A New Filing Season = A New Tax Lawkapmarketing.net/.../Lunch-And-Learn/2016-17/WORKBOOK1.pdf ·...

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ADP Lunch & Learn Course Materials A New Filing Season = A New Tax Law NASBA INFORMATION SmartPros Ltd. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org. ADP has partnered with SmartPros (a Kaplan Company) to provide this program and SmartPros has prepared the material within. www.smartpros.com 0716A

Transcript of A New Filing Season = A New Tax Lawkapmarketing.net/.../Lunch-And-Learn/2016-17/WORKBOOK1.pdf ·...

  • ADP Lunch & Learn

    Course Materials

    A New Filing Season = A New Tax Law

    NASBA INFORMATION

    SmartPros Ltd. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor

    of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy

    have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered

    sponsors may be submitted to the National Registry of CPE Sponsors through its website:

    www.learningmarket.org.

    ADP has partnered with SmartPros (a Kaplan Company) to provide

    this program and SmartPros has prepared the

    material within. www.smartpros.com

    0716A

    http://www.learningmarket.org/

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    1. A New Filing Season = A New Tax Law

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    LearningObjectives:

    SegmentOverview:

    Field of Study:

    RecommendedAccreditation:

    RequiredReading(Self-Study):

    Running Time:

    VideoTranscript:

    Course Level:

    CoursePrerequisites:

    Advance Preparation:

    Expiration Date:

    Taxes

    August 31, 2017

    Work experience in tax planning or tax compliance, or an introductory course in taxation

    None

    1 hour group live2 hours self-study

    Update

    “Year-End Tax Law: What You Need to Know”By Barbara WeltmanFor additional info, go to: www.barbaraweltman.com

    See page 1–12.

    See page 1–19.

    32 minutes

    Just before recessing for the year-end, Congress provided awelcome Christmas present to taxpayers, with a surprisingminimum of disruption for tax preparers. Besides extendingmore than fifty tax “breaks” for your clients’ use in 2015, thePATH Act – as expert commentator Barbara Weltman explains– has also made many of the more extensive incentivespermanent parts of the tax code.

    Upon successful completion of this segment, you should be able to:● Recognize why some employers may need to recompute 2015

    payroll taxes based on enhanced transportation fringe benefits;● Determine what impact the Work Opportunity Tax Credit will

    have on employers this year;● Distinguish between the immediate write-off of bonus

    depreciation property and the 15-year recovery of qualifiedimprovement property;

    ● Identify the latest penalties that relate to information reporting.

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    A. Year-End Tax Legislation: P.L. 114-113

    1. Extends more than 50 tax breaks

    a. For use on 2015 returns

    2. Makes many temporary provisionspermanent

    a. With favorable revisions

    B. Most 2014 Rules Are Unchanged for2015 Returns

    1. Exclusion for forgiveness of homemortgage indebtedness

    2. Treatment of mortgage insurancepremiums as interest

    3. Itemization of state/local sales taxesinstead of income taxes

    “Many of the rules – or most of therules – that applied for 2014 aregoing to apply again for 2015returns.”

    - Barbara Weltman

    I. Protecting Americans from Tax Hikes (PATH) Act

    A. Now Permanent: Tax-Free IRADistributions

    1. Individuals who are older than 70-1/2 years old

    2. Up to $100,000/year to publiccharities

    B. Qualified Distributions from IRA toCharity

    1. Funds are excluded from grossincome

    2. Transfer can satisfy RMDrequirements

    3. Will also lessen state AGI

    4. Will decrease Medicare premiums

    C. American Opportunity Tax (f/k/a“Hope”) Credit

    1. Good news

    a. Now permanent

    2. Bad news for 2016

    b. Due diligence requirement fortax preparers

    D. $250 Above-the-Line Deduction forElementary & Secondary Educators

    1. Now permanent

    2. Beginning in 2016

    a. Will be indexed for inflation

    b. Can be used for professionaldevelopment expenses

    E. Other PATH Provisions for Individuals

    1. Withdrawals forcomputers/technology are qualifiedexpenses

    a. For 529 plans

    2. Transfers from 529 plans to ABLEaccounts

    a. Up to $14,000 in 2016

    II. IRA Transfers and Individual Tax Incentives

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    A. Nonbusiness Energy Property

    1. $500 lifetime credit

    2. Extended for 2015 and 2016

    B. Standard Mileage Rates for 2016

    1. Business miles: 54¢

    a. Down from 57.5¢

    2. Medical/moving: 19¢

    a. Down from 23¢

    3. No change for

    a. Driving for charitable purposes

    b. Deemed depreciation rate

    C. Fixed and Variable Rate (FAVR)Allowance

    1. Standard mileage rate is deemedsubstantiation

    a. For reimbursements toemployees

    b. When driving personal vehicleson company business

    D. Permanent Parity for TransportationFringe Benefits

    1. Maximum monthly exclusionamount for

    a. Transit passes

    b. Van pool benefits

    2. May require revision of 2015payroll taxes

    III. Energy and Transportation

    A. R&D Tax Credit

    1. Is permanently extended

    2. Qualified small businesses can useresearch credit

    a. Against payroll tax liability

    b. Beginning in 2016

    c. Up to $250,000

    B. Work Opportunity Tax Credit (WOTC)

    1. Extended through 2019 foremployers

    a. Who file IRS Form 8850

    b. After hiring workers fromtargeted groups

    2. It’s Not Too Late for 2015 Hires

    a. IRS to issue Rev. Proc. withinstructions

    3. New targeted group: thoseunemployed for 27 weeks

    a. From 2016-2019

    IV. Extension and Modification of Business Tax Credits

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    A. Extension, but Phasedown, of BonusDepreciation

    1. 50%, for property placed in servicein

    a. 2015

    b. 2016

    c. 2017

    2. 40%, for new property in 2018

    3. 30%, for new property in 2019

    B. Bonus Depreciation Will Continue toApply to New

    1. Tangible property

    a. With 20-year-or-less recoveryperiod

    2. Off-the-shelf software

    3. Qualified improvement property

    a. Leasehold

    b. Restaurant

    c. Retail

    C. Good News for Sec. 179 DeductionElection

    1. Permanent extension with inflationindexing

    a. Limitation: $500,000

    b. Phase-out: $2 million

    2. Now eligible for Sec. 179

    a. Air conditioning

    b. Heating units

    D. Qualified Improvement Property NowPermanently

    1. Eligible for 15-year straight-line costrecovery

    2. Not subject to $250,000 “cap” forSec. 179 deduction

    V. Business Depreciation Provisions

    A. Under Affordable Care Act, ApplicableLarge Employers Must Provide

    1. IRS Form 1095-C

    a. To each full-time employee

    b. Now by 3/31/2016

    i. Postponed from 2/1/2016

    2. IRS Form 1094-C

    a. To IRS

    b. Now by 5/31/2016i. Or electronically by 6/30/2016

    B. IRS and Information Returns1. Delayed issuance of Form 1095-C to

    employees this yeara. Will not postpone filing of

    personal tax returns2. Next year, employers must provide

    IRSa. With W-2 and 1099-MISC formsb. At same time as to employees and

    workers3. In assessing penalties on incorrect

    and delinquent returns, IRSa. Will consider employers’

    reasonable stepsb. Will overlook de minimis

    amounts

    C. PATH Act Delays Imposition of ExciseTaxes on

    1. Medical devices

    2. “Cadillac” high-cost health plans

    “Some of the provisions were onlyextended through 2016. So, … whenwe say ‘permanent,’ we have tohedge our bets here.”

