Joint Committee Report JCS-1-16: General Explanation of Tax Legislation Enacted in the 114th Congress
JCS-1-16
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[Editor's Note: The Estimate Tables are not reproduced.]
FOOTNOTES
1 This document may be cited as follows: Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in 2015 (JCS-1-16), March 2016.
2 H.R. 1527. The House passed H.R. 1527 on March 25, 2015. The Senate passed the bill without amendment on March 27, 2015. The President signed the bill on April 1, 2015.
5 H.R. 2. The House passed H.R. 2 on March 26, 2015. The Senate passed the bill without amendment on April 14, 2015. The President signed the bill on April 16, 2015.
6 Sec. 6331(a). Levy specifically refers to the legal process by which the IRS orders a third party to turn over property in its possession that belongs to the delinquent taxpayer named in a notice of levy.
10 Sec. 6330. The notice and the hearing are referred to collectively as the CDP requirements.
17 Pub. L. No. 113-295, Division B.
18 H.R. 606. The House passed H.R. 606 on May 12, 2015. The Senate passed the bill without amendment on May 14, 2015. The President signed the bill on May 22, 2015.
20 Treas. Reg. sec. 1.104-1(b).
23 Rev. Rul. 77-235, 1977-2 C.B. 45.
24 H. R. 2353. The House passed H. R. 2353 on May 19, 2015. The bill passed the Senate without amendment on May 23, 2015. The President signed the bill on May 29, 2015.
25 H.R. 2146. The House passed H.R. 2146 on May 12, 2015. The Senate passed the bill with an amendment on June 4, 2015. The House passed the bill with a further amendment on June 18, 2015. The Senate agreed to the House amendment on June 24, 2015. The President signed the bill on June 29, 2015.
27 Sec. 72(t)(2)(iv) and (v). Section 72(t)(4) provides a recapture rule under which, in general, if the series of payments eligible for the equal periodic payments exception is modified within five years of the first payment or before age 591-2, an additional tax applies equal to the early withdrawal tax that would have applied in the absence of the exception.
28 See Part Thirteen, Division Q, Title III, Item A.8 for an explanation of a related amendment.
29 This provision also allows a qualified public safety employee to modify a series of payments to which the equal periodic payments exception has applied without being subject to the recapture rule described above.
30 These positions are defined by reference to the provisions of the Civil Service Retirement System and the Federal Employees Retirement System.
31 Under section 7701(j), the Federal Thrift Savings plan is treated as a qualified defined contribution plan.
32 H.R. 1295. The House Committee on Ways and Means reported H.R. 1295 on April 13, 2015 (H.R. Rep. No. 114-71). The House passed the bill on April 15, 2015. The Senate passed the bill with an amendment on May 14, 2015. The House agreed to an amendment to the Senate amendment on June 11, 2015. The Senate concurred in the House amendment with a further amendment on June 24, 2015. The House agreed to the Senate amendment on June 25, 2015. The President signed the bill on June 29, 2015. In addition, the House Committee on Ways and Means reported H.R. 1892 (Trade Adjustment Assistance Reauthorization Act of 2015) on May 8, 2015 (H.R. Rep. No. 114-108) and the Senate Committee on Finance reported S. 1268 (An Original Bill to Extend the Trade Adjustment Assistance Program, and for Other Purposes) on May 12, 2015 (S. Rep. No. 114-44).
33 Qualifying family members are the individual's spouse and any dependent for whom the individual is entitled to claim a dependency exemption. Any individual who has certain specified coverage is not a qualifying family member.
34 COBRA continuation provision is defined by section 9832(d)(1).
35 For this purpose, "individual health insurance" means any insurance that constitutes medical care offered to individuals other than in connection with a group health plan. Such term does not include Federal- or State-based health insurance coverage.
36 See section 501(c)(9) for the definition of a VEBA.
38 For guidance on how a State elects a health program to be qualified health insurance for purposes of the credit, see Rev. Proc. 2004-12, 2004-1 C.B. 528.
39 Creditable coverage is determined under section 9801(c).
40 See Q&A-10 of Notice 2005-50, 2005-2 C.B. 14.
43 A qualified health plan is categorized by level (bronze, silver, gold or platinum), depending on its actuarial value, that is, the percentage of the plan's share of the total costs of benefits under the plan. A silver level plan must have an actuarial value of 70 percent.
44 Title IV of the Act also provides for extension to June 30, 2021, of certain expired provisions of the Trade Act of 1974, Pub. L. No. 93-618, as amended, including provisions related to individuals eligible for trade adjustment assistance.
45 Receipt of advance HCTC payments during a year does not in itself constitute an election of the HCTC for the year.
46 If a premium assistance credit is also allowed to the individual for months before the first month for which the HCTC is elected, the amount of the individual's allowed premium assistance credit is also taken into account in applying the offset.
50 Sec. 6655(d)(2) and (g)(2).
51 African Growth and Opportunity Amendments, Pub. L. No. 112-163, sec. 4.
52 This description of present law does not incorporate changes made to the tuition reporting requirements in the "Protecting Americans From Tax Hikes Act of 2015," Pub. L. No. 114-113. See Part Thirteen, Division Q, Title II, item 10.
53 Secs. 25A and 222. For a detailed description of these provisions, see description of the "Protecting Americans From Tax Hikes Act of 2015," Pub. L. No. 114-113, secs. 102 and 153, infra.
54 This information is required under section 6050S(b)(2)(B). The requirement to report tuition amounts either billed or paid under section 6050S(b)(2)(B)(i) was subsequently modified as a result of changes made to the tuition reporting requirements in the "Protecting Americans From Tax Hikes Act of 2015," Pub. L. No. 114-113, described infra. That modification required that institutions report only amounts paid, rather than amounts billed.
56 Sec. 6050S(b)(2)(A); Treas. Reg. sec. 1.6050S-1(b)(2)(ii)(A).
57 Treas. Reg. sec. 1.6050S-3(f)(1), (2). The section 6721 penalty is applicable to information returns (i.e., statements required to be remitted to the IRS under section 6050S), while the section 6722 penalty is applicable to payee statements (i.e., statements required to be remitted to the taxpayer under section 6050S).
58 Treas. Reg. sec. 1.6050S-3(f)(3).
61 Sec. 6723. The penalty for failure to comply timely with a specified information reporting requirement is $50 per failure, not to exceed $100,000 per calendar year.
63 This description of present law does not incorporate changes made to the child tax credit in the "Protecting Americans From Tax Hikes Act of 2015," Pub. L. No. 114-113. See Part Thirteen, Division Q, Title I, item A.1.
70 Generally, only U.S. citizens may qualify under the bona fide residence test. A U.S. resident alien who is a citizen of a country with which the United States has a tax treaty may, however, qualify for the section 911 exclusions under the bona fide residence test by application of a non-discrimination provision of the treaty.
71 Sec. 911(b)(2)(D)(i). This amount is adjusted annually for inflation. The exclusion amount is taken against the lowest marginal tax rates. See sec. 911(f).
72 Sec. 911(c)(1) and (2). The Secretary of the Treasury has authority to issue guidance making geographic cost-based adjustments. See sec. 911(c)(2)(B). The Secretary has exercised this authority annually. The most recent guidance, Notice 2015-33 (April 14, 2015), includes adjustments for many locations. Under these adjustments, the maximum housing cost exclusion for any geographic area is $114,300 for expenses for housing in Hong Kong, China.
73 H.R. 3236. The House passed H.R. 3236 on July 29, 2015. The bill passed the Senate without amendment on July 30, 2015. The President signed the bill on July 31, 2015.
74 The Hiring Incentives to Restore Employment Act (the "HIRE" Act), Pub. L. No. 111-147, sec. 442.
75 Moving Ahead for Progress in the 21st Century Act ("MAP-21"), Pub. L. No. 112-141, sec. 40201(a)(2), and sec. 40251.
76 Highway and Transportation Funding Act of 2014, Pub. L. No. 113-159, sec. 2002.
79 Sec. 1014. See section 1022 for special basis rules apply to property acquired from an electing estate of a decedent who died during 2010.
80 Treas. Reg. sec. 1.1014-3(a).
81 See Rev. Rul. 54-97, 1954-1 C.B. 113, 1954.
82 See Technical Advice Memorandum 199933001, January 7, 1999.
83 Sec. 6501(a). Returns that are filed before the date they are due are deemed filed on the due date. See sec. 6501(b)(1) and (2).
88 For example, service of an administrative summons triggers the suspension either (1) beginning six months after service (in the case of John Doe summonses) or (2) when a proceeding to quash a summons is initiated by a taxpayer named in a summons to a third-party record-keeper. Judicial proceedings initiated by the government to enforce a summons generally do not suspend the limitation period.
89 Sec. 6501(e)(1). Similar six year limitations periods are established for estate and gift taxes as well as excise taxes, based on 25 percent omissions from items required to be reported on the relevant tax returns. See secs. 6501(e)(2) and 6501(e)(3).
91 Section 275(c) of the Internal Revenue Code of 1939 stated in its entirety "If the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 5 years after the return was filed." 53 Stat. at Large 86 (1st Sess., 76th Cong. 1939). It did not include language comparable to subparagraph 6501(e)(1)(B)(ii), requiring adequacy of disclosure, nor did it distinguish between gross receipts of a trade or business and other income.
92The Colony, Inc., v. Commissioner, 357 U.S. 28 (1958).
93 "Listed transactions" refers to transactions that are the same or substantially similar to transactions that the IRS has identified in a published notice as potentially abusive and therefore subject to the reporting requirements under section 6011, notwithstanding the fact that the transaction may not otherwise trigger the reporting requirements.
94 The Federal, Ninth and Fourth Circuit Courts of Appeals and the U.S. Tax Court held for the taxpayers. See Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009); Bakersfield Energy Partners v. Commissioner, 128 T.C. 207 (2007), aff'd, 568 F.3d 767 (9th Cir. 2009); and Home Concrete & Supply, LLC. v. United States, 634 F.3d 249 (4th Cir. 2011), aff'd 132 S. Ct. 1836 (2012), for proceedings consistent with the holding in Home Concrete & Supply, LLC.). The Tenth Circuit held for the government in Salman Ranch Ltd. v. Commissioner, (647F.3d 929 (10th Cir. 2011), cert. granted, judgment vacated and remanded, (132 S. Ct. 2100 (2012) for proceedings consistent with the holding in Home Concrete & Supply, LLC.).
95 Treas. Regs. secs. 301.6229(c)(2)-1 and 301.6501(e)-1. The Federal Circuit granted deference to the regulations issued subsequent to its Salman Ranch opinion and held for the government. Grapevine Imports, Ltd. v. United States, 636 F.3d 1368 (Fed. Cir. 2011) cert. granted, judgment vacated and remanded, 132 S. Ct. 2099 (2012).
96 132 S. Ct. 1836; 182 L. Ed. 2d 746 (2012).
97 Section 6012 provides general rules identifying who must file an income tax return, while other Code provisions referenced herein specifically address filing requirements of partnerships, corporations, and other entities.
99 Sec. 6081. Treas. Reg. sec. 1.6081-2. See Department of the Treasury, Internal Revenue Service, 2011 Instructions for Form 1065, U.S. Return of Partnership Income, p. 3. Unlike other partnerships, an electing large partnership is required to furnish a Schedule K-1 to each partner by the first March 15 following the close of the partnership's taxable year (sec. 6031(b)). However, an electing large partnership is allowed an automatic six-month extension of time to file the partnership return and the Schedule K-1s by submitting an application on form 7004 in accordance with the rules prescribed by the Treasury Regulations. Treas. Reg. sec. 1.6081-2(a)(2).
100 Secs. 6012, 6037, 6072. Section 6012(a)(2) provides that every corporation subject to taxation under subtitle A shall be required to file an income tax return. Section 6037, which governs the returns of S corporations, provides that any return filed pursuant to section 6037 shall, for purposes of chapter 66 (relating to limitations) be treated as a return filed by the corporation under section 6012. Section 6072, which sets forth the due dates for filing various income tax returns, provides that returns of corporations with a taxable year that is a calendar year under section 6012 (and section 6037 based on the language in that section) are due March 15.
101 Section 6081(b) provides that a corporation is allowed an automatic extension of three months to file its income tax return if the corporation files the form prescribed by the Secretary and pays on or before the due date prescribed for payment, the amount properly estimated as its tax. However, section 6081(a) provides that the Secretary may grant an automatic extension of up to six months to file and the Treasury regulations do so provide. Treas. Reg. sec. 1.6081-3.
103 Sec. 6041(a). The information return generally is submitted electronically as a Form-1099 or Form-1096, although certain payments to beneficiaries or employees may require use of Forms W-3 or W-2, respectively. Treas. Reg. sec. 1.6041-1(a)(2).
104 Sec. 6041(a) requires reporting as to fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a), or 6050N(a) applies and other than payments with respect to which a statement is required under authority of section 6042(a), 6044(a)(2) or 6045). These payments excepted from section 6041(a) include most interest, royalties, and dividends.
105 Secs. 6042 (dividends), 6045 (broker reporting) and 6049 (interest) and the Treasury regulations thereunder.
107 Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
108 Secs. 6011(e) and 6071(b) apply to "returns made under subparts B and C of part III of this subchapter"; Treas. Reg. sec. 301.6011-2(b), mandates use of magnetic media by persons filing information returns identified in the regulation or subsequent or contemporaneous revenue procedures and permits use of magnetic media for all others.
109 Treas. Reg. sec. 31.6051-2; IRS, "Filing Information Returns Electronically," Pub. 3609 (Rev. 12-2011); Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
110 Pub. L. No. 94-202, sec. 232, 89 Stat. 1135 (1976) (effective with respect to statements reporting income received after 1977).
111 Employers submit quarterly reports to IRS on Form 941 regarding aggregate quarterly totals of wages paid and taxes due. IRS then compares the W-3 wage totals to the Form 941 wage totals.
112 31 U.S.C. sec. 5314. The term "agency" in the Bank Secrecy Act includes financial institutions.
113 31 U.S.C. sec. 5314(a) provides: "Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency."
114 31 C.F.R. sec. 103.27(c). The $10,000 threshold is the aggregate value of all foreign financial accounts in which a U.S. person has a financial interest or over which the U.S. person has signature or other authority.
115 See http://bsaefiling.fincen.treas.gov/main.html. The predecessor form, Treasury Form TD F 90-22.1, was filed with the IRS Detroit Computing Center.
116 31 U.S.C. sec. 5322 (failure to file is punishable by a fine up to $250,000 and imprisonment for five years, which may double if the violation occurs in conjunction with certain other violations).
117 31 U.S.C. sec. 5321(a)(5).
118 The provision relating to returns of employee benefit plans was repealed by section 32104 of the Fixing America's Surface Transportation ("FAST") Act, Pub. L. No. 114-94, as described in Part Twelve, Title XXXII, item C.
119 Sec. 420. Qualified transfers of excess assets are generally made within single-employer defined benefit plans, but are permitted also within multiemployer plans.
120 Sec. 101(e) of the Employee Retirement Income Security Act of 1974.
121 These fuels are subject to an additional 0.1-cent-per-gallon excise tax to fund the Leaking Underground Storage Tank ("LUST") Trust Fund (secs. 4041(d) and 4081(a)(2)(B)). That tax is imposed as an "add-on" to other existing taxes.
122 Diesel-water emulsions are taxed at 19.7 cents per gallon (sec. 4081(a)(2)(D)).
123 The rate of tax is 24.3 cents per gallon in the case of liquefied natural gas, any liquid fuel (other than ethanol or methanol) derived from coal, and liquid hydrocarbons derived from bio-mass. Other alternative fuels sold or used as motor fuel are generally taxed at 18.3 cents per gallon. "Alternative fuel" also includes compressed natural gas. The rate for compressed natural gas is 18.3 cents per energy equivalent of a gallon of gasoline. See sec. 4041(a)(2) and (3).
127 Sec. 4980H. This is sometimes referred to as the employer shared responsibility requirement or employer mandate. An applicable large employer is also subject to annual reporting requirements under section 6056. Premium assistance credits for health insurance purchased on an American Health Benefit Exchange are provided under section 36B. Reduced cost-sharing for an individual's share of expenses covered by such health insurance is provided under section 1402 of PPACA. For further information on these provisions, see Part II.B-D of Joint Committee on Taxation, Present Law and Background Relating to the Tax-Related Provisions in the Affordable Care Act (JCX-6-13), March 4, 2013, available at www.jct.gov.
128 Under the ACA, these rules are effective for months beginning after December 31, 2013. However, in Notice 2013-45, 2013-31 I.R.B. 116, Part III, Q&A-2, the Internal Revenue Service ("IRS") announced that no assessable payments will be assessed for 2014. In addition, in 2014, the IRS announced that no assessable payments for 2015 will apply to applicable large employers that have fewer than 100 full-time employees and full-time equivalent employees and meet certain other requirements. Section XV.D.6 of the preamble to the final regulations, T.D. 9655, 79 Fed. Reg. 8544, 8574-8575, February 12, 2014.
129 Additional rules apply, for example, in the case of an employer that was not in existence for the entire preceding calendar year.
130 The rules for determining controlled group, group under common control, and affiliated service group under section 414(b), (c), (m) and (o) apply for this purpose. If the group is an applicable large employer under this test, each member of the group is an applicable large employer and subject to the employer shared responsibility requirement even if the member by itself would not be an applicable large employer. In addition, in determining assessable payments (as discussed herein), only one 30-employee reduction in full-time employees applies to the group and is allocated among the members ratably based on the number of full-time employees employed by each member.
131 For calendar years after 2014, the $2,000 dollar amount, and the $3,000 dollar amount referenced herein, are increased by the percentage (if any) by which the average per capita premium for health insurance coverage in the United States for the preceding calendar year (as estimated by the Secretary of Health and Human Services ("HHS") no later than October 1 of the preceding calendar year) exceeds the average per capita premium for 2013 (as determined by the Secretary of HHS), rounded down to the nearest $10.
