Source: http://www.gmlassoc.com/newsletters.html
Timestamp: 2018-04-21 01:49:49
Document Index: 678670920

Matched Legal Cases: ['§ 179', '§ 1374', '§ 48', '§ 501', '§ 501', '§ 501', '§ 170', '§ 501', '§ 529', '§ 529', '§ 529', '§ 529', '§ 201', '§ 6071', '§ 6402', '§ 202', '§ 6721', '§ 6722', '§ 203', '§ 6109', '§ 207', '§ 6695', '§ 209', '§ 6664', '§ 6676', '§ 6694', '§ 6211', '§ 6501', '§ 6676', '§ 6676', '§ 210', '§ 6694', '§ 6694', '§ 211', '§ 6050', '§ 212', '§ 6050', '§ 403', '§ 6103', '§ 409', '§ 6051', '§ 411', '§ 6225', '§ 6226', '§ 6234', '§ 6235', '§ 6031', '§ 421', '§ 422', '§ 6404', '§ 7463', '§ 423', '§ 424', '§ 7482', '§ 6015', '§ 6330', '§ 425', '§ 7453', '§ 431', '§ 7466', '§ 512', '§ 170', '§ 501', '§ 509', '§ 4942', '§ 501', '§ 501', '§ 7428', '§ 501', '§ 403']

2017 Tax Planning Letters
To view our 2017 Tax Planning Letters for Individuals and Businesses, please click the corresponding link below or menu item on the left hand side.
[2017 Tax Planning Letter for Individuals]
[2017 Tax Planning Letter for Businesses]
The recently enacted the Consolidated Appropriations Act, 2016, Pub. L. No. 114-11 which included, The Protecting Americans from Tax Hikes Act of 2015 (PATH), contains numerous tax changes, extensions, and modifications affecting individuals, businesses, charitable and exempt organizations. Set forth below are summaries of those changes categorized by the areas impacted by this legislation.
A number of changes impacting business in the following areas were made by the PATH legislation including:
Delay of excise tax on high cost employer-sponsored health coverage - The Act provides for a two-year delay of the excise tax on high-cost employer-sponsored health coverage (also known as the “Cadillac” tax); thus, the tax will become effective in 2020 rather than 2018.
Deductibility of excise tax on high cost employer-sponsored health coverage - The Act allows the excise tax on high-cost employer-sponsored health coverage to be deductible as a business expense.
Moratorium on medical device excise tax - The Act delays the implementation of the 2.3% excise tax imposed on the sale of medical devices until 2018.
Tax Credits, Depreciation, and Other Provisions Extended and/or Modified
Several major items were addressed by the new legislation:
The research and development credit - The Act permanently extends the R& D credit. Beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax liability, and the credit can be used by certain small businesses against the employer's payroll tax (i.e., FICA) liability.
Increased expensing limitations and treatment of certain real property as § 179 property - The Act retroactively retains the 2015 limits, i.e., a taxpayer may elect to expense up to $500,000 of equipment costs (with a phase-out for purchases in excess of $2,000,000). The Act also permanently extends the higher expensing limitation and phase-out amounts. Starting in 2016, the limitations will be indexed for inflation. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) are also permanently extended by the tax deal. Furthermore, beginning in 2016, the $250,000 qualified real property expensing limitation is eliminated.
Bonus depreciation - The Act extends bonus depreciation 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% for property placed in service during 2015, 2016 and 2017 and phases down, to 40% in 2018, and 30% in 2019.
