scoops will be held on Scoop Dates– 8:00 – 8:30 am Central time– 12:00 – 12:30 Central time
• This assists with accommodating our west coast practitioners
• The same information will be shared at both sessions• You have the option of registering for whatever
session suits your schedule• https://www.calt.iastate.edu/calendar‐node‐field‐
John D. Lawrence Interim DirectorAssociate Dean, College of Agriculture & Life Sciences Extension Programs and OutreachDirector, Agriculture & Natural Resources Extension132 Curtiss HallIowa State UniversityAmes, Iowa 50011‐1050
