2016 Federal Tax Update
2016 Federal Tax Update Bradley Burnett, J.D., LL.M. (Taxation) Bradley Burnett Tax Seminars, Ltd.
www.BradleyBurnettTaxSeminars.com
2017 Federal Individual Tax Update - Highlight Reel • • •
2016 Extender Bill? Not yet 5 new legislative acts in 2015 Including Path Act (Extender Bill) Treas. regs, court cases and IRS rulings, notices and announcements galore • Indexing for inflation – Some effective 2016, more effective 2017, for substantive law provisions, and aggressive new indexing for penalties © 2017 Bradley Burnett Tax
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01/30/17
2016 Extender Legislation? • • -
30 provisions set to expire at end of 2016 Most notably: Mortgage insurance premium deduction Home debt forgiveness exclusion Accelerated depreciation race horses / race tracks - Credits for non-wind & non-solar property §§45, 48 - Technical corrections to existing law © 2017 Bradley Burnett Tax
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01/30/17
Possible 2017 Legislation • Mobile Workforce State Income Tax Simplification Act – Would bar states from taxing earnings of nonresident employees who stay less than 30 days (has not yet passed) • Retirement Enhancement Savings Act – Expands ability of small employers to band together with multi-employer plans and makes other retirement related changes (has not yet passed)
© 2017 Bradley Burnett Tax
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01/30/17
2015 PATH Act - Individual Tax Provisions • Tuition Deduction (Extended through 12/31/16) • American Opportunity Tax Credit (Made permanent) (Beginning for 2016, EIN of educational institution must be reported) • Deduction for sales tax (in lieu of income tax) (Made permanent) • Deduction for mortgage insurance premium as mortgage interest (Extended through 12/31/16) • $250 teacher deduction for supplies (Made permanent) (For 2016 and later, indexed for inflation (2017 remains at $250) and expanded to include professional development expenses) © 2017 Bradley Burnett Tax
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01/30/17
Polling Question #1 • Which of the following college tax breaks is extended beyond 2016 by the PATH Act? A. Tuition deduction B. American Opportunity Tax Credit (AOTC) C. Both A. and B. above D. Neither A. or B. above
© 2017 Bradley Burnett Tax
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01/30/17
2015 PATH Act - Individual Tax Provisions • IRA transfers to charity for 70 ½ or older (Made permanent) (Make sure receipts are properly worded) • Expanded contributions of real property for qualified conservation charitable deduction (Made permanent) • Exclusion for personal residence cancellation of debt income (Extended through 12/31/16) • $500 credit for nonbusiness energy property (Extended through 12/31/16) (Energy Star requirements updated) • Enhanced child tax credit (Made permanent) • Enhanced earned income tax credit (Made permanent)
© 2017 Bradley Burnett Tax
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01/30/17
2015 Highway Funding Bill • HSA (Health Savings Account) eligibility not affected by receipt of armed service (or VA) benefits - If an individual purchases so-called “high deductible insurance”, such individual (or his (her) employer) may contribute to a tax deductible and tax deferred HSA account • Health insurance employer mandate penalty exemption for recipients of Tricare (or VA) health care benefits - Recipients of Tricare (or VA) health care benefits NOT counted in testing for 50 (full time) employee threshold
© 2017 Bradley Burnett Tax
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01/30/17
Identity Theft and Tax Fraud • Expect refunds to be dramatically slowed by IRS and states • 2016 W-2s & 2016 1099-MISCs m/ be filed by employer w/ government by 01/31/17 • Protect your computer against being hacked (IRS Pub 4557 (Rev. 10-2015) – Safeguarding Taxpayer Data (A Guide for Your Business) - Provides basics to be followed to protect taxpayer data - Following such basics arguably is defense against Circular 230 violation
© 2017 Bradley Burnett Tax
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01/30/17
Form 1040 Due Dates • Form 1040 due dates do not change
- Due on 04/18/17 (04/15/17 lands on Saturday, 04/17/17 lands on a legal holiday) - Remains 06/15/17 if out of country on “April 15” - Extended due date is 10/16/17 (10/15/17 lands on a Sunday)
© 2017 Bradley Burnett Tax Seminars, Ltd. 10
01/30/17
FBAR (FinCen 114) Due Dates FBAR
FBAR Return (FinCen 114) FBAR Extension
Current Law June 30
None
New Law Net Change
Effective Date
April 15
2 ½ months less
Tax years beginning after 2015
Up to 6 months
Up to 6 months more
Tax years beginning after 2015
© 2017 Bradley Burnett Tax
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01/30/17
FBAR (FinCen 114) Due Dates • 2016 FBAR is due on 04/15/17 - 04/15/17 lands on a Saturday - Government has clarified the following Tuesday (04/18/17) is the due date for the 2016 FBAR - Automatic six month extension until 10/15/17 - (10/15/17 lands on a Sunday) (government has not yet clarified whether extended FBAR is due on Monday 10/16/17) © 2017 Bradley Burnett Tax
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01/30/17
Income Tax Return Due Dates Income Tax Return Due Dates
Entity Type
Current Law
New Law
Net Change
Effective Date
S Corp
15th day of 3rd month
15th day of 3rd month
No change
No change
Partnership
15th day of 4th month
15th day of 3rd month
Accelerated 1 month
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
15th day of 3rd month
15th day of 4th month
Delayed 1 month
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
15th day of 3rd month
15th day of 3rd month* (* 15th day of 4th month after 2025)
No change (except for *) (* 15th day of 4th month after 2025)
* No change, until returns for tax years beginning after 12/31/25
© 2017 Bradley Burnett Tax
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01/30/17
Tax Return Extension Due Dates Income Tax Return Extension Due Dates Tax Return Type
Current Law
New Law
Net Change
Effective Date
S Corp
6 months
6 months
No change
No change
Partnership
5 months
6 months
1 month more
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
6 months
5 months
1 month less
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
6 months
6 months* (* 5 months after 2025)
No change * (* until tax years beginning after 2025, then 1 month less)
* No change, until returns for tax years beginning after 12/31/25
© 2017 Bradley Burnett Tax
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01/30/17
Tax Return Extension Due Dates Income Tax Return Extension Due Dates Tax Return Type
Current Law
New Law
Net Change
Effective Date
1041
5 months
5 ½ months
½ month more
Returns for tax years beginning after 12/31/15
5500
2 ½ months
3 ½ months
1 month more
Returns for tax years beginning after 12/31/15
990
3 months
6 months
3 months more
Returns for tax years beginning after 12/31/15
© 2017 Bradley Burnett Tax
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01/30/17
Late Filing Minimum Penalty Increase • §6051 Increase in Floor of Late Filing Minimum Penalty from $205 to $210 (or, if Less, the Amount of Tax Due) for Certain Returns More Than 60 Days Late (for returns required to be filed after 12/31/16) - For certain returns filed more than 60 days late, minimum penalty has increased (from $205 to) $210 or the amount of tax owed, whichever is smaller