    - Barbara Weltman

    VI. Information Reporting Rules

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    A. Permanent Small Business Tax Breaks

    1. 100% exclusion of gain on Sec.1202 small business stock

    2. 5-year recognition period for Scorp. built-in gains tax

    3. Basis adjustment on S corp. stockafter charitable donation

    B. Surface Transportation ImprovementAct, P.L. 114-41

    1. Mortgage interest reporting onForm 1098

    2. Estate basis reporting for incometax purposes

    C. Under FAST Act, P.L. 114-94,Seriously Delinquent Taxpayers

    1. Will not be able to get or maintaina U.S. passport

    2. Will be subject to private debtcollection efforts

    D. Qualified Plans after Windsor Decision

    1. IRS Notice 2015-86: Q&A forsame-sex marriages

    2. Early application before 6/26/2013is permitted

    3. Plans may need to be amended

    a. Based on state definitions of“spouse”

    E. Purchasing a Website or DomainName: IRS CCA 201543014

    1. Can be treated as intangible asset

    a. Can be amortized over 15 years

    2. Whether it is a

    a. Generic trade name

    b. Non-generic trade name

    VII. Other Notable Changes

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    1. A New Filing Season = A New Tax Law

    ● As the Discussion Leader, you shouldintroduce this video segment with wordssimilar to the following:

    “In this segment, Barbara Weltmanexplains how the PATH Act extendsmore than fifty tax "breaks" for yourclients’ use in 2015 and has also mademany of the more extensive incentivespermanent parts of the tax code “

    ● Show Segment 1. The transcript of thisvideo starts on page 1–19 of this guide.

    ● After playing the video, use thequestions provided or ones you havedeveloped to generate discussion. The answers to our discussion questions are on pages 1–8 and 1–9 . Additionalobjective questions are on pages 1–10and 1–11.

    ● After the discussion, complete theevaluation form on page A–1.

    1. Which is the likely impact of the PATHAct on your clients’ 2015 tax returns?On your upcoming tax preparation“season”? To what extent were thesechanges anticipated?

    2. To what extent do your clients benefitfrom “qualified research expenses”? Towhat extent will your current orpotential clients be interested in the newsmall business incentives for theresearch credit?

    3. With a 5% unemployment rate, why hasCongress extended the WorkOpportunity Tax Credit for another fouryears? To what extent do your clientsqualify for, and benefit from, theWOTC?

    4. What benefits does bonus depreciationprovide to a “recovering” economy? Towhat extent do your clients takeadvantage of the bonus depreciationdeduction?

    5. Barbara Weltman focuses on thechanges in a number of informationreporting requirements, from W-2 and1099 forms to Affordable Care Act toqualified plans. Why does thegovernment emphasize the need fortimely and accurate informationreporting? Who is responsible for yourclients’ information reporting to IRSand others?

    Discussion Questions

    You may want to assign these discussion questions to individual participants before viewingthe video segment.

    Instructions for Segment

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    6. Many taxpayer groups, as well as manycongressmen, were pleased by the factthat qualified charitable distributionsfrom IRA accounts are now a permanenttax code provision. What are the mainadvantages of making a charitablecontribution directly from an IRAaccount? To what extent do your clientsuse this incentive? Are more likely toconsider it in the future?

    7. On last month’s program, BarbaraWeltman highlighted the inflationadjustments made to tax items. On thismonth’s program, she reviews the latestchanges to the extender provisions.How comfortable are you with yourpreparation for this filing season? Whatchanges in tax law and practice arelikely to cause the most concern foryour clients and for your practice?

    Discussion Questions (continued)

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    1. Which is the likely impact of the PATHAct on your clients’ 2015 tax returns? Onyour upcoming tax preparation “season”?To what extent were these changesanticipated?● Barbara Weltman suggests that the

    impact of the new law on 2015 taxreturns is likely to be minimal, andthe impact on preparers is likely to bebeneficial, based on the fact that theprovisions essentially rely on the taxprovisions that were in effect in 2014.

    ● Participant response based on theorganization and structure of yourpractice, and on the activities of yourclients, as well as on your perspectiveand experience.

    2. To what extent do your clients benefitfrom “qualified research expenses”? Towhat extent will your current or potentialclients be interested in the new smallbusiness incentives for the researchcredit?● Participant response based on the

    organization and structure of yourpractice, on the industry and activitiesof your clients, as well as on yourperspective and experience.

    3. With a 5% unemployment rate, why hasCongress extended the Work OpportunityTax Credit for another four years? Towhat extent do your clients qualify for,and benefit from, the WOTC?● While unemployment has declined,

    Congress believes that the WorkOpportunity Tax Credit will be anincentive for employers to providefull-time employment opportunitiesfor those who are often the “last-to-be-hired,” including veterans and thelong-term unemployed.

    ● Participant response based on theorganization and structure of yourpractice, on the industry and activitiesof your clients, as well as on yourperspective and experience.

    4. What benefits does bonus depreciationprovide to a “recovering” economy? Towhat extent do your clients takeadvantage of the bonus depreciationdeduction?● Bonus depreciation is designed to

    spur the economy by providing anincentive for businesses of all sizes topurchase new property and to place itinto service.

    ● Participant response based on theorganization and structure of yourpractice, on the industry and activitiesof your clients, as well as on yourperspective and experience.

    5. Barbara Weltman focuses on the changesin a number of information reportingrequirements, from W-2 and 1099 formsto Affordable Care Act to qualified plans.Why does the government emphasize theneed for timely and accurate informationreporting? Who is responsible for yourclients’ information reporting to IRS andothers?● In recent years, the IRS has required

    additional information reporting frombusinesses as a way to “cross-check”the accurate reporting of items ofincome and deduction by customersand employees. These new rules havealso led to increased IRS auditactivity, resulting in increasedrevenue to the government.

    ● Participant response based on theorganization and structure of yourpractice, on the industry and activitiesof your clients, as well as on yourperspective and experience.

    Suggested Answers to Discussion Questions

    1. A New Filing Season = A New Tax Law

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    6. Many taxpayer groups, as well as manycongressmen, were pleased by the factthat qualified charitable distributionsfrom IRA accounts are now a permanenttax code provision. What are the mainadvantages of making a charitablecontribution directly from an IRAaccount? To what extent do your clientsuse this incentive? Are more likely toconsider it in the future?● Among the attractions of qualified

    charitable distributions for those overage 70-1/2 are: the funds areexcluded from gross income; thetransfer can satisfy RMDrequirements; and the distributionwill lessen state AGI as well asMedicare premiums.

    ● Participant response based on theorganization and structure of yourpractice, on the income andgenerosity of your clients, as well ason your perspective and experience.

    7. On last month’s program, BarbaraWeltman highlighted the inflationadjustments made to tax items. On thismonth’s program, she reviews the latestchanges to the extender provisions. Howcomfortable are you with yourpreparation for this filing season? Whatchanges in tax law and practice arelikely to cause the most concern foryour clients and for your practice?● Participant response based on your

    capabilities and practice structure,your clients and their needs, as wellas on your perspective andexperience.

    Suggested Answers to Discussion Questions (continued

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    1. Under the PATH Act individuals canmake charitable contributions from their401ks and/or IRAs:

    a) and such contributions will have adirect effect on their AGI.

    b) by having the checks mailed tothemselves and then paying thecharity.

    c) starting at age 591/2.

    d) but the contributions will be includedin their gross income.

    2. The new rules applicable to 529 plansallow for ________ withdrawals to bemade starting in_______.

    a) up to $10,000 in; 2014

    b) unlimited; 2015

    c) up to $14,000 in; 2015

    d) unlimited; 2016

    3. The 2016 business rate for tax purposesis:

    a) 14 cents per mile.

    b) 19 cents per mile.

    c) 54 cents per mile.

    d) 57.5 cents per mile.

    4. The 2016 tax credit for energyimprovements:

    a) has been eliminated.

    b) has increased.

    c) was extended indefinitely.

    d) is allowed to be taken only once in alifetime.

    5. As a result of the provisions of the PATHAct, the Work Opportunity Tax Credit:

    a) creates a new category of individualsconsidered long term unemployed.

    b) is a non-permanent part of the Codeuntil revised by Congress.

    c) will apply to all individualsunemployed more than 27 weeks.

    d) applies to hiring of any and allveterans.