Other extensions and modifications were made to the following credits and other Code provisions:
The new markets tax credit (extended through 2019);
The work opportunity tax credit (extended through 2019; adds qualified long-term unemployed individuals as eligible hires);
Employer wage credit for employees who are active duty members of the uniformed services (made permanent; allows all businesses to be eligible);
15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements (made permanent);
Look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules (extended through 2019);
Indian employment tax credit (extended through 2016);
Railroad track maintenance credit (extended through 2016; changes owned/lease date);
Mine rescue team training credit (extended through 2016);
Qualified zone academy bonds (extended through 2016);
Classification of certain race horses as 3-year property (extended through 2016);
7-year recovery period for motorsports entertainment complexes (extended through 2016);
Accelerated depreciation for business property on an Indian reservation (extended through 2016);
Election to expense mine safety equipment (extended through 2016);
Special expensing rules for certain film and television productions (extended through 2016; adds live theatrical productions as eligible);
Deduction with respect to income attributable to domestic production activities in Puerto Rico (extended through 2016);
Empowerment zone tax incentives (extended through 2016; employee residence test modified);
Increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands (extended through 2016); and
American Samoa economic development credit (extended through 2016).
Provisions Affecting S Corporations, RICs, and Other Business Activities
Extension of exclusion of 100% of gain on qualified small business stock - The Act permanently extends the exclusion of 100% of the gain on certain small business stock for non-corporate taxpayers to stock acquired after September 27, 2010, and held for more than five years. This provision also extends the rule that eliminates such gain as an AMT preference item. The changes are effective for stock acquired after December 31, 2014.
Extension of reduction in S corporation recognition period for built-in gains tax - The Act permanently reduces the § 1374 recognition period to five years for tax years beginning in 2015. Pre-existing installment sales continue to be governed by the holding periods for the years of sale. Effective for tax years beginning after December 31, 2014.
Extension of favorable S corporation's charitable contribution of property - The shareholder's basis in S corporation stock is reduced by the shareholder's pro rata basis in the donated property (rather than the pro rata fair market value of the donated property had the provision expired).
Extension of subpart F exception for active financing income - The Act permanently extends the subpart F exceptions for income in the active conduct of banking or financing business, an insurance business, or business as a securities dealer. Effective for tax years of a foreign corporation beginning after December 31, 2014, and to tax years of United States shareholders with or within which any such tax year of such foreign corporation ends.
Modifications to alternative tax for certain small insurance companies - The Act increases to $2,200,000 the limitation on net written premiums or direct written premiums, above which the election is not available. This amount is adjusted for inflation beginning in 2016. In addition, the Act adds a diversification requirement that can be met either by diversifying risk or by diversifying ownership of interests in the company. Effective for tax years beginning after December 31, 2016.
Treatment of timber gains - The Act taxes C corporation timber gains at a tax rate of 23.8%. Effective for tax years beginning after 2015.
Extension of treatment of certain dividends of regulated investment companies - The Act permanently extends provisions allowing for the pass-through character of interest-related dividends and short-term capital gains dividends from regulated investment companies to non-resident aliens. Effective for tax years beginning after December 31, 2014.
Personal and Business Credits, Deductions and Exclusions
The PATH legislation enacted new exclusions, extensions and modifications to numerous energy-related credits, deductions and exclusions:
New exclusion from income:
Production tax credit for wind facilities for which construction has begun before 2020; credit is reduced for property whose construction begins after 2016.
Production tax credit for closed loop biomass, open loop biomass, geothermal or solar energy, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities for which construction has commenced by the end of 2016; extends the election to treat qualified facilities as energy property for purposes of the § 48 energy credit through 2016.
Election to treat qualified wind facilities as energy property for the energy credit extend through 2019; the credit is reduced for property whose construction begins after 2016.
Energy credit for solar energy equipment to property the construction of which begins before 2022; the credit is reduced for property whose construction begins after 2019.
Credit for the construction of energy-efficient new homes extended through 2016.
50% bonus depreciation for cellulosic biofuel facilities extended through 2016.
Above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings extended through 2016.
Deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC-approved independent transmission companies extended through 2016 (for sales prior to January 1, 2017).
$0.50 per gallon alternative fuel tax credit and alternative fuel mixture tax credit extended through 2016; special rules provided for claiming the excise tax credit for 2015.