- E.g., A 2016 Form 1040 is filed with IRS more than 60 days late with $112 income tax due. The late filing penalty will be $112. Total owed IRS = $224 (i.e., $112 + 112), plus late payment penalty (if any) and interest
© 2017 Bradley Burnett Tax
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01/30/17
Late Filing Minimum Penalty Increase • §6051 Increase in floor of late filing minimum penalty from $205 to $210 (or, if less, amount of tax due) for > 60 days late (for 2016 returns and later) (i.e., returns originally due after 2016): 1. Form 990-T 2. Forms 1040, 1040A, 1040NR, 1040NR-EZ 3. Form 1041 4. Form 1120, 1120-H, 1120S
© 2017 Bradley Burnett Tax
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01/30/17
3 Categories of Rich • Super Rich $415,050 / $466,950 (2016) - Highest brackets (39.6% OI and 20% LTCG) • Medium Rich $259,400 / $311,300 (2016) - Phase-out personal exemptions and itemized deductions • Poor Rich $200,000 / $250,000 (2016) - 3.8% NII tax
© 2017 Bradley Burnett Tax
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01/30/17
Capital Gains and Qualifying Dividends • 0%, 15%, 20% long term capital gain rates - 0% rate if in 15% OI bracket (up to $36,900 single, $73,800 MFJ) - 20% rate if in 39.6% OI bracket (> $415,050 single, >$466,950 MFJ) • Plus 3.8%, AMT, effective tax rate increases for phase-out of PEP (personal exemption) and PEASE (itemized deductions) = 30% rate • Gift appreciated stock to low income family © 2017 Bradley Burnett Tax
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01/30/17
Hillary Clinton
Bernie Sanders
Donald Trump
Presidential Candidates – Tax Proposals Extra Tax: Buffet Rule Over $1 mill pays 30% None Capital Gains Rates
Top rate 39.6% (20% 6 yr)
Top rate 39.6%
0%, 15% and 20%
Extra Tax: Fair Share Surcharge
Over $5 mill pays addtl 4%
Extra Tax: Wall Street
None
Transaction tax on stocks, bonds and derivatives
None
Ordinary Income Rates
Up to 39.6% (+ surtaxes)
Up to 52%
Up to 25%
NII (Net Invst Income) Tax
No change
Increase to 10%
No change
Broaden base (strip deductions)
Axe some deductions, limit some deducts to 28%
Limit some deductions to 28%, eliminate AMT
Axe some deductions, steepen PEP & Pease
Social Security Taxes
No change
Blow cap off wage base, add 3 new payroll taxes*
No change
Estate and Gift Taxes
$3.5 mill exemption, no indexing, top rate 45%, gift tax exemption $1 mill
$3.5 mill exemption, top rate 65%, eliminate discounting, hurt GRATs
Eliminate estate tax
Affordable Care Act
Expand Premium Tax Credit
20 *Add 2 new payroll taxes
Eliminate ACA
None
01/30/17
Tax Reform “The difference between death and taxes is death doesn’t get worse every time Congress meets.” Will Rogers
© 2017 Bradley Burnett Tax
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01/30/17
Post-Election Tax Proposals Democrat
Republican
Donald Trump
Corporate Tax Rate
Possibly agree to 20% cut if repatriation tax proceeds go to U.S. infrastructure improvements
Corp Repatriation Tax Rate
?
8.75% for cash; 3.75% for other 10%
Proceeds of repatriation tax
Fund U.S. infrastructure improvements
Offset broader corporate tax rate cuts
?
U.S. infrastructure improvements
Funded by Corp repatriation tax
?
$1 trillion infrastructure renewal plan w/ $137 billion tax credits for private investment in projects
Future of international Corp tax
?
Territorial system (tax only U.S. economic activity (no tax on overseas income) © 2017 Bradley Burnett Tax
15%
End deferral (companies m/ pay tax annually on all overseas earnings) 22 01/30/17
Post-Election Tax Proposals Democrat
Republican
Donald Trump
Pass-Through Tax Rate
?
25% after assigning some portion as compensation
15% for “small business”. “Large business” taxed as C Corp
AMT
?
Repeal, except for 90% limit on NOLs
Repeal
Business Incentives
?
Repeal all, except R&D credit Repeal all, except R&D credit
Depreciation
?
Full expensing
Expensing only for manufacturing only if company forgoes interest deductions*
Interest deduction
?
Limited to interest income, except for financing and leasing industries
* See depreciation immediately above
Affordable Care Act
Keep ACA
Axe ACA + ACA taxes
Axe ACA + ACA taxes
© 2017 Bradley Burnett Tax
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01/30/17
Post-Election Tax Proposals Democrats
Republicans
Donald Trump
Ordinary Income Rates
Status quo (7 rates up to 39.6%)
12%, 25% and 33%
12%, 25% and 33%
Capital Gains Rates
?
Half excluded (thus, rates of 6%, 12.5% and 16.5%) (Interest income treated same)
Status quo (0%, 15% and 20%)
NII (Net Investment Income) Status quo (3.8% tax) Tax
Repeal
Repeal
Carried interest (portion of investment returns paid to fund managers)
?
? (Status quo is capital gains rate)
Ordinary income
Standard Deduction
Status quo (joint $12,300, single $6,300)
$24,000 joint, $18,000 single parents, $12,000 other singles
$30,000 joint, $15,000 single
Itemized Deductions
?
Keep only mortgage and Keep only mortgage & charitable. charitable deductions Cap at $200,000 married, $100,000 single © 2017 Bradley Burnett Tax 24 01/30/17
Social Security Wage Base • $118,500 for 2015 • $118,500 for 2016 (same as 2015)
• $127,200 for 2017
© 2017 Bradley Burnett Tax
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01/30/17
Foreign Earned Income Exclusion / Housing • $100,800 in 2015 • $101,300 in 2016 • $102,100 in 2017 • Housing Exclusion – Ranges $16,128 (2015), $16,208 (2016), $16,336 (2017)
© 2017 Bradley Burnett Tax
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01/30/17
Foreign Earned Income Exclusion • No §911 exclusion on delinquent return if IRS contacts taxpayer and raises issue first (Nancy McDonald, 2015-169 (08/25/15)) • §911 Income Earned by Bona Fide Resident in Foreign Country (23% of Total) Excluded – It’s Not Always an “All or Nothing” Gig (Wendell Wilson and Angelica M. Wilson, pro sese, v. Comm., TCS 2016-19 (04/25/16)) - 23% of mariner’s income earned in foreign ports - 77% in international water (not a foreign country) © 2017 Bradley Burnett Tax
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01/30/17
Foreign Bank and Financial Accounts • FinCen Form 114 (FBAR) must be filed • Filed electronically • For 2015 FBAR, due by June 30, 2016 (no extensions) • For 2016 FBAR, due by April 18, 2017 (6 month extension possible) - Same applies to later years • If “signature authority” only, 2016 FBAR need not be filed until April 15, 2018
© 2017 Bradley Burnett Tax
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01/30/17
FBAR Must Be Filed By • Persons with either: Ownership of or signature authority over foreign bank account - Authority over = ability to withdraw - Account(s) must exceed $10,000 U.S. on any one day • Use conversion rate as of last day of year
© 2017 Bradley Burnett Tax
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01/30/17
Foreign Bank Account • Account physically located in England (though the bank is a U.S. bank) is a foreign account • Account physically located in Chicago, IL (though the bank is a Canadian bank) is NOT a foreign account • Key: At what location (branch) is the account is set up? If “signature card” outside of U.S. soil, it is a foreign account • Online gaming account is a foreign bank account if titled off of U.S. soil (Jon Hom, DC CA (06/04/14)) (but, in Jon Hom, 9th Cir. (07/26/16) appeal, only clearing account (like a Paypal account) is reportable bank account, not accounts merely holding gambling money)
© 2017 Bradley Burnett Tax
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01/30/17
FBAR Reports “Financial Accounts” Financial accounts =
1. 2. 3. 4. 5. 6. 7.