    6. As a result of the changes to thedepreciation provisions governingqualified improvement property:

    a) the recovery period for such propertyremains temporary.

    b) the Section 179 expense deduction hasincreased to $500,000.

    c) the cap on the Section 179 expensededuction has been eliminated.

    d) the Section 179 expense deduction iscapped at $250,000.

    7. With respect to penalties related toinformation reporting:

    a) taxpayers will have to file amendedreturns for even de minimis errors.

    b) the IRS will consider steps taken byemployers to prepare for issuinginformation returns when they aredeciding whether to abate penalties.

    c) de minimis errors are defined as errorsof $500 or less.

    d) none of the above

    8. For 2015 the Section 179 expensededuction limitation and phase-outamounts are scheduled to be______and______respectively.

    a) $25,000; $200,000

    b) $25,000; $2 million

    c) $250,000; $500,000

    d) $250,000; $2 million

    You may want to use these objective questions to test knowledge and/or to generate furtherdiscussion; these questions are only for group live purposes. Most of these questions are basedon the video segment; a few may be based on the required reading for self-study that starts onpage 1–12.

    Objective Questions

    1. A New Filing Season = A New Tax Law

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    9. Which of the following is a correctstatement regarding the accountingtreatment for changes in the tax lawregarding the R&D credit?

    a) Companies that receive the permanentextension of the research creditduring an interim period shouldaccount for adjustments to deferredtax assets and liabilities discretely incontinuing operations at the date ofenactment.

    b) The financial accounting treatmentrequires that the effect of tax lawchanges be recognized in the periodof enactment and be recorded as anon-recurring item.

    c) Companies should reflect theprospective effects of a change in taxlaw or rates on tax expense in theyear following enactment.

    d) Companies should account for theeffects of a retroactive change in taxrates discretely in non-recurringoperations in the period after the lawis enacted.

    10. Which of the following items ispermanently excluded from grossincome as a result of the PATH Act?

    a) mortgage insurance premiums paid

    b) qualified dividends received

    c) interest income on corporate bonds

    d) discharge of qualified principalindebtedness

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    By Barbara WeltmanFor additional info, go to:www.barbaraweltman.com

    On December 18, 2015, the ProtectingAmericans from Tax Hikes (PATH) Actwas signed into law as Public Law 114-34.The PATH Act permanently extends manytax provisions that previously had been upfor renewal for one or two years at a time.

    The uncertainty each year for individualsand businesses alike as to whetherCongress would revive expired taxprovisions that taxpayers had come to relyon led to problems in estimating taxes due,made business investment decisions moredifficult, and delayed the release of taxforms. Some years even saw extensionlegislation passed for years that had alreadyended.

    In addition to permanently extendingnumerous tax breaks, the law temporarilyextends dozens of others for periodsranging from two to five years. The lawalso contains various other tax provisions,including a few new tax breaks and a delay

    in the start of the “Cadillac Tax” on high-cost employer sponsored health insurancefrom 2018 to 2020.

    Business Tax Provisions1) Permanent extension of code sec. 179expensing and modification of amountseligible for expensing: One of the biggestwins for businesses is the permanentextension of the increased small businessCode Sec. 179 expensing limitation andphase-out amounts in effect from 2010 to2014 of $500,000 and $2 million,respectively. Both the $500,000 and $2million limits are indexed for inflationbeginning in 2016. For 2015, the limitationand phase-out amounts were slated to be$25,000 and $200,000, respectively.

    The special rules that allow expensing forcomputer software and qualified realproperty (qualified leasehold improvementproperty, qualified restaurant property, andqualified retail improvement property) alsoare permanently extended.

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    Self-Study Option

    Required Reading (Self-Study)

    1. Viewing the video (approximately30–35 minutes). The transcript of thisvideo starts on page 1–19 of this guide.

    2. Completing the Required Reading (approximately 25–30 minutes). TheRequired Reading for this segmentstarts below.

    3. Completing the online steps (approximately 35–45 minutes). Pleasesee pages iii to v at the beginning ofthis guide for instructions oncompleting these steps.

    When taking a CPA Report segment on a self-study basis, an individual earns CPE credit bydoing the following:

    Instructions for Segment

    YEAR-END TAX LAW: WHAT YOU NEED TO KNOW

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    The law modifies the expensing limitationby treating air conditioning and heatingunits placed in service in tax yearsbeginning after 2015 as eligible forexpensing. The provision further modifiesthe expensing limitation with respect toqualified real property by eliminating the$250,000 cap beginning in 2016.

    2) Temporary extension and modificationof bonus depreciation: The law extendsbonus depreciation for property acquiredand placed in service during 2015 through2019 (with an additional year for certainproperty with a longer production period).The bonus depreciation percentage is 50percent for property placed in serviceduring 2015, 2016, and 2017, and phasesdown with 40 percent in 2018, and 30percent in 2019.

    The law continues to allow taxpayers toelect to accelerate the use of AMT creditsin lieu of bonus depreciation under specialrules for property placed in service during2015. The law modifies the AMT rulesbeginning in 2016 by increasing theamount of unused AMT credits that may beclaimed in lieu of bonus depreciation. Thelaw also modifies bonus depreciation toinclude qualified improvement propertyand to permit certain trees, vines, andplants bearing fruit or nuts to be eligible forbonus depreciation when planted orgrafted, rather than when placed in service.

    3) Permanent extension of research anddevelopment credit and eligibility of smallbusinesses to claim the credit against AMT:Another big win for businesses is makingthe Section 41 research credit – which hadexpired on December 31, 2014 – apermanent provision of the InternalRevenue Code. In addition, the new lawalso extends the credit retroactively toJanuary 1, 2015.

    In addition, for tax years beginning afterDecember 31, 2015, “eligible smallbusinesses” (those with average annualgross receipts of $50 million or less for thethree preceding tax years) may claim thecredit against their alternative minimum tax(AMT) liability. More importantly,“qualified small businesses” (those withgross receipts of less than $5 million forthe current tax year) – including start-up

    companies – may start to claim the researchcredit against their payroll tax liabilities, upto $250,000 per year for a maximum offive tax years.

    The credit, as permanently extended,retains both the regular credit and thealternative simplified credit (ASC) options.Therefore, taxpayers will continue to havethe opportunity to compare the twomethods and choose the more favorable bymaking an annual election on a timely filedreturn. (Taxpayers that have not claimed aregular credit in a prior year may continueto make the election on a timely filedamended return for such prior year.)

    Essentially, making the credit permanentoffers two additional important benefits tobusinesses:

    A) A permanent credit allows taxpayerswhose tax profiles fluctuate from year toyear to better plan their projections by, forexample, making the Section 280C electionto reduce the research credit, or focusingon foreign tax credits that may be expiringand appropriately addressing the complextax credit ordering rules.

    B) Making the credit permanent not onlyhelps taxpayers better plan their domesticR&D spending, thus creating jobs in theUnited States, it also allows for better taxplanning. As businesses increase their R&Dspending, they increase their Section 174deductions, creating tax-planningopportunities associated with deferralelections or accelerated deductions. Thefinal Section 174 regulations, published in2014, clarify that the results of the researchare irrelevant in determining Section 174eligibility and provide an expansive pilotmodel definition that benefits taxpayersdeveloping assets for sale or use in theirown trades or businesses.

    Note: The new law does not change thecurrent one-year carryback or 20-yearcarryforward for unused research credits.

    Under ASC 740, the financial accountingtreatment requires that the effect of tax lawchanges be recognized in the period ofenactment and be recorded to continuingoperations. Thus, companies withDecember 31 financial reporting year-ends

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    should account for any tax effects of the2015 permanent extension of the researchcredit as part of the fourth-quarter and year-end provision. Companies for which thepermanent extension of the research creditoccurs during an interim period shouldaccount for adjustments to deferred taxassets and liabilities as a result of a changein tax law or rates discretely in continuingoperations at the date of enactment.Similarly, companies should account for theeffects of a retroactive change in tax ratesdiscretely in continuing operations in theinterim period in which the law is enacted.However, companies should reflect theprospective effects of a change in tax lawor rates on tax expense in the year ofenactment in the estimated annual effectivetax rate calculation.

