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Retrospective on key tax developments in 2013

January 13, 2014

The 2013 calendar year was a year packed with tax developments, including a major federal tax law, new cases, regulations, rulings and revenue procedures. Milestones for the year included: the American Taxpayer Relief Act of 2012 (P.L. 112-240, 1/2/2013); the Supreme Court’s landmark Windsor decision, which struck down a section of the Defense of Marriage Act that required same-sex spouses to be treated as unmarried for federal law purposes; IRS’s post- Windsor guidance; the long-awaited capitalization vs. repair regulations; and the most recent guidance on the newly effective 0.9% payroll tax on wages and self-employment income and 3.8% surtax on net investment income.

Major tax developments for 2013 include the following:

Taxable & Exempt Income

  • IRS concludes that an incentive to health care professionals and hospitals for using electronic records is income to recipients.
  • IRS delayed to 2014 implementing FICA guidance on employers’ treatment of tips and service charges.
  • A district court held that a parsonage allowance was unconstitutional.
  • The maximum fair market value (FMV) for 2013 for which the fleet-average valuation method can be used is $21,200 ($21,300 for 2014) for a passenger auto and $22,300 ($22,600 for 2014) for a truck or van.
  • The maximum FMV for 2013 for which the cents-per-mile valuation method can be used is $16,000 (for 2014, as well) for passenger autos and $17,000 ($17,300 for 2014) for a truck or van.
  • For 2013, an employee may exclude up to $245 a month of employer-provided qualified parking, transit, and vanpooling benefits. For 2014, an employee can exclude up to $250 a month of employer-provided qualified parking benefits, and $130 for the combined value of transit passes and transportation in a commuter highway vehicle.
  • For 2013, the maximum exclusion for employer-provided adoption assistance is $12,970 ($13,190 for 2014).
  • IRS modified the “use-or-lose” rule for health FSAs to allow employees to carry over up to $500 of unused amounts remaining at year-end.
  • IRS provided guidance on the $2,500 limit on health FSAs that applies in 2013 and 2014.
  • For 2013, top dividend rate rose to 20% for certain higher-income taxpayers.
  • IRS provided a safe harbor accounting method for calculating OID on a pool of credit card receivables.
  • Regs provide that Treasury Inflation-Indexed Securities (TIPS) issued with more than a de minimis amount of premium are subject to the coupon bond method.
  • IRS provided the 2013 and 2014 income threshold ($115,000) for the definition of a “highly compensated employee.”
  • The per-diem dollar threshold in computing the limits for the exclusion of benefits from long-term care insurance is $320 for 2013 ($330 for 2014).
  • Regs were issued on elective deferral of cancellation of debt income from the reacquisition of debt instruments.

Deductions & Expenses of a Business

  • New reliance regs provide definitions, exceptions, etc. regarding the $500,000 limit for certain remuneration paid by health insurers.
  • For 2013, a high deductible health plan (HDHP) for Archer medical savings account (MSA) purposes is a health plan with an annual deductible of at least $2,150 and not more than $3,200 for individual coverage ($4,300 and not more than $6,450 for family coverage); in addition, the maximum out-of-pocket expenses can’t exceed $4,300 for individual coverage ($7,850 for family coverage). For 2014, an HDHP for MSA purposes is a health plan with an annual deductible of at least $2,200 and not more than $3,250 for individual coverage ($4,350 and not more than $6,550 for family coverage); in addition, the maximum out-of-pocket expenses can’t exceed $4,350 for individual coverage ($8,000 for family coverage).
  • For 2013 and 2014, a HDHP for HSA purposes is a health plan with an annual deductible that is not less than $1,250 for individual coverage and $2,500 for family coverage. Maximum out-of-pocket expenses can’t exceed $6,250 for individual coverage for 2013 ($6,350 for 2014) and $12,500 for family coverage for 2013 ($12,700 for 2014). The maximum annual HSA deductible contribution is the sum of the monthly contribution limits, based on eligibility and health plan coverage on the first day of the month. The monthly limit is 1/12 of the indexed amount for self-only coverage ($3,250 for 2013 and $3,300 for 2014) and for family coverage ($6,450 for 2013 and $6,550 for 2014).
  • The standard mileage rate for business travel is 56.5¢ for 2013 (56¢ for 2014).
  • Under the simplified (high-low) per diem rates for post-Sept. 30, 2013 travel, a payor may reimburse up to $251 for high-cost localities ($186 for lodging and $65 for M&IE) and $170 for other localities ($118 for lodging and $52 for M&IE).
  • Puerto Rico is treated as included in the U.S. for purposes of calculating domestic production gross receipts (DPGR) through 2013.
  • An optional safe harbor method of calculating a home office deduction is available starting with the 2013 tax year. The safe harbor—$5 × square feet of qualified use (up to 300 square feet)—provides an alternative to the calculation, allocation, and substantiation of actual expenses that would otherwise be required.
  • Taxpayers using their car to move to a new home because of a change in their work location may claim a 24¢ per-mile moving expense deduction for 2013 (23.5¢ for 2014).
  • Final regs were issued under Code Sec. 162(a) and Code Sec. 263(a) with respect to amounts paid to acquire, produce, or improve tangible property, that cover: deductible repairs and maintenance costs; timing for deducting materials and supplies; how to handle the cost of rotable, temporary and standby emergency spare parts; capitalization, generally; amounts paid to acquire property; and amounts paid to improve property.