Bank (e.g., savings and checking) accounts, time deposits Securities accounts (e.g., brokerage accts) Commodities future or options accounts Insurance policy with cash value Mutual funds or similar pooled funds Online poker accounts Any other accounts maintained in a foreign financial institution (or person providing services of fin institution)
© 2017 Bradley Burnett Tax
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01/30/17
Polling Question #2 • Q: Are any foreign financial assets, beyond merely bank accounts, reportable on a FinCen 114 (FBAR)?
© 2017 Bradley Burnett Tax
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01/30/17
Lookout, Lookout !! • Do not overlook: - Employee ability to sign on foreign business account Foreign retirement savings accounts - Inherited foreign accounts - Accounts owned by recent immigrants to U.S. - Investment account broker got client into - If in doubt, fill it out. If in doubt, send it out. On time!! © 2017 Bradley Burnett Tax
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01/30/17
Federal Standard Mileage Rates 2015
2016
Medical / Moving 19¢ 17¢ Charitable 14¢ 14¢ Business 57.5¢ 54¢
2017 23¢ 14¢
53.5¢ © 2017 Bradley Burnett Tax
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01/30/17
2017 Estate and Gift Tax Exclusion Amounts • Estate and Gift Tax Basic exclusion amount §2010 (Rev. Proc. 2016-55) - Basic exclusion amount for determining unified credit against estate tax = $5,490,000 (2017) $5,450,000 (2016)
• Annual gift tax exemption §2503 (Rev. Proc. 2016-55) - $14,000 (2017 remains same as 2016) of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year © 2017 Bradley Burnett Tax
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01/30/17
Individual Retirement Accounts • Annual Contribution Limits to IRAs for 2016 and 2017 (IR 2016-141) - Traditional IRA and Roth IRA Contribution Limits $5,500 (for 2016 and 2017) - Traditional or Roth IRA Contribution Limit for age 50 or over $6,500 (for 2016 and 2017)
© 2017 Bradley Burnett Tax
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01/30/17
Transfers from IRAs to Charities • IRA transfers to charity for 70 ½ or older (Made permanent) (Make sure receipts are properly worded) • Must be trustee transfer – Rollovers don’t cut it – Do not retrieve check from trustee and hand deliver it to charity • Substantiation – Separate receipt (contemporaneous acknowledgement) needed for: 1. Deductible donations; and 2. Transfers from charity © 2017 Bradley Burnett Tax
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01/30/17
Consequences of IRA Prohibited Transaction • Plan ceases to be a plan as of 1st day of year in which prohibited transaction takes place • Excise tax triggered • Excise tax return (Form 5330) due • 6 year statute of limitations (for assessment) for not disclosing prohibited transaction on 1040 (Thiessen, 146 TC 7 (03/29/16))
- In Thiessen, IRA borrowed money from bank (not “in an of itself” a prohibited transaction) - Problem: IRA owner guaranteed loan to IRA by bank (guarantee is a prohibited transaction) © 2017 Bradley Burnett Tax
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01/30/17
Qualified Retirement Plans • Compensation Limit for 2016 (2017) - For 2016, the maximum compensation used for figuring contributions and benefits is $265,000 ($270,000 for 2017) • Defined contribution limit for 2016 (2017) - For 2016, the limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan is $53,000 ($54,000 for 2017) © 2017 Bradley Burnett Tax
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01/30/17
Qualified Retirement Plans • Elective Deferral Limit for 2016 (2017) - For 2016, the limit on elective deferrals, other than catchup contributions, is $18,000 (unchanged for 2017) - These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), 403(b) plans and 457(b) plans
© 2017 Bradley Burnett Tax
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01/30/17
Qualified Retirement Plans • Catch-up contribution limit for 2016 (2017) - A plan can permit participants who are age 50 or over at the end of the calendar year to make catch up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions - Catch up contribution limitation for a defined contribution plan other than a SIMPLE plan is $6,000 for 2016 (unchanged for 2017) - Catch up contribution limitation for SIMPLE plans is $3,000 for 2016 (unchanged for 2017) © 2017 Bradley Burnett Tax
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01/30/17
PATH Act - Business Tax Provisions • §179 Expense Election (Rev. Proc. 201655) - Extended to 2015 and beyond and made permanent - Maximum §179 expense $500,000 for 2016 ($510,000 for 2017) - Start of phase out $2,000,000 for 2016 ($2,030,000 for 2017) © 2017 Bradley Burnett Tax
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01/30/17
PATH Act - Business Tax Provisions • §179 and 15-year life for real estate (Made permanent) • §179 for Real Estate - $250,000 in 2015, increases to $500,000 (inflation adjusted) for 2016 and beyond • HVAC units qualify as §179 property (2016 and beyond) • Real estate sourced §179 recapture is ordinary income © 2017 Bradley Burnett Tax
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01/30/17
PATH Act - Business Tax Provisions • •
15 Year Life for Real Estate Applies to: Qualified leasehold improvements; Qualified restaurant buildings; and Qualified retail improvements Effect of Extender Bill: 15 year life (2015 and later) (permanent) did not revert to 39year life. Bonus depreciation still available on first half unless elect out. © 2017 Bradley Burnett Tax
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01/30/17
PATH Act - Business Tax Provisions §168(k) Bonus Depreciation 2012-17 2020 & beyond
50%
2018
2019
40%
30%
0%
© 2017 Bradley Burnett Tax
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01/30/17
Cost Recovery of Real Estate – 3 Baskets • Three general baskets of cost recovery for real estate: 1. 27.5 year (residential real estate) 2. 15 year (improvements (after 3 years) to qualified restaurant, retail or leasehold property) 3. 39 year (commercial property) (leftover basket) © 2017 Bradley Burnett Tax
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01/30/17
PATH Act – Expansion of Bonus Property • Bonus depreciation - PATH Act added (effective 2016 and later) ability to take bonus depreciation on 39-year qualified improvement property 1. Need not be leasehold improvement 2. Need not be property more than 3 years old 3. Must be property previously placed in service 4. Must be non-residential, non-exterior, nonstructural non-expansion, non-elevator and nonescalator
© 2017 Bradley Burnett Tax
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01/30/17
2016 Depreciation Limits for Luxury Auto • Lesser of $3,160 or 20% of basis * * Plus $8,000 bonus depreciation ($6,400 in 2018, $4,800 in 2019, $0 thereafter) • Bonus depreciation only available if vehicle is new • If not 100% business use, above amounts are reduced © 2017 Bradley Burnett Tax
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01/30/17
W-2 and 1099-MISC Due Dates • Change to Due Date of Forms W-2s and 1099MISC for 2016 Year (Filed in 2017) – All Forms Due by January 31 No Matter What - Effective for forms filed on or after January 1, 2017, Forms W–2 and Forms 1099-MISC for non-employee compensation must be filed by January 31 - Must be filed by January 31 EVEN IF FILED ELECTRONICALLY - Bye bye to February 28 and March 31 © 2017 Bradley Burnett Tax
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01/30/17
2015 Trade Package Legislation • Delinquent information reporting penalties dramatically increase (effective for info returns filed after 2015) • Applies to Forms 1099, W-2, 1095 (Health Care Reporting), etc. • Example of penalty: $530 (twice) for intentional disregard of requirement to file each Form 1099 ($530 x 2 = $1,000 for each delinquent 1099) • If in doubt, fill it out. If in doubt, send it out. ON TIME !! © 2017 Bradley Burnett Tax
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01/30/17
Increased Delinquent Info Return Penalty §6721 Penalty
Before 2016
Fixed w/in 30 days Fixed > 30 days, but < Aug 1 Fixed Aug 1 or later Intentional disregard
$30 $60 $100 $250
After 2015 $50 $100 $250 $530
• Penalty may be applied twice (doubled) if return not supplied both to payee and government
© 2017 Bradley Burnett Tax
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01/30/17
Bipartisan Budget Act of 2015 • Huge change to how IRS audits partnerships (any entity filing Form 1065, including LLCs taxed as partnerships) • Effective 2018, new rules replace current TEFRA rules • These new rules allow IRS to audit partnerships at the entity level and assess and collect taxes against the partnership, UNLESS partnership elects out of new regime • Impacts the formation and operations of partnerships, disposition of partnership interests and admission of new partners • Huge planning issue requiring relatively prompt attention for both new and existing partnerships © 2017 Bradley Burnett Tax
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01/30/17
Centralized Partnership Audits • Annual Election Out Of New Rules (§6221) - Pshps w/ 100 or fewer partners* can opt out, if all partners are: - Individuals - C Corps - Foreign Corps Estates - S Corps (each shareholder counts as a partner*) - Pshps cannot elect out if have partner which is: - Partnership - Trust - SMLLC (not sure yet until final regs) - Grantor trusts (not sure yet until final regs) © 2017 Bradley Burnett Tax
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01/30/17
Centralized Partnership Audits • If do not elect out of new rules, two choices: 1. Accept IRS’ partnership level imputed underpayment (§6225) - Avoid this like the plague 2. Elect to push up (push out) the adjustment to partners (§6226) - Do this © 2017 Bradley Burnett Tax
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01/30/17
Centralized Partnership Audits • Imputed underpayment rule: - IRS nets all at partnership level, applies highest tax rate 39.6% - Partnership has burden of proving lower rate more appropriate - No adjustments to partner’s outside basis - Result = Double tax. NASTY!!