Credit for new fuel cell motor vehicles extended through 2016.
Provisions that were modified:
Deduction for energy efficient commercial buildings modified by updating the energy efficiency standards to reflect new standards of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America.
Credit for alcohol fuel, biodiesel, and alternative fuel mixtures modified to measure liquefied petroleum gas (LPG) and liquefied natural gas (LNG) by energy equivalent of a gallon of gasoline (for LPG) and by energy equivalent of a gallon of diesel (for LNG).
Charitable Gifts, Trusts and Charitable Deductions
The PATH legislation made numerous changes impacting on charitable gifts, charitable trusts, and the charitable deduction available for such gifts such as:
extends for 2015 and makes permanent the exclusion from gross income for qualified charitable distributions up to $100,000 from an IRA (traditional or Roth) made by individuals at least 70½ years old. If you have already made qualifying distributions directly to charity from your IRA during 2015, those will be eligible for this favorable treatment;
extends for 2015 and makes permanent a favorable provision for S Corporation shareholders. If an S Corporation makes a charitable contribution of appreciated property, the shareholders can generally deduct the value of the property, but only have to reduce their stock basis by the basis of the property contributed;
provides valuation certainty for taxpayers who terminate their charitable remainder trusts early (by donation or sale). Interests in early-terminating net income charitable remainder unit trusts (NIMCRUTs) are to be valued on the basis that the annual unitrust amount equals 5% of the net fair market value of the trust assets (unless the trust instrument provides for a greater amount) applicable to any trust termination occurring after December 18, 2015;
extends for 2015 and makes permanent the enhanced deduction available for qualified conservation contributions, which increases the deduction cap to 50% of your contribution base and increases the carryover period for excess amounts to 15 taxable years;
extends for 2015 and makes permanent the enhanced deduction for contributions of food inventory by a trade or business;
changes the limitation on deductions for food inventory contributions made in taxable years beginning after December 31, 2015, to 15% of income from the business making the donation (or taxable income for C corporations), allows a five-year carryover of amounts exceeding the limit, and provides simplified rules for the determination of the basis and fair market value of food items;
exempts from the gift tax transfers made to § 501(c) (4) social welfare organizations, § 501(c) (5) labor, agricultural, or horticultural organizations, and § 501(c) (6) business leagues. Transfers to these organizations are not deductible for income tax purposes as charitable contributions, although they may be deductible as business expenses;
expands to contributions to agricultural research organizations the increased (50% of the contribution base) deduction limitation under Code § 170(b) (1) effective for contributions made on or after the date of enactment (December 18, 2015), and allows agricultural research organizations to elect the use of the expenditure test under § 501(h) in determining permissible lobbying expenditures; and
expands the enhanced deduction for qualified conservation contributions to contributions (occurring after December 31, 2015) by Native Corporations of land conveyed under the Alaska Native Claims Settlement Act.
Educational Savings and Able Accounts
The PATH legislation made numerous changes regarding educational savings and able accounts including the following:
adds computer equipment, Internet access and related software and services to the list of educational expenses that may be paid for out of a § 529 educational account so long as the items are to be used by the account beneficiary during any year when the beneficiary is enrolled at an eligible institution, applicable to taxable years beginning after December 31, 2014;
eliminates the distribution aggregation requirements of Code § 529(c)(3) for distributions after December 31, 2014, meaning beneficiaries of multiple accounts will not be required to treat all distributions received as if coming from a single source in determining the extent to which the distributions are includible in gross income;
enacts a rule allowing a beneficiary that receives a refund of tuition or other expenses paid using amounts distributed from an account to avoid inclusion in gross income if the amounts are contributed back into a § 529 account within 60 days of the refund (this will also apply to amounts refunded between January 1, 2015, and December 17, 2015, and re-contributed before February 17, 2016); and
eliminates the residency requirement applicable to the creation of ABLE accounts under Code § 529A such that an individual may establish such an account under any state's ABLE program.