132 Under section 36B(c)(2)(C), coverage under an employer-sponsored plan is unaffordable if the employee's share of the premium for self-only coverage exceeds 9.5 percent of household income, and the coverage fails to provide minimum value if the plan's share of total allowed cost of provided benefits is less than 60 percent of such costs.
133 110 U.S.C. chapter 55. Under section 5000A(f)(1)(A)(iv), this coverage satisfies the requirement under ACA that individuals have minimum essential coverage.
134 138 U.S.C. chapters 17 and 18.
135 Under section 5000A(f)(1)(A)(v), minimum essential coverage includes coverage under a VHA health care program, as determined by the Secretary of Veterans Affairs, in coordination with the Secretary of Health and Human Services and the Secretary. Under Treas. Reg. sec. 1.5000A-2(b)(1)(v), the medical benefits package that enrolled veterans receive and CHAMPVA coverage are minimum essential coverage, as well as the comprehensive health care program for certain children of Vietnam Veterans and Veterans of covered service in Korea who are suffering from spina bifida.
136 Notice 2004-50, 2004-2 C.B. 196, Q&A-5.
137 Notice 2004-50, Q&A-5; Notice 2008-59, 2008-2 C.B. 123, Q&A-9.
138 For this purpose, the definition of service-connected disability under 38 U.S.C. sec. 101(16) applies.
139 H.R. 3614. The House passed H.R. 3614 on September 28, 2015. The Senate passed the bill without amendment on September 29, 2015. The President signed the bill on September 30, 2015.
140 Air transportation through U.S. airspace that neither lands in nor takes off from a point in the United States (or the 225-mile zone, described below) is exempt from the aviation excise taxes, but the transportation provider is subject to certain "overflight fees" imposed by the Federal Aviation Administration pursuant to Congressional authorization.
141 The domestic flight segment portion of the tax is adjusted annually (effective each January 1) for inflation (adjustments based on the changes in the consumer price index (the "CPI")). Special rules apply to air transportation between the continental United States and Alaska or Hawaii and between Alaska and Hawaii. The portion of such transportation that is not within the United States (e.g., the portion over the Pacific Ocean) is not subject to the 7.5-percent domestic air passenger excise tax. In addition to this pro-rated ad valorem tax, an $8.90 (2015) international tax rate for the excluded portion of the travel is imposed. The domestic flight segment component of tax applies under the same rules as for flights within the continental United States. Further, transportation within Alaska or Hawaii is taxed in the same manner as domestic transportation within the continental United States.
142 The international arrival and departure tax rate is adjusted annually for inflation (measured by changes in the CPI).
143 Like most other taxable motor fuels, aviation fuels are subject to an additional 0.1-cent-per-gallon excise tax to fund the LUST Trust Fund.
145 Sec. 9502 and 49 U.S.C. sec. 48101, et. seq.
148 H.R. 3819. The House passed H.R. 3819 on October 27, 2015. The bill passed the Senate without amendment on October 28, 2015. The President signed the bill on October 29, 2015.
149 H.R. 1314. The House Ways and Means Committee reported H.R. 1314 on April 13, 2015 (H.R. Rep. No. 114-67). The House passed the bill on April 15, 2015. The Senate passed the bill with an amendment on May 22, 2015. The House agreed to an amendment to the Senate amendment on October 28, 2015. The Senate agreed to the House amendment on October 30, 2015. The President signed the bill on November 2, 2015.
150 Sections 501-502 of the Act change the premiums required to be paid to the Pension Benefit Guaranty Corporation with respect to single-employer defined benefit plans under sections 4006-4007 of the Employee Retirement Income Security Act of 1974 ("ERISA").
151 Secs. 412 and 430; ERISA secs. 302-303. For purposes of whether a plan is maintained by a single employer, certain related entities, such as the members of a controlled group, are treated as a single employer. Different funding rules apply to multiemployer and certain multiple-employer defined benefit plans, which are types of plans maintained by two or more unrelated employers. A number of exceptions to the minimum funding rules apply. For example, governmental plans (within the meaning of section 414(d)) and church plans (within the meaning of section 414(e)) are generally not subject to the minimum funding rules. Under section 4971, an excise tax generally applies if the minimum funding requirements are not satisfied.
152 Pub. L. No. 109-280. The PPA minimum funding rules for single-employer plans are generally effective for plan years beginning after December 31, 2007. Subsequent changes were made by the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"), Pub. L. No. 110-458; the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 ("PRA 2010"), Pub. L. No. 111-192; and the Moving Ahead for Progress in the 21st Century Act, Pub. L. No. 112-141, and the Highway and Transportation Funding Act of 2014, Pub. L. No. 113-159, discussed further herein.
153 The value of plan assets is generally reduced by any prefunding balance or funding standard carryover balance in determining minimum required contributions. A prefunding balance results from plan contributions that exceed the minimum required contributions. A funding standard carryover balance results from a positive balance in the funding standard account that applied under the funding requirements in effect before PPA. Subject to certain conditions, a prefunding balance or funding standard carryover balance may be credited against the minimum required contribution for a year, reducing the amount that must be contributed.
154 If the plan has obtained a waiver of the minimum required contribution (a funding waiver) within the past five years, the minimum required contribution also includes the related waiver amortization charge, that is, the annual installment needed to amortize the waived amount in level installments over the five years following the year of the waiver.
155 If the value of plan assets, reduced only by any prefunding balance if the employer elects to apply the prefunding balance against the required contribution for the plan year, is at least equal to the plan's funding target, no shortfall amortization base is established for the year.
156 Under PRA 2010, employers were permitted to elect to use one of two alternative extended amortization schedules for up to two "eligible" plan years during the period 2008-2011. The use of an extended amortization schedule has the effect of reducing the amount of the shortfall amortization installments attributable to the shortfall amortization base for the eligible plan year. However, the shortfall amortization installments attributable to an eligible plan year may be increased by an additional amount, an "installment acceleration amount," in the case of employee compensation exceeding $1 million, extraordinary dividends, or stock redemptions within a certain period of the eligible plan year.
157 Any amortization base relating to a funding waiver for a previous year is also eliminated.
158 Sec. 430(h)(3) and ERISA sec. 303(h)(3). Separate mortality tables are required to be used with respect to disabled participants.
159 Treas. Reg. sec. 1.430(h)(3)-2, as updated by Notice 2008-85, 2008-42 I.R.B. 905, for valuation dates occurring in 2009-2013, Notice 2013-49, 2013-32 I.R.B. 127, for valuation dates occurring in calendar years 2014 and 2015, and Notice 2015-53, 2015-33 I.R.B. 190, for valuation dates occurring in calendar year 2016. These tables are based on the tables contained in a report issued by the Society of Actuaries in July 2000, the RP-2000 Mortality Tables Report, after a study of mortality experience for retirement plan participants. Notices 2013-49 and 2015-53 discuss the Society of Actuaries' recent studies and reports on mortality experience for retirement plan participants and the expectation that the Treasury Department and IRS will issue proposed regulations providing updated mortality tables.
160 Sec. 430(h)(3)(C) and ERISA sec. 303(h)(3)(C).
161 Treas. Reg. sec. 1.430(h)(3)-2; Rev. Proc. 2008-62, 2008-2 C.B. 935, superseding Rev. Proc. 2007-37, 2007-1 C.B. 1433.
162 Sec. 430(h)(2) and ERISA sec. 303(h)(2).
163 Subject to an exception for small plans with no more than 100 participants, the annual valuation date for a plan must be the first day of the plan year.
164 Solely for purposes of determining minimum required contributions, in lieu of the segment rates, an employer may elect to use interest rates on a yield curve based on the yields on investment grade corporate bonds for the month preceding the month in which the plan year begins (that is, without regard to the 24-month averaging described above) ("monthly yield curve"). If an election to use a monthly yield curve is made, it cannot be revoked without IRS approval.
165 ERISA sec. 101(f). Annual funding notice requirements, with some differences, apply also to multiemployer and multiple-employer plans.
166 In applying the funding rules, the value of plan assets may be determined on the basis of average fair market values over a period of up to 24 months. PBGC variable-rate premiums are based on a plan's unfunded vested benefit liabilities, computed using the first, second and third segment rates as determined under the PPA rules (without the adjustments applicable for funding purposes), but based on a monthly corporate bond yield curve, rather than a yield curve reflecting average yields for a 24-month period.
167 The provision specifies also that this standard is materially different from rules relating to substitute mortality tables in effect on the date of enactment of the provision, including Rev. Proc. 2007-37.
170 See sec. 6072(b) as amended by Pub. L. No. 114-41, sec. 2006 (114th Congress). For taxable years beginning after December 31, 2015, a partnership can request a six-month extension of time to file. See also Department of the Treasury, Internal Revenue Service, 2011 Instructions for Form 1065, U.S. Return of Partnership Income, p. 4.
172 Secs. 6221-6234. TEFRA refers to the Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. No. 97-248), in which these rules were enacted.
173 Secs. 6231 and 6201 et seq.
174 Sec. 6231(a)(3). Any item that is affected by a partnership item (for example, on the partner's return) is an "affected item." Affected items of a partner are subject to determination at the partner level. Sec. 6231(a)(5).
175 See Joint Committee on Taxation, General Explanation of the Revenue Provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (JCS-38-82), December 31, 1982, p. 268. Additional reasons for the 1982 change mentioned include the problems of duplication of administrative and judicial effort, inconsistent results, difficulty of reaching settlement, and inadequacy of prior-law filing and recordkeeping requirements for foreign partnerships with U.S. partners.
176 Sec. 6224(c). The IRS has set forth procedures for entering into such partnership audit settlement agreements, which are summarized in Part F of Chief Counsel Notice 2009-27, "Frequently Asked Questions Regarding The Unified Partnership Audit And Litigation Procedures Set Forth In Sections 6221-6234," IRS CC Notice 2009-027, August 21, 2009.
180 Secs. 6240-6255, enacted by the Taxpayer Relief Act of 1997, Pub. L. No. 105-34.
183 See Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in 1997 (JCS-23-97), December 17, 1997, p. 363.
189 See Treas. Reg. sec. 301.7701-2 and -3.
201 Sec. 6621(a)(2). Rules relating to interest, penalties, and additions to tax are further described below.
203 Sec. 6225(b)(1). The rule for determining the imputed underpayment applies except as provided in subsection 6225(c), which provides that the Secretary shall establish procedures under which the imputed underpayment amount may be modified consistent with requirements imposed thereunder.
207 See section 411 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113). Under the provision, certain section 469(k) passive activity losses can reduce the imputed underpayment of a publicly traded partnership under the centralized system. The imputed underpayment can be determined without regard to the portion of the underpayment that the partnership demonstrates is attributable to (i.e., would be offset by) specified passive activity losses attributable to a specified partner. The amount of the specified passive activity loss is concomitantly decreased, and the partnership takes the net decrease into account as an adjustment in the adjustment year with respect to the specified partners to which the net decrease relates. A specified passive activity loss for any specified partner of a publicly traded partnership means the lesser of the section 469(k) passive activity loss of that partner which is separately determined with respect to the partnership (1) for the partner's taxable year in which or with which the reviewed year of the partnership ends, or (2) for the partner's taxable year in which or with which the adjustment year of the partnership ends. A specified partner is a person who continuously meets each of three requirements for the period starting with the partner's taxable year in which or with which the partnership reviewed year ends through the partner's taxable year in which or with which the partnership adjustment year ends. These three requirements are that the person is a partner of the publicly traded partnership; the person is an individual, estate, trust, closely held C corporation, or personal service corporation; and the person has a specified passive activity loss with respect to the publicly traded partnership.
210 Secs. 6225(c)(3) and 168(h)(2)(A).
212 The Secretary has regulatory authority under the provision, including authority to acknowledge or identify the types of income, gain, deduction, and loss to which the lower rate applies. See also section 411 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113). A lower rate of tax may be taken into account in the case of either capital gain or ordinary income of a partner that is a C corporation.
219 Sec. 6226(d). See section 411 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113).
221 See section 703, which states, "the taxable income of a partnership shall be computed in the same manner as in the case of an individual . . .".
224 Not including the modifications pursuant to filing of amended returns of reviewed year partners in new section 6225(c)(2).
225 Sec. 6227(b)(2); interest is computed at the underpayment rate (sec. 6621(a)(2)) without substituting "5 percentage points" for "3 percentage points" as under section 6226(c)(2)(C).
235 Secs. 6232(a) and 6227(b)(1).
244 Secs. 6233(b)(3)(A) and 6651(a)(2).
245 Secs. 6662, 6662A, 6663, and 6664.
247 See section 411 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113), which rectifies the unintended conflict between section 6231 (barring the Secretary from issuing the notice of final partnership adjustment earlier than the expiration of the 270 days after the notice of a proposed adjustment) and section 6235 (requiring that a notice of final partnership adjustment be filed no later than 270 days after the notice of proposed adjustment in the case of a partnership that does not seek modification of the imputed underpayment). As amended, section 6235 provides that a notice of final partnership adjustment to a partnership that does not seek modification of an underpayment in response to a notice of proposed adjustment may be issued up to 330 days (plus any additional number of days that were agreed upon as an extension of time for taxpayer response) after the notice of proposed adjustment.
252 That is, a proceeding brought under subchapter C of chapter 63 of the Code.
253 Section 6330 establishes the requirement that the IRS provide notice of potential collection action and offer an opportunity for a hearing before an impartial officer, and identifies which issues may be raised at such hearing and which are precluded. Issues permitted to be raised include the underlying liability only if the taxpayer did not receive a notice of deficiency or otherwise have an opportunity to contest the liability. Prior to amendment, the issues that were precluded listed those that were the subject of any previous administrative or judicial proceeding. Treas. Reg. 301-6330. The Secretary's power to levy is set forth in present-law section 6331.
254 For example, under TEFRA, the IRS permits partners to raise computational issues, interest abatement questions and other collection due process rights in administrative appeals in order to assure consistency in the handling of the cases, even though the partners are precluded from questioning the substance of the partnership adjustment. See Internal Revenue Manual, paragraph 8.22.8.19, TEFRA Partnerships.
255 The requirement of furnishing partner information returns is imposed by section 6031(b). See section 411 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113), correcting a conforming amendment to strike the last sentence of section 6031(b) under prior law, which sentence related to repealed provisions on electing large partnerships.
256 This rule does not, however, preclude the filing of amended returns of reviewed-year partners pursuant to the procedure for modification of an imputed underpayment in section 6225(c)(2).
257 The partnership that files the administrative adjustment request is not precluded from furnishing under section 6227(b)(2) an adjusted statement (similar to a Schedule K-1) to each reviewed-year partner, who is then required to pay tax attributable to the partnership adjustment (as provided under guidance provided by the Secretary).
258 Sec. 761(a). See also sec. 7701(a)(2).
259Commissioner v. Culbertson, 337 U.S. 733, 742 (1949).
262 Pub. L. No. 82-183, sec. 340(a).
263 S. Rep. No. 781, 82d Cong., 1st Sess., 38, 39 (1951): H.R. Rep. No. 586, 82d Cong., 1st Sess. 32 (1951).
264 See 4 Bittker and Lokken, Federal Taxation of Income, Estates, and Gifts, para. 86.3.1, at 86-29 (3rd ed. 2003). "The reference to 'ownership' of a capital interest is odd because it is a pervasive principle of tax law, seemingly needing no repetition for a limited class of assets, that income from property transferred by gift is thereafter taxed to the donee."
265TIFD III-E, Inc. v. United States, 459 F.3d 220 (2d Cir. 2006), reversing and remanding 342 F.Supp. 2d 94 (D. Conn. 2004). TIFD III-E, Inc. was tax matters partner for Castle Harbour, LLC.
266TIFD III-E, Inc. v. United States, 660 F. Supp. 2d 367 (D. Conn. 2009).
267TIFD III-E, Inc. v. United States, 666 F.3d 836 (2d Cir. 2012).
268 The predecessor to section 704(e)(1) was located in the definitions at section 3797(a)(2) of the Internal Revenue Code of 1939. It was placed at section 704(e)(1) when the Code was recodified as the Internal Revenue Code of 1954.
269 H.R. 3996. The House passed H.R. 3996 on November 16, 2015. The bill passed the Senate without amendment on November 19, 2015. The President signed the bill on November 20, 2015.
270 H.R. 22. The House passed H.R, 22 on January 6, 2015. The Senate Committee on Finance reported H.R. 22 on February 12, 2015 (S. Rep. No. 114-3). The Senate passed H.R. 22 with an amendment on July 30, 2015. The conference report was filed on December 1, 2015 (H. Rep. No. 114-357) and was passed by the House on December 3, 2015, and the Senate on December 3, 2015. The President signed the bill on December 4, 2015.
271 Sec. 9503. The Highway Trust Fund statutory provisions were placed in the Internal Revenue Code in 1982.
274 Cross-references to the reauthorization Act in the Code provisions governing the Sport Fish Restoration and Boating Trust Fund are also updated to include the FAST Act. In addition the date references in the Code provisions governing the Leaking Underground Storage Tank Trust Fund, and the Sport Fish Restoration and Boating Trust Fund are also updated.
275 This portion of the tax rates was enacted as a deficit reduction measure in 1993. Receipts from it were retained in the General Fund until 1997 legislation provided for their transfer to the Highway Trust Fund.
276 Secs. 4081(a)(2)(A)(i), 4081(a)(2)(A)(iii), 4041(a)(2), 4041(a)(3), and 4041(m). Some of these fuels also are subject to an additional 0.1-cent-per-gallon excise tax to fund the Leaking Underground Storage Tank Trust Fund (secs. 4041(d) and 4081(a)(2)(B)).