© 2017 Bradley Burnett Tax
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01/30/17
Centralized Partnership Audits • Push Up (Push Out) Election - Elected within 45 days of notice of final partnership adjustment - Partnership issues adjusted Form K- 1” for the “adjustment year” to each partner of the partnership for the reviewed year - Partner gets basis step up for income (avoids double tax) - Partner, not partnership, liable for tax if elected - Partner pays tax, penalty and interest (at 2% higher than normal IRS interest rate) © 2017 Bradley Burnett Tax
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01/30/17
Centralized Partnership Audits • Huge change to how IRS audits partnerships (and LLCs) • Effective 2018, new rules replace current TEFRA rules • These new rules allow IRS to audit partnerships at the entity level and assess and collect taxes against the partnership, UNLESS partnership elects out of new regime • Impacts the formation and operations of partnerships, disposition of partnership interests and admission of new partners • Huge planning issue requiring relatively prompt attention for both new and existing partnerships (and LLCs taxed as partnerships) © 2017 Bradley Burnett Tax
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01/30/17
Polling Question #3 • Q: Is it advisable for a partnership (or LLC taxed as a partnership) to take a siesta and ignore the new Centralized Partnership Audit Rules which are coming like a freight train and effective in 2018?
© 2017 Bradley Burnett Tax
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01/30/17
PAL Material Participation With Less Than Stellar Time Records 1. 500 hours (Stephan Tolin (TCM 2014-65)) 2. Do substantially all the work (Michel Moreno (DC LA 05/19/14)) 3. >100 hours and no one else does more (Larry Kline TCM 2015-144)) 4. SPA (significant participation activity = at least 100 hours in each, combined exceeds 500 hours) (Jose Lamas (TCM 2015-59)) 5. Real estate professional (> ½ of time, 750 hours) with less than perfect records (Joseph D. and Darcy C. Moon v. Comm., TCS 2016-23 (05/23/16)) © 2017 Bradley Burnett Tax
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01/30/17
Passive Activity Loss - Proving Material Participation • • • • • •
Cell phone (billing statement) call records Emails Travel itineraries and receipts Credit card charges Affidavits from customers Other documentary evidence
© 2017 Bradley Burnett Tax
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01/30/17
Polling Question #4 • Q: Is the following statement true or false? Cell phone call records (billing statements and usage logs) could never in a hundred years help prove material participation for passive activity loss purposes
© 2017 Bradley Burnett Tax
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01/30/17
PAL Real Estate Professional - Case of Century • Ohio Woman Granted PAL Real Estate Professional Relief (Beth M. Hailstock, TCM 2016-146 (08/08/16)) – Though no §469(c)(7) election and no aggregation election made – Pathetic and missing financial records did not even trip her up – No time records kept – On strength of her “no outside employment” and credible testimony, court awards “Facts and Circumstances” material participation – Does arguing this case make us penalty free when we sign a tax return with a less than perfect underlying fact pattern?
© 2017 Bradley Burnett Tax
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01/30/17
FAST ACT (To Pay for Highways) • Passport will be revoked (or not issued) if taxpayer: Owes to IRS $50,000 or more in tax, penalty, interest, etc.; and - Not under installment agreement • IRS to hire many new, aggressive outside (and inside) tax debt collectors • Moral of the story: Get an IRS installment agreement and keep it © 2017 Bradley Burnett Tax
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01/30/17
User Fee Increase for Installment Agreements • User fee increases to $120 for an installment agreement • Reduced to $52 for a direct debit installment agreement (an agreement whereby the taxpayer authorizes IRS to request monthly electronic transfer of funds from taxpayer's bank account to IRS) • $43 notwithstanding the method of payment if lowincome taxpayer Preamble to Prop Reg (08/19/2016); Prop Reg §300.1, Prop Reg §300.2; IR 2016-108 © 2017 Bradley Burnett Tax
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01/30/17
Innocent Spouse Relief • §6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties – His Late Wife Failed to Mail Return to IRS Three Years Before and He Didn’t Know It (Joseph Patrick Boyle, pro se, v. Comm., TCM 2016-87 (05/02/16)) - He gets off hook for penalties on his own tax!! - Tax Court overturns two IRS principles re: equitable relief in Rev. Proc. 2013-34 © 2017 Bradley Burnett Tax
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01/30/17
Private Delivery Services • IRS Notice 2016-30 updates list of approved Private Delivery Services which satisfy “date of mailing = date of filing” rule • FedEx and UPS stay, DHL added • FedEx Ground and UPS Ground conspicuously absent from list • Better get electronic receipt to prove date of “mailing” • By comparison, U.S. Certified Mail still works (extremely well) to satisfy “date of mailing = date of filing” rule • §§6213(a), 7502 Utilizing UPS Ground (vs. an Approved Faster UPS Service) Costs Michigan Man $41,000 in Taxes – No Tax Court Jurisdiction Where Petition, Though UPS’d on 90th Day, Received After 90th Day – Saving $12.30 Cost Him $41,000 – Ouch (Eric Lamart Sanders, pro se, v. Comm., TCS 2014-47 (05/12/14))
© 2017 Bradley Burnett Tax
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01/30/17
Bradley Burnett Tax Seminars, Ltd. • Live seminars and webinars available - Tax Update Seminars - Specialty topics available: Tax Reform, Corporation and Partnership Tax Planning Update, FBAR/Form 8938, IRAs, Self Directed IRAs - In-house customized programs available • E-Books coming soon!!