Changes to Tax Practice and Procedures
The PATH legislation made numerous changes to selected practice and procedure related provisions including:
Modification of filing dates of returns and statements relating to wage information [PATH § 201; I.R.C. § 6071, I.R.C. § 6402]
PATH modifies the filing dates of returns and statements relating to employee wage information and nonemployee compensation. Forms W-2, W-3 and returns or statements to report non-employee compensation (such as the Form 1099-MISC) will have to be filed on or before January 31 of the year following the calendar year to which the returns relate. Additionally, PATH provides more time for the IRS to review refund claims based on the earned income tax credit and the refundable portion of the child tax credit. This is effective for returns and statements relating to the calendar years beginning after December 18, 2015, and credits or refunds made after December 31, 2016.
Safe harbor for de minimis errors on information returns and payee statements [PATH § 202; I.R.C. § 6721, I.R.C. § 6722]
PATH establishes a safe harbor for the penalties for failure to file correct information returns and failure to furnish correct payee statements. The safe harbor is met and no correction is required, and no penalty imposed, if there is an incorrect dollar amount and none of the erroneous amounts differ from the correct amount by more than $100 ($25 for tax withholding amounts). However, the person to whom the statement is required to be furnished may make an election that the safe harbor not apply. This is effective for returns and statements required to be provided or filed beginning in 2017.
Requirements for issuing ITINs [PATH § 203; I.R.C. § 6109(I)]
PATH requires individuals who were issued Individual Taxpayer Identification Numbers (ITINs) before 2013 to renew their ITINs on a staggered schedule between 2017 and 2020 either in person before an IRS employee or an approved community-based certified acceptance agent (e.g., a financial institution, college, university, state or local government, etc.) or by mail under procedures to be developed. Documentation proving identity, foreign status and residency is required for renewal. PATH also provides that an ITIN will expire if an individual fails to file a tax return for three consecutive years. Math error authority applies. This is effective for requests for ITINs made after December 18, 2015.
Procedures to reduce improper claims [PATH § 207; I.R.C. § 6695(g)]
PATH expands the paid-preparer due diligence requirements for the earned income tax credit and the associated penalty, to cover returns claiming the child tax credit and American Opportunity Tax credit. This is effective for tax years beginning after December 31, 2015.
Treatment of credits for certain penalties [PATH § 209; I.R.C. § 6664, I.R.C. § 6676]
PATH amends the definition of underpayment applicable to the determination of accuracy-related and fraud penalties under § 6694 by incorporating the rule under § 6211(b)(4) that in determining the tax imposed and the amount of tax shown on the return, the excess of the refundable credits over the tax is taken into account as a negative amount of tax. Thus, if a taxpayer files an income tax return erroneously claiming refundable credits in excess of tax, there is an underpayment on which a penalty may be imposed. This is effective for returns filed after December 18, 2015, and for returns filed on or before December 18, 2015, if the § 6501 statute of limitations on assessment has not expired.
PATH also repeals the earned income credit exception from the § 6676 erroneous claim penalty and changes the standard under § 6676 for penalty relief from “reasonable basis” to “reasonable cause.” This is effective for claims filed December 18, 2015.
Increase in penalty for paid tax preparers who engage in willful or reckless conduct [PATH § 210; I.R.C. § 6694(b)]
PATH increases the penalty on tax return preparers for understatements due to willful or reckless conduct under § 6694 to the greater of $5,000 or 75% of the income derived (or to be derived) by the preparer with respect to the return or claim for refund (up from 50%). This is effective for returns prepared for tax years ending after December 18, 2015.
Providing employer identification numbers on Form 1098-T [PATH § 211; I.R.C. § 6050S (b)]
PATH requires an educational institution to provide its EIN on Form 1098-T. This is effective for expenses paid after December 31, 2015, for education furnished in academic periods beginning after that date.