277 See secs. 4041(a)(2), 4041(a)(3), and 4041(m).
282 The Hiring Incentives to Restore Employment Act (the "HIRE" Act), Pub. L. No. 111-147, sec. 442.
283 Moving Ahead for Progress in the 21st Century Act ("MAP-21"), Pub. L. No. 112-141, sec. 40201(a)(2), and sec. 40251.
284 Highway and Transportation Funding Act of 2014, Pub. L. No. 113-159, sec. 2002.
285 Secs. 4041, 4042, and 4081.
286 "Passport Act of 1926," 22 U.S.C. sec. 211a et seq.
292 The amount is indexed to inflation annually, based on calendar year 2015.
293 This provision generally applies to any type of tax imposed under the Internal Revenue Code.
294 An amount of tax reported as due on the taxpayer's tax return is considered to be self-assessed. If the IRS determines that the assessment or collection of tax will be jeopardized by delay, it has the authority to assess the amount immediately (sec. 6861), subject to several procedural safeguards.
295 The provision requires that the IRS disclose confidential taxpayer information to the private debt collection company. Section 6103(n) permits disclosure of returns and return information for "the providing of other services . . . for purposes of tax administration."
296 The private debt collection company is not permitted to accept payment directly. Payments are required to be processed by IRS employees.
297 Pub. L. No. 111-8, March 11, 2009.
298 IR-2009-19, March 5, 2009.
300 Sec. 412. Most governmental plans (defined in section 414(d)) and church plans (defined in section 414(e)) are exempt from the minimum funding requirements.
302 Treas. Reg. secs. 301.6058-1(a) and 301.6059-1. Form 5500 consists of a main form and various schedules, some of which require additional information to be included. The schedules that must be filed and the additional information that must be included with Form 5500 depend on the type and size of plan. A simplified annual reporting form, Annual Return/Report of Small Employee Benefit Plan, Form 5500-SF, is available to certain plans (covering fewer than 100 employees) that are subject to reporting requirements under ERISA and the Code. References herein to Form 5500 include Form 5500-SF.
303 ERISA secs. 103, 104, and 4065. Most governmental plans and church plans are exempt from ERISA, including the ERISA reporting requirements. ERISA section 3004 requires that, when the IRS and DOL carry out provisions relating to the same subject matter, they must consult with each other and develop rules, regulations, practices and forms designed to reduce duplication of effort, duplication of reporting, and the burden of compliance by plan administrators and employers. Under ERISA section 4065, the PBGC is required to work with the IRS and DOL to combine the annual report to PBGC with reports required to be made to those agencies.
304 Form 5500 filings are also publicly released in accordance with section 6104(b) and Treas. Reg. section 301.6104(b)-1 and ERISA sections 104(a)(1) and 106(a).
305 Under ERISA section 104(a)(1), the annual report is due within 210 days after the close of the plan year or within such time as provided by regulations to reduce duplicative filings. DOL and IRS regulations provide for filing at the time required by the forms and instructions issued by the agencies. 29 C.F.R. sec. 2520.104a-5(a)(2) and Treas. Reg. secs. 301.6058-1(a)(4) and 301.6059-1(a).
306 Treas. Reg. sec. 1.6081-11(a). Instructions for Form 5500 also provide for an automatic extension of time to file the Form 5500 until the due date of the Federal income tax return of the employer maintaining the plan if (1) the plan year and the employer's tax year are the same; (2) the employer has been granted an extension of time to file its federal income tax return to a date later than the normal due date for filing the Form 5500; and (3) a copy of the application for extension of time to file the Federal income tax return is maintained with the records of the Form 5500 filer. An extension granted by using this automatic extension procedure cannot be extended beyond a total of 9° months beyond the close of the plan year.
307 Sec. 2006(b)(3) of Pub. L. No. 114-41 (July 31, 2015). See Part Seven, Title II, item F.
308 H.R. 2029. The House passed H.R. 2029 on April 30, 2015. The Senate passed the bill with an amendment on November 10, 2015. The House agreed to amendments to the Senate amendment on December 17, and December 18, 2015, and the bill, as amended, passed the House on December 18, 2015. The Senate agreed to the House amendments on December 18, 2015. The President signed the bill on December 18, 2015.
309 Sec. 4980I, which was added to the Code by section 9001 of PPACA and amended by section 10901 of PPACA and section 1401 of HCERA.
310 The health cost adjustment percentage is 100 percent plus the excess, if any, of (1) the percentage by which the cost of standard FEHBP coverage for 2018 (determined according to specified criteria) exceeds the cost of standard FEHBP coverage for 2010, over (2) 55 percent.
311 Under section 4980I, the 2018 threshold amounts are increased by $1,650 for self-only coverage or $3,450 for other coverage in the case of certain retirees and participants in a plan covering employees in a high-risk profession or repair or installation of electrical or telecommunications lines. For years after 2018, the threshold amounts (after application of the health cost adjustment percentage), and the increases for certain retirees and participants in a plan covering employees in a high-risk profession or repair or installation of electrical or telecommunications lines, are indexed to the Consumer Price Index for Urban Consumers ("CPI-U") (CPI-U increased by one percentage point for 2019 only), rounded to the nearest $50.
312 Sec. 275(a)(6), referring to taxes imposed by chapter 43.
313 Section 106 provides an exclusion for employer-provided coverage.
314 Some types of coverage are not included in applicable employer-sponsored coverage, such as long-term care coverage, separate insurance coverage substantially all the benefits of which are for treatment of the mouth (including any organ or structure within the mouth) or of the eye, and certain excepted benefits. Excepted benefits for this purpose include (whether through insurance or otherwise) coverage only for accident, or disability income insurance, or any combination thereof; coverage issued as a supplement to liability insurance; liability insurance, including general liability insurance and automobile liability insurance; workers' compensation or similar insurance; automobile medical payment insurance; credit-only insurance; and other similar insurance coverage (as specified in regulations), under which benefits for medical care are secondary or incidental to other insurance benefits. Applicable employer-sponsored coverage does not include coverage only for a specified disease or illness or hospital indemnity or other fixed indemnity insurance if the cost of the coverage is not excludible from an employee's income or deductible by a self-employed individual.
315 Section 162(l) allows a deduction to a self-employed individual for the cost of health insurance.
317 As defined in section 414(f), a multiemployer plan is generally a plan to which more than one employer is required to contribute and that is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer.
318 The excise tax is allocated pro rata among the coverage providers, with each responsible for the excise tax on an amount equal to the total excess benefit multiplied by a fraction, the numerator of which is the cost of the applicable employer-sponsored coverage of that coverage provider and the denominator of which is the aggregate cost of all applicable employer-sponsored coverage of the employee.
319 The employer or multiemployer plan sponsor may be liable for a penalty if the total excise tax due exceeds the tax on the excess benefit calculated and allocated among coverage providers by the employer or plan sponsor.
320 The Act provides that section 275(a)(6) that denies a deduction for taxes imposed by chapter 43 does not apply to this excise tax.
321 "PPACA", Pub. L. No. 111-148, as amended.
323 The Senate Committee on Finance reported S. 1946 ("Tax Relief Extension Act of 2015") on August 5, 2015 (S. Rep. No. 114-118). See sec. 157 of the bill as reported.
324 Sec. 45. In addition to the renewable electricity production credit, section 45 also provides income tax credits for the production of Indian coal and refined coal at qualified facilities.
328 See section 302 of the Act relating to an extension of the January 1, 2015, date in the case of wind facilities.
329 For this purpose, adjusted gross income is determined after application of sections 86, 135, 137, 219, 221, 222, and 469, without regard to the section 199 deduction. Sec. 199(d)(2).
331 This example assumes the deduction does not exceed the wage limitation discussed below.
332 Sec. 199(c)(1). In computing qualified production activities income, the domestic production activities deduction itself is not an allocable deduction. Sec. 199(c)(1)(B)(ii). See Treas. Reg. secs. 1.199-1 through 1.199-9 where the Secretary has prescribed rules for the proper allocation of items of income, deduction, expense, and loss for purposes of determining qualified production activities income.
333 Qualifying production property generally includes any tangible personal property, computer software, and sound recordings. Sec. 199(c)(5).
334 When used in the Code in a geographical sense, the term "United States" generally includes only the States and the District of Columbia. Sec. 7701(a)(9). A special rule for determining domestic production gross receipts, however, provides that for taxable years beginning after December 31, 2005, and before January 1, 2017, in the case of any taxpayer with gross receipts from sources within the Commonwealth of Puerto Rico, the term "United States" includes the Commonwealth of Puerto Rico, but only if all of the taxpayer's Puerto Rico-sourced gross receipts are taxable under the Federal income tax for individuals or corporations for such taxable year. Secs. 199(d)(8)(A) and (C), as extended by section 170 of the Act. In computing the 50-percent wage limitation, the taxpayer is permitted to take into account wages paid to bona fide residents of Puerto Rico for services performed in Puerto Rico. Sec. 199(d)(8)(B).
335 Qualified film includes any motion picture film or videotape (including live or delayed television programming, but not including certain sexually explicit productions) if 50 percent or more of the total compensation relating to the production of the film (including compensation in the form of residuals and participations) constitutes compensation for services performed in the United States by actors, production personnel, directors, and producers. Sec. 199(c)(6).
337 For purposes of the provision, "W-2 wages" include the sum of the amounts of wages as defined in section 3401(a) and elective deferrals that the taxpayer properly reports to the Social Security Administration with respect to the employment of employees of the taxpayer during the calendar year ending during the taxpayer's taxable year. Elective deferrals include elective deferrals as defined in section 402(g)(3), amounts deferred under section 457, and, for taxable years beginning after December 31, 2005, designated Roth contributions (as defined in section 402A). See sec. 199(b)(2). The wage limitation for qualified films includes any compensation for services performed in the United States by actors, production personnel, directors, and producers and is not restricted to W-2 wages. Sec. 199(b)(2)(D), effective for taxable years beginning after December 31, 2007.
338 Sec. 199(d)(9). For example, assume a C corporation (the "taxpayer") has qualified production activities income of $750,000 -- of which $650,000 is oil related qualified production activities income -- taxable income of $2,000,000, and has paid sufficient domestic production wages to not be subject to the wages paid limitation for the taxable year. The taxpayer's tentative section 199 deduction of $67,500 ($750,000 * 9 percent) is reduced by $19,500 ($650,000 * 3 percent), resulting in a section 199 deduction of $48,000 for the taxable year ($67,500 - $19,500).
339 See also Prop. Treas. Reg. sec. 1.199-1(f) (REG-136459-09) where the Secretary has proposed guidance on oil related qualified production activities income. Prop. Treas. Reg. sec. 1.199-1(f) will apply to taxable years beginning on or after the date the final regulations are published in the Federal Register.
340 Continuing the above example, assume the taxpayer has properly allocable oil related transportation costs of $100,000 that were included in determining the qualified production activities income noted above. Under this provision, the taxpayer will only allocate $25,000 of such costs to domestic production gross receipts. Thus, the taxpayer's oil related qualified production activities income of $650,000 and qualified production activities income of $750,000 will each increase by $75,000 ($100,000 - $25,000), resulting in oil related qualified production activities income of $725,000 and qualified production activities income of $825,000. Hence, the taxpayer's tentative section 199 deduction of $74,250 ($825,000 * 9 percent) is reduced by $21,750 ($725,000 * 3 percent), resulting in a section 199 deduction of $52,500 for the taxable year ($74,250 - $21,750) (compared to $48,000 under present law).
341 The Senate Committee on Finance reported S. 1946 ("Tax Relief Extension Act of 2015") on August 5, 2015 (S. Rep. No. 114-118). The bill generally extended expiring provisions through 2016 with some modifications. The House Committee on Ways and Means reported the following bills relating to the modification and making permanent or extending certain expiring provisions: H.R. 629 ("Permanent S Corporation Built-in Gain Recognition Period Act of 2015") on February 9, 2015 (H.R. Rep. No. 114-15), H.R. 630 ("Permanent S Corporation Charitable Contribution Act of 2015") on February 9, 2015 (H.R. Rep. No. 114-16), H.R. 641 ("Conservation Easement Incentive Act of 2015") on February 9, 2015 (H.R. Rep. No. 114-17), H.R. 644 ("America Gives More Act of 2015") on February 9, 2015 (H.R. Rep. No. 114-18), H.R. 637 ("Permanent IRA Charitable Contribution Act of 2015") on February 9, 2015 (H.R. Rep. No. 114-20), H.R. 636 ("America's Small Business Tax Relief Act of 2015") on February 9, 2015 (H.R. Rep. No.114-21), H.R. 622 ("State and Local Sales Tax Deduction Fairness Act of 2015") on April 6, 2015 (H.R. Rep. No. 114-51), H.R. 880 ("American Research and Competitiveness Act of 2015") on May 14, 2015 (H.R. Rep. 114-113), H.R. 765 ("Restaurant and Retail Jobs and Growth Act of 2015") on October 23, 2015 (H.R. Rep No. 114-306), H.R. 961 ("Permanent Active Financing Exception Act of 2015") on October 23, 2015 (H.R. Rep. No. 114-307), H.R. 1430 ("Permanent CFC Look-Through Act of 2015") on October 23, 2015 (H.R. Rep. No. 114-309), H.R. 2940 ("Educator Tax Relief Act of 2015") on October 23, 2015 (H.R. Rep. No. 114-310), and H.R 2510 (relating to bonus depreciation) on October 28, 2015 (H.R. Rep. No. 114-317, Part 1). Each of the bills reported by the House Committee on Ways and Means prior to October passed the House, either separately or in a bill combining certain of the provisions.
344 Sec. 25A. For taxable years 2009-2017, the American Opportunity tax credit applies (discussed infra). Both the Hope credit and the American Opportunity tax credit (in the case of taxable years from 2009-2017) may be claimed against a taxpayer's alternative minimum tax liability.
345 All income thresholds are indexed for inflation annually.
348 Secs. 132(a)(5) and (f), 3121(a)(20), 3231(e)(5), 3306(b)(16) and 3401(a)(19).
349 The base year used for each adjustment reflects the year for which the particular monthly limit became effective. Specifically, a base year of 1998 is used for qualified parking benefits and a base year of 2001 for combined transit pass and vanpool benefits.
350 Parity was provided originally by the American Recovery and Reinvestment Act of 2009 ("ARRA"), Pub. L. No. 111-5, effective for months beginning on or after February 17, 2009, the date of enactment of ARRA.
351 The provision failed to include a conforming change to repeal the base year applicable in adjusting the monthly amount for combined transit pass and vanpool benefits. A technical correction is needed to make this change.
353 Secs. 170, 2055, and 2522, respectively.
354 Secs. 170(f)(3)(B)(iii) and 170(h).
357 Secs. 170(b)(1)(E)(vi) and 170(b)(2)(B)(iii).
358 43 U.S.C. sec. 1602(m) (providing that the term Native Corporation includes "any Regional Corporation, any Village Corporation, any Urban Corporation, and any Group Corporation," as those terms are defined under the Alaska Native Claims Settlement Act).
363 Sec. 170(f)(8). For any contribution of a cash, check, or other monetary gift, no deduction is allowed unless the donor maintains as a record of such contribution a bank record or written communication from the donee charity showing the name of the donee organization, the date of the contribution, and the amount of the contribution. Sec. 170(f)(17).
365 Secs. 170(f), 2055(e)(2), and 2522(c)(2).
367 Minimum distribution rules also apply in the case of distributions after the death of a traditional or Roth IRA owner.
368 Conversion contributions refer to conversions of amounts in a traditional IRA to a Roth IRA.
370 Sec. 408(d)(8). The exclusion does not apply to distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pensions ("SEPs").
372 Sec. 170(b)(1). The contribution base is the adjusted gross income determined without regard net operating loss carrybacks.
377 Lucky Stores Inc. v. Commissioner, 105 T.C. 420 (1995) (holding that the value of surplus bread inventory donated to charity was the full retail price of the bread rather than half the retail price, as the IRS asserted).
379 The ten-percent limitation does not affect the application of the generally applicable percentage limitations. For example, if ten percent of a sole proprietor's net income from the proprietor's trade or business is greater than 50 percent of the proprietor's contribution base which otherwise limits the deduction, the available deduction for the taxable year (with respect to contributions to public charities) is 50 percent of the proprietor's contribution base. Consistent with present law, these contributions may be carried forward because they exceed the 50-percent limitation. Contributions of food inventory by a taxpayer that is not a C corporation that exceed the ten-percent limitation but do not exceed the 50-percent limitation may not be carried forward.
387 Sec. 41(a)(2) and (e). The base period for the basic research credit generally extends from 1981 through 1983.
390 The Small Business Job Protection Act of 1996 expanded the definition of start-up firms under section 41(c)(3)(B)(i) to include any firm if the first taxable year in which such firm had both gross receipts and qualified research expenses began after 1983. A special rule (enacted in 1993) is designed to gradually recompute a start-up firm's fixed-base percentage based on its actual research experience. Under this special rule, a start-up firm is assigned a fixed-base percentage of three percent for each of its first five taxable years after 1993 in which it incurs qualified research expenses. A start-up firm's fixed-base percentage for its sixth through tenth taxable years after 1993 in which it incurs qualified research expenses is a phased-in ratio based on the firm's actual research experience. For all subsequent taxable years, the taxpayer's fixed-base percentage is its actual ratio of qualified research expenses to gross receipts for any five years selected by the taxpayer from its fifth through tenth taxable years after 1993. Sec. 41(c)(3)(B).
394 Under a special rule, 75 percent of amounts paid to a research consortium for qualified research are treated as qualified research expenses eligible for the research credit (rather than 65 percent under the general rule under section 41(b)(3) governing contract research expenses) if (1) such research consortium is a tax-exempt organization that is described in section 501(c)(3) (other than a private foundation) or section 501(c)(6) and is organized and operated primarily to conduct scientific research, and (2) such qualified research is conducted by the consortium on behalf of the taxpayer and one or more persons not related to the taxpayer. Sec. 41(b)(3)(C).