• Visit our website: www.BradleyBurnettTaxSeminars.com • Email: [email protected]
© 2017 Bradley Burnett Tax
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01/30/17
www.BradleyBurnettTaxSeminars.com
2017 Federal Individual Tax Update - Highlight Reel • • •
2016 Extender Bill? Not yet 5 new legislative acts in 2015 Including Path Act (Extender Bill) Treas. regs, court cases and IRS rulings, notices and announcements galore • Indexing for inflation – Some effective 2016, more effective 2017, for substantive law provisions, and aggressive new indexing for penalties © 2017 Bradley Burnett Tax
2
01/30/17
2016 Extender Legislation? • • -
30 provisions set to expire at end of 2016 Most notably: Mortgage insurance premium deduction Home debt forgiveness exclusion Accelerated depreciation race horses / race tracks - Credits for non-wind & non-solar property §§45, 48 - Technical corrections to existing law © 2017 Bradley Burnett Tax
3
01/30/17
Possible 2017 Legislation • Mobile Workforce State Income Tax Simplification Act – Would bar states from taxing earnings of nonresident employees who stay less than 30 days (has not yet passed) • Retirement Enhancement Savings Act – Expands ability of small employers to band together with multi-employer plans and makes other retirement related changes (has not yet passed)
© 2017 Bradley Burnett Tax
4
01/30/17
2015 PATH Act - Individual Tax Provisions • Tuition Deduction (Extended through 12/31/16) • American Opportunity Tax Credit (Made permanent) (Beginning for 2016, EIN of educational institution must be reported) • Deduction for sales tax (in lieu of income tax) (Made permanent) • Deduction for mortgage insurance premium as mortgage interest (Extended through 12/31/16) • $250 teacher deduction for supplies (Made permanent) (For 2016 and later, indexed for inflation (2017 remains at $250) and expanded to include professional development expenses) © 2017 Bradley Burnett Tax
5
01/30/17
Polling Question #1 • Which of the following college tax breaks is extended beyond 2016 by the PATH Act? A. Tuition deduction B. American Opportunity Tax Credit (AOTC) C. Both A. and B. above D. Neither A. or B. above
© 2017 Bradley Burnett Tax
6
01/30/17
2015 PATH Act - Individual Tax Provisions • IRA transfers to charity for 70 ½ or older (Made permanent) (Make sure receipts are properly worded) • Expanded contributions of real property for qualified conservation charitable deduction (Made permanent) • Exclusion for personal residence cancellation of debt income (Extended through 12/31/16) • $500 credit for nonbusiness energy property (Extended through 12/31/16) (Energy Star requirements updated) • Enhanced child tax credit (Made permanent) • Enhanced earned income tax credit (Made permanent)
© 2017 Bradley Burnett Tax
7
01/30/17
2015 Highway Funding Bill • HSA (Health Savings Account) eligibility not affected by receipt of armed service (or VA) benefits - If an individual purchases so-called “high deductible insurance”, such individual (or his (her) employer) may contribute to a tax deductible and tax deferred HSA account • Health insurance employer mandate penalty exemption for recipients of Tricare (or VA) health care benefits - Recipients of Tricare (or VA) health care benefits NOT counted in testing for 50 (full time) employee threshold
© 2017 Bradley Burnett Tax
8
01/30/17
Identity Theft and Tax Fraud • Expect refunds to be dramatically slowed by IRS and states • 2016 W-2s & 2016 1099-MISCs m/ be filed by employer w/ government by 01/31/17 • Protect your computer against being hacked (IRS Pub 4557 (Rev. 10-2015) – Safeguarding Taxpayer Data (A Guide for Your Business) - Provides basics to be followed to protect taxpayer data - Following such basics arguably is defense against Circular 230 violation
© 2017 Bradley Burnett Tax
9
01/30/17
Form 1040 Due Dates • Form 1040 due dates do not change
- Due on 04/18/17 (04/15/17 lands on Saturday, 04/17/17 lands on a legal holiday) - Remains 06/15/17 if out of country on “April 15” - Extended due date is 10/16/17 (10/15/17 lands on a Sunday)
© 2017 Bradley Burnett Tax Seminars, Ltd. 10
01/30/17
FBAR (FinCen 114) Due Dates FBAR
FBAR Return (FinCen 114) FBAR Extension
Current Law June 30
None
New Law Net Change
Effective Date
April 15
2 ½ months less
Tax years beginning after 2015
Up to 6 months
Up to 6 months more
Tax years beginning after 2015
© 2017 Bradley Burnett Tax
11
01/30/17
FBAR (FinCen 114) Due Dates • 2016 FBAR is due on 04/15/17 - 04/15/17 lands on a Saturday - Government has clarified the following Tuesday (04/18/17) is the due date for the 2016 FBAR - Automatic six month extension until 10/15/17 - (10/15/17 lands on a Sunday) (government has not yet clarified whether extended FBAR is due on Monday 10/16/17) © 2017 Bradley Burnett Tax
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01/30/17
Income Tax Return Due Dates Income Tax Return Due Dates
Entity Type
Current Law
New Law
Net Change
Effective Date
S Corp
15th day of 3rd month
15th day of 3rd month
No change
No change
Partnership
15th day of 4th month
15th day of 3rd month
Accelerated 1 month
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
15th day of 3rd month
15th day of 4th month
Delayed 1 month
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
15th day of 3rd month
15th day of 3rd month* (* 15th day of 4th month after 2025)
No change (except for *) (* 15th day of 4th month after 2025)
* No change, until returns for tax years beginning after 12/31/25
© 2017 Bradley Burnett Tax
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01/30/17
Tax Return Extension Due Dates Income Tax Return Extension Due Dates Tax Return Type
Current Law
New Law
Net Change
Effective Date
S Corp
6 months
6 months
No change
No change
Partnership
5 months
6 months
1 month more
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
6 months
5 months
1 month less
Returns for tax years beginning after 12/31/15
C Corp (non 06/30 year end)
6 months
6 months* (* 5 months after 2025)
No change * (* until tax years beginning after 2025, then 1 month less)
* No change, until returns for tax years beginning after 12/31/25
© 2017 Bradley Burnett Tax
14
01/30/17
Tax Return Extension Due Dates Income Tax Return Extension Due Dates Tax Return Type
Current Law
New Law
Net Change
Effective Date
1041
5 months
5 ½ months
½ month more
Returns for tax years beginning after 12/31/15
5500
2 ½ months
3 ½ months
1 month more
Returns for tax years beginning after 12/31/15
990
3 months
6 months
3 months more
Returns for tax years beginning after 12/31/15
© 2017 Bradley Burnett Tax
15
01/30/17
Late Filing Minimum Penalty Increase • §6051 Increase in Floor of Late Filing Minimum Penalty from $205 to $210 (or, if Less, the Amount of Tax Due) for Certain Returns More Than 60 Days Late (for returns required to be filed after 12/31/16) - For certain returns filed more than 60 days late, minimum penalty has increased (from $205 to) $210 or the amount of tax owed, whichever is smaller