Higher education information reporting only to include qualified tuition and related expenses actually paid [PATH § 212; I.R.C. § 6050S (b)]
PATH modifies the reporting requirements for Form 1098-T so that educational institutions report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed, as under current law. This is effective for expenses paid after December 31, 2015, for education furnished in academic periods beginning after that date.
Release of information regarding the status of certain investigations [PATH § 403; I.R.C. § 6103(e)]
PATH allows taxpayers who alleged an unauthorized disclosure, unauthorized inspection of returns or return information, or other criminal offense by an officer or employee of the United States, to ascertain whether an investigation occurred, the status of an investigation, its outcome, and whether action was taken against the offending individual. Applicable to disclosures made on or after December 18, 2015.
Extend Internal Revenue Service authority to require truncated Social Security numbers on Form W–2 [PATH § 409; I.R.C. § 6051]
PATH requires employers to include on Form W-2 an “identifying number” for each employee, rather than a Social Security number (SSN). Additionally, PATH permits Treasury to issue regulations requiring or permitting a truncated SSN on Form W-2. Effective on December 18, 2015.
Partnership audit rules [PATH § 411; I.R.C. § 6225(c), I.R.C. § 6226(d), I.R.C. § 6234, I.R.C. § 6235(a), I.R.C. § 6031(b)]
PATH corrects and clarifies several provisions of the partnership audit provisions enacted in the Bipartisan Budget Act of 2015, Pub. L. No. 114-74. As part of the changes, PATH modifies the reduction of imputed underpayments based on certain passive losses of publicly traded partnerships. PATH clarifies that a notice of final partnership adjustment to a partnership that does not seek modification of an underpayment in response to a notice of proposed adjustment may be issued up to 330 days (plus any additional number of days that were agreed upon as an extension of time for taxpayer response) after the notice of proposed adjustment. Additionally, PATH identifies the Court of Federal Claims as a proper forum for judicial review and clarifies that judicial review is available to partnerships that made an alternative payment election. PATH also permits taking into account lower tax rates, from either capital gain or ordinary income of a partner that is a C corporation, when modifying an imputed underpayment. These changes are effective as if included in the Bipartisan Budget Act of 2015.
Interest abatement case changes [PATH § 421, PATH § 422; I.R.C. § 6404(h), I.R.C. § 7463(f)]
PATH permits a taxpayer to seek Tax Court review of a claim for interest abatement when the IRS has failed to issue a final determination within 180 days. This is effective for claims for interest abatement filed after December 18, 2015. Additionally, PATH permits a taxpayer to elect small case status for interest abatement cases where the requested abatement does not exceed $50,000. This is effective for cases pending and cases commenced after December 18, 2015.
Spousal relief and collection case changes [PATH § 423, PATH § 424; I.R.C. § 7482(b), I.R.C. § 6015(e), I.R.C. § 6330(d)]
PATH clarifies that Tax Court decisions in spousal relief and collection cases are appealable to the U.S. Court of Appeals for the circuit in which an individual's legal residence or a business's principal place of business or agency is located. Additionally, PATH suspends the period for filing a Tax Court petition in innocent spouse relief and collection cases where a taxpayer has filed a bankruptcy case and is prohibited from filing a petition. The period is suspended during the prohibition and an extra 60 days for innocent spouse cases and 30 days for collection cases. These changes are effective for petitions filed after December 18, 2015.
Application of Federal Rules of Evidence [PATH § 425; I.R.C. § 7453]
PATH applies the Federal Rules of Evidence in Tax Court cases. This is effective for proceedings commenced after December 18, 2015, and, if just and practicable, to proceedings pending on December 18, 2015.
New - judicial conduct and disability procedures [PATH § 431; I.R.C. § 7466]
PATH authorizes the Tax Court to establish procedures for filing complaints related to the conduct of any judge or special trial judge of the Tax Court, and for the investigation and resolution of the complaints. This is effective for proceedings commenced after 180 days after December 18, 2015, and, to the extent just and practicable, to all proceedings pending on such date.