397 Sec. 280C(c). For example, assume that a taxpayer makes credit-eligible research expenditures of $1 million during the year and that the base period amount is $600,000. Under the standard credit calculation (i.e., where a taxpayer may claim a research credit equal to 20 percent of the amount by which its qualified expenses for the year exceed its base period amount), the taxpayer is allowed a credit equal to 20 percent of the $400,000 increase in research expenditures, or $80,000 (($1 million - $600,000) * 20% = $80,000). To avoid a double benefit, the amount of the taxpayer's deduction under section 174 is reduced by $80,000 (the amount of the research credit), leaving a deduction of $920,000 ($1 million - $80,000).
398 Sec. 280C(c)(3). Taxpayers making this election reduce the allowable research credit by the maximum corporate tax rate (currently 35 percent). Continuing with the example from the prior footnote, an electing taxpayer would have its credit reduced to $52,000 ($80,000 - ($80,000 * 0.35%)), but would retain its $1 million deduction for research expenses. This option might be desirable for a taxpayer who cannot claim the full amount of the research credit otherwise allowable due to the limitation imposed by the alternative minimum tax.
399 The term "net income tax" means the sum of the regular tax liability and the alternative minimum tax, reduced by the credits allowable under sections 21 through 30D. Sec. 38(c)(1).
400 The term "net regular tax liability" means the regular tax liability reduced by the sum of certain nonrefundable personal and other credits. Sec. 38(c)(1).
403 Sec. 55(b). For example, assume a taxpayer has a regular tax liability of $80,000, a tentative minimum tax of $100,000, and a research credit determined under section 41 of $90,000 for the taxable year (and no other credits). Under present law, the taxpayer's research credit is limited to the excess of $100,000 over the greater of (1) $100,000 or (2) $13,750 (25% of the excess of $80,000 over $25,000). Accordingly, no research credit may be claimed ($100,000 - $100,000 = $0) for the taxable year and the taxpayer's net tax liability is $100,000. The $90,000 research credit may be carried back or forward under the rules applicable to the general business credit.
405 See section 38(c)(4)(B) for the list of specified credits, which does not presently include the research credit determined under section 41.
410 The employee portion of the HI tax under FICA (not the employer portion) is increased by an additional tax of 0.9 percent on wages received in excess of a threshold amount. The threshold amount is $250,000 in the case of a joint return, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.
411 In making the present law research credit permanent, Congress did not intend to reinstate the previously terminated alternative incremental research credit. See letter dated January 27, 2016, reprinted in Tax Notes Today (Doc 2016-2887, 2016 Tax Notes Today 27-38), from Chairmen Brady and Hatch and Ranking Members Levin and Wyden to Secretary of the Treasury Lew and Commissioner of Internal Revenue Service Koskinen so stating and announcing their intention to introduce technical correction legislation to strike the alternative incremental research credit from the Code, effective as if included in the PATH Act.
412 Using the above example, under this provision, the limitation would be the excess of $100,000 over the greater of (1) $0 or (2) $13,750. Since $13,750 is greater than $0, the $100,000 would be reduced by $13,750 such that the research credit would be limited to $86,250. Hence, the taxpayer would be able to claim a research credit of $86,250 against its $100,000 net income tax (the sum of $80,000 regular tax liability and $20,000 alternative minimum tax), which would result in $13,750 of total net tax owed ($100,000 - $86,250). The remaining $3,750 of its research credit ($90,000 - $86,250) may be carried back or forward, as applicable.
413 The credit does not apply against its employer HI liability or against the employee portion of FICA taxes the employer is required to withhold and remit to the government.
414 Thus, taxpayers are either denied a section 174 deduction in the amount of the credit or may elect a reduced research credit amount. The election is not taken into account for purposes of determining any amount allowable as a payroll tax deduction.
415 For this purpose, gross receipts are determined under the rules of section 448(c)(3), without regard to subparagraph (A) thereof.
416 For this purpose, all persons or entities treated as a single taxpayer under section 41(f)(1) are treated as a single person.
417 In the case of a qualified small business that is a partnership, this is the return required to be filed under section 6031. In the case of a qualified small business that is an S corporation, this is the return required to be filed under section 6037. In the case of any other qualified small business, this is the return of tax for the taxable year.
419 Sec. 414(b), (c), (m) and (o).
420 Chapter 43 of Title 38 of the United States Code deals with these rights.
424 The credit was originally provided by the Heroes Earnings Assistance and Relief Tax Act of 2008 ("HEART Act"), Pub. L. No. 110-245, effective for amounts paid after June 17, 2008, the date of enactment of the HEART Act.
427 Sec. 168(e)(6) and (k)(3).
430 Sec. 168(b)(3)(G) and (d). An additional first-year depreciation deduction ("bonus depreciation") is allowed equal to 50 percent of the adjusted basis of qualified property acquired and placed in service before January 1, 2015 (January 1, 2016 for certain longer-lived and transportation property). See sec. 168(k). Qualified property eligible for bonus depreciation includes qualified leasehold improvement property. Sec. 168(k)(2)(A)(i)(IV).
432 Sec. 168(b)(3)(H) and (d).
434 Improvements to portions of a building not open to the general public (e.g., stock room in back of retail space) do not qualify under the provision.
437 Sec. 168(e)(8)(B). Rules similar to section 168(e)(6)(B) apply in the case of death and certain transfers of property that qualify for non-recognition treatment.
438 Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 110th Congress (JCS-1-09), March 2009, p. 402.
439 Sec. 168(b)(3)(I) and (d).
441 For the years 2003 through 2006, the relevant dollar amount is $100,000 (indexed for inflation); in 2007, the dollar limitation is $125,000; for the 2008 and 2009 years, the relevant dollar amount is $250,000; and for the years 2010 through 2013, the relevant dollar limitation is $500,000. Sec. 179(b)(1).
442 For the years 2003 through 2006, the relevant dollar amount is $400,000 (indexed for inflation); in 2007, the dollar limitation is $500,000; for the 2008 and 2009 years, the relevant dollar amount is $800,000; and for the years 2010 through 2013, the relevant dollar limitation is $2,000,000. Sec. 179(b)(2).
443 Passenger automobiles subject to the section 280F limitation are eligible for section 179 expensing only to the extent of the dollar limitations in section 280F. For sport utility vehicles above the 6,000 pound weight rating, which are not subject to the limitation under section 280F, the maximum cost that may be expensed for any taxable year under section 179 is $25,000. Sec. 179(b)(5).
444 Sec. 179(d)(1) flush language.
445 Sec. 179(d)(1)(A)(ii) and (f).
448 Section 179(f)(4) details the special rules that apply to disallowed amounts with respect to qualified real property.
449 For example, assume that during 2013, a company's only asset purchases are section 179-eligible equipment costing $100,000 and qualifying leasehold improvements costing $200,000. Assume the company has no other asset purchases during 2013, and has a taxable income limitation of $150,000. The maximum section 179 deduction the company can claim for 2013 is $150,000, which is allocated pro rata between the properties, such that the carryover to 2014 is allocated $100,000 to the qualified leasehold improvements and $50,000 to the equipment.
Assume further that in 2014, the company had no asset purchases and had no taxable income. The $100,000 carryover from 2013 attributable to qualified leasehold improvements is treated as placed in service as of the first day of the company's 2014 taxable year under section 179(f)(4)(C). The $50,000 carryover allocated to equipment is carried over to 2014 under section 179(b)(3)(B).
454 Secs. 871(k), 881(e), 1441(a), 1441(c)(12), and 1442(a).
459 Certain built-in income items are treated as recognized built-in gain for this purpose. Sec. 1374(d)(5).
462 Treas. Reg. sec. 1.1374-4(h).
465 Sec. 1366(f)(2). Shareholders continue to take into account all items of gain and loss of the S corporation under section 1366.
470 Treas. Reg. sec. 1.337(d)-7(b)(1)(i) and (c)(1).
471 Treas. Reg. sec. 1.337(d)-7(b)(1)(ii).
473 Prop. Treas. Reg. sec. 1.953-1(a).
474 For a list of qualified military installations, see Notice 2008-79, 2008-40 I.R.B. 726, October 6, 2008, available at https://www.irs.gov/irb/2008-40_IRB/ar10.html.
475 Sec. 897(c)(3). See section 322 of the Act, described below in item 11 of Title III.B., which, in the case of REIT stock only, increases from five percent to 10 percent the maximum stock ownership a shareholder may have held, during the testing period, of a class of stock that is publicly traded, to avoid having that stock be treated as a USRPI on disposition.
476 Sec. 897(h)(1). See section 322 of the Act, described below in item 11 of Title III.B., which increases from five percent to 10 percent the percentage ownership threshold for publicly-traded REIT stock.
477 Sections 857(b)(3)(F), 852(b)(3)(E), and 871(k)(2)(E) require dividend treatment, rather than capital gain treatment, for certain distributions to which FIRPTA does not apply by reason of this exception. See also section 881(e)(2).
479 Section 45D was enacted by section 121(a) of the Community Renewal Tax Relief Act of 2000, Pub. L. No. 106-554.
491 Pub. L. No. 112-56 (Nov. 21, 2011).
492 For these purposes, a qualified veteran must be certified by the designated local agency as a member of a family receiving assistance under a supplemental nutrition assistance program under the Food and Nutrition Act of 2008 for a period of at least three months part of which is during the 12-month period ending on the hiring date. For these purposes, members of a family are defined to include only those individuals taken into account for purposes of determining eligibility for a supplemental nutrition assistance program under the Food and Nutrition Act of 2008.
493 The qualified veteran must be certified as entitled to compensation for a service-connected disability and (1) have a hiring date which is not more than one year after having been discharged or released from active duty in the Armed Forces of the United States; or (2) have been unemployed for six months or more (whether or not consecutive) during the one-year period ending on the date of hiring. For these purposes, being entitled to compensation for a service-connected disability is defined with reference to section 101 of Title 38, U.S. Code, which means having a disability rating of 10 percent or higher for service connected injuries.
494 Sec. 168(k). The additional first-year depreciation deduction is subject to the general rules regarding whether an item must be capitalized under section 263A.
495 Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)-1(d).
496 Treas. Reg. sec. 1.168(k)-1(f)(7).
499 Sec. 168(k)(2)(D)(iii). For the definition of a class of property, see Treas. Reg. sec. 1.168(k)1(e)(2).
500 Assume that the cost of the property is not eligible for expensing under section 179 or Treas. Reg. sec. 1.263(a)-1(f).
501 $1,000 results from the application of the half-year convention and the 200 percent declining balance method to the remaining $5,000.
502 Requirements relating to actions taken before 2008 are not described herein since they have little (if any) remaining effect.
503 The additional first-year depreciation deduction is not available for any property that is required to be depreciated under the alternative depreciation system of MACRS. Sec. 168(k)(2)(D)(i).
504 The term "original use" means the first use to which the property is put, whether or not such use corresponds to the use of such property by the taxpayer. If in the normal course of its business a taxpayer sells fractional interests in property to unrelated third parties, then the original use of such property begins with the first user of each fractional interest (i.e., each fractional owner is considered the original user of its proportionate share of the property). Treas. Reg. sec. 1.168(k)-1(b)(3).
505 A special rule applies in the case of certain leased property. In the case of any property that is originally placed in service by a person and that is sold to the taxpayer and leased back to such person by the taxpayer within three months after the date that the property was placed in service, the property would be treated as originally placed in service by the taxpayer not earlier than the date that the property is used under the leaseback. If property is originally placed in service by a lessor, such property is sold within three months after the date that the property was placed in service, and the user of such property does not change, then the property is treated as originally placed in service by the taxpayer not earlier than the date of such sale. Sec. 168(k)(2)(E)(ii).
506 Property qualifying for the extended placed-in-service date must have an estimated production period exceeding one year and a cost exceeding $1 million. Transportation property generally is defined as tangible personal property used in the trade or business of transporting persons or property. Certain aircraft which is not transportation property, other than for agricultural or firefighting uses, also qualifies for the extended placed-in-service-date, if at the time of the contract for purchase, the purchaser made a nonrefundable deposit of the lesser of 10 percent of the cost or $100,000, and which has an estimated production period exceeding four months and a cost exceeding $200,000.
508 Treas. Reg. sec. 1.168(k)-1(b)(4)(iii).
509 Sec. 168(k)(2)(B)(ii). For purposes of determining the amount of eligible progress expenditures, rules similar to section 46(d)(3) as in effect prior to the Tax Reform Act of 1986 apply.
512 Sec. 168(k)(3). The additional first-year depreciation deduction is not available for qualified New York Liberty Zone leasehold improvement property as defined in section 1400L(c)(2). Sec. 168(k)(2)(D)(ii).
514 Sec. 460(c)(6). Other dates involving prior years are not described herein.
515 Sec. 168(k)(4). Eligible qualified property means qualified property eligible for bonus depreciation with minor effective date differences having little (if any) remaining significance.
517 Sec. 168(k)(4)(H), (I), (J), and (K).
520 For this purpose, bonus depreciation is the difference between (i) the aggregate amount of depreciation determined if section 168(k)(1) applied to all eligible qualified property placed in service during the taxable year and (ii) the amount of depreciation that would be so determined if section 168(k)(1) did not so apply. This determination is made using the most accelerated depreciation method and the shortest life otherwise allowable for each property. Sec. 168(k)(4)(C).
524 See section 263A(e)(3), which defines the "preproductive period" of a plant which will have more than one crop or yield as the period before the first marketable crop or yield from such plant.
525 See section 263A(d)(1)(A)(ii). Section 263A generally requires certain direct and indirect costs allocable to real or tangible personal property produced by the taxpayer to be included in either inventory or capitalized into the basis of such property, as applicable.
527 In the case of any tree or vine bearing fruits or nuts, the placed in service date does not occur until the tree or vine first reaches an income-producing stage. Treas. Reg. sec. 1.463(d)(2). See also, Rev. Rul. 80-25, 1980-1 C.B. 65, 1980; and Rev. Rul. 69-249, 1969-1 C.B. 31, 1969.
530 LLTP means (i) certain longer-lived and transportation property described in section 168(k)(2)(B), and (ii) certain aircraft described in section 168(k)(2)(C).
531 Due to the passage of time since the provision's original enactment, the provision eliminates the various acquisition date requirements as no longer relevant. The provision also repeals as deadwood the provision relating to property acquired during certain pre-2012 periods (or certain pre-2013 periods for LLTP).
532 It is intended that for LLTP placed in service in 2018, 50 percent applies to the entire adjusted basis. Similarly, for LLTP placed in service in 2019, 40 percent applies to the entire adjusted basis. A technical correction may be necessary with respect to LLTP placed in service in 2018 and 2019 so that the statute reflects this intent.
533 Note that in the case of LLTP described in section 168(k)(2)(B) and placed in service in 2020, 30 percent applies to the adjusted basis attributable to manufacture, construction, or production before January 1, 2020, and the remaining adjusted basis does not qualify for bonus depreciation. Thirty percent applies to the entire adjusted basis of certain aircraft described in section 168(k)(2)(C) and placed in service in 2020.
534 An election with respect to round 5 extension property is binding for all property that is eligible qualified property solely by reason of the extension of the 50-percent additional first-year depreciation deduction.
535 In computing the maximum amount, the maximum increase amount for round 5 extension property is reduced by bonus depreciation amounts for preceding taxable years only with respect to round 5 extension property.
536 Any amount deducted under this election is not subject to capitalization under section 263A.
537 A specified plant does not include any property that is planted or grafted outside of the United States.
539 A debt cancellation which constitutes a gift or bequest is not treated as income to the donee debtor (sec. 102).
542 The deduction generally is not available for expenses with respect to a course or education involving sports, games, or hobbies, and is not available for student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction.
543 Secs. 222(d)(1) and 25A(g)(2).
544 Sec. 222(c). These reductions are the same as those that apply to the Hope and Lifetime Learning credits.
548 See Instructions for Form 8845, Indian Employment Credit (2014).
559 Section 3306(b) defines wages for purposes of Federal Unemployment Tax.
570 Given the differences in credit quality and other characteristics of individual issuers, the Secretary cannot set credit rates in a manner that will allow each issuer to issue tax credit bonds at par.
572 The applicable recovery period for an asset is determined in part by statute and in part by historical Treasury guidance. Exercising authority granted by Congress, the Secretary issued Revenue Procedure 87-56 (1987-2 C.B. 674), laying out the framework of recovery periods for enumerated classes of assets. The Secretary clarified and modified the list of asset classes in Revenue Procedure 88-22 (1988-1 C.B. 785). In November 1988, Congress revoked the Secretary's authority to modify the class lives of depreciable property. Revenue Procedure 87-56, as modified, remains in effect except to the extent that the Congress has, since 1988, statutorily modified the recovery period for certain depreciable assets, effectively superseding any administrative guidance with regard to such property.
574 Sec. 168(e)(3)(A)(i)(I), as in effect after amendment by the Food, Conservation and Energy Act of 2008, Pub. L. No. 110-246, sec. 15344(b).
575 Sec. 168(e)(3)(A)(i)(II). A horse is more than two years old after the day that is 24 months after its actual birth-date. Rev. Proc. 87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22, 1988-1 C.B. 785.
576 Rev. Proc. 87-56, 1987-2 C.B. 674, asset class 01.225.
578 The applicable recovery period for an asset is determined in part by statute and in part by historical Treasury guidance. Exercising authority granted by Congress, the Secretary issued Revenue Procedure 87-56 (1987-2 C.B. 674), laying out the framework of recovery periods for enumerated classes of assets. The Secretary clarified and modified the list of asset classes in Revenue Procedure 88-22 (1988-1 C.B. 785). In November 1988, Congress revoked the Secretary's authority to modify the class lives of depreciable property. Revenue Procedure 87-56, as modified, remains in effect except to the extent that the Congress has, since 1988, statutorily modified the recovery period for certain depreciable assets, effectively superseding any administrative guidance with regard to such property.