- E.g., A 2016 Form 1040 is filed with IRS more than 60 days late with $112 income tax due. The late filing penalty will be $112. Total owed IRS = $224 (i.e., $112 + 112), plus late payment penalty (if any) and interest
© 2017 Bradley Burnett Tax
16
01/30/17
Late Filing Minimum Penalty Increase • §6051 Increase in floor of late filing minimum penalty from $205 to $210 (or, if less, amount of tax due) for > 60 days late (for 2016 returns and later) (i.e., returns originally due after 2016): 1. Form 990-T 2. Forms 1040, 1040A, 1040NR, 1040NR-EZ 3. Form 1041 4. Form 1120, 1120-H, 1120S
© 2017 Bradley Burnett Tax
17
01/30/17
3 Categories of Rich • Super Rich $415,050 / $466,950 (2016) - Highest brackets (39.6% OI and 20% LTCG) • Medium Rich $259,400 / $311,300 (2016) - Phase-out personal exemptions and itemized deductions • Poor Rich $200,000 / $250,000 (2016) - 3.8% NII tax
© 2017 Bradley Burnett Tax
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01/30/17
Capital Gains and Qualifying Dividends • 0%, 15%, 20% long term capital gain rates - 0% rate if in 15% OI bracket (up to $36,900 single, $73,800 MFJ) - 20% rate if in 39.6% OI bracket (> $415,050 single, >$466,950 MFJ) • Plus 3.8%, AMT, effective tax rate increases for phase-out of PEP (personal exemption) and PEASE (itemized deductions) = 30% rate • Gift appreciated stock to low income family © 2017 Bradley Burnett Tax
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01/30/17
Hillary Clinton
Bernie Sanders
Donald Trump
Presidential Candidates – Tax Proposals Extra Tax: Buffet Rule Over $1 mill pays 30% None Capital Gains Rates
Top rate 39.6% (20% 6 yr)
Top rate 39.6%
0%, 15% and 20%
Extra Tax: Fair Share Surcharge
Over $5 mill pays addtl 4%
Extra Tax: Wall Street
None
Transaction tax on stocks, bonds and derivatives
None
Ordinary Income Rates
Up to 39.6% (+ surtaxes)
Up to 52%
Up to 25%
NII (Net Invst Income) Tax
No change
Increase to 10%
No change
Broaden base (strip deductions)
Axe some deductions, limit some deducts to 28%
Limit some deductions to 28%, eliminate AMT
Axe some deductions, steepen PEP & Pease
Social Security Taxes
No change
Blow cap off wage base, add 3 new payroll taxes*
No change
Estate and Gift Taxes
$3.5 mill exemption, no indexing, top rate 45%, gift tax exemption $1 mill
$3.5 mill exemption, top rate 65%, eliminate discounting, hurt GRATs
Eliminate estate tax
Affordable Care Act
Expand Premium Tax Credit
20 *Add 2 new payroll taxes
Eliminate ACA
None
01/30/17
Tax Reform “The difference between death and taxes is death doesn’t get worse every time Congress meets.” Will Rogers
© 2017 Bradley Burnett Tax
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01/30/17
Post-Election Tax Proposals Democrat
Republican
Donald Trump
Corporate Tax Rate
Possibly agree to 20% cut if repatriation tax proceeds go to U.S. infrastructure improvements
Corp Repatriation Tax Rate
?
8.75% for cash; 3.75% for other 10%
Proceeds of repatriation tax
Fund U.S. infrastructure improvements
Offset broader corporate tax rate cuts
?
U.S. infrastructure improvements
Funded by Corp repatriation tax
?
$1 trillion infrastructure renewal plan w/ $137 billion tax credits for private investment in projects
Future of international Corp tax
?
Territorial system (tax only U.S. economic activity (no tax on overseas income) © 2017 Bradley Burnett Tax
15%
End deferral (companies m/ pay tax annually on all overseas earnings) 22 01/30/17
Post-Election Tax Proposals Democrat
Republican
Donald Trump
Pass-Through Tax Rate
?
25% after assigning some portion as compensation
15% for “small business”. “Large business” taxed as C Corp
AMT
?
Repeal, except for 90% limit on NOLs
Repeal
Business Incentives
?
Repeal all, except R&D credit Repeal all, except R&D credit
Depreciation
?
Full expensing
Expensing only for manufacturing only if company forgoes interest deductions*
Interest deduction
?
Limited to interest income, except for financing and leasing industries
* See depreciation immediately above
Affordable Care Act
Keep ACA
Axe ACA + ACA taxes
Axe ACA + ACA taxes
© 2017 Bradley Burnett Tax
23
01/30/17
Post-Election Tax Proposals Democrats
Republicans
Donald Trump
Ordinary Income Rates
Status quo (7 rates up to 39.6%)
12%, 25% and 33%
12%, 25% and 33%
Capital Gains Rates
?
Half excluded (thus, rates of 6%, 12.5% and 16.5%) (Interest income treated same)
Status quo (0%, 15% and 20%)
NII (Net Investment Income) Status quo (3.8% tax) Tax
Repeal
Repeal
Carried interest (portion of investment returns paid to fund managers)
?
? (Status quo is capital gains rate)
Ordinary income
Standard Deduction
Status quo (joint $12,300, single $6,300)
$24,000 joint, $18,000 single parents, $12,000 other singles
$30,000 joint, $15,000 single
Itemized Deductions
?
Keep only mortgage and Keep only mortgage & charitable. charitable deductions Cap at $200,000 married, $100,000 single © 2017 Bradley Burnett Tax 24 01/30/17
Social Security Wage Base • $118,500 for 2015 • $118,500 for 2016 (same as 2015)
• $127,200 for 2017
© 2017 Bradley Burnett Tax
25
01/30/17
Foreign Earned Income Exclusion / Housing • $100,800 in 2015 • $101,300 in 2016 • $102,100 in 2017 • Housing Exclusion – Ranges $16,128 (2015), $16,208 (2016), $16,336 (2017)
© 2017 Bradley Burnett Tax
26
01/30/17
Foreign Earned Income Exclusion • No §911 exclusion on delinquent return if IRS contacts taxpayer and raises issue first (Nancy McDonald, 2015-169 (08/25/15)) • §911 Income Earned by Bona Fide Resident in Foreign Country (23% of Total) Excluded – It’s Not Always an “All or Nothing” Gig (Wendell Wilson and Angelica M. Wilson, pro sese, v. Comm., TCS 2016-19 (04/25/16)) - 23% of mariner’s income earned in foreign ports - 77% in international water (not a foreign country) © 2017 Bradley Burnett Tax
27
01/30/17
Foreign Bank and Financial Accounts • FinCen Form 114 (FBAR) must be filed • Filed electronically • For 2015 FBAR, due by June 30, 2016 (no extensions) • For 2016 FBAR, due by April 18, 2017 (6 month extension possible) - Same applies to later years • If “signature authority” only, 2016 FBAR need not be filed until April 15, 2018
© 2017 Bradley Burnett Tax
28
01/30/17
FBAR Must Be Filed By • Persons with either: Ownership of or signature authority over foreign bank account - Authority over = ability to withdraw - Account(s) must exceed $10,000 U.S. on any one day • Use conversion rate as of last day of year
© 2017 Bradley Burnett Tax
29
01/30/17
Foreign Bank Account • Account physically located in England (though the bank is a U.S. bank) is a foreign account • Account physically located in Chicago, IL (though the bank is a Canadian bank) is NOT a foreign account • Key: At what location (branch) is the account is set up? If “signature card” outside of U.S. soil, it is a foreign account • Online gaming account is a foreign bank account if titled off of U.S. soil (Jon Hom, DC CA (06/04/14)) (but, in Jon Hom, 9th Cir. (07/26/16) appeal, only clearing account (like a Paypal account) is reportable bank account, not accounts merely holding gambling money)
© 2017 Bradley Burnett Tax
30
01/30/17
FBAR Reports “Financial Accounts” Financial accounts =
1. 2. 3. 4. 5. 6. 7.