The PATH legislation, made some changes to the Affordable Care Act (ACA) that may affect health plans.
Many employers have been concerned about whether the 40% excise tax on high-cost health plans, often called the “Cadillac” tax, would apply to their health plan. The tax was scheduled to take effect in 2018. However, the 2016 law gave employers a breather by delaying that tax to 2020. In addition, the law requires studies of the benchmarks available for the age and gender adjustments to the threshold amounts that trigger the tax. The study could result in fewer health plans becoming subject to the tax.
In a reversal, the 2016 law also permits payments required under the “Cadillac” tax to be deductible as business expenses.
Health insurance providers that insure the health risks of U.S. citizens and residents and individuals located in the United States, which include issuers but not self-insured employers, also benefit from the 2016 law. For 2017, there is a temporary moratorium on the annual fee required from these providers.
The PATH legislation contains several provisions which will be of interest to tax-exempt organizations.
First, in terms of new items that have potential impacts for all exempt organizations, the Act:
extends for 2015 and makes permanent the special rule applicable under Code § 512(b)(13) relating to the unrelated business income tax treatment of interest, annuities, royalties and rents received by a tax-exempt organization from a controlled entity;
requires the Treasury Department and IRS to prescribe procedures for an organization claiming exemption to request an administrative appeal of an adverse determination regarding qualification under Code § 170(c) (2), § 501(a), § 509(a) or § 4942(j) (3), applicable for determinations made after May 18, 2014; and
grants organizations claiming exemption under § 501(c) other than § 501(c) (3) organizations the right to petition a court for a declaratory judgment under § 7428 in response to an adverse determination by the IRS regarding their qualification for exemption.
On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015. The Act, which had been passed in conjunction with the Consolidated Appropriations Act, contains several provisions which will be of interest to tax-exempt organizations. First, in terms of new items that have potential impacts for all exempt organizations, the Act:
In addition, the Consolidated Appropriations Act, 2016, included a rider on the IRS's funding that prohibits the IRS from expending any fiscal year 2016 funds on regulations or other formal guidance (i.e., guidance other than PLRs, TAMs, and similar taxpayer-specific advice) with respect to the standards to be used in determining qualification as a social welfare organization under Code § 501(c) (4). The rider is a direct response to the highly-criticized political activity proposed regulations issued in November 2013 (and which were informally withdrawn in May 2014).
The PATH legislations made several important changes to the rules governing IRAs and other retirement plans:
Tax-free IRA distributions to charity made permanent. This provision had been extended on a temporary basis. Now it's permanent. Taxpayers with traditional or Roth IRAs and who are at least age 701/2 may donate to charities up to $100,000 of required distributions from their IRAs tax free. The exclusion originally applied to these distributions only in taxable years 2006 and 2007. Congress subsequently extended the exclusion so that it would apply to distributions in taxable years 2008 through 2014, and then made it permanent in 2015.
The exclusion enables taxpayers to mitigate the tax consequences of the required minimum distribution rules. These rules require IRA owners to take minimum distributions from their IRAs by April 1 of the year that follows the year in which they reach age 701/2. This change in the law allows those IRA owners to exclude from their taxable income distributions that they transfer directly from an IRA to a qualified charity. Qualified charities, for this purpose, include churches, conventions or associations of churches, certain governmental units and certain health care groups.
Rollover contributions are permitted from other retirement plans into SIMPLE retirement accounts. Certain rollovers to an employee's SIMPLE retirement account are permitted from traditional IRAs, qualified annuities § 403(b) annuities and other sources.
Longer period for rollovers of amounts from airline bankruptcies. The law extends the period for rollovers to traditional IRAs of amounts received as a result of certain airline carrier bankruptcies.
Early withdrawals are penalty free for public safety officers. The 10% early withdrawal penalty for early distributions from a qualified retirement plan does not apply to a broader group of public safety employees.