580 Sec. 168(b)(3)(A) and (c).
581 Sec. 168(d)(2)(A) and (d)(4)(B).
582 Sec. 168(d)(1) and (d)(4)(A). However, if substantial property is placed in service during the last three months of a taxable year, a special rule requires use of the mid-quarter convention, which treats all property placed in service (or disposed of) during any quarter as placed in service (or disposed of) on the mid-point of such quarter. Sec. 168(d)(3) and (d)(4)(C).
583 Sec. 168(b)(2)(A) and asset class 00.3 of Rev. Proc. 87-56, 1987-2 C.B. 674. Under the 150-percent declining balance method, the depreciation rate is determined by dividing 150 percent by the appropriate recovery period, switching to the straight-line method for the first taxable year where using the straight-line method with respect to the adjusted basis as of the beginning of that year will yield a larger depreciation allowance. Sec. 168(b)(2) and (b)(1)(B).
584 Asset class 80.0 of Rev. Proc. 87-56, 1987-2 C.B. 674.
587 Section 168(j)(2) does not provide shorter recovery periods for water utility property, residential rental property, or railroad grading and tunnel bores.
588 For these purposes, the term "related persons" is defined in section 465(b)(3)(C).
599 See Treas. Reg. section 1.181-2 for rules on making an election under this section.
600 For this purpose, a production is treated as commencing on the first date of principal photography.
608 Qualifying production property generally includes any tangible personal property, computer software, and sound recordings.
609 Qualified film includes any motion picture film or videotape (including live or delayed television programming, but not including certain sexually explicit productions) if 50 percent or more of the total compensation relating to the production of the film (including compensation in the form of residuals and participations) constitutes compensation for services performed in the United States by actors, production personnel, directors, and producers.
610 For purposes of the provision, "wages" include the sum of the amounts of wages as defined in section 3401(a) and elective deferrals that the taxpayer properly reports to the Social Security Administration with respect to the employment of employees of the taxpayer during the calendar year ending during the taxpayer's taxable year.
611 Section 3401(a)(8)(C) excludes wages paid to United States citizens who are bona fide residents of Puerto Rico from the term wages for purposes of income tax withholding.
616 The targeted areas are those that have pervasive poverty, high unemployment, and general economic distress, and that satisfy certain eligibility criteria, including specified poverty rates and population and geographic size limitations.
619 The urban part of the program is administered by HUD and the rural part of the program is administered by the USDA. The eight Round I urban empowerment zones are Atlanta, GA; Baltimore, MD; Chicago, IL; Cleveland, OH; Detroit, MI; Los Angeles, CA; New York, NY; and Philadelphia, PA/Camden, NJ. Atlanta relinquished its empowerment zone designation in Round III. The three Round I rural empowerment zones are Kentucky Highlands, KY; Mid-Delta, MI; and Rio Grande Valley, TX. The 15 Round II urban empowerment zones are Boston, MA; Cincinnati, OH; Columbia, SC; Columbus, OH; Cumberland County, NJ; El Paso, TX; Gary/Hammond/East Chicago, IN; Ironton, OH/Huntington, WV; Knoxville, TN; Miami/Dade County, FL; Minneapolis, MN; New Haven, CT; Norfolk/Portsmouth, VA; Santa Ana, CA; and St. Louis, Missouri/East St. Louis, IL. The five Round II rural empowerment zones are Desert Communities, CA; Griggs-Steele, ND; Oglala Sioux Tribe, SD; Southernmost Illinois Delta, IL; and Southwest Georgia United, GA. The eight Round III urban empowerment zones are Fresno, CA; Jacksonville, FL; Oklahoma City, OK; Pulaski County, AR; San Antonio, TX; Syracuse, NY; Tucson, AZ; and Yonkers, NY. The two Round III rural empowerment zones are Aroostook County, ME; and Futuro, TX.
620 Pub. L. No. 111-312, sec. 753 (2010), Pub. L. No. 112-240, sec. 327(a) (2013), Pub. L. No. 113-295, sec. 139 (2014).
621 Sec. 1396. The $15,000 limit is annual, not cumulative, such that the limit is the first $15,000 of wages paid in a calendar year which ends with or within the taxable year.
622 Secs. 1397C(b) and 1397C(c). However, the wage credit is not available for wages paid in connection with certain business activities described in section 144(c)(6)(B), including a golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack, liquor store, or certain farming activities. In addition, wages are not eligible for the wage credit if paid to: (1) a person who owns more than five percent of the stock (or capital or profits interests) of the employer, (2) certain relatives of the employer, or (3) if the employer is a corporation or partnership, certain relatives of a person who owns more than 50 percent of the business.
629 For taxable years beginning in 2014, the dollar amount is $2,000,000. Sec. 179(b)(2). Section 124 of the Act permanently extends the section 179 dollar amounts of $500,000 and $2,000,000 for taxable years beginning after 2014.
631 Sec. 1397D. Note, however, that to be eligible for the increased section 179 expensing, the qualified zone property has to also meet the definition of section 179 property (e.g., building property would only qualify if it constitutes qualified real property under section 179(f)).
634 Sec. 1397C(d). Excluded businesses include any private or commercial golf course, country club, massage parlor, hot tub facility, sun tan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for off-premises consumption. Sec. 144(c)(6).
639 Section 126 of the Act permanently extends the 100-percent exclusion to small business stock for stock acquired after 2014.
640 A proof gallon is a liquid gallon consisting of 50 percent alcohol. See sec. 5002(a)(10) and (11).
642 Secs. 5214(a)(1)(A), 5002(a)(15), 7653(b) and (c).
643 Secs. 7652(a)(3), (b)(3), and (e)(1). One percent of the amount of excise tax collected from imports into the United States of articles produced in the Virgin Islands is retained by the United States under section 7652(b)(3).
645 Secs. 7652(a)(3), (b)(3), and (e)(1).
646 For taxable years beginning before January 1, 2006, certain domestic corporations with business operations in the U.S. possessions were eligible for the possession tax credit. Secs. 27(b) and 936. This credit offset the U.S. tax imposed on certain income related to operations in the U.S. possessions. Subject to certain limitations, the amount of the possession tax credit allowed to any domestic corporation equaled the portion of that corporation's U.S. tax that was attributable to the corporation's non-U.S. source taxable income from (1) the active conduct of a trade or business within a U.S. possession, (2) the sale or exchange of substantially all of the assets that were used in such a trade or business, or (3) certain possessions investment. No deduction or foreign tax credit was allowed for any possessions or foreign tax paid or accrued with respect to taxable income that was taken into account in computing the credit under section 936. Under the economic activity-based limit, the amount of the credit could not exceed an amount equal to the sum of (1) 60 percent of the taxpayer's qualified possession wages and allocable employee fringe benefit expenses, (2) 15 percent of depreciation allowances with respect to short-life qualified tangible property, plus 40 percent of depreciation allowances with respect to medium-life qualified tangible property, plus 65 percent of depreciation allowances with respect to long-life qualified tangible property, and (3) in certain cases, a portion of the taxpayer's possession income taxes. A taxpayer could elect, instead of the economic activity-based limit, a limit equal to the applicable percentage of the credit that otherwise would have been allowable with respect to possession business income, beginning in 1998, the applicable percentage was 40 percent.
To qualify for the possession tax credit for a taxable year, a domestic corporation was required to satisfy two conditions. First, the corporation was required to derive at least 80 percent of its gross income for the three-year period immediately preceding the close of the taxable year from sources within a possession. Second, the corporation was required to derive at least 75 percent of its gross income for that same period from the active conduct of a possession business. Sec. 936(a)(2). The section 936 credit generally expired for taxable years beginning after December 31, 2005.
649 21 U.S.C. sec. 321. Section 201(h) defines device as "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes."
650 Treas. Reg. sec. 48.4191-2(a). The regulations also include as devices items that should have been listed as a device with the FDA as of the date the FDA notifies the manufacturer or importer that corrective action with respect to listing is required.
651 Treas. Reg. sec. 48.4191-2(b)(2).
652 Treas. Reg. sec. 48.4191-2(b)(2)(iii). The safe harbors include devices that are described as over-the-counter devices in relevant FDA classification headings as well as certain FDA device classifications listed in the regulations.
653 Sec. 4221(a). Other general manufacturers excise tax exemptions (i.e., the exemption for sales to purchasers for use as supplies for vessels or aircraft, to a State or local government, to a nonprofit educational organization, or to a qualified blood collector organization) do not apply to the medical device excise tax.
659 Pub. L. No. 111-5, February 17, 2009.
661 These standards are a seasonal energy efficiency ratio ("SEER") greater than or equal to 15, an energy efficiency ratio ("EER") greater than or equal to 12.5, and heating seasonal performance factor ("HSPF") greater than or equal to 8.5 for split heat pumps, and SEER greater than or equal to 14, EER greater than or equal to 12, and HSPF greater than or equal to 8.0 for packaged heat pumps.
662 These standards are a SEER greater than or equal to 16 and EER greater than or equal to 13 for split systems, and SEER greater than or equal to 14 and EER greater than or equal to 12 for packaged systems.
665 In addition, for fuels derived from algae, cyanobacterial or lemna, a special rule provides that qualified second generation biofuel includes fuel that is sold by the taxpayer to another person for refining by such other person into a fuel that meets the registration requirements for fuels and fuel additives under section 211 of the Clean Air Act.
667 Sec. 45. In addition to the renewable electricity production credit, section 45 also provides income tax credits for the production of Indian coal and refined coal at qualified facilities.
670 Secs. 168(l)(2)(A) and 40(b)(6)(E).
671 For example, lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis includes bagasse (from sugar cane), corn stalks, and switchgrass.
673 Sec. 40(b)(6)(E)(ii) and (iii).
677 Sec. 168(l)(5) and (k)(2)(G).
679 Sec. 168(l)(2). Requirements relating to actions taken before 2007 are not described herein since they have little (if any) remaining effect.
680 Sec. 168(l)(4) and (k)(2)(E).
684 See IRS Notice 2006-52, 2006-1 C.B. 1175, June 2, 2006; IRS 2008-40, 2008-14 I.R.B. 725 March 11, 2008.
685 IRS Notice 2008-40, Supra, set a target of a 10-percent reduction in total energy and power costs with respect to the building envelope, and 20 percent each with respect to the interior lighting system and the heating, cooling, ventilation and hot water systems. IRS Notice 2012-26 (2012-17 I.R.B. 847 April 23, 2012) established new targets of 10-percent reduction in total energy and power costs with respect to the building envelope, 25 percent with respect to the interior lighting system and 15 percent with respect to the heating, cooling, ventilation and hot water systems, effective beginning March 12, 2012. The targets from Notice 2008-40 may be used until December 31, 2013, but the targets of Notice 2012-26 apply thereafter.
688 See, e.g., secs. 453, 1031 and 1033.
689 The applicable period for a taxpayer to reinvest the proceeds is four years after the close of the taxable year in which the qualifying electric transmission transaction occurs.
692 Sec. 3(23), 16 U.S.C. sec. 796, defines "transmitting utility" as any electric utility, qualifying cogeneration facility, qualifying small power production facility, or Federal power marketing agency that owns or operates electric power transmission facilities that are used for the sale of electric energy at wholesale.
693 Sec. 3(22), 16 U.S.C. sec. 796, defines "electric utility" as any person or State agency (including any municipality) that sells electric energy; such term includes the Tennessee Valley Authority, but does not include any Federal power marketing agency.
695 For example, a regional transmission organization, an independent system operator, or an independent transmission company.
701 "Gasoline gallon equivalent" means, with respect to any nonliquid alternative fuel (for example, compressed natural gas), the amount of such fuel having a Btu (British thermal unit) content of 124,800 (higher heating value).
702 See section 342 of the Act with respect to additional provisions related to liquefied petroleum gas and liquefied natural gas.
703 This guidance is provided by Notice 2015-3, 2015-6 I.R.B 583.
705 Sec. 6041(a). The information return generally is submitted electronically as a Form 1099 (e.g., Form 1099-MISC, Miscellaneous Income) or Form 1096, Annual Summary and Transmittal of U.S. Information Returns, although certain payments to beneficiaries or employees may require use of Forms W-3 or W-2, respectively. Treas. Reg. sec. 1.6041-1(a)(2).
706 Secs. 6042 dividends), 6045 (broker reporting) and 6049 (interest) and the Treasury regulations thereunder.
709 Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
710 Sections 6011(e) and 6071(b) apply to "returns made under subparts B and C of part III of this subchapter"; Treas. Reg. sec. 301.6011-2(b) mandates use of magnetic media by persons filing information returns identified in the regulation or subsequent or contemporaneous revenue procedures and permits use of magnetic media for all others.
712 Treas. Reg. sec. 31.6051-2; IRS, "Filing Information Returns Electronically," Pub. 3609 (Rev. 12-2011); Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
713 Pub. L. No. 94-202, sec. 232, 89 Stat. 1135 (1976) (effective with respect to statements reporting income received after 1977).
714 Employers submit quarterly reports to IRS on Form 941, Employer's Quarterly Federal Tax Return, regarding aggregate quarterly totals of wages paid and taxes due. IRS then compares the W-3 wage totals to the Form 941 wage totals.
716 Such liabilities include past-due support payments (sec. 6402(c)), debts owed to other Federal agencies (sec. 6402(d)), certain State income tax debts (sec. 6402(e)), or unemployment compensation debts (sec. 6402(f)).
717 The refundable credit may not exceed the maximum credit per child of $1,000.
718 Families with three or more children may determine the additional child tax credit using an alternative formula, if this results in a larger credit than determined under the earned income formula. Under the alternative formula, the additional child tax credit equals the amount by which the taxpayer's social security taxes exceed the taxpayer's EITC.
723 Sec. 6723. The penalty for failure to comply timely with a specified information reporting requirement is $50 per failure, not to exceed $100,000 per calendar year.
725 Trade Preferences Extension Act of 2015, Pub. L. No. 114-27, sec. 806 (June 29, 2015).
727 Treas. Reg. Sec. 301.6109-1(d)(3)(i).
728 Treas. Reg. Sec. 301.6109-1(d)(3)(ii).
729 See Instructions for Form W-7 (Rev. December, 2014), available at https://www.irs.gov/pub/irs-pdf/iw7.pdf.
731 IR-2012-98 (Nov. 29, 2012), available at https://www.irs.gov/uac/Newsroom/IRS-Strengthens-Integrity-of-ITIN-System;-Revised-Application-Procedures-in-Effect-for-Upcoming-Filing-Season.
732 IR-2014-76 (June 30, 2014), available at https://www.irs.gov/uac/Newsroom/Unused-ITINS-to-Expire-After-Five-Years%3B-New-Uniform-Policy-Eases-Burden-on-Taxpayers,-Protects-ITIN-Integrity.
733 The community-based certified acceptance agent program is intended to expand the existing IRS acceptance agent program. See Rev. Proc. 2006-10, 2006-1 C.B. 293 (December 16, 2005).
734 In the case of ITINs that, including taxable year 2015, have been unused on Federal income tax returns for three (or more) consecutive taxable years, such ITINs shall expire on December 31, 2015.
735 The refundable credit may not exceed the maximum credit per child of $1,000.
736 Families with three or more children may determine the additional child tax credit using an alternative formula, if this results in a larger credit than determined under the earned income formula. Under the alternative formula, the additional child tax credit equals the amount by which the taxpayer's social security taxes exceed the taxpayer's earned income tax credit.
737 These modifications are made permanent by section 102 of the Act. See Part Thirteen, Division Q, Title II, item 10, supra.
738 Sec. 32(c)(1)(E)(i) and (ii).
746 Sec. 32. Additionally, the child and dependent care credit is determined in part with respect to income and the presence of qualifying children, but this credit is not implicated by the provision.
751 An earlier provision of this Act makes the $3,000 threshold permanent. See the description of sec. 101 of the Act.
752 Sec. 25A. The Hope credit rate is 100 percent on the first $1,300 of qualified tuition and related expenses, and 50 percent on the next $1,300 of qualified tuition and related expenses (estimated for 2015). For the AOTC, the maximum credit is $2,500 per eligible student per year for qualified tuition and related expenses paid for each of the first four years of the student's post-secondary education in a degree or certificate program. The credit rate is 100 percent on the first $2,000 of qualified tuition and related expenses, and 25 percent on the next $2,000 of qualified tuition and related expenses. For the Lifetime Learning credit, 20 percent of up to $10,000 of qualified tuition and related expenses per taxpayer return is eligible for the credit (i.e., the maximum credit per taxpayer return is $2,000).
753 An earlier provision of this Act makes the modifications to the Hope credit known as the AOTC permanent. See the description of sec. 102 of the Act.
754 Sec. 7701(a)(36) provides a general definition of tax return preparer to include persons who are compensated to prepare all or a substantial portion of a return or claim for refund, with certain exceptions.
755 Treas. Reg. sec. 1.6695-2(b).
756 If the return preparer electronically files the return or claim for the taxpayer, the Form 8867 is filed electronically with the return. If the prepared return or claim is given to the taxpayer to file, the Form 8867 is provided to the taxpayer at the same time, to submit with the return or claim for refund.
757 Treas. Reg. sec. 1.6695-2(d).
758 The refundable credit may not exceed the maximum credit per child of $1,000.
759 The $3,000 threshold was a temporary number that is made permanent by section 101 of the Act. Families with three or more children may determine the additional child tax credit using an alternative formula, if this results in a larger credit than determined under the earned income formula. Under the alternative formula, the additional child tax credit equals the amount by which the taxpayer's social security taxes exceed the taxpayer's earned income tax credit.
760 The modifications to the Hope credit, known as the American opportunity credit, are made permanent by section 102 of the Act.
762 See sec. 6201(a), which authorizes assessment of tax computed by the taxpayer as well as amounts computed by the IRS at the election of the taxpayer, under section 6014.