Bank (e.g., savings and checking) accounts, time deposits Securities accounts (e.g., brokerage accts) Commodities future or options accounts Insurance policy with cash value Mutual funds or similar pooled funds Online poker accounts Any other accounts maintained in a foreign financial institution (or person providing services of fin institution)
© 2017 Bradley Burnett Tax
31
01/30/17
Polling Question #2 • Q: Are any foreign financial assets, beyond merely bank accounts, reportable on a FinCen 114 (FBAR)?
© 2017 Bradley Burnett Tax
32
01/30/17
Lookout, Lookout !! • Do not overlook: - Employee ability to sign on foreign business account Foreign retirement savings accounts - Inherited foreign accounts - Accounts owned by recent immigrants to U.S. - Investment account broker got client into - If in doubt, fill it out. If in doubt, send it out. On time!! © 2017 Bradley Burnett Tax
33
01/30/17
Federal Standard Mileage Rates 2015
2016
Medical / Moving 19¢ 17¢ Charitable 14¢ 14¢ Business 57.5¢ 54¢
2017 23¢ 14¢
53.5¢ © 2017 Bradley Burnett Tax
34
01/30/17
2017 Estate and Gift Tax Exclusion Amounts • Estate and Gift Tax Basic exclusion amount §2010 (Rev. Proc. 2016-55) - Basic exclusion amount for determining unified credit against estate tax = $5,490,000 (2017) $5,450,000 (2016)
• Annual gift tax exemption §2503 (Rev. Proc. 2016-55) - $14,000 (2017 remains same as 2016) of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year © 2017 Bradley Burnett Tax
35
01/30/17
Individual Retirement Accounts • Annual Contribution Limits to IRAs for 2016 and 2017 (IR 2016-141) - Traditional IRA and Roth IRA Contribution Limits $5,500 (for 2016 and 2017) - Traditional or Roth IRA Contribution Limit for age 50 or over $6,500 (for 2016 and 2017)
© 2017 Bradley Burnett Tax
36
01/30/17
Transfers from IRAs to Charities • IRA transfers to charity for 70 ½ or older (Made permanent) (Make sure receipts are properly worded) • Must be trustee transfer – Rollovers don’t cut it – Do not retrieve check from trustee and hand deliver it to charity • Substantiation – Separate receipt (contemporaneous acknowledgement) needed for: 1. Deductible donations; and 2. Transfers from charity © 2017 Bradley Burnett Tax
37
01/30/17
Consequences of IRA Prohibited Transaction • Plan ceases to be a plan as of 1st day of year in which prohibited transaction takes place • Excise tax triggered • Excise tax return (Form 5330) due • 6 year statute of limitations (for assessment) for not disclosing prohibited transaction on 1040 (Thiessen, 146 TC 7 (03/29/16))
- In Thiessen, IRA borrowed money from bank (not “in an of itself” a prohibited transaction) - Problem: IRA owner guaranteed loan to IRA by bank (guarantee is a prohibited transaction) © 2017 Bradley Burnett Tax
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01/30/17
Qualified Retirement Plans • Compensation Limit for 2016 (2017) - For 2016, the maximum compensation used for figuring contributions and benefits is $265,000 ($270,000 for 2017) • Defined contribution limit for 2016 (2017) - For 2016, the limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan is $53,000 ($54,000 for 2017) © 2017 Bradley Burnett Tax
39
01/30/17
Qualified Retirement Plans • Elective Deferral Limit for 2016 (2017) - For 2016, the limit on elective deferrals, other than catchup contributions, is $18,000 (unchanged for 2017) - These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), 403(b) plans and 457(b) plans
© 2017 Bradley Burnett Tax
40
01/30/17
Qualified Retirement Plans • Catch-up contribution limit for 2016 (2017) - A plan can permit participants who are age 50 or over at the end of the calendar year to make catch up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions - Catch up contribution limitation for a defined contribution plan other than a SIMPLE plan is $6,000 for 2016 (unchanged for 2017) - Catch up contribution limitation for SIMPLE plans is $3,000 for 2016 (unchanged for 2017) © 2017 Bradley Burnett Tax
41
01/30/17
PATH Act - Business Tax Provisions • §179 Expense Election (Rev. Proc. 201655) - Extended to 2015 and beyond and made permanent - Maximum §179 expense $500,000 for 2016 ($510,000 for 2017) - Start of phase out $2,000,000 for 2016 ($2,030,000 for 2017) © 2017 Bradley Burnett Tax
42
01/30/17
PATH Act - Business Tax Provisions • §179 and 15-year life for real estate (Made permanent) • §179 for Real Estate - $250,000 in 2015, increases to $500,000 (inflation adjusted) for 2016 and beyond • HVAC units qualify as §179 property (2016 and beyond) • Real estate sourced §179 recapture is ordinary income © 2017 Bradley Burnett Tax
43
01/30/17
PATH Act - Business Tax Provisions • •
15 Year Life for Real Estate Applies to: Qualified leasehold improvements; Qualified restaurant buildings; and Qualified retail improvements Effect of Extender Bill: 15 year life (2015 and later) (permanent) did not revert to 39year life. Bonus depreciation still available on first half unless elect out. © 2017 Bradley Burnett Tax
44
01/30/17
PATH Act - Business Tax Provisions §168(k) Bonus Depreciation 2012-17 2020 & beyond
50%
2018
2019
40%
30%
0%
© 2017 Bradley Burnett Tax
45
01/30/17
Cost Recovery of Real Estate – 3 Baskets • Three general baskets of cost recovery for real estate: 1. 27.5 year (residential real estate) 2. 15 year (improvements (after 3 years) to qualified restaurant, retail or leasehold property) 3. 39 year (commercial property) (leftover basket) © 2017 Bradley Burnett Tax
46
01/30/17
PATH Act – Expansion of Bonus Property • Bonus depreciation - PATH Act added (effective 2016 and later) ability to take bonus depreciation on 39-year qualified improvement property 1. Need not be leasehold improvement 2. Need not be property more than 3 years old 3. Must be property previously placed in service 4. Must be non-residential, non-exterior, nonstructural non-expansion, non-elevator and nonescalator
© 2017 Bradley Burnett Tax
47
01/30/17
2016 Depreciation Limits for Luxury Auto • Lesser of $3,160 or 20% of basis * * Plus $8,000 bonus depreciation ($6,400 in 2018, $4,800 in 2019, $0 thereafter) • Bonus depreciation only available if vehicle is new • If not 100% business use, above amounts are reduced © 2017 Bradley Burnett Tax
48
01/30/17
W-2 and 1099-MISC Due Dates • Change to Due Date of Forms W-2s and 1099MISC for 2016 Year (Filed in 2017) – All Forms Due by January 31 No Matter What - Effective for forms filed on or after January 1, 2017, Forms W–2 and Forms 1099-MISC for non-employee compensation must be filed by January 31 - Must be filed by January 31 EVEN IF FILED ELECTRONICALLY - Bye bye to February 28 and March 31 © 2017 Bradley Burnett Tax
49
01/30/17
2015 Trade Package Legislation • Delinquent information reporting penalties dramatically increase (effective for info returns filed after 2015) • Applies to Forms 1099, W-2, 1095 (Health Care Reporting), etc. • Example of penalty: $530 (twice) for intentional disregard of requirement to file each Form 1099 ($530 x 2 = $1,000 for each delinquent 1099) • If in doubt, fill it out. If in doubt, send it out. ON TIME !! © 2017 Bradley Burnett Tax
50
01/30/17
Increased Delinquent Info Return Penalty §6721 Penalty
Before 2016
Fixed w/in 30 days Fixed > 30 days, but < Aug 1 Fixed Aug 1 or later Intentional disregard
$30 $60 $100 $250
After 2015 $50 $100 $250 $530
• Penalty may be applied twice (doubled) if return not supplied both to payee and government
© 2017 Bradley Burnett Tax
51
01/30/17
Bipartisan Budget Act of 2015 • Huge change to how IRS audits partnerships (any entity filing Form 1065, including LLCs taxed as partnerships) • Effective 2018, new rules replace current TEFRA rules • These new rules allow IRS to audit partnerships at the entity level and assess and collect taxes against the partnership, UNLESS partnership elects out of new regime • Impacts the formation and operations of partnerships, disposition of partnership interests and admission of new partners • Huge planning issue requiring relatively prompt attention for both new and existing partnerships © 2017 Bradley Burnett Tax
52
01/30/17
Centralized Partnership Audits • Annual Election Out Of New Rules (§6221) - Pshps w/ 100 or fewer partners* can opt out, if all partners are: - Individuals - C Corps - Foreign Corps Estates - S Corps (each shareholder counts as a partner*) - Pshps cannot elect out if have partner which is: - Partnership - Trust - SMLLC (not sure yet until final regs) - Grantor trusts (not sure yet until final regs) © 2017 Bradley Burnett Tax
53
01/30/17
Centralized Partnership Audits • If do not elect out of new rules, two choices: 1. Accept IRS’ partnership level imputed underpayment (§6225) - Avoid this like the plague 2. Elect to push up (push out) the adjustment to partners (§6226) - Do this © 2017 Bradley Burnett Tax
54
01/30/17
Centralized Partnership Audits • Imputed underpayment rule: - IRS nets all at partnership level, applies highest tax rate 39.6% - Partnership has burden of proving lower rate more appropriate - No adjustments to partner’s outside basis - Result = Double tax. NASTY!!
