2/8/2019 2019 TAX FILING SEASON UPDATE KEY ISSUES AND DEVELOPMENTS FEBRUARY 8, 2019 Roger A. McEowen roger.mceowen@washburn.edu www.washburnlaw.edu/waltr @WashburnWaltr Agenda for Today • Technical Corrections and Extenders • Miscellaneous Developments • Items New for 2019 • I.R.C. §199A – Proposed regulations – Comparison with final regulations – Agricultural cooperatives 2 WASHBURN LAW Technical Corrections • Jan. 2, 2019 – Release of draft • Jan. 29, 2019 – New committee unlikely to take up the draft • Note: – Big issue is the correction needed to make “qualified real estate” 15-year property so that it would also be eligible for bonus depreciation 3 WASHBURN LAW 1
2/8/2019 Extender Legislation • Nothing yet enacted • Jan. 19, 2019 – JCT release • Expired individual provisions – Certain education expenses – Mortgage insurance premiums as qualified residence interest – Income exclusion for qualified canceled mortgage debt 4 WASHBURN LAW Extender Legislation 2 • JCT release – Expired business provisions • Various depreciation provisions – Expired energy provisions • Beginning of construction date for non-wind facilities to get the PTC (or ITC in lieu of PTC) • Energy efficient commercial building deduction • Nonbusiness energy property credit • Alternative fuel vehicle refueling property credit • Incentives for biodiesel and renewable diesel • Second gen. (cellulosic) biofuel producer credit 5 WASHBURN LAW Miscellaneous Developments • IRS Announ. 2019-7 – First refunds issued this week with many to be paid by mid-to-late Feb. – 90% of refunds to be made in less than 3 weeks • “Where’s My Refund” – Some refunds can’t be issued before Feb. 15 • Returns claiming the EITC and ACTC (available starting on Feb. 27) – Check “Where’s My Refund” beginning on Feb. 17 6 WASHBURN LAW 2
2/8/2019 EITC Awareness Day • IRS Notice 2019-6 – How to correctly claim it – 3 or more qualifying children • Max. credit is up to $6,431 – No children • Max. credit is up to $519 – Earn less than $54,000? 7 WASHBURN LAW Rev. Proc. 2019-3 and 2019-7 • Domestic “no rule” list – Income received subject to unconditional obligation to repay – Trade of business under I.R.C. §162 – Is a loss on worthless securities subject to I.R.C. §165(g)(3)? – Will multiple trusts be treated as one? – Whether a creditor must report that a discharge of debt has occurred 8 WASHBURN LAW Rev. Proc. 2019-3 and 2019-7 • International “no rule” list – Only a technical update 9 WASHBURN LAW 3
2/8/2019 Revision to Form 8862 • Accounts for new “family” tax credit – $500 (through 2025) for dependent of taxpayer other than qualifying child who is a U.S. citizen, national or resident • Also available for qualifying child but child tax credit not available due to lack of Social Security number • Form is retitled because new credit is not refundable • New lines 10 WASHBURN LAW New for 2019 • Medical expenses – 10% floor • Alimony – Deduction for alimony payments gone – Recipient of alimony need not report payments in income – Rules also apply to modified divorce/separation instruments after 12/31/18 if modification says that 2019 treatment applies 11 WASHBURN LAW New for 2019 • Obamacare – “Roberts tax” gone – Notice 2019-5, 2019-2 I.R.B. • Additional “hardship” exemptions from “Roberts tax” for 2018: – Financial or domestic circumstances causing a significant, unexpected increase in essential expenses barring the taxpayer from obtaining health insurance coverage. – Acquiring health insurance would cause the taxpayer to experience serious deprivation of food, shelter, clothing or other necessities. – Any other circumstance preventing the taxpayer from obtaining health insurance coverage. – Employer mandate still in place 12 WASHBURN LAW 4