767 The taxes to which deficiency procedures apply are income, estate and gift and excise taxes arising under chapters 41, 42, or 44. Secs. 6211 and 6213.
769 Sec. 6213(a). If a taxpayer wishes to contest the merits in a different court, the taxpayer may agree to assessment of the tax, reserving his or her rights to contest the merits, pay the disputed amount, and pursue a claim for refund reviewable in a suit in Federal district court or Court of Federal Claims.
770 Section 6213 provides that a taxpayer may waive the restrictions on assessment, permits immediate assessment to reflect payments of tax remitted to the IRS and to correct amounts credited or applied as a result of claims for carrybacks under section 1341(b), and requires assessment of amounts ordered as criminal restitution. Assessment is also permitted in certain circumstances in which collection of the tax would be in jeopardy. Sections 6851, 6852 or 6861.
771 See, Treasury Inspector General for Tax Administration, Some Taxpayer Responses to Math Error Adjustments Were Not Worked Timely and Accurately (TIGTA No. 2011-40-059), July 11,2011.
772 2011 IRS Data Book, Table 15.
773 Although the exception to restrictions on assessment to correct mathematical errors had long been in the Code, the requirement to abate upon timely request was added in 1976 when the authority was expanded to include correction of clerical errors. Sec. 6213(b)(2)(A); Tax Reform Act of 1976, Pub. L. 94-55, Sec. 1206(a). In order to reassess the amount abated, the IRS must comply with the deficiency procedures.
774 Math error authority currently applies to certain errors related to the earned income tax credit and the child tax credit. Sec. 6213(g)(2)(F), (G), (I), (K), (L), and (M).
775 Sec. 6213(g)(2)(O) and (P).
777 Secs. 6662 and 6663. Present law also imposes a separate accuracy-related 20-percent penalty on portions of an underpayment attributable to a listed or reportable transaction. Sec. 6662A(a). The penalty increases to 30 percent if the transaction is not adequately disclosed. Secs. 6662A(c) and 6664(d)(2)(A).
778 The 20-percent penalty is increased to 40 percent when there is a gross valuation misstatement involving a substantial valuation overstatement, a substantial overstatement of pension liabilities, a substantial estate or gift tax valuation understatement, or when a transaction lacking economic substance is not properly disclosed. Secs. 6662(h) and 6662(i).
779 Sec. 6664(c). There is no reasonable cause exception for tax benefits disallowed by reason of a transaction lacking economic substance and certain valuation overstatements related to charitable deduction property.
780 Sec. 6664(a). Previous assessments and rebates may also be taken into account.
783 Sec. 6211. Previous assessments and rebates may also be taken into account.
786 Refundable credits include credits for withholding of taxes. Treas. Reg. secs. 1-6664-2(b) and (c) provide special rules for the withholding credits.
788 The Improved Penalty Administration and Compliance Tax Act (the "Act"), Pub. L. No. 101-239, sec. 7721(c), revised the penalties to provide a single accuracy-related penalty for various types of misconduct. The definition of underpayment for purposes of similar penalties prior to that Act was defined by reference to the definition of a deficiency. See sec. 6653(c)(1) prior to its repeal by the Act.
789Rand v. Commissioner, 141 T.C. No. 12 (November 18, 2013).
791 A technical correction is needed to provide the effective date.
795 The American opportunity credit was made permanent in another section of this Act. See the description of sec. 102 of this Act.
797 In addition to eligible educational institutions, the relevant reporting requirements discussed herein are imposed on persons who are engaged in a trade or business of making payments to any individual under an insurance arrangements as reimbursements or refunds (or similar amounts) of qualified tuition and related expenses.
798 This is already required under Treasury regulations. See Treas. Reg. secs. 1.6050S-1(b)(2)(ii)(A) and 1.6050S-1(b)(3)(ii)(A).
799 In addition to eligible educational institutions, the relevant reporting requirements discussed herein are imposed on persons who are engaged in a trade or business of making payments to any individual under an insurance arrangements as reimbursements or refunds (or similar amounts) of qualified tuition and related expenses.
800 The Senate Committee on Finance reported S. 912 on April 14, 2015 (S. Rep. No. 114-22).
801 The House Committee on Ways and Means reported H.R. 529 on February 20, 2015 (H.R. Rep. No. 114-25). The House passed the bill on February 25, 2015. The Senate Committee on Finance reported S. 335 on May 21, 2015 (S. Rep. No. 114-56).
802 For purposes of this description, the term "account" is used interchangeably to refer to a prepaid tuition benefit contract or a tuition savings account established pursuant to a qualified tuition program.
803 Section 529 refers to contributors and designated beneficiaries, but does not define or otherwise refer to the term "account owner," which is a commonly used term among qualified tuition programs.
804 Sec. 529(c)(3)(B)(i) and (ii)(I).
805 Under section 72, a distribution is includible in income to the extent that the distribution represents earnings on the contribution to the program, determined on a pro rata basis.
806 Sec. 529(c)(3)(A) and (B)(ii).
807 Notice 2001-81, 2001-2 C.B. 617, December 10, 2001.
809 As used in this example, the term 'account' refers to a sum of money set aside in a qualified tuition program, and does not refer to the allocation of such money into differing investment options offered by such program.
811 This amount is indexed for inflation. In the case that contributions to an ABLE account exceed the annual limit, an excise tax in the amount of six percent of the excess contribution to such account is imposed on the designated beneficiary. Such tax does not apply in the event that the trustee of such account makes a corrective distribution of such excess amounts by the due date (including extensions) of the individual's tax return for the year within the taxable year.
812 The rules of section 72 apply in determining the portion of a distribution that consists of earnings.
813 For instance, if a designated beneficiary were to relocate to a different State.
814 In which case the contributor ABLE account must be closed 60 days after the transfer to the new ABLE account is made.
815 These are benefits, respectively, under Title II or Title XVI of the Social Security Act.
816 No inference may be drawn from a disability certification for purposes of eligibility for Social Security, SSI or Medicaid benefits.
817 The Joint Committee staff's technical explanation of the PATH Act of 2015 incorrectly stated that the provision allowed for rollovers to ABLE accounts from qualified tuition programs (also known as 529 accounts). See Joint Committee on Taxation, Technical Explanation of the Revenue Provisions of the Protecting Americans from Tax Hikes Act of 2015, House Amendment #2 to the Senate Amendment to H.R. 2029 (Rules Committee Print 114-40), (JCX-144-15), December 17, 2015, p. 151. The provision does not change the rules relating to rollovers to ABLE accounts.
818 For example, a claim for lost wages results in taxable damages, because the wages themselves would have been taxable, but an award for damage to property may not result in includible income if the award does not exceed the recipient's basis in the property.
819 The Senate Committee on Finance reported S.910 on April 14, 2015 (S. Rep. No. 114-21).
821 Rev. Rul. 2006-36, 2006-2 C.B. 353. The ruling is effective for plan years beginning after December 31, 2008, in the case of plans including certain reimbursement provisions on or before August 14, 2006.
823 This exclusion is provided under section 115.
824 Tax-exempt status for a VEBA is provided under Code section 501(c)(9).
825 Sec. 408(p)(2)(C)(i). There is a two-year grace period for an employer that establishes and maintains a SIMPLE IRA for one or more years and satisfies the 100 employee limit but fails to meet the 100 employer limit in a subsequent year, provided that the reason for the failure is not due to an acquisition, disposition, or similar transaction involving the employer.
826 Sec. 408(p). A SIMPLE IRA may not be in the form of a Roth IRA.
828 Sec. 72(t). There are other exceptions to the 10-percent additional income tax, besides attainment of age 59 1/2, death, or disability.
830 Traditional IRAs are described in section 408, and Roth IRAs are described in section 408A.
831 Sec. 1106 of Pub. L. No. 112-95. Under section 125 of the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"), Pub. L. No. 110-458, a qualified airline employee is permitted to contribute any portion of an airline payment amount to a Roth IRA within 180 days of receipt of such amount (or, if later, within 180 days of December 23, 2008, the date of enactment of WRERA), and the amount contributed is treated as a rollover contribution to the Roth IRA. The 2012 FAA Act permitted an employee who had previously made a rollover contribution of an airline payment amount to a Roth IRA to recharacterize all or a portion of the rollover contribution as a rollover contribution to a traditional IRA and to exclude the recharacterized amount from income.
832 Pub. L. No. 109-280. Section 402 of PPA provides funding relief with respect to certain defined benefit plans maintained by commercial passenger airlines, subject to meeting the benefit accrual and other restrictions under PPA section 402(b)(2) and (3).
833 Secs. 3102 and 3402. An airline payment amount that is excluded from income under the 2012 FAA Act continues to be wages for FICA and Social Security earnings purposes.
834 Covered employee status is defined by reference to section 162(m) (limiting deductions for compensation of covered employees), which defines a covered employee as (1) the chief executive officer of the corporation (or an individual acting in such capacity) as of the close of the taxable year, and (2) the four most highly compensated officers for the taxable year (other than the chief executive officer), whose compensation is required to be reported to shareholders under the Securities Exchange Act of 1934. Treas. Reg. sec. 1.162-27(c)(2) provides that whether an employee is the chief executive officer or among the four most highly compensated officers is determined pursuant to the executive compensation disclosure rules promulgated under the Securities Exchange Act of 1934. To reflect 2006 changes made to the disclosure rules by the Securities and Exchange Commission, Notice 2007-49, 2007-25 I.R.B. 1429, provides that "covered employee" means any employee who is (1) the principal executive officer (or an individual acting in such capacity) within the meaning of the amended disclosure rules, or (2) among the three most highly compensated officers for the taxable year (other than the principal executive officer).
836 An act to amend certain provisions of the FAA Modernization and Reform Act of 2012, Pub. L. No. 113-243, enacted December 18, 2014. The 2014 amendments allow a qualified airline employee who excludes from income an airline payment amount contributed to a traditional IRA to file a claim for a refund until the later of (1) the usual period of limitation (generally, three years from the time the return was filed or two years from the time the tax was paid, whichever period expires later), or (2) April 15, 2015.
837 As permitted under present law, after the contribution, an individual may convert the traditional IRA to a Roth IRA.
838 As described above, the WRERA provision enacted in 2008 also contained a provision allowing rollovers within 180 days of receipt of an airline payment amount or, if later, within 180 days of the date of enactment of WRERA.
840 Sec. 72(t)(2)(iv) and (v). Section 72(t)(4) provides a recapture rule under which, in general, if the series of payments eligible for the equal periodic payments exception is modified within five years of the first payment or before age 59 1/2, an additional tax applies equal to the early withdrawal tax that would have applied in the absence of the exception.
841 Sec. 2 of Pub. L. No. 114-26, enacted June 29, 2015, discussed in Part Five. This provision also allows a qualified public safety employee to modify a series of payments to which the equal periodic payments exception has applied without being subject to the recapture rule described above.
842 These positions are defined by reference to the provisions of the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).
843 Under section 7701(j), the Federal Thrift Savings Plan is treated as a qualified defined contribution plan.
844 These positions are defined by reference to the provisions of CSRS and FERS.
845 The Senate Committee on Finance reported S. 907 on April 14, 2015 (S. Rep. No. 114-18).
848 Even if a REIT meets the 90-percent income distribution requirement for REIT qualification, more stringent distribution requirements must be met in order to avoid an excise tax under section 4981.
850 Liquidating distributions are covered to the extent of earnings and profits, and are defined to include redemptions of stock that are treated by shareholders as a sale of stock under section 302. Secs. 857(b)(2)(B), 561, and 562(b).
851 An additional four-percent excise tax is imposed to the extent a REIT does not distribute at least 85 percent of REIT ordinary income and 95 percent of REIT capital gain net income within a calendar year period. In addition, to the extent a REIT distributes less than 100 percent of its ordinary income and capital gain net income in a year, the difference between the amount actually distributed and 100 percent is added to the distribution otherwise required in a subsequent year to avoid the excise tax. Sec. 4981.
853 Secs. 856(c)(3) and 1221(a)(1). Income from sales that are not prohibited transactions solely by virtue of section 857(b)(6) also is qualified REIT income.
854 Sec. 856(d)(1)(A) and (B).
856 Sec. 856(d)(7)(A) and (C). If impermissible tenant service income with respect to any real or personal property is more than one percent of all amounts received or accrued during the taxable year directly or indirectly with respect to such property, then the impermissible tenant service income with respect to such property includes all such amounts. Sec. 856(d)(7)(B). The amount treated as received for any service (or management or operation) shall not be less than 150 percent of the direct cost of the trust in furnishing or rendering the service (or providing the management or operation). Sec. 856(d)(7)(D). For purposes of the 75-percent and 95-percent income tests, impermissible tenant service income is included in gross income of the REIT. Sec. 856(d)(7)(E).
860 See Rev. Rul. 74-191, 1974-1 C.B. 170.
861 Government securities are defined for this purpose under section 856(c)(5)(F), by reference to the Investment Company Act of 1940. The term includes securities issued or guaranteed by the United States or persons controlled or supervised by and acting as an instrumentality thereof, but does not include securities issued or guaranteed by a foreign, state, or local government entity or instrumentality.
863 Temporary investments in certain stock or debt instruments also can qualify if they are temporary investments of new capital, but only for the one-year period beginning on the date the REIT receives such capital. Sec. 856(c)(5)(B).
867 Sec. 856(c)(4). In the case of such an acquisition, the REIT also has a grace period of 30 days after the close of the quarter to eliminate the discrepancy.
868 The latter restriction does not apply to rights provided to an independent contractor to operate or manage a lodging or health care facility if such rights are held by the corporation as a franchisee, licensee, or in similar capacity and such lodging facility or health care facility is either owned by such corporation or is leased by such corporation from the REIT. Sec. 856(l)(3).
869 An independent contractor will not fail to be treated as such for this purpose because the TRS bears the expenses of operation of the facility under the contract, or because the TRS receives the revenues from the operation of the facility, net of expenses for such operation and fees payable to the operator pursuant to the contract, or both. Sec. 856(d)(9)(B).
874 This definition is the same as the definition of certain property the sale or other disposition of which would produce ordinary income rather than capital gain under section 1221(a)(1).
875 Additional requirements for the safe harbor limit the amount of expenditures the REIT can make during the two-year period prior to the sale that are includible in the adjusted basis of the property, require marketing to be done by an independent contractor, and forbid a sales price that is based on the income or profits of any person.
877 Because a REIT dividend is generally paid out of income that was not taxed to the distributing entity, the dividend is not eligible for the dividends received deductions to a corporate shareholder. Sec. 243(d)(3). A REIT dividend is not eligible for the 20 percent qualified dividend rate to an individual shareholder, except to the extent such dividend is attributable to REIT income from nondeductible C corporation dividends, or to certain income of the REIT that was subject to corporate level tax. Sec. 857(c).
878 Sec. 857(b)(3)(C). Net capital gain is the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for the taxable year. Sec. 1222.
879 A REIT may also retain its net capital gain without distribution, while designating a capital gain dividend for inclusion in shareholder income. In this case, the REIT pays corporate-level tax on the capital gain, but the shareholder includes the undistributed capital gain in income, receives a credit for the corporate level tax paid, and steps up the basis of the REIT stock for the amount included in income, with the result that the net tax paid is the shareholder-level capital gain tax. Sec. 857(b)(3)(D).
880 Pub. L. No. 96-499. FIRPTA treats income of a foreign investor from the sale or disposition of U.S. real property interests as effectively connected with the operation of a trade or business in the United States. Such income is taxed at regular U.S. rates and withholding obligations are imposed on payors of the income. Secs. 897 and 1445.
881 As noted above, REITs are not permitted to receive income from property that is inventory or that is held for sale to customers in the ordinary course of the REIT's business. However, REITs may engage in certain activities, including acquisition, development, lease, and sale of real property, and may provide "customary services" to tenants.
886 Sec. 301(b)(1) and (c)(1).
891 Rev. Proc. 2003-3, sec. 4.01(30), 2003-1 I.R.B. 113.
892 Rev. Proc. 2003-48, 2003-29 I.R.B. 86. Since then, the IRS discontinued private rulings on whether a transaction generally qualifies for nonrecognition treatment under section 355. Nonetheless, the IRS may still rule on certain significant issues. See Rev. Proc. 2016-1, 2016-1 I.R.B. 1; Rev. Proc. 2016-3, 2016-1 I.R.B. 126. Recently, the IRS announced that it will not rule in certain situations in which property owned by any distributing or controlled corporation becomes the property of a RIC or a REIT; however, the IRS stated that the policy did not extend to situations in which, immediately after the date of the distribution, both the distributing and controlled corporation will be RICs, or both of such corporations will be REITs, and there is no plan or intention on the date of the distribution for either the distributing or the controlled corporation to cease to be a RIC or a REIT. See Rev. Proc. 2015-43, 2015-40 I.R.B. 467.
894 Rev. Rul. 2001-29, 2001-1 C.B. 1348.
895 Priv. Ltr. Rul. 201337007. A private ruling may be relied upon only by the taxpayer to which it is issued. However, private rulings provide some indication of administrative practice.
896 As long as a REIT election for each corporation is effective immediately after the distribution, the elections may be made after that time.
897 Under section 368(c), the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
898 The provision does not apply to distributions by a corporation pursuant to a plan under which stock constituting control (within the meaning of section 368(c)) of the controlled corporation was distributed before December 7, 2015.
903 This definition is the same as the definition of certain property the sale or other disposition of which would produce ordinary income rather than capital gain under section 1221(a)(1).
904 Additional requirements for the safe harbor limit the amount of expenditures the REIT can make during the two-year period prior to the sale that are includible in the adjusted basis of the property, require marketing to be done by an independent contractor, and forbid a sales price that is based on the income or profits of any person.
913 Sec. 1(h)(11) enacted in Pub. L. No. 105-34.
914 Rev. Rul. 2005-31, 2005-1 C.B.1084.
915 Rev. Rul. 89-81, 1989-1 C.B. 226.
916 Notice 97-64, 1997-2 C.B. 323. Recently, the IRS modified Notice 97-64 and provided certain new rules for RICs; the designation limitations in Revenue Ruling 89-81, however, continue to apply. Notice 2015-41, 2015-24 I.R.B. 1058.
918 Such term also includes any property (not otherwise a real estate asset) attributable to the temporary investment of new capital, but only if such property is stock or a debt instrument, and only for the one-year period beginning on the date the REIT receives such capital. Sec. 856(c)(5)(B).
922 Sec. 856(c)(4). However, a REIT that has met the asset tests as of the close of any quarter does not lose its REIT status solely because of a discrepancy during a subsequent quarter between the value of the REIT's investments and such requirements, unless such discrepancy exists immediately after the acquisition of any security or other property and is wholly or partly the result of such acquisition. Sec. 856(c)(4).
924 Treas. Reg. sec. 1.856-5(c)(1). The amount of the loan for this purpose is defined as the high-test principal amount of the loan outstanding during the taxable year. Treas. Reg. sec. 1.856-5(c)(3).
925 Special rules apply to construction loans. Treas. Reg. sec. 1.856-5(c)(2).
926 Sec. 856(c)(3)(B) and (4)(A).
928 Such definition of a hedging transaction is applied for purposes of this provision without regard to whether or not the position referred to is ordinary property.
929 Sec. 312(k)(3) and (n)(5).
930 Sec. 857(d)(1). This provision applies to a REIT without regard to whether it meets the requirements of section 857(a) for the taxable year.
934 Sales of foreclosure property or sales to which section 1033 applies are excluded.
935 Sales of foreclosure property or sales to which section 1033 applies are excluded.
936 Sales of foreclosure property or sales to which section 1033 applies are excluded.
937 Sales of foreclosure property or sales to which section 1033 applies are excluded.
938 Sales of foreclosure property or sales to which section 1033 applies are excluded.
939 Sales of foreclosure property or sales to which section 1033 applies are excluded.
940 Sec. 856(c)(2)(F) and (3)(F).
942 The requirement limiting the amount of expenditures added to basis that the REIT, or a partner of the REIT, may make within two years prior to the sale, as well as other requirements for the exclusion, are retained.
943 The Senate Committee on Finance reported S.915 on April 14, 2015 (S. Rep. No. 114-25). Section 2 of that bill contained a provision similar to section 322 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113).
944 Secs. 871(b) and 882(a). Property is treated as held by a person for use in connection with the conduct of a trade or business in the United States, even if not so held at the time of sale, if it was so held within 10 years prior to the sale. Sec. 864(c)(7). Also, all gain from an installment sale is treated as from the sale of property held in connection with the conduct of such a trade or business if the property was so held during the year in which the installment sale was made, even if the recipient of the payments is no longer engaged in the conduct of such trade or business when the payments are received. Sec. 864(c)(6).
945 Pub. L. No. 96-499. The rules governing the imposition and collection of tax under FIRPTA are contained in a series of provisions enacted in 1980 and subsequently amended. See secs. 897, 1445, 6039C, and 6652(f).
947 Sec. 897(d). In addition, such gain may also be subject to the branch profits tax at a 30-percent rate (or lower treaty rate).
948 In addition, section 6039C authorizes regulations that would require a return reporting foreign direct investments in U.S. real property interests. No such regulations have been issued, however.
951 Sec. 1445(e)(3). Withholding at 10 percent of a gross amount may also apply in certain other circumstances under regulations. See sec. 1445(e)(4) and (5).
952 Sec. 1445(e)(6) and Treasury regulations thereunder. The Treasury Department is authorized to issue regulations that would reduce the 35 percent withholding on distributions to 20 percent during the time that the maximum income tax rate on dividends and capital gains of U.S. persons is 20 percent.
954 Sec. 897(c)(3). The constructive ownership attribution rules are specified in section 897(c)(6)(C).
955 If a person owns, directly or indirectly, five percent or more in value of the stock in a corporation, such person is considered as owning the stock owned directly or indirectly by or for such corporation, in that proportion which the value of the stock such person so owns bears to the value of all the stock in such corporation. Sec. 318(c)(2)(C) as modified by section 897(c)(6)(C). Also, if five percent or more in value of the stock in a corporation is owned directly or indirectly, by or for any person, such corporation shall be considered as owning the stock owned, directly or indirectly, by or for such person. Sec. 318(c)(3)(C) as modified by section 897(c)(6)(C).
956 Sec. 897(h)(4)(A)(i). The provision including certain RICs in the definition of qualified in vestment entity previously expired December 31, 2014. Section 133 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. No. 114-113) reinstated the provision and made it permanent as of January 1, 2015, as described above in item 22 of Title I.A.
957 The testing period for this purpose if the shorter of (i) the period beginning on June 19, 1980, and ending on the date of disposition or distribution, as the case may be, (ii) the five-year period ending on the date of the disposition or distribution, as the case may be, or (iii) the period during which the qualified investment entity was in existence. Sec. 897(h)(4)(D).
958 Treas. Reg. sec. 1.897-1(c)(2)(i) and -8(b).
959 PLR 200923001. A private letter ruling may be relied upon only by the taxpayer to which it is issued. However, private letter rulings provide some indication of administrative practice.
961 In 2006, the Tax Increase Prevention and Reconciliation Act of 2005 ("TIPRA"), Pub. L. No. 109-222, sec. 505, specified the retention of this FIRPTA character on a distribution to an upper-tier qualified investment entity, and added statutory withholding requirements.
962 Notice 2007-55, 2007-2 C.B.13. The Notice also states that in the case of a foreign govern ment investor, because FIRPTA income is treated as effectively connected with the conduct of a U.S. trade or business, proceeds distributed by a qualified investment entity from the sale of USRPIs are not exempt from tax under section 892. The Notice cites and compares existing temporary regulations and indicates that Treasury will apply those regulations as well to certain distributions. See Temp. Treas. Reg. secs. 1.892-3T, 1.897-9T(e), and 1.1445-10T(b).
963 Sec. 897(h)(1), second sentence.
964 Secs. 852(b)(3)(E) and 857(b)(3)(F).
965 AM 2008-003, February 15, 2008.
966 The qualified collective investment vehicle must be eligible for a reduced rate of with holding under a provision in the dividends article of the relevant treaty dealing specifically with dividends paid by REITs. For example, the U.S. income tax treaties with Australia and the Netherlands provide such a reduced rate of withholding under certain circumstances.
967 Foreign pension funds may be structured in a variety of ways, and may comprise one or more separate entities. The word "arrangement" encompasses such alternative structures.
968 Multi-employer and government-sponsored public pension funds that provide pension and pension-related benefits may satisfy this prong of the definition. For example, such pension funds may be established for one or more companies or professions, or for the general working public of a foreign country.
969 The Senate Committee on Finance reported S.915 on April 14, 2015 (S. Rep. No. 114-25). Section 3 of that bill contained an identical provision.
972 Sec. 1445(b)(3). Other exceptions also apply. Sec. 1445(b).
973 Treas. Reg. Sec. 1.897-2(h).
974 As described previously, stock of a U.S. corporation is not generally a USRPI unless it is stock of a USRPHC. However, all U.S. corporate stock is deemed to be such stock, unless it is shown that the corporation's U.S. real property interests do not amount to the relevant 50 percent or more of the corporation's relevant assets. Also, even if a REIT is a USRPHC, if it is domestically controlled its stock is not a USRPI.
975 Treas. Reg. sec. 1.897-2(h)(3).
976 The Senate Committee on Finance reported S.915 on April 14, 2015 (S. Rep. No. 114-25). Section 6 of that bill contained an identical provision.
978 The Senate Committee on Finance reported S.915 on April 14, 2015 (S. Rep. No. 114-25). Section 7 of that bill contained an identical provision.
980 Secs. 243(d)(3) and 857(c)(1).
981 Secs. 243(d)(2) and 854(b)(1)(A) and (C).
983 IRS CCA 201320014. The situation addressed in the memorandum involved a controlled foreign corporation that had terminated its "CFC" status before year end, through a transfer of stock to a partnership. The advice was internal IRS advice to the Large Business and Inter-national Division. Such advice is not to be relied upon or cited as precedent by taxpayers, but may offer some indication of administrative practice.
984 The Senate Committee on Finance reported S. 906 on April 14, 2015 (S. Rep. No. 114-19).
985 The Code does not expressly define the term "public charity," but rather provides exceptions to those entities that are treated as private foundations.
986 Sec. 509(a)(1) (referring to sections 170(b)(1)(A)(i) through (iv) for a description of these organizations).
987 Treas. Reg. sec. 1.170A-9(f)(2). Failing this mechanical test, the organization may qualify as a public charity if it passes a "facts and circumstances? test. Treas. Reg. sec. 1.170A-9(f)(3).
988 To meet this requirement, the organization must normally receive more than one-third of its support from a combination of (1) gifts, grants, contributions, or membership fees and (2) certain gross receipts from admissions, sales of merchandise, performance of services, and furnishing of facilities in connection with activities that are related to the organization's exempt purposes. Sec. 509(a)(2)(A). In addition, the organization must not normally receive more than one-third of its support in each taxable year from the sum of (1) gross investment income and (2) the excess of unrelated business taxable income as determined under section 512 over the amount of unrelated business income tax imposed by section 511. Sec. 509(a)(2)(B).
989 Sec. 509(a)(3). Organizations organized and operated exclusively for testing for public safe-ty also are classified as public charities. Sec. 509(a)(4). Such organizations, however, are not eli-gible to receive deductible charitable contributions under section 170.
990 Secs. 170(b)(1)(A) and (B).
991 Unlike public charities, private foundations are subject to tax on their net investment income at a rate of two percent (one percent in some cases). Sec. 4940. Private foundations also are subject to more restrictions on their activities than are public charities. For example, private foundations are prohibited from engaging in self-dealing transactions (sec. 4941), are required to make a minimum amount of charitable distributions each year (sec. 4942), are limited in the extent to which they may control a business (sec. 4943), may not make jeopardizing investments (sec. 4944), and may not make certain expenditures (sec. 4945). Violations of these rules result in excise taxes on the foundation and, in some cases, may result in excise taxes on the managers of the foundation.
992 Secs. 170(b)(1)(A)(iii) and 509(a)(1).
993 Treas. Reg. sec. 1.170A-9(d)(2)(i).
997 Secs. 501(c)(3), 501(h), and 4911. Churches and certain church-related entities may not choose the expenditure test. Sec. 501(h)(5).
999 Secs. 5001, 5041, and 5051.
1000 Secs. 5006, 5043, and 5054. In general, proprietors of distilled spirit plants, proprietors of bonded wine cellars, brewers, and importers are liable for the tax. Secs. 5005, 5043, and 5054. Customs and Border Protection (CBP) collects the excise tax on imported products.
1002 Under a special rule, September has three return periods. Sec. 5061.
1006 Such uses are specified in sections 5053, 5214, 5362, and 5414.
1007 See, e.g., sec. 5212. Domestic bottled distilled spirits cannot be transferred in bond between distilleries. See 27 CFR sec. 19.402.
1008 Secs. 5005, 5232, 5364, and 5418. Imported bottled distilled spirits, wine, and beer cannot be transferred in bond from customs custody to a distillery, winery, or brewery. See sec. 5061(d)(2)(B).
1009 Secs. 5171, 5351-53, and 5401; 27 CFR sec. 19.72(b) (distilled spirits plant), 27 CFR sec. 24.106 (wine producer), 27 CFR sec. 25.61(a) (brewer).
1010 Secs. 5173, 5354, 5401, and 5551; 27 CFR parts 19 (Distilled Spirits), 24 (Wine), and 25 (Beer).
1011 See, e.g., 27 CFR sec. 19.166(c) requiring a withdrawal bond for distilled spirits in the amount of excise tax that has not been paid (up to a maximum of $1 million); 27 CFR sec. 24.148(a)(2) requiring a wine bond to cover the amount of tax deferred (up to a maximum of $250,000); 27 CFR sec. 25.93(a) requiring a bond equal to 10 percent of the maximum excise tax for which the brewer will be liable to pay during a calendar year for brewers required to file tax returns and remit excise taxes semimonthly and a bond equal to $1,000 for brewers who were liable for not more than $50,000 in excise taxes with respect to beer in the previous year and who reasonably expect to be liable for not more than $50,000 in such taxes during the current year.
1012 The Senate Committee on Finance reported S. 905 on April 14, 2015 (S. Rep. No. 114-16).
1013 Sec. 1563(a)(1) and (4), and (b)(2)(D), as modified by sec. 831(b)(2)(B).
1014 For this purpose, persons are related within the meaning of section 267(b) or 707(b).
1015 Members of the same controlled group are determined as under present law for purposes determining whether a company meets the dollar limit applicable to net written premiums (or, if greater, direct written premiums). The provision relocates the controlled group definition, as modified for purposes of section 831, in section 831(b)(2)(C).
1016 These added eligibility rules reflect the concern expressed by the Senate Committee on Finance upon reporting out S. 905, "An Act to Amend the Internal Revenue Code of 1986 to Increase the Limitation on Eligibility for the Alternative Tax for Certain Small Insurance Companies," when the Committee stated, "The Committee notes that the provision does not include a related proposal that would narrow eligibility to elect the alternative tax in a manner intended to address abuse potential, but that may cause problems for certain States. The Committee therefore wants the Treasury Department to study the abuse of captive insurance companies for estate planning purposes, so Congress can better understand the scope of this problem and whether legislation is necessary to address it." S. Rep. 114-16, April 14, 2015, page 2.
1020 The Senate Committee on Finance reported S.906 on April 14, 2015 (S. Rep. No. 114-17).
1021 Secs. 5001 (distilled spirits), 5041 (wines), and 5051 (beer).
1022 Secs. 5006, 5043, and 5054. In general, proprietors of distilled spirit plants, proprietors of bonded wine cellars, brewers, and importers are liable for the tax.
1023 A "proof gallon" is a U.S. liquid gallon of proof spirits, or the alcoholic equivalent thereof. Generally a proof gallon is a U.S. liquid gallon consisting of 50 percent alcohol. On lesser quantities, the tax is paid proportionately. Credits are allowed for wine content and flavors content of distilled spirits. Sec. 5010.
1024 Small domestic wine producers (i.e., those producing not more than 250,000 wine gallons in a calendar year) are allowed a credit of $0.90 per wine gallon ($0.056 per wine gallon in the case of hard cider) on the first 100,000 wine gallons (other than champagne and other sparkling wines) removed. The credit is reduced by one percent for each 1,000 wine gallons produced in excess of 150,000 wine gallons per calendar year.
1025 A "wine gallon" is a U.S. gallon of liquid measure equivalent to the volume of 231 cubic inches. On lesser quantities, the tax is paid proportionately.
1027 A small domestic brewer (one who produces not more than 2 million barrels in a calendar year) is subject to a per barrel rate of $7.00 on the first 60,000 barrels produced in that year.
1028 A "barrel" contains not more than 31 gallons, each gallon equivalent to the volume of 231 cubic inches. On lesser quantities, the tax is paid proportionately.
1031 These are organizations exempt from tax under section 501(c)(3).
1032 Under section 414(q), an employee generally is treated as highly compensated if the employee (1) was a five-percent owner of the employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $120,000 (for 2015).
1033 Sections 401(a)(3) and 410(b) deal with the minimum coverage requirement; section 401(a)(4) deals with the general nondiscrimination requirements, with related rules in section 401(a)(5). In addition to the minimum coverage and general nondiscrimination requirements, under section 401(a)(26), the group of employees who accrue benefits under a defined benefit plan for a year must consist of at least 50 employees, or, if less, 40 percent of the workforce, subject to a minimum of two employees accruing benefits. Special tests apply to elective deferrals under section 401(k) and employer matching contributions and after-tax employee contributions under section 401(m). Detailed regulations implement these statutory requirements. The nondiscrimination rules, with some modifications, apply to a section 403(b) plan by cross-reference in section 403(b)(12).
1034 Secs. 401(a), last sentence, 410 (c) and (d), and 411(e). The requirements from which a church plan is exempt include the minimum participation, vesting, anti-alienation, and qualified joint and survivor requirements. With respect to the nondiscrimination requirements applicable to qualified retirement plans, Notice 2001-46, 2001-2 C.B. 122, provides that, until further notice, nonelecting church plans may be operated in accordance with a reasonable, good faith interpretation of the statutory requirements, rather than having to comply with the requirements in the nondiscrimination regulations.
1035 Under section 411(e)(2), a nonelecting church plan is subject to the vesting, participation, and nondiscriminatory vesting requirements in effect before the enactment of ERISA (the pre-ERISA vesting requirements). Under the pre-ERISA vesting requirements, a participant's accrued benefit is not required to become nonforfeitable (or vested) until the participant attains normal retirement age under the plan, rather than in accordance with a prescribed schedule as is generally required for qualified retirement plans. In addition, the pattern of vesting under the plan may not have the effect of discriminating in favor of a prohibited group of officers, shareholders, supervisors, and highly compensated employees.
1037 Secs. 414(e) and 501. A similar definition applies under ERISA section 3(33). The definition of church plan is not limited to retirement plans. For example, a health plan may be a church plan.
1039 Sec. 403(b)(12)(B), which incorporates by reference the definitions in section 3121(w)(3)(A) and (B).
1040 For this purpose, exempt status under section 501(c)(3) is required.
1041 Sec. 414(c) and the regulations thereunder provide for aggregation of groups under common control. Section 414 (b), (m) and (o) also provide aggregation rules for a controlled group of corporations and affiliated service groups. Under section 414(t), the aggregation rules apply also for purposes of various benefits other than retirement benefits. In addition, other provisions incorporate the aggregation rules by reference, such as section 4980H, requiring certain employers to offer health coverage to full-time employees.