    Enactment of a permanent research creditrepresents an important step in the U.S.improving its currently poor rankingregarding tax incentives for research anddevelopment (R&D). It is also the latestdevelopment indicating strong support inthe congressional and executive branchesfor policies that encourage investment inUS R&D activities. That trend may beexpected to continue in 2016 as Congressconsiders proposals for so-called‘innovation boxes’ that would bring US taxrules regarding R&D more in line withthose of many major competitors, whichalready provide reduced corporate tax rateson income from domestically createdpatents and other intellectual property.

    House Ways and Means CommitteeChairman Kevin Brady (R-TX) hasindicated that passage of the PATH Actcould provide an opening to focus oninternational tax reform. Companies whosespending on innovation and R&D hasresulted in profitable intellectual propertymay be interested in U.S. “innovation box”proposals, such as the InnovationPromotion Act of 2015, a discussion draftof which was released by Ways and MeansCommittee members Charles Boustany (R-LA) and Richard Neal (D-MA) on July 29.For example, the Boustany-Neal proposalwould allow a deduction resulting in aneffective tax rates on “innovation box”profits of approximately 10 percent.Although there is some industry opposition

    to their proposal, it is viewed by others asproviding a foundation for adjusting theapproach for future tax reform.

    4) Temporary extension and expansion ofthe Work Opportunity Tax Credit (WOTC):The WOTC, contained in section 142 of thetax code, is a tax incentive programdesigned to encourage employers to hireand retain individuals from specific targetgroups with employment barriers. Thecredit applies to businesses that hiremembers of these targeted groups fromDecember 31, 2014 through December 31,2019.

    The WOTC is a federal income tax creditranging between $2,400 and $9,600 foreach qualified newly hired employee whofalls into one of nine targeted groups. Thesegroups include: qualified veterans;members of families receiving benefitsunder the Temporary Assistance to NeedyFamilies program; designated communityresidents; vocational rehabilitation referrals;qualified ex-felons; qualified summer youthemployees; qualified food and nutritionrecipients; qualified Supplemental SecurityIncome recipients; and long-term familyassistance recipients.

    The new law also modifies the WOTC tomake it available to businesses that hire“qualified long-term unemploymentrecipients” who begin work for anemployer after December 31, 2015. Theterm, “qualified long-term unemploymentrecipient” is defined as “any individual whois certified by the designated local agencyas being in a period of unemploymentwhich: (A) is not less than 27 consecutiveweeks; and (B) includes a period in whichthe individual was receiving unemploymentcompensation under State or Federal law.”Adding this new category increases thepotential for a greater number of applicantsto qualify under the WOTC program.

    Those employers that collected thisinformation throughout 2015 in anticipationof the extension will likely be able to usethat information to claim the creditretroactively, if the IRS and Department ofLabor grant the transition relief opportunityas they have done with prior extensions.For job applicants hired after December 31,

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    2015, employers should continue to submitIRS Form 8850 to their state labor agency.In addition to Form 8850, employers needto submit the Department of Labor’sEmployment and Training Administration(ETA) Form 9061 or ETA Form 9062 forany employees conditionally certified asbelonging to a WOTC target group by astate workforce agency, vocationalrehabilitation agency, or anotherparticipating agency.

    5) 15-year straight-line cost recovery forqualified property: The law permanentlyextends the 15-year recovery period forqualified leasehold improvements, qualifiedrestaurant property, and qualified retailimprovement property.

    6) Exclusion of 100 percent of gain oncertain small business stock: The lawpermanently extends the temporaryexclusion of 100 percent of the gain oncertain small business stock for non-corporate taxpayers to stock acquired andheld for more than five years. Thisprovision also permanently extends the rulethat eliminates such gain as an AMTpreference item.

    7) Wage credit for employees on activitymilitary duty: The law permanently extendsthe 20 percent employer wage credit foremployees called to active military duty.For tax years beginning after 2015, theprovision modifies the credit to apply toemployers of any size, rather thanemployers with 50 or fewer employees, asunder current law.

    8) Look-thru treatment of paymentsbetween related controlled foreigncorporations: The law extends through2019 the look-through treatment forpayments of dividends, interest, rents, androyalties between related controlled foreigncorporations.

    9) Miscellaneous Business TaxProvisions Extended Through 2016. Thelaw also extends through 2016 thefollowing business tax breaks:

    a) New markets tax credit: The lawauthorizes the allocation of $3.5 billion ofnew markets tax credits for each year from2015 through 2019.

    b) Classification of certain race horses as3-year property: The law temporarilyextends the 3-year recovery period for racehorses to property placed in service during2015 or 2016.

    c) 7-year recovery period for motorsportsentertainment complexes: The law extendsthe 7-year recovery period for motorsportentertainment complexes to property placedin service during 2015 or 2016.

    d) Accelerated depreciation for businessproperty on a tribal reservation: The lawextends accelerated depreciation forqualified Indian reservation property toproperty placed in service during 2015 or2016. It also modifies the deduction topermit taxpayers to elect out of theaccelerated depreciation rules.

    e) Special expensing rules for certainfilm and television productions: The lawextends through 2016 the special expensingprovision for qualified film or televisionproductions. In addition, for productionsbeginning after 2015, the law addsqualified live theatrical productionexpenses to the special expensingprovisions.

    f) Indian employment tax credit.

    g) Railroad track maintenance credit.

    h) Mine rescue team training credit.

    i) Qualified zone academy bonds.

    j) Election to expense mine safetyequipment.

    k) Deduction allowable with respect toincome attributable to domestic productionactivities in Puerto Rico.

    l) Empowerment zone tax incentives.

    m) Temporary increase in limit on coverover of rum excise taxes to Puerto Rico andthe Virgin Islands.

    n) American Samoa economicdevelopment credit.re

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    Individual Tax Provisions

    The Protecting Americans from Tax Hikes(PATH) Act also extends permanentlymany popular, but heretofore temporary,tax incentives for individuals. At the sametime, the new law modifies some of them,as well as extending the rest of them, foreither five or two years. In all cases, theprovision is made retroactive to the start of2015.

    1) Permanent extension of the enhancedchild tax credit: One of the biggest wins onthe individual side is the permanentextension of the enhanced child tax credit(CTC). The CTC is a $1,000 credit. To theextent the CTC exceeds the taxpayer’s taxliability, the taxpayer is eligible for arefundable credit (the additional child taxcredit) equal to 15 percent of earnedincome in excess of a threshold dollaramount (the “earned income” formula).Until 2009, the threshold dollar amountwas $10,000 indexed for inflation from2001 (which would be roughly $14,000 in2015). Since 2009, however, this thresholdamount has been set at an unindexed$3,000 and was scheduled to expire at theend of 2017, returning to the $10,000(indexed for inflation) amount. The lawpermanently sets the threshold amount atan unindexed $3,000.

    The law prohibits an individual fromretroactively claiming the child tax creditby amending a return (or filing an originalreturn if he failed to file) for any prior yearin which the individual or a qualifyingchild for whom the credit is claimed didnot have an individual taxpayeridentification number. The law applies toreturns, and any amendment or supplementto a return, filed after the December 18,2015.

    Finally, the law expands the paid preparerdue diligence requirements, to coverreturns claiming the child tax credit.

    2) Permanent extension of earned incometax credit: Low- and moderate-incomeworkers are eligible for the earned incometax credit (EITC). For 2009 through 2017,the EITC amount had been temporarilyincreased for those with three (or more)

    children and the EITC marriage penaltyhad been reduced by increasing the incomephase-out range by $5,000 (indexed forinflation) for those who are married andfiling jointly. The law makes theseprovisions permanent.

    The law also eliminates the exception fromthe 20-percent penalty for erroneousrefunds and credits that applied to theEITC, but provides reasonable-cause relieffrom the penalty. The provision generallyapplies to returns filed after December 31,2015.

    Finally, the law prohibits an individualfrom retroactively claiming the EITC byamending a return (or filing an originalreturn if he failed to file) for any prior yearin which he did not have a valid socialsecurity number. The provision applies toreturns, and any amendment or supplementto a return, filed after December 18, 2015.

    3) Permanent extension of enhancedAmerican Opportunity Tax Credit (AOTC):The former Hope Scholarship Credit is acredit of $1,800 (indexed for inflation) forvarious tuition and related expenses for thefirst two years of post-secondary education.It phases out for AGI starting at $48,000 (ifsingle) and $96,000 (if married filingjointly). These amounts are also indexedfor inflation. The American OpportunityTax Credit (AOTC) takes those permanentprovisions of the Hope Scholarship Creditand increases the credit to $2,500 for fouryears of post-secondary education, andincreases the beginning of the phase-outamounts to $80,000 (single) and $160,000(married filing jointly) for 2009 to 2017.The law makes the AOTC permanent.

    The law also prohibits an individual fromretroactively claiming the AOTC byamending a return (or filing an originalreturn if he failed to file) for any prior yearin which the individual or a student forwhom the credit is claimed did not have anindividual taxpayer identification number(ITIN). The provision applies to returns,and any amendment or supplement to areturn, filed after December 18, 2015.

    Finally, effective for tax years beginningafter December 31, 2015, the law expands

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    g the paid preparer due diligencerequirements, to cover returns claiming theAOTC.

    4) Deduction for certain expenses ofelementary and secondary schooleducators: The law permanently extendsthe above-the-line deduction (capped at$250) for the eligible expenses ofelementary and secondary school teachers.Beginning in 2016, the provision alsomodifies the deduction to index the $250cap to inflation and includes professionaldevelopment expenses.

    5) Parity for exclusion from income foremployer-provided mass transit andparking benefits: The law permanentlyextends the maximum monthly exclusionamount for transit passes and van poolbenefits so that these transportation benefitsmatch the exclusion for qualified parkingbenefits. These fringe benefits are excludedfrom an employee’s wages for payroll taxpurposes and from gross income forincome tax purposes.

    6) Extension of deduction of state andlocal general sales taxes: The lawpermanently extends the option to claim anitemized deduction for state and localgeneral sales taxes in lieu of an itemizeddeduction for state and local income taxes.The taxpayer may either deduct the actualamount of sales tax paid in the tax year, oralternatively, deduct an amount prescribedby the IRS.

    7) Exclusion from gross income ofdischarge of qualified principal residenceindebtedness: The law extends through2016 the exclusion from gross income of adischarge of qualified principal residenceindebtedness. It also modifies the exclusionto apply to qualified principal residenceindebtedness that is discharged before 2017or subject to a written agreement enteredinto before January 1, 2017.

    8) Mortgage insurance premiums treatedas qualified residence interest: Theprovision extends through 2016 thetreatment of qualified mortgage insurancepremiums as interest for purposes of themortgage interest deduction.

    9) Above-the-line deduction for qualifiedtuition and related expenses: The lawextends through 2016 the above-the-linededuction for qualified tuition and relatedexpenses for higher education. Thededuction is capped at $4,000 for anindividual whose AGI does not exceed$65,000 ($130,000 for joint filers) or$2,000 for an individual whose AGI doesnot exceed $80,000 ($160,000 for jointfilers).

    10) The law also introduces a few new taxbreaks for individuals:

    a) an exemption from gross income anypayments from certain work-learning-service programs that are operated by awork college;

    b) elimination of the residencyrequirement for qualified ABLE programs;and

    c) a provision allowing a taxpayer to rollover amounts from an employer-sponsoredretirement plan (e.g., 401(k) plan) to aSIMPLE IRA, provided the plan hasexisted for at least two years.

    CHARITABLE GIVINGINCENTIVES

    Contributions of Capital Gain RealProperty Made for ConservationPurposes

    The law permanently extends the charitablededuction for contributions of real propertyfor conservation purposes. It alsopermanently extends the enhanceddeduction for certain individual andcorporate farmers and ranchers. The lawmodifies the deduction for tax yearsbeginning after 2015 to permit AlaskaNative Corporations to deduct donations ofconservation easements up to 100 percentof taxable income.

    Tax-Free Distributions fromIndividual Retirement Accounts forCharitable Purposes

    The law permanently extends the ability ofindividuals at least 70 1/2 years of age to

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    exclude from gross income qualifiedcharitable distributions from individualretirement accounts (IRAs). The exclusionmay not exceed $100,000 per taxpayer inany tax year.

    Charitable Deduction forContributions of Food Inventory

    The law permanently extends the enhanceddeduction for charitable contributions ofinventory of apparently wholesome foodfor non-corporate business taxpayers. Thelaw modifies the deduction beginning in2016 by increasing the limitation ondeductible contributions of food inventoryfrom 10 percent to 15 percent of thetaxpayer’s AGI (15 percent of taxableincome (as modified by the provision) inthe case of a C corporation) per year. Thelaw also modifies the deduction to providespecial rules for valuing food inventory.

    Basis Adjustment to Stock of SCorporations Making CharitableContributions of Property

    The law permanently extends the ruleproviding that a shareholder’s basis in thestock of an S corporation is reduced by theshareholder’s pro rata share of the adjustedbasis of property contributed by the Scorporation for charitable purposes.

    ENERGY INCENTIVESThe law extends the following energy taxincentives for alternative and renewableenergy sources through 2016.

    (1) Credit for nonbusiness energyproperty;

    (2) Credit for alternative fuel vehiclerefueling property;

    (3) Credit for 2-wheeled plug-in electricvehicles;

    (4) Second generation biofuel credit;

    (5) Incentives for biodiesel and renewablediesel;

    (6) Credit for Indian coal facilities;

    (7) Credits with respect to facilitiesproducing energy from certain renewableresources;

    (8) Credit for energy-efficient new homes;

    (9) Special allowance for secondgeneration biofuel plant property;

    (10) Deduction for energy efficientcommercial buildings;

    (11) Special rule for sales or dispositions toimplement FERC or State electricrestructuring policy for qualified electricutilities;

    (12) Excise tax credits relating to certainfuels and

    (13) Credit for new qualified fuel cellmotor vehicles.

    HEALTHCARE RELATED TAXPROVISIONS

    The law provides for a two-yearmoratorium on the 2.3-percent excise taximposed on the sale of medical devicesunder the Affordable Care Act. Thus, thetax will not apply to sales during calendaryears 2016 and 2017. The omnibusspending bill, attached as an amendment toH.R. 2029, would also delay from 2018 to2020 the start of the “Cadillac tax” onhigh-cost employer sponsored healthcoverage.

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    SURRAN: Just before recessing for the holidays, Congress provided a welcomeChristmas present to taxpayers, with a surprising minimum ofdisruption for tax preparers, by enacting massive year-end legislation,known as the Protecting Americans from Tax Hikes Act. On the onehand, the PATH Act does exactly what you want “typical” tax extenderlegislation to do: it extends more than fifty tax “breaks” for our use in2015. But on the other hand, it also makes permanent many of themore extensive tax incentives that we’ve relied upon and that have –until now – been temporary provisions.

    Though it falls far short of the comprehensive tax reform that bothpolitical parties have sought for years, the new package is a rareexample of unified congressional action on a major economic issue.And as a result, your clients and you will no longer have to worry eachDecember, whether Congress will take the necessary action to extendcertain tax-relief measures.

    QUINLAN: Giving us the lowdown on the new tax law is Barbara Weltman.

    Viewers will recall that Barbara is the author of J.K. Lasser’s SmallBusiness Taxes as well as other tax resources. Thanks for joining usagain, Barbara.