Interest Expense, Taxes & Losses

  • The treatment of mortgage insurance premiums as qualified residence interest is extended through 2013.
  • IRS issued final regs on allocation of prepaid qualified mortgage insurance premiums.
  • The election under Code Sec. 164 to deduct state and local sales taxes instead of state and local income taxes is extended through 2013.
  • A co-op stockholder may be entitled to a casualty loss deduction for damage to the co-op’s premises if the taxpayer has a sufficient property interest under state law.
  • Temporary regs provide that taxpayers can deduct amounts paid for repairs and maintenance to tangible property if the amounts paid do not otherwise have to be capitalized.
  • Beginning during 2013, proposed reliance regs provide a regrouping “fresh start” under the passive activity rules for certain taxpayers subject to the 3.8% surtax on unearned income.

Depreciation & Expensing

  • Proposed reliance regs modify rules for determining what transactions are dispositions of MACRS assets.
  • Proposed reliance regs modify rules for accounting for MACRS depreciation using general asset accounts.
  • 7-year MACRS depreciation for motorsports entertainment complexes is extended through 2013.
  • 15-year MACRS depreciation for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property is extended through 2013.
  • Open-air parking garages are characterized under MACRS as 39-year nonresidential real property.
  • Faster MACRS depreciation for qualified Indian reservation property is extended through 2013.
  • 50% bonus depreciation is extended to apply to property placed in service before 2014 (before 2015 for certain long-production-period property and aircraft).
  • Another round of trading bonus and accelerated depreciation for certain otherwise-deferred credits is provided for property placed in service before 2014 (before 2015 for certain long-production-period property and aircraft).
  • Federal sequester imposes limit on the amounts refundable for trading bonus and accelerated depreciation for certain otherwise-deferred credits.
  • 50% bonus depreciation for certain property used in biofuel production is extended through 2013 and expanded.
  • Code Sec. 179 expensing limit is set at $500,000, and the investment-based phase-out level for the expensing is set at $2,000,000, for tax years beginning in 2012 and 2013.
  • S corporations aren’t subject to Code Sec. 179 limitations that apply to consolidated groups.
  • Right to revoke or alter a Code Sec. 179 expensing election without IRS consent is extended to cover tax years beginning before 2014.
  • Up to $250,000 of qualified real property is made eligible for Code Sec. 179 expensing for tax years beginning in 2012 and 2013.
  • Eligibility of off-the-shelf computer software for Code Sec. 179 expensing is extended to cover tax years beginning before 2014.
  • Enhanced Code Sec. 179 expensing for qualified zone property is extended generally through 2013.
  • Autos, trucks and vans placed in service in 2013 are subject to revised auto depreciation and expensing dollar caps, as are vehicles eligible for bonus depreciation. The 2013 limits are the same as in 2012 for a passenger auto, while the limits (other than the first-year limits, which are the same) are $100 higher for a light truck or van. The first-year depreciation limit is $3,160 for autos and $3,360 for light trucks or vans first placed in service in 2013. However, if the bonus depreciation rules apply, these first-year limits are increased by $8,000 to $11,160 for autos and $11,360 for light trucks or vans.
  • Autos, trucks and vans leased in 2013 are subject to revised income inclusion amounts.
  • 50% expensing for qualified advanced mine safety equipment applies through 2013.
  • Expensing for certain film and TV production costs applies through 2013.

Charitable Contributions & Medical Expenses

  • Deductible amounts for insubstantial benefit to donors of charitable contributions increase. Items are fully deductible if:
    1. the value of all benefits received isn’t more than $102 for 2013 ($104 for 2014); or
    2. the amount contributed to the charity is at least $51 for 2013 ($52 for 2014) and the donor receives only token benefits (bookmarks, calendars, mugs, posters, tee shirts, etc.) generally costing no more than $10.20 for 2013 ($10.40 for 2014).
  • Above-basis deduction rules retroactively extended for charitable contributions of food inventory by both non-corporate taxpayers and C corporations made before 2014.
  • No qualified easement in property subject to mortgage unless mortgagee timely subordinates rights to those of charitable donee.
  • No qualified easement if property can be substituted for property originally transferred subject to easement.
  • Increased charitable deduction for qualified conservation easements contributed by individuals (including ranchers and farmers) retroactively extended for contributions made before 2014.
  • Increased charitable deduction for qualified conservation easements contributed by corporate ranchers and farmers retroactively extended for contributions made before 2014.
  • Maximum premiums paid for a qualified long-term care insurance contract, deductible as a medical expense, increase.
  • Mileage rate for use of a car for qualified medical transportation is set at 24¢ a mile for expenses paid or incurred in 2013 (23.5¢ for 2014).

Education Tax Breaks

  • The American Opportunity Tax Credit for higher education expenses is extended through 2017.
  • For 2013 and 2014, the Lifetime Learