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New & Expiring Legislation Chapter 14 pp. 477-511

New & Expiring Legislation Chapter 14 pp. 477-511. 2016 National Income Tax Workbook™. p. 477 New & Expiring Legislation. Protecting Americans from Tax Hikes - 2015 Consolidated Appropriations Act - 2016 Trade Preference Extension Act - 2015

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New & Expiring Legislation Chapter 14 pp. 477-511

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  1. New & Expiring LegislationChapter 14 pp. 477-511 2016 National Income Tax Workbook™

  2. p. 477New & Expiring Legislation • Protecting Americans from Tax Hikes - 2015 • Consolidated Appropriations Act - 2016 • Trade Preference Extension Act - 2015 • Defending Public Safety Employees’ Retirement Act - 2015 • Bipartisan Budge Act - 2015 • Surface Transportation and Veterans Health Care Choice Improvement Act - 2015

  3. p. 478New & Expiring Legislation • PATH ACT - varying effective dates • Tax years/returns after 12/18/15 • Extension of expired provisions: tax years after 12/31/14 or beg’g 1/1/15 • Modifying extended provisions: tax years after 12/31/15

  4. Individual Tax Credits p. 478Child Tax Credit (CTC) • Returns filed after 12/18/15: No CTC if TP or child did not have a TIN in the tax year of the credit (2015 return exception) • Tax years beginning after 12/31/2015 • Fraudulent CTC claim: No CTC for 10 years • Negligent CTC claim: No CTC for 2 years • Claim in year barred, math error treatment

  5. Individual Tax Credits pp. 478-9Additional Child Tax Credit (ACTC) • Tax years beginning after 12/18/15: • $3,000 earned income threshold permanent • Tax years beginning after 12/31/14 • No ACTC if excluding foreign income • Note: Years after 2015, preparer due diligence on CTC and AOTC returns

  6. Individual Tax Credits p. 479American Opportunity Tax Credit (AOTC) • Tax years beginning after 12/18/15 • AOTC made permanent • Returns filed after 12/18/15 • No AOTC if TP or child did not have a TIN in the tax year of the credit • Exception for timely filed 2015 returns

  7. Individual Tax Credits pp. 479-480American Opportunity Tax Credit (AOTC) • Tax years beginning after 12/31/15 • Fraudulently claimed AOTC: No AOTC - 10 yrs • Negligently claimed AOTC: No AOTC - 2 yrs • Claims in year barred, math error treatment • Must report EIN of institution when claiming • Institution must report EIN and amounts actually paid (not billed) on Form 1098-T • Penalty relief for 2016 forms if billed used

  8. Individual Tax Credits p. 480American Opportunity Tax Credit (AOTC) • Tax years beginning after 6/29/15 • Taxpayer must have Form 1098-T to claim • 1098-T must report amount of any adjustments to the qualified tuition and related expenses • Returns & statements required to be filed after 12/31/15 • Penalty relief if institution unable to get TINs if complied with standards (currently unknown)

  9. Individual Tax Credits pp. 480-481Earned Income Tax Credit (EITC) • Tax years beginning after 12/31/15 • The 45% EITC for ≥ 3 children and higher phaseout thresholds for married permanent • Figure 14.1 • Returns filed after 12/18/15 • No EITC if TP or child did not have a TIN in the tax year of the credit • Exception for timely filed 2015 returns

  10. Individual Tax Credits p. 481 • EITC - Tax years beginning after 12/31/15 • If claims in year barred, math error treatment • Low Income Housing Credit • Effective on or after 3/3/16 • Utility costs paid by tenant treated as paid directly to utility → not part of rent • Temp Regs extend treatment if owner gets from renewable sources & provides to tenants

  11. pp. 481-482Individual Energy Credits • Nonbusiness energy property credit • Reinstated for 2015 and 2016 • Modified for years after 12/31/15: Windows, skylights, doors must be Energy Star 6.0 • Residential Energy-Efficient Prop Credit • Property placed in service before 1/1/2022 • Extended for qualified solar only • Thru 2019: 30%, 2020: 26%, 2021: 22%