    WELTMAN: Glad to be here, Mike.

    QUINLAN: Well, a new year means, once again, a new tax law. So, let me startwith the $64,000 question, Barbara: what impact will the extenderlegislation have on this year’s filing season?

    WELTMAN: Well, there are over a hundred provisions. There are many rulescovered in the PATH Act.

    Many of the rules – or most of the rules – that applied for 2014 aregoing to apply again for 2015 returns. For example: the exclusion forforgiveness of home mortgage indebtedness; the treatment of mortgageinsurance premiums as interest; and the option, when you areitemizing, to deduct state and local sales taxes instead of state and localincome taxes.

    So, there is a lot in there to look at.

    QUINLAN: That’s certainly good news. How does it compare to past “extender”bills that you’ve told me about?

    WELTMAN: Remember: some of the provisions were only extended through 2016,and others only through 2019. So, we will need extenders for thoserules to continue.

    And Speaker of the House Paul Ryan has indicated that he would likecomprehensive tax reform before the upcoming November election.So, when we say “permanent,” we have to hedge our bets here. We willhave to wait and see.

    QUINLAN: So, in general, the new law is good news for our viewers and theirclients. But let’s get the bad news over with at the beginning of oursegment: to what extent does the PATH Act contain revenue-raisers, or“offsets,” that are going to cost our viewers’ clients some money?

    Video Transcript

    1. A New Filing Season = A New Tax Law

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    pt WELTMAN: Yes, there were. They were mostly related to REITs and the ForeignInvestment in Real Property Tax Act – FIRPTA, if you will – designed to

    encourage foreign investment in U.S. real estate. So, it is rather limitedin where the revenue raises were placed.

    QUINLAN: Thanks, Barbara. We’ll return to your commentary in a minute.

    SURRAN: As Barbara Weltman indicated, one of the main accomplishments of thePATH Act was to finally make many of the temporary tax provisionspermanent. And one of those formerly temporary provisions is the abilityto make what is known as qualified charitable distributions.

    You’ll recall that, under the law, individuals who are more than 70-1/2years old can make direct transfer of their tax-deferred IRA savings to acharity. In other words, IRA funds that are distributed to the accountowner, and then contributed to charity, do not qualify. So, what’s the bigdeal? Well, if you make a qualified charitable distribution:

    One, the funds are excluded from your gross income;

    Two, the amount can satisfy your required minimum distribution, orRMD, for the year;

    Three, it will lessen your AGI for state as well as for federal taxpurposes; and

    Four, your Medicare premiums – specifically, for Part D and Part F –will decrease.

    QUINLAN: Over the years, Barbara, you’ve told me how valuable the qualifiedcharitable distribution is for those individuals who are at least 70-1/2years old. Is this provision now permanent?

    WELTMAN: Yes. Again, it is welcome relief that this provision is permanent. And itmeans that we can now advise our clients, in advance, when it comes totheir RMDs.

    QUINLAN: What about those clients who’ve got 401(k) accounts or Roth IRAs. Canthey make qualified charitable distributions, too?

    WELTMAN: Yes, it is for distributions up to $100,000, transferred directly to a publiccharity. And it applies to traditional IRAs and, technically, to Roth IRAsas well.

    Although I cannot imagine anybody depleting their Roth IRAs for thispurpose because, as you remember, there are no required minimumdistributions during your lifetime for Roth IRAs.

    QUINLAN: Okay, also on the list of “now-permanent” provisions is the AmericanOpportunity Tax Credit, formerly known as the Hope Credit. That’s goodnews for college students and their parents. But what does it mean fortax preparers, like our clients?

    WELTMAN: There is going to be a new due diligence burden on preparers.

    It is not going to apply for 2015 returns. So, it will not impact us this taxfiling season. But starting next tax season, we are going to have to verifycertain information, in much the same way we do for the Earned IncomeTax Credit.

    QUINLAN: Since we’re on the topic of education, what about the teachers? Didn’t Ihear that their $250 above-the-line deduction for purchasing classroomsupplies is now permanent?

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    pt WELTMAN: Well, you are correct, Mike. For example, the $250 educator above-the-line deduction will be indexed for inflation. For 2015 returns, we are

    dealing with the $250 limit.

    But in 2016, it could be adjusted, we will have to see. Also, I want topoint out that, looking ahead, professional development expenses aregoing to qualify for this deduction.

    QUINLAN: Well, those 529 college savings plans were already permanently in thetax code. I suppose there’s nothing new for Congress to add to thatsection of the tax law.

    WELTMAN: Well, the rules are basically the same. The change is that now,withdrawals for computers and technology are treated as qualifiedexpenses, meaning that they are not going to be taxed.

    And it applies retroactively to distributions after December 31, 2014,meaning 2015 withdrawals.

    QUINLAN: Well, section 529 reminds me that, on last month’s program, you told meabout the new ABLE accounts under section 529A. Are ABLE accountstoo recent to crop up in the PATH Act?

    WELTMAN: It is in there. Actually, you are now permitted to make transfers from 529plans tax-free to ABLE accounts. Of course, they are limited to theannual contribution amount for ABLE accounts which, for 2016, is$14,000.

    QUINLAN: Some of these extender provisions weren’t made permanent. Tell me,what about the tax credit for energy improvements to residentialproperties. Did that get extended, too?

    WELTMAN: Well, yes, the $500 credit has been extended, but only for 2015 and 2016.Of course, it is a lifetime cap. So, if your clients took this creditpreviously, they are not going to be eligible for the credit now.

    But I do want to point out that the PATH Act did extend many otherenergy-related tax breaks. So, you really want to look through the law tosee all the various energy-related breaks – credits, deductions, etc. – thathave been extended.

    QUINLAN: The subject of energy reminds me, of course, of how much money I’msaving at the gas pump these days. I’m curious: do we know yet whetherthese lower gas prices will have an impact on the mileage rates we usefor tax purposes in 2016?

    WELTMAN: Well, yes, rather dramatically this year.

    The business rate is now 54 cents per mile. That is down from 57.5 centsper mile in 2015. For medical or moving purposes, the rate is now 19cents per mile. In 2015, it was 23 cents per mile.

    And, of course, the rate for driving for charitable purposes is thestatutory rate of 14 cents per mile. So, that does not change.

    Using the FAVR plan allows you to use the standard mileage rate as asubstantiation method, when you are reimbursing employees who aredriving their personal vehicles on company business.

    QUINLAN: Okay, that’s for taking deductions based on your driving. But doesn’t theService also set a mileage rate for depreciation purposes, too?

    WELTMAN: Well, the deemed depreciation rate remains at 24 cents per mile. This isthe rate that you have to use to address the basis of the vehicle, and youuse that for determining a gain or loss when the vehicle is sold.

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    pt QUINLAN: And since we’re talking about driving, what about those employers whoprovide fringe benefits to their employees that take public transit or use

    van pools?

    WELTMAN: Well, yes, it has been restored. And not only that, it has been madepermanent. So, now we have permanent parity between all thetransportation fringe benefits other than bicycling and what it also meansis that we may have to revisit our payroll taxes for 2015.

    Again, this is an exercise we have been through before with extenders.So, we know what to do. Again, the IRS may come out with additionalguidance on this point.

    SURRAN: For years, we have avoided on this program any discussion of theresearch tax credit. After all, for our viewers and their “small business”clients, the credit is viewed as being the “province” of big business. Butthere are two items of good news, affecting our viewers and their clients,about the research credit in the PATH Act.

    First, as expected, the largest and costliest component of the new law isthe now-permanent research and development tax credit, which will cost$113 billion over a decade in lost government revenues.

    This credit is available to those companies with specified increases inbusiness-related qualified research expenditures as well as for increasesin their payments to universities and other qualified organizations forbasic research.