1042 Treas. Reg. sec. 1.414(c)-5.
1043 The regulations give as an example an entity that provides a type of emergency relief within one geographic region and another that provides that type of emergency relief within another geographic region and indicates that the two organizations may treat themselves as under common control if they have a single plan covering employees of both entities and regularly coordinate their day-to-day exempt activities. Similarly, a hospital that is an exempt organization and another exempt organization with which it coordinates the delivery of medical services or medical research may treat themselves as under common control if there is a single plan covering employees of the hospital and employees of the other exempt organization and the coordination is a regular part of their day-to-day exempt activities.
1044 Treas. Reg. sec. 1.414(c)-5(f).
1045 Under Treas. Reg. sec. 1.414(c)-5(e), the rules for churches and qualified church-controlled organizations are reserved.
1046 Notice 89-23, 1989-1 C.B. 654, Part V.B.2.a.
1047 72 Fed. Reg. 41128, 41138 (July 26, 2007).
1050 Sec. 415(b). In general, the dollar limit is prorated in the case of a participant with fewer than 10 years of participation in a plan, and the compensation limit is prorated in the case of a participant with fewer than 10 years of service with the employer.
1051 Specified interest and, in some cases, mortality assumptions apply in doing this conversion.
1052 Secs. 403(b)(1), first sentence, and 415(k)(4). However, section 415(a)(2), last sentence, suggests that a section 403(b) plan could be subject instead to the limit on benefits under a defined benefit plan.
1053 Sec. 251(e)(5) of Pub. L. No. 97-248.
1054 Treas. Reg. secs. 1.403(b)-10(f) and 1.415-1(b)(2) and (3).
1055 Secs. 401(k) and 403(b)(1) and (12). The amount of elective deferrals an employee may make is subject to limits.
1056 See, for example, secs. 401(k)(13) and (m)(12), 414(w), and 4979(f)(1). For a discussion of automatic enrollment, see Joint Committee on Taxation, Present Law and Background Relating to Tax-Favored Retirement Savings (JCX-98-14), September 15, 2014, pages 36-38, available at www.jct.gov.
1059 Sec. 411(a) and ERISA sec. 203. Under a defined contribution plan, a participant must vest in benefits attributable to employer contributions under one of two vesting schedules: 100 percent vesting after three years of service or graduated vesting over two to six years of service. With respect to employer-provided benefits under a defined benefit plan, a participant generally must vest under one of two vesting schedules: 100 percent vesting after five years of service, or graduated vesting over three to seven years of service. Under certain defined benefit plans, full vesting must occur after three years of service.
1061 Treas. Reg. sec. 1.403(b)-10(b)(1).
1062 Rev. Rul. 81-100, 1981-1 C.B. 326, most recently modified by Rev. Rul. 2014-24, 2014-2 C.B. 529.
1063 Sec. 403(b)(1)(A) and (7).
1064 Sec. 403(b)(9); Treas. Reg. sec. 1.403(b)-8(f).
1065 Treas. Reg. sec. 1.403(b)-9(a)(6).
1067 The Senate Committee on Finance reported S. 1946 on August 5, 2015 (S. Rep. No. 114-118). See sec. 160.
1068 See IRS Notice 2006-52, 2006-1 C.B. 1175, June 2, 2006; IRS 2008-40, 2008-14 I.R.B. 725 March 11, 2008.
1069 IRS Notice 2008-40, Supra, set a target of a 10-percent reduction in total energy and power costs with respect to the building envelope, and 20 percent each with respect to the interior lighting system and the heating, cooling, ventilation and hot water systems. IRS Notice 2012-26 (2012-17 I.R.B. 847 April 23, 2012) established new targets of 10-percent reduction in total energy and power costs with respect to the building envelope, 25 percent with respect to the interior lighting system and 15 percent with respect to the heating, cooling, ventilation and hot water systems, effective beginning March 12, 2012. The targets from Notice 2008-40 may be used until December 31, 2013, but the targets of Notice 2012-26 apply thereafter.
1070 The Senate Committee on Finance reported S. 1946 on August 5, 2015 (S. Rep. No. 114-118). See sec. 303.
1071 The Senate Committee on Finance reported S. 1946 on August 5, 2015 (S. Rep. No. 114-118). See sec. 301.
1077 Treas. Reg. sec. 1.664-1(d)(4).
1080 The provision was introduced in the House of Representatives on December 8, 2015, as H.R. 4192 (114th Cong., 1st Sess.). For a statement of the bill sponsors' intent, see 161 Cong. Rec. E1726 (Dec. 8, 2015) (statement of Rep. Tiberi) ("My bill provides that, on an early termination of a charitable remainder trust, the donor and the charity will apportion the value of the trust using the same methodology that was used to determine the value of the remainder interest on formation. The donor will recognize capital gain on the total value received, the charity will receive its share of the trust's assets, and the early termination will not constitute self-dealing or otherwise disqualify the charitable remainder trust.").
1081 The loss disallowance rules of sections 267(a) and 707(b) together, and the corresponding rule under section 267(d), apply to transactions between the following parties:
(1) Members of a family, which include ancestors, lineal descendants, spouse and siblings (whether by the whole or half blood).
(2) An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for the individual.
(3) Two corporations which are members of the same controlled group (as defined in sec. 267(f)).
(4) A grantor and a fiduciary of any trust.
(5) A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts.
(6) A fiduciary of a trust and a beneficiary of such trust.
(7) A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts.
(8) A fiduciary of a trust and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust.
(9) A person and an organization to which section 501 applies and which is controlled directly or indirectly by the person or (if such person is an individual) by members of the family of the individual.
(10) A corporation and a partnership if the same persons own more than 50 percent in value of the outstanding stock of the corporation and more than 50 percent of the capital interest or profits interest in the partnership.
(11) Two S corporations in which the same persons own more than 50 percent in value of the outstanding stock of each corporation.
(12) An S corporation and a C corporation if the same persons own more than 50 percent in value of the outstanding stock of each corporation.
(13) Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of the estate.
(14) A partnership and a person owning, directly or indirectly, more than 50 percent of the capital interest or profits interest in the partnership.
(15) Two partnerships in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests.
1082 This rule in effect prevents a transferor from selectively realizing certain losses to offset gains in a transaction with a related party.
1086 Secs. 3101-3128. FICA taxes, FUTA taxes (discussed herein), taxes under the Railroad Retirement Tax Act or "RRTA" (secs. 3201-3241) and income tax withholding (secs. 3401-3404) are commonly referred to collectively as employment taxes. Sections 3501-3511 provide additional employment tax rules.
1087 For taxable years beginning after 2012, the employee portion of the HI tax under FICA (not the employer portion) is increased by an additional tax of 0.9 percent on wages received in excess of a threshold amount. The threshold amount is $250,000 in the case of a joint return, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.
1089 Treas. Reg. secs. 31.3121(d)-1(c)(1) and 31.3306(i)-1(a).
1090 Sec. 3401(d)(1) (for purposes of income tax withholding, if the employer does not have control of the payment of wages, the person having control of the payment of such wages is treated as the employer); Otte v. United States, 419 U.S. 43 (1974) (the person who has the control of the payment of wages is treated as the employer for purposes of withholding the employee's share of FICA taxes from wages); In re Armadillo Corporation, 561 F.2d 1382 (10th Cir. 1977), and In re The Laub Baking Company v. United States, 642 F.2d 196 (6th Cir. 1981) (the person who has control of the payment of wages is the employer for purposes of the employer's share of FICA taxes and FUTA tax). The mere fact that wages are paid by a person other than the employer does not necessarily mean that the payor has control of the payment of the wages. Rather, control depends on the facts and circumstances. See, for example, Consolidated Flooring Services v. United States, 38 Fed. Cl. 450 (1997), and Winstead v. United States, 109 F. 2d 989(4th Cir. 1997).
1091 An employee is subject to OASDI tax only with respect to remuneration up to the applicable wage base for a year, regardless of whether the employee works for only one employer or for more than one employer during the year. If, as a result of working for more than one employer, OASDI tax is withheld with respect to remuneration above the applicable wage base, the employee is allowed a credit under section 31(b).
1092Cencast Services, L.P. v. United States, 729 F.3d 1352 (Fed. Cir. 2013).
1093 For purposes of the provision, "affiliate" and "affiliated" status are based on the aggregation rules applicable for retirement plan purposes under section 414(b) and (c).
1094 For purposes of the provision, a motion picture project generally means a project for the production of a motion picture film or video tape as described in section 168(f)(3).
1095 The House Committee on Ways and Means reported H.R. 1058 on April 13, 2015 (H.R. Rep. 114-70). The House passed the bill on April 15, 2015.
1097 44 U.S.C. sec. 3101. See 44 U.S.C. sec. 3301 for a definition of Federal records that generally includes all documentary materials that agencies receive or create in the conduct of official business and that may have evidentiary value with respect to official business, regardless of the physical form of the materials.
1098 See generally Title 44, at chapter 29 (records management by the Archivist of the United States and the General Services Administration), chapter 31 (records management of Federal agencies) and chapter 33 (disposal of records).
1100 A quarterly bulletin published by the National Archives and Records Administration provides guidance to executive agencies. See generally NARA Bulletin 2013-03, available at http://www.archives.gov/recordsmgmt/bulletins/2013/2013-03.html.
1102 See secs. 7213 (criminal unauthorized disclosure), 7213A (criminal unauthorized inspection) and 7431 (civil remedy for unauthorized inspection or disclosure).
1104 I.R.M. paragraphs 1.10.3 et seq., and 11.3.1.
1105 I.R.M. paragraph 10.8.1.4.6.3.1, "Privately Owned E-Mail Accounts." (May 3, 2012).
1110 Section 501(c)(4) provides tax exemption for civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, and no part of the net earnings of which inures to the benefit of any private shareholder or individual. An organization is operated exclusively for the promotion of social welfare if it is engaged primarily in promoting in some way the common good and general welfare of the people of a community. Treas. Reg. sec. 1.501(c)(4)-1(a)(2). The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office; however, social welfare organizations are permitted to engage in political activity so long as the organization remains engaged primarily in activities that promote social welfare. The lobbying activities of a social welfare organization generally are not limited. An organization is not operated primarily for the promotion of social welfare if its primary activity is operating a social club for the benefit, pleasure, or recreation of its members, or is carrying on a business with the general public in a manner similar to organizations that are operated for profit.
1112 Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), organizations are allowed an automatic 12-month extension as long as the application for recognition of tax exemption is filed within the extended, i.e., 27-month, period. The IRS also may grant an extension beyond the 27-month period if the organization is able to establish that it acted reasonably and in good faith and that granting relief will not prejudice the interests of the government. Treas. Reg. secs. 301.9100 1 and 301.9100-3.
1113 Treas. Reg. sec. 1.508-1(a)(1).
1114 Sec. 508(d)(2)(B). Contributions made prior to receipt of a favorable determination letter may be deductible prior to the organization's receipt of such favorable determination letter if the organization has timely filed its application to be recognized as tax-exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
1116 Rev. Proc. 2015-9, sec. 11, 2015-2 I.R.B. 249.
1120 Sec. 501(p) (enacted by Pub. L. No. 108-121, sec. 108(a), effective for designations made before, on, or after November 11, 2003).
1121 Rev. Proc. 2015-9, 2015-2 I.R.B. 249, secs. 5 and 7.
1123 IRS Memorandum, Appeals Office Consideration of All Proposed Adverse Rulings Relating to Tax-Exempt Status from EO Technical by Request, May 19, 2014.
1124 Rev. Proc. 2014-9, 2014-2 I.R.B. 281, sec. 7.
1125 Rev. Proc. 2015-9, 2015-2 I.R.B. 249, secs. 5 and 7.
1127 The House Committee on Ways and Means reported H.R. 1295 on April 13, 2015 (H.R. Rep. 114-71). The House passed the bill on April 15, 2015.
1128 Treas. Reg. sec. 1.501(c)(4)-1(a)(2).
1130 Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), organizations are allowed an automatic 12-month extension as long as the application for recognition of tax exemption is filed within the extended, i.e., 27-month, period. The IRS also may grant an extension beyond the 27-month period if the organization is able to establish that it acted reasonably and in good faith and that granting relief will not prejudice the interests of the government. Treas. Reg. secs. 301.9100-1 and 301.9100-3.
1131 Treas. Reg. sec. 1.508-1(a)(1).
1132 Sec. 508(d)(2)(B). Contributions made prior to receipt of a favorable determination letter may be deductible prior to the organization's receipt of such favorable determination letter if the organization has timely filed its application to be recognized as tax-exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
1134 Rev. Proc. 2013-9, 2013-2 I.R.B. 255. Prior to the issuance of Revenue Procedure 20139 in early 2013, an organization that filed an application for exemption on Form 2014 generally could obtain a determination that it was exempt as of its date of formation, regardless of when it filed Form 1024.
1135 Treas. Reg. sec. 1.501(a)-1(a)(2).
1136 Rev. Proc. 2013-9, 2013-2 I.R.B. 255.
1138 Sec. 501(p) (enacted by Pub. L. No. 108-121, sec. 108(a), effective for designations made before, on, or after November 11, 2003).
1139 The House Committee on Ways and Means reported H.R. 1295 on April 13, 2015 (H.R. Rep. 114-71). The House passed the bill on April 15, 2015.
1145 Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
1146 The House Committee on Ways and Means reported H.R. 1104 on April 13, 2015 (H.R. Rep. 114-64). The House passed the bill on April 15, 2015.
1149 For 2011 and later years, the gift and estate taxes were reunified, meaning that the gift tax exemption amount was increased to equal the estate tax exemption amount.
1150 For 2015, the $5.43 exemption amount results in a unified credit of $2,117,800, after applying the applicable rates set forth in section 2001(c).
1161 See Treas. Reg. sec. 301.6109-1.
1162 Sections 6221 through 6241, as amended by section 1101, "The Bipartisan Budget Act of 2015," Pub. L. 114-74. For years prior to the effective date of the new provisions, there remain three sets of rules for tax audits of partners and partnerships. Partnerships with more than 100 partners may elect the electing large partnership audit rules of sections 6240 through 6256. Partnerships with more than 10 partners (and that are not electing large partnerships) are subject to the TEFRA partnership audit rules enacted in 1982, found in sections 6221 through 6234. Under these two sets of rules, partnership items generally are determined at the partnership level under unified audit procedures. All other partnerships (those with 10 or fewer partners that have not elected the TEFRA audit rules) are subject to the audit rules applicable generally, with the tax treatment of an adjustment to a partnership's items of income, gain, loss, deduction, or credit determined for each partner in separate proceedings, both administrative and judicial.
1166 For purposes of the centralized system, the reviewed year means the partnership taxable year to which the item being adjusted relates (sec. 6225(d)(1)). The adjustment year means (1) in the case of an adjustment pursuant to the decision of a court (under the centralized system's judicial review provisions), the partnership taxable year in which the decision becomes final; (2) in the case of an administrative adjustment request, the partnership taxable year in which it is made; or (3) in any other case, the partnership taxable year in which the notice of final partnership adjustment is mailed (sec. 6225(d)(2)).
1172 After that date, a timely administrative adjustment request may address Schedule K-1 errors. Sec. 6227.
1176 Pub. L. No. 114-74, enacted November 2, 2015.
1177 The Senate Committee on Finance reported S. 903 on April 14, 2015 (S. Rep. No. 114-14).
1179 Sec. 7463. These cases are handled under less formal procedures than regular cases. The Tax Court's decision in a small tax case is final and cannot be appealed to any court by the IRS or by the petitioner. See sec. 7463, Title XVII of the United States Tax Court rules, and http://www.ustaxcourt.gov/forms/Petition_Kit.pdf.
1180 Sec. 6404(h). Hinck v. United States, 127 S.Ct. 2011 (2007).
1182 Secs. 6015, 6320, and 6330.
1185 Secs. 6502, 6531, and 6532.
1188 All cases except those cases in which section 7453 does not apply, e.g., small tax cases.
1189 54 T.C. 742 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
1190 The Federal Rules of Evidence, as amended through 2012, under the authority of 28 U.S.C. sec. 2074, is available at http://www.uscourts.gov/uscourts/rules/rules-evidence.pdf. "The Act to Establish Rules of Evidence for Certain Courts and Proceedings," Pub. L. No. 93-595 (January 2, 1975).
1191 28 U.S.C. secs. 1731 through 1828.
1192 Judicial Conduct and Disability Act of 1980, 28 U.S.C. secs. 351-364. On March 11, 2008, the Judicial Conference of the United States promulgated rules governing such proceedings.
1196 Available at http://www.uscourts.gov/uscourts/RulesAndPolicies/conduct/vol02a-ch02.pdf.
1197 These authorities are available to Article III courts either directly or through the laws enacted for the Administrative Office of the United States Court under U.S.C. title 28 (see e.g., 28 U.S.C. secs. 601, et seq.) and to other Article I courts such as the U.S. Court of Appeals for Veterans Claims under 38 U.S.C. sec. 7287.
1199 28 U.S.C. secs. 1941(A) and 1931.
1202 The Board of Tax Appeals was created in 1924 to review deficiency determinations. In 1942, it was renamed the Tax Court of the United States.
1203 Section 7443(f) permits the President to remove a Tax Court judge for inefficiency, neglect of duty, or malfeasance in office, after notice and opportunity for a public hearing.
1204Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), petition for cert. filed (U.S. Nov. 26, 2014) (No. 14-622), available at http://www.procedurallytaxing.com/wp-content/uploads/2014/12/Kuretski-Supreme-Court-Petition.pdf. For an explanation of the status of Article I courts in comparison to the Article III judiciary, see, Federal Courts: A Legal Overview (Report No. R43746), October 1, 2014, available at http://www.fas.org/sgp/crs/misc/R43746.pdf.
1205Kuretski v. Commissioner, p. 932, distinguishing Freytag v. Commissioner, 501 U.S. 868
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