  12. p. 482Individual Energy Credits • Vehicle-related energy credits reinstated for 2015 and 2016 • Nonhydrogen qualified alternative fuel vehicle-refueling property • Plug-in electric vehicles credit for electric motorcycles • Credit for three-wheeled vehicles not extended

  13. p. 482Individual Deductions • Educator Expenses • Reinstated for 2015 ($250) • Modified for 2016 and made permanent • Qualified professional development exp. if • > US savings bond interest excluded • > Excluded qualified tuition program $ • > Tax-free w/drawal from Coverdell • $250 indexed for inflation

  14. pp. 482-483Individual Deductions • Mortgage Insurance Premiums • Extended for amounts paid or accrued in 2015 and 2016 (on acquisition debt only) • State and Local Sales Taxes • Reinstated for 2015 and made permanent • IRS Online Sales Tax Deduction Calculator • Useful for US military part-year in US

  15. p. 483Individual Deductions • Qualified Conservation Easements • Reinstated for 2015 and made permanent • Tax years beginning after 12/31/15 expanded: + qualified conservation contrib.- certain native corps (Alaska Native Claims Settlement Act) • Limit: taxable income less contributions • Carryforward 15 years (same limit) • Qualified Tuition – extended through 2016

  16. p. 484Exclusions from Gross Income • Income for Low Income Housing Credit • Permanent – military basic housing allowance not included in income for LIHC purposes • Exclusion - principal residence debt COD • Extended through 12/31/16 & discharge after if binding contract before 1/1/17 – file Form 982 • Work College Program - Years after 12/18/15 • Comprehensive student work-learning-service program operated by a work college

  17. pp. 484-485Exclusions from Gross Income • Transit Assistance • Permanently equal to parking exclusion • 2016: $255/month, 2015: $250 • Can reimburse retroactively (1/1/15-12/18/15) on a tax-free basis no more than $250/month • Notice 2016-6 – Actions to take if excess taxed in 2015 • Reimbursement in 2016 subject to monthly limit even if for retroactive

  18. p. 485Exclusions from Gross Income • Amounts for wrongly incarcerated • Tax years beginning on or after 12/18/15 • Exclude any related monetary award • Any state or federal criminal offense • If year barred by statute, IRS can allow credit or refund if filed w/in 1 year of 12/18/15 • FAQ’s at www.irs.gov

  19. pp. 485-486Exclusions from Gross Income • Charitable donations from IRA • Reinstated for post 2014 and made permanent • Gains on sale of small business stock • Reinstated for post 2014 and made permanent • Figure 14.2

  20. p. 486Cost Recovery Deductions • Racehorses • 3 year period to depreciate qualified racehorses extended through 2016 • 15- year recovery period • Reinstated and made permanent • Qualified leasehold improvement property • Qualified retail improvement property • Qualified restaurant property

  21. p. 487Cost Recovery Deductions • Motorsports entertainment property • 7-year recovery extended for 2 years • Property placed in service ≤ 12/31/2016 • Indian Reservation property • Shorter MACRS periods reinstated 2015/2016 • Election out on class-by-class basis in 2016 • Figure 14.3

  22. pp. 487-488Cost Recovery Deductions • Additional First-year Depreciation (AFYD) • AFYD extended through 2019 & modified • General rates – Figure 14.4 • AFYD – Plants bearing fruits and nuts • Specified plant planted/grafted (1/1/16-12/31/19) • Tree, vine, plant bearing fruits or nuts, or • > 1 yield & preproductive period > 2 yrs • Placed into service = date planted/grafted

  23. p. 488Cost Recovery Deductions • §280(f) Passenger Auto (allows for AFYD) • $8,000 increase to 1st year depreciation limit • Reduced 2018: $6,400, 2019: $4,800 • Increase N/A if elects AMT credit acceleration • AFYD Qualified Leasehold Improvements • Tax years after 2015 • Without regard to whether subject to a lease • No 3-year after first placed in service requiremt