2/8/2019 New for 2019 • Liberalized rules for hardship distributions from 401(k) plans – IRS to modify the regs. to eliminate 6-month bar on elective contributions • Applies to plan years beginning after 2018 • Proposed regulations issued 13 WASHBURN LAW New for 2019 • Accelerated phase-out of tax credit for wind facilities – It’s a 30% investment credit • 20% reduction when construction begins in 2017 • 40% reduction when construction begins in 2018 • 60% reduction when construction begins in 2019 – Credit is based on energy percentage of the basis of each energy property placed in service during the tax year – Construction must begin before 2022 • See IRS Notice 2018-59 14 WASHBURN LAW New for 2019 7 • Tax-exempt organizations freed from donor disclosure requirement – If required to file Form 990 or 990-EZ, except organizations described in I.R.C. §501(c)(3)… • Don’t have to provide names and addresses of contributors on the forms • Don’t have to complete these portions of their Schedule B – Sec. 501(c)(7) organizations don’t have to provide names and addresses of persons who contributed more than $1,000 during the tax year to be used exclusively for charitable purposes – There are some organization to whom the exemptions don’t apply 15 WASHBURN LAW 5
2/8/2019 IRS Provides Guidance on Market Not in Outline Facilitation Payments • IRS Legal Advice to Program Managers, PMTA-2018-21 (Dec. 10, 2018). – The IRS noted that MFPs are direct payments to farmers of certain crops that have been adversely affected by tariffs. • The IRS noted that the purpose of the MFPs is to make up for depressed crop prices caused by tariffs and that the payments are tied to what a farmer actually produced in 2018. • The IRS noted that MFPs are intended to compensate a farmer for lost profits and, as such, are included in gross income in accordance with I.R.C. §61(a). – See also Rev. Rul. 73-408, 1973-2 C.B. 15; Rev. Rul. 68-44, 1968-1 C.B. 191 . • The IRS also determined that MFPs are similar to counter-cyclical and price-loss payments authorized under prior Farm Bills which a farmer/recipient had to include in gross income. • In addition, the IRS determined that MFPs are included in net earnings from self-employment and, thus, subject to self-employment tax because the MFPs are tied to earnings derived by a farmer from the farming business. – See, e.g., Ray v. Comr., T.C. Memo. 1996-436. • While not commenting on the issue, MFPs are also not deferrable as are crop insurance payments paid for actual physical destruction to the taxpayer’s crops. As noted, MFPs are payments for lost profit rather than to compensate a producer for physical damage or destruction to crop, or the inability to plant (the requirement for deferability under I.R.C. §451(f)). 16 WASHBURN LAW Centralized Partnership Audit Not in Outline Regime • Can elect out on Form 1065 for 2018 – The election out will avoid any audit change from being taxed at highest individual rate • When election out not possible: – Any time that the partnership has a partnership, trust or SMLLC as a partner 17 WASHBURN LAW The Qualified Business Income Deduction (I.R.C. §199A) • Proposed regulations (Aug. 8, 2018) • Favorable aggregation provision – Farming operations with multiple businesses can aggregate for QBID purposes • Allows a high income farming business to elect to aggregate commonly controlled entities into a single entity • Combine rental income from one entity with farm income from another entity and compute QBID based on combined income (and wages and QP if over income threshold) 18 WASHBURN LAW 6
2/8/2019 QBID Proposed Regs. • Farms with multiple entities can allocate qualified W-2 wages to the appropriate entity than employs the employee under common law principles – Don’t have to start payroll in each entity 19 WASHBURN LAW QBID Proposed Regs. • Carryover losses that were incurred before 2018 and that are now allowed in years 2018- 2025 will be ignored in calculating qualified business income (QBI) for purposes of the QBID. – Clients with suspended losses? – Passive loss rules applied before determining QBI – Is tax software treating passive loss carryovers properly? 20 WASHBURN LAW Farm Client Does Consulting? • “Specified service trade or business” (SSTB) income is ignored if it is less than 10 percent of overall income from the business if average gross revenues are less than $25 million. – In that instance, the income will be treated as “normal” business income for QBID purposes. 21 WASHBURN LAW 7
Recommend
More recommend