    But the big change is for small businesses with less than $5 million ingross revenues. Beginning in 2016, these businesses – including start-upcompanies – may elect to use their qualified research expenses as anoffset to their payroll tax liabilities, up to $250,000, on Form 941.

    QUINLAN: Well, let’s start with the most expensive provision that was covered bythe PATH Act: the research and development credit. Was it really madepermanent?

    WELTMAN: Well, the good news here: the research credit is now finally, at last,permanent and the rules are basically the same.

    QUINLAN: But what about our viewers’ small business clients, including so-calledstart-up companies. They are typically doing a lot of research andexperimentation, but often aren’t profitable and can’t really use anincome tax credit. Is there any way for them to take tax advantage oftheir R&D expenditures?

    WELTMAN: But there is one good new wrinkle in this that primarily help smallbusinesses.

    They are going to be able to take the research credit as an offset to theiremployer’s Social Security tax liability rather than against income taxliability. And this is a benefit for small businesses engaged in R&D thatmay not have any revenue or any profits and no income taxes, but theyare paying employees and have employment taxes.

    QUINLAN: Since we’re talking about tax credits that aren’t permanent parts of thetax code, Barbara, let me ask you about the so-called Work OpportunityTax Credit. With unemployment down near the 5% level, that wasn’tmade a permanent part of the tax code, was it?

    WELTMAN: Well, first, the Work Opportunity Credit is certain through 2019. Ofcourse, you can only claim the credit if the employer submitted Form

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    pt 8850 in a timely manner to the state workforce agency, to make sure thatthe worker is certified as belonging to a targeted group that would entitle

    the employer to the credit.

    QUINLAN: Well, that’s good news. But the Work Opportunity Tax Credit wasn’tofficially part of the tax code in 2015. So, tell me, Barbara: what ifbusinesses hired employees last year who would have been eligible for theWOTC? Is it too late to get the tax credit?

    WELTMAN: Well, I do not know if past performance is any indicator. But previously,when there was extended legislation, the IRS came up with guidance. Forexample, when the provision was extended for 2014, the IRS gaveemployers until April 30, 2015 to timely submit the forms. So, I guess thebottom line is we have to watch and see what is going to come from theIRS on this matter.

    QUINLAN: Just like the research credit and the other provisions of the PATH Act, thelaw for 2015 was made essentially the same as 2014. But Congress didmake changes in some of these provisions that are going to be effective in2016. I’m curious: does the Work Opportunity Tax Credit have any new“wrinkles”?

    WELTMAN: Yes. For 2016 through 2019, but not for 2015, there is a new category forlong-term unemployed. This is someone who has been unemployed for atleast 27 weeks.

    QUINLAN: That’s helpful. But I suppose the “targeted group” that gets the mostattention is when businesses hire veterans, right?

    WELTMAN: Well, I just want to make it clear: not all veterans qualify. But there arefive subcategories of veterans for whom an employer may be eligible fora Work Opportunity Tax Credit by hiring them.

    SURRAN: As you might expect, the PATH Act contains many favorable depreciationchanges for businesses. For instance, first-year bonus depreciation hasbeen a benefit for companies that place new property in service ever sinceSeptember 11, 2001 – with the exception of a three-year hiatus from 2005through 2007. Although the new law does provide for a gradualphasedown of bonus depreciation, the good news is that there willcontinue to be an immediate write-off for new property: - For 2015,2016 and 2017: at the rate of fifty percent bonus depreciation;

    - For 2018, it will be forty percent; and

    - For 2019, it will be thirty percent.

    Unchanged are most of the rules as to which property qualifies for bonusdepreciation. As a general rule, essentially, bonus depreciation willcontinue to apply to:

    One, tangible property with a recovery period of twenty years or less;

    Two, off-the-shelf software; and

    Three, qualified improvement property, that’s used for leasehold,restaurant and retail properties.

    But before we get to bonus depreciation, what’s the news about theSection 179 deduction that’s available to small businesses?

    QUINLAN: It’s an annual waiting game, isn’t it, Barbara? What’s the story on thededuction limits for Section 179 elections for 2015? And is there any wayto make that permanent, so we actually know the amount before the yearbegins?

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    pt WELTMAN: Well, in the same vein, the $500,000 limit for the Section 179 deductionhas been made permanent. But starting in 2016, it is going to be indexed

    for inflation as will the $2 million threshold for the phase-out of thisdeduction. What’s more? Starting in 2016, air conditioning and heatingunits are going to qualify for the Section 179 deduction.

    QUINLAN: Let me ask you about the bonus depreciation provisions, Barbara. Arethey going to be permanent, like the research credit is, or just for the nextcouple of years, like the Work Opportunity Tax Credit?

    WELTMAN: Well, it is not permanent, but it has been extended through 2019.

    For 2015, 2016 and 2017, we have a 50% bonus depreciation deduction.For 2018, it is going to decline to 40%, and for 2019 to 30%.

    QUINLAN: On last month’s program, you mentioned the new safe harbor forremodeling and refreshing restaurants and retail stores. But didn’t wealso have a couple of depreciation provisions that allowed for a fifteen-year write-off of qualified improvement property?

    WELTMAN: Well, you are correct, Mike.

    But the 15-year recovery period has now been made permanent. Andthere is more. The Section 179 deduction for these properties has been“capped” at $250,000. Starting in 2016, that cap has been eliminated.

    SURRAN: You probably won’t be surprised, but the new tax law – as well as recentdevelopments at the IRS – have changed some of the rules we reportedto you a few months ago about the Affordable Care Act. You may recallthat the A.C.A. added an information reporting requirement foremployers, that’s taking effect right now.

    Tax code section 6056 requires so-called “applicable large employers” toprovide an annual statement to each full-time employee, detailing theemployer’s health coverage. And we reported to you that the Servicedesigned a new form – IRS Form 1095-C – for large employers to satisfytheir information reporting requirement. In addition, there is a transmittalform – IRS Form 1094-C – that employers must file with the IRS,aggregating the information contained on the individual forms distributedto workers.

    QUINLAN: Okay, Barbara: this is the first year that employers are preparing IRSForm 1095-C for each worker, detailing the extent – and the cost – oftheir health coverage. People are viewing this program at the same timethat they’ve sent out their W-2 forms to their employees. Aren’t thehealth care forms supposed to be due at the same time as the W-2 forms?

    WELTMAN: Well, yes, technically they have the same deadlines. However, I guessbecause this is something new, the IRS has provided transition relief for2015 information returns that are due this year.

    QUINLAN: I heard that the due date of the 1095-C form to employees has beenpostponed from February 1, 2016 until March 31, 2016. What about theother form – the transmittal form? When is that due?

    WELTMAN: Well, the 1094-Cs, which would have been due February 29th, the duedate is now May 31, 2016. And if you are filing electronically, instead ofMarch 31st, we are talking about June 30, 2016.

    QUINLAN: Well, what about individuals who want to file their personal tax return?Do they have to wait until their employer provides them with a Form1095-C?

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    pt WELTMAN: Well, the IRS says that the impact is going to be minimal.

    If it turns out that the Form 1095 shows otherwise, the taxpayer is notgoing to be required to file an amended return, and this means it is notgoing to impact the premium tax credit this year.

    It does not impact, for example, employees who have taken employer-sponsored health coverage. It does not impact people on Medicare.

    And it does not affect people who signed up for coverage on theMarketplace and are receiving the premium tax credit on an advancedbasis.

    QUINLAN: Since you mentioned W-2 forms, Barbara, tell me: didn’t I hear thatthere’s going to be a change in next year’s filing date for 1099 forms?

    WELTMAN: Well, yes, we are going to have to submit the transmittals for the W-2forms and the 1099-MISC forms that we issued to our employees and ourindependent contractors at the same time that we furnish them to theemployees and independent contractors.

    So, this is for next year. So, for 2016 W-2 forms and information returns,we are talking about January 31, 2017.

    QUINLAN: I recall you told me a few months ago that the IRS was increasing thepenalties on delinquent and incorrect information returns. What happens ifthose deadlines are missed?