  24. p. 488Cost Recovery Deductions • AFYD Allocation to Long-Term Contracts • Extends special rule for property placed into service before 1/1/20 (1/1/21 for long-lived & transportation property)

  25. pp. 488-489Cost Recovery Deductions • AMT credit acceleration in lieu of AFYD (corp.) • Extended to property placed in service < 1/1/20 (1/1/21 for long-lived & transportation property) • Tax years ending after 12/31/15 AFYD limited to lesser of: • 50% of min. tax credit for 1st year ending after 12/31/15 or • Min. tax credit for tax year allocable to the adjustd net Min. tax imposed for yrs ending before 1/1/16

  26. p. 489Cost Recovery Deductions • § 179 - Indexed for inflation & made permanent • 2015: $500,000, qualifying property limit $2M • 2016: $500,000, qual. prop. limit $2,010,000 • Qualifying property – permanent • Off-the-shelf software & • Qualified real property • 2015: Carryover limitation, $250K max • Post 2015: No c/o limitation, no max

  27. p. 489Cost Recovery Deductions • § 179 - limits • Years beginning after 2015 AC and heating units can be qualifying property • Made permanent: rule allowing revocation of election or specification of property expensed without IRS consent

  28. pp. 489-490Cost Recovery Deductions • Extended thru 2016 • Biofuel plant property – (Second-generation) • 50% AFYD & exemption from AMT adjmt • Mine safety equipment – 50% AFYD • Film & television production - § 181 expensing • Live theatrical productions after 2015 • Deduct up to $20M if production commences before 1/1/17

  29. p. 490Other Business Deductions • Enhanced Deduction/Donation of Food Inv. • Reinstated for 2015 & made permanent • For years beginning after 12/31/15 changes made to % limitation and basis/valuation rules (detailed discussion in Individual Issues) • DPAD – extended for Puerto Rico for first 11 tax years of a TP after 12/31/05 and before 1/1/17

  30. p. 491Business Credits - Research • Reinstated for 2015, made permanent • General research credit • Simplified alternative credit • Basic research credit • Energy research credit • Tax yrs beg’g after 2015: Small business • If Eligible: Offset both regular tax and AMT • If Qualified: Elect - part against payroll tax

  31. pp. 491-492Business Credits • Business energy credits • Extended through 2016: List – p. 491 • Low Income Housing Credit • 9% permanent – new, nonfederally subsidized • Indian Employment Credit - Extended 2 years • New Markets Credit • Extended thru 2019 w/carryover thru 2024

  32. pp. 492-493Business Credits • Railroad Track Maintenance • 50% for 2015 & 2016, 2016 modified definition • Mine Team Rescue Training • Reinstated for 2015 and 2016 • Differential Wage Payments (reservists) • 20% credit reinstated for 2015 & permanent • Post 2015: employer of any size

  33. pp. 493-494Business Credits • Elect Energy Credit in lieu of Electricity Production Credit • Reinstated for 2015/2016, extended thru 2019 • Work Opportunity Tax Credit (WOTC) • Reinstated for 2015 thru 2019 • Long-term unemployment recipients added • Notice 2016-22: Guidance on retroactive app. • Notice 2016-40: Extends transitional relief

  34. p. 494S Corporations • Basis Adjustment – Corporate Stock • Pre-2015 rule made permanent: Stock basis reduced by pro-rata share of basis in appreciated property donated to charity • Built-in Gains Tax Lookback Period • 5 year period made permanent

  35. pp. 494-495Partnerships • Partnership Audit Rules • For tax years beginning after 12/31/2017: • Streamlined audit procedures for all PSs • Entity-level liability for taxes • Small PS can elect out • ≤ 100 PNs, no PS as PN • Can elect new rules earlier than 2018 • Details in “Business Entity Issues”

  36. p. 495Corporations • Antiloss Importation – Reg. §§ 1.334-1,1.362-3 • Effective: Transfers on or after 3/28/16 • Limits nonrecognition transfers of loss property • Related Party Interests – Prop. Regulations • Applies if instrument issued after 4/4/16 & effective 90 days after final regs issued • Characterizes some related party debt transactions as equity (list p. 495)