© 2017 Bradley Burnett Tax
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01/30/17
Centralized Partnership Audits • Push Up (Push Out) Election - Elected within 45 days of notice of final partnership adjustment - Partnership issues adjusted Form K- 1” for the “adjustment year” to each partner of the partnership for the reviewed year - Partner gets basis step up for income (avoids double tax) - Partner, not partnership, liable for tax if elected - Partner pays tax, penalty and interest (at 2% higher than normal IRS interest rate) © 2017 Bradley Burnett Tax
56
01/30/17
Centralized Partnership Audits • Huge change to how IRS audits partnerships (and LLCs) • Effective 2018, new rules replace current TEFRA rules • These new rules allow IRS to audit partnerships at the entity level and assess and collect taxes against the partnership, UNLESS partnership elects out of new regime • Impacts the formation and operations of partnerships, disposition of partnership interests and admission of new partners • Huge planning issue requiring relatively prompt attention for both new and existing partnerships (and LLCs taxed as partnerships) © 2017 Bradley Burnett Tax
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01/30/17
Polling Question #3 • Q: Is it advisable for a partnership (or LLC taxed as a partnership) to take a siesta and ignore the new Centralized Partnership Audit Rules which are coming like a freight train and effective in 2018?
© 2017 Bradley Burnett Tax
58
01/30/17
PAL Material Participation With Less Than Stellar Time Records 1. 500 hours (Stephan Tolin (TCM 2014-65)) 2. Do substantially all the work (Michel Moreno (DC LA 05/19/14)) 3. >100 hours and no one else does more (Larry Kline TCM 2015-144)) 4. SPA (significant participation activity = at least 100 hours in each, combined exceeds 500 hours) (Jose Lamas (TCM 2015-59)) 5. Real estate professional (> ½ of time, 750 hours) with less than perfect records (Joseph D. and Darcy C. Moon v. Comm., TCS 2016-23 (05/23/16)) © 2017 Bradley Burnett Tax
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01/30/17
Passive Activity Loss - Proving Material Participation • • • • • •
Cell phone (billing statement) call records Emails Travel itineraries and receipts Credit card charges Affidavits from customers Other documentary evidence
© 2017 Bradley Burnett Tax
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01/30/17
Polling Question #4 • Q: Is the following statement true or false? Cell phone call records (billing statements and usage logs) could never in a hundred years help prove material participation for passive activity loss purposes
© 2017 Bradley Burnett Tax
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01/30/17
PAL Real Estate Professional - Case of Century • Ohio Woman Granted PAL Real Estate Professional Relief (Beth M. Hailstock, TCM 2016-146 (08/08/16)) – Though no §469(c)(7) election and no aggregation election made – Pathetic and missing financial records did not even trip her up – No time records kept – On strength of her “no outside employment” and credible testimony, court awards “Facts and Circumstances” material participation – Does arguing this case make us penalty free when we sign a tax return with a less than perfect underlying fact pattern?
© 2017 Bradley Burnett Tax
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01/30/17
FAST ACT (To Pay for Highways) • Passport will be revoked (or not issued) if taxpayer: Owes to IRS $50,000 or more in tax, penalty, interest, etc.; and - Not under installment agreement • IRS to hire many new, aggressive outside (and inside) tax debt collectors • Moral of the story: Get an IRS installment agreement and keep it © 2017 Bradley Burnett Tax
63
01/30/17
User Fee Increase for Installment Agreements • User fee increases to $120 for an installment agreement • Reduced to $52 for a direct debit installment agreement (an agreement whereby the taxpayer authorizes IRS to request monthly electronic transfer of funds from taxpayer's bank account to IRS) • $43 notwithstanding the method of payment if lowincome taxpayer Preamble to Prop Reg (08/19/2016); Prop Reg §300.1, Prop Reg §300.2; IR 2016-108 © 2017 Bradley Burnett Tax
64
01/30/17
Innocent Spouse Relief • §6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties – His Late Wife Failed to Mail Return to IRS Three Years Before and He Didn’t Know It (Joseph Patrick Boyle, pro se, v. Comm., TCM 2016-87 (05/02/16)) - He gets off hook for penalties on his own tax!! - Tax Court overturns two IRS principles re: equitable relief in Rev. Proc. 2013-34 © 2017 Bradley Burnett Tax
65
01/30/17
Private Delivery Services • IRS Notice 2016-30 updates list of approved Private Delivery Services which satisfy “date of mailing = date of filing” rule • FedEx and UPS stay, DHL added • FedEx Ground and UPS Ground conspicuously absent from list • Better get electronic receipt to prove date of “mailing” • By comparison, U.S. Certified Mail still works (extremely well) to satisfy “date of mailing = date of filing” rule • §§6213(a), 7502 Utilizing UPS Ground (vs. an Approved Faster UPS Service) Costs Michigan Man $41,000 in Taxes – No Tax Court Jurisdiction Where Petition, Though UPS’d on 90th Day, Received After 90th Day – Saving $12.30 Cost Him $41,000 – Ouch (Eric Lamart Sanders, pro se, v. Comm., TCS 2014-47 (05/12/14))
© 2017 Bradley Burnett Tax
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01/30/17
Bradley Burnett Tax Seminars, Ltd. • Live seminars and webinars available - Tax Update Seminars - Specialty topics available: Tax Reform, Corporation and Partnership Tax Planning Update, FBAR/Form 8938, IRAs, Self Directed IRAs - In-house customized programs available • E-Books coming soon!!
• Visit our website: www.BradleyBurnettTaxSeminars.com • Email: [email protected]
© 2017 Bradley Burnett Tax
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01/30/17