    WELTMAN: Well, penalties could apply. But the IRS has indicated that it is going totake into account any reasonable steps that the employers are taking toprepare for issuing these information returns when they are makingdeterminations about whether to abate penalties.

    QUINLAN: Sometimes, it’s not a missed deadline, but an incorrect dollar amount. Arethose automatically subject to new penalties? I mean, can’t some amountsbe “too small” for penalties?

    WELTMAN: Well, yes. There are going to be no penalties for de minimis errors oninformation returns and statements, meaning you are not going to have tofile amended returns or statements.

    QUINLAN: Well, that’s good news. So, tell me: what does “de minimis” mean in thiscase?

    WELTMAN: It is errors of $100 or less or, in the case of income tax withholding, $25or less. We are really talking very de minimis.

    QUINLAN: Speaking of good news, absolutely no one is looking forward to theimposition of the so-called “Cadillac tax” on overly-generous health plans.Is it true that the new law postponed that unpopular provision?

    WELTMAN: There are many rules covered in the PATH Act.

    It delays, for example, the excise tax on medical devices and on Cadillachealth plans. So, there is a lot in there to look at.

    QUINLAN: If you don’t mind, Barbara, let me ask you a few more questions about thePATH Act. In recent years, you’ve told me about the exclusion of gain onthe sale of so-called qualified small business stock. What’s the fate of thatprovision?

    WELTMAN: Well, the 100% exclusion is now permanent.

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    pt It applies to Section 1202 stock issued after September 27, 2010. Butremember, when you are preparing 2015 returns, it is likely you are

    going to be dealing with the old 50% or 75% exclusion, depending onwhen the stock was issued. So, you really have to check on this.

    QUINLAN: With all of these provisions, did Congress really have time to decide thelevel of alcohol for a beverage to be taxed as “hard cider” rather than as“sparkling wine”?

    WELTMAN: Well, actually it did. It also considered the taxation of electricmotorcycles and NASCAR complexes. A lot of territory was covered.

    QUINLAN: But the good news is that we now have some permanency with the taxcode, don’t we?

    WELTMAN: Yes, there are two. First of all, the period for the built-in gains tax hasbeen permanently reduced. It had been 10 years, and now it is 5 yearsand that is permanent.

    The second provision relates to basis adjustment when the S corporationmakes donations of appreciated property.

    Shareholders reduce their bases by their share of the corporation’sadjusted basis in the property, and not by their share of the Scorporation’s contribution – which is the fair market value of theproperty.

    So, when you are donating appreciated property, you have a smallerbasis reduction, even though you get to take the charitable contributionbased on the share of the property’s value.

    SURRAN: Earlier this year, we provided you with coverage of the tax issuesinvolved in Congress’ temporary funding of the highway trust fund.

    You may recall that the Surface Transportation Improvement Act wasfunded with a number of provisions related to tax compliance, such as aredesign of how mortgage interest is reported on Form 1098 and a newrequirement to report the date-of-death value of assets to estatebeneficiaries.

    The good news is that, for the first time in a decade, Congress hasenacted a long-term, fully-funded highway trust law. The even betternews is that the funding for the new law does not involve changes in taxcompliance.

    However, the Fixing America’s Surface Transportation, or FAST, Actdoes contain two measures involving those taxpayers who are seriouslydelinquent in their tax accounts.

    QUINLAN: Well, besides the PATH Act, I heard that Congress also enacted highwaytrust fund legislation, called the FAST Act. What, if anything, does thishave to do with taxes?

    WELTMAN: Well, there were two tax-related measures in the law.

    First, taxpayers who are seriously delinquent in their federal taxes willnot be able to get a passport or, if they have one, their passport may berevoked.

    QUINLAN: I heard you say “seriously delinquent.” Does the new law define what’s a“serious” tax delinquency?

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    pt WELTMAN: Well, the law defines a serious delinquency as owing more than $50,000and being under a levy or lien. Of course, taxpayers who are trying to

    work out their problems with the IRS – for example, those who are usingan installment agreement – are not going to have their passports affectedat all. So, it’s really only the taxpayers who are delinquent and have gonethrough a process. That is why they are under a lien or a levy, and they arejust not paying.

    QUINLAN: Okay, so the serious delinquent taxpayers can lose their passports. But arethere any tax consequences for them?

    WELTMAN: Well, this one is a déjà vu provision.

    It allows for private debt collectors. You remember that we have tried thistwice in the past and it has failed. We did this in 2006 and in 2009, and inboth cases the process was not successful. But we will try again and wewill see.

    QUINLAN: The way that the law reads, these private debt collectors will only go afteraccounts that the IRS considers “inactive.” And there’s a whole definitionof that that means. But tell me: when, and how, does this go into effect?

    WELTMAN: Well, it applies to taxes outstanding as of December 4, 2015. So, we willhave to wait and see what the IRS guidance has to say.

    SURRAN: Last year, we provided you with coverage when the U.S. Supreme Courtissued its opinion in the Obergefell case, generally requiring states tolicense a marriage between two people of the same sex.

    Just before year-end, the IRS issued Notice 2015-86, providing guidance –in a question-and-answer format – on the application of federal tax law toqualified retirement plans and to health and welfare plans, includingcafeteria plans, in light of the Supreme Court’s decision.

    QUINLAN: Before we conclude this month’s discussion, Barbara, can you tell meabout some of the issues that the IRS covered in its guidance to employeebenefit plans?

    WELTMAN: Well, employers do have the option of applying the Windsor decision tosame-sex spouses of employees prior to June 26, 2013. That was the datethat the Windsor decision came down.

    And what this is now permitting under the guidance is that employees cannow make this retroactive election, if you will, to include these same-sexspouses in their plans.

    QUINLAN: Well, that makes sense. Was there anything else?

    WELTMAN: Well, again, plans were not required to include spouses, including same-sex spouses, in their health plans or other qualified plans. But if they did,and then a state has – in light of the Obergefell decision – redefined whois a spouse, plans may have to go back and change things.

    They may have to make amendments reflecting the decision and the newdefinition of “spouse” to include same-sex spouses in their plans.

    QUINLAN: A few minutes ago, Becky mentioned “cafeteria plans.” That refers tomore than just where employees eat their lunch, doesn’t it?

    WELTMAN: If the cafeteria plans include the same-sex spouses in benefit options, thenparticipants can change elections. They can revoke, or opt to include, thesame-sex spouses. And there is guidance on what to do about this.

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    pt QUINLAN: Since we’re discussing IRS guidance, Barbara, and since most of our

    viewers and their clients have websites these days, let me ask you: hasthe Service said anything about how to treat the costs related to thepurchase of a website or a domain name?

    WELTMAN: There has been a chief counsel advice on this subject. And basically,because domain names have an indefinite life, arguably, they should becapitalized. But the advice that came down here said that, in situationsthat we will define in a moment, they can be treated as intangible assets,the cost of which can be amortized over 15 years.

    QUINLAN: Okay, I know that domain names are registered trademarks. And thattrademarks are treated as Section 197 assets. But it sounds as if the newIRS guidance addresses those domain names that have not beentrademarked.

    WELTMAN: Exactly. As long as the domain name is used to distinguish a company’sgoods or services from those provided by other companies, then it is anintangible asset that can be amortized over 15 years.

    QUINLAN: So, the IRS ruling distinguishes generic, from non-generic, names. Ageneric name describes the product or service, you know, like pizza.com.But a non-generic name is usually the company’s name. Tell me: from atax perspective, does it matter which one the taxpayer has bought?

    WELTMAN: Well, both can be amortized. For the generic name, it could be treated asa customer-based intangible.

    And this would be if it is already associated with a website that hasalready been built and is used to increase the company’s market share orsells goods and services.

    QUINLAN: Barbara Weltman, thanks once again. I look forward to seeing you afterbusy season.

    WELTMAN: Thanks, Mike. See you next time.