  37. pp. 495-496Retirement and Savings • Distributions > 12/31/15 – Qualified public safety EEs - 10% exception separation-from-service • After age 50 rather than 55 • State/local police, firefighter, EMS • Federal law enforcement officers, customs, border protection, firefighters, air traffic control • Nuclear materials couriers, Capitol/Supreme Crt Police, diplomatic security State Dept • Defined contribution & defined benefit plans

  38. pp. 496-497Retirement and Savings • Rollovers into SIMPLE IRA • Allowed from employer-sponsored plan or traditional IRA to SIMPLE after 12/18/15 • SIMPLE at least 2 years from 1st participation • § 529 Qualified Tuition Program • Computer equipment/tech now qualified exp. • Aggregation of plans @ distribution repealed • Allows recontribution of refunded tuition

  39. p. 497Retirement and Savings • ABLE Accounts • Tax years beginning after 12/31/14 • Can establish an ABLE in any state • § 529 account funds can be rolled into ABLE

  40. pp. 497-498Filing Deadlines • For calendar years beg’g after 12/18/15 • Employers/payers due date for information returns (W-2s, 1099s): January 31 • No extension for electronically filing • No change to due date to furnish to payees • IRS prohibited from refunding before 15th day of 2nd month after close of tax year if EITC or ACTC on returns (Feb 15)

  41. p. 498Filing Deadlines • 1120 & 1065: Tax years beg’g > 12/31/15 • 1120 due: 15th day of 4th month • Exception: June 30 year end due date change for tax years ending > 12/31/2025 • 1065 due: 15th day of 3rd month • 1041 extended date: Sept 30, 2017 • FBARs – Effective for 2016 reports • Due 4/15 with possible 6-month extension

  42. p. 499Penalties • Minimum Failure-to-File Penalty – tax returns due after 2015 (including extensions) • Not filed within 60 days of due date: lesser of • $205 (indexed for inflation) or • 100% of amount required to be shown • Preparer Penalty – preparation after 12/18/15 • Willful or reckless: Greater of $5,000 or 75% income derived or to be derived

  43. pp. 499-502Penalties • Failure to file correct information returns & provide payee statements • Returns/statements filing required > 12/31/15 • Figure 14.6 – 14.17

  44. p. 503Other New Legislation • Estate Basis Reporting • Executor: File a return & furnish statement to recipient identifying estate reported value • Required for property that increased federal estate tax liability • By earlier of 30 days after estate tax return due (with extensions) or after filed • Some exceptions apply (list – p. 503) • Form 8971 - final determined estate tax values

  45. p. 504Other New Legislation • Estate Basis Reporting • New accuracy-related penalty if underpayment due to inconsistent estate basis • New reporting subject to information return penalties - §§ 6721 and 6722 • Supplemental reporting required if information changes (list of examples – p. 504) • Not if inconsequential error or omission • File & furnish w/in 30 days change identified

  46. pp. 504-505Other New Legislation • Treatment of Timber Gains • Corp: Alternate 23.8% - qualified timber gains • Suspension of Medical Device Excise Tax • Effective: sales after 12/31/15 & before 1/1/18 • Modification of Mortgage Reporting • After 12/31/16, 1098 to include principal balance at 1st of year, origination date, address or other description of property securing debt

  47. pp. 505-506Other New Legislation • ITIN Issuance • Effective for ITIN requests after 12/18/15 • Allows IRS to issue in person or by mail • Establishes ITIN expiration dates – Fig. 14.18 • Statute of Limitations – Basis Overstatemt • Effective: Returns filed after 7/31/15 • Overstatement of basis can result in 25% omission of gross income → 6 year statute

  48. pp. 506-507Other New Legislation • Payment of Corporate Estimated in 2020 • Increase July, Aug, or Sept payment by 8% • Safe Harbor – De Minimis Errors • Returns/payee statements required > 12/31/16 • Treated as correct if income difference ≤ $100 or difference in tax withheld ≤ $25 • N/A if recipient requests correction • IRS Reforms – 12/18/15 – list p. 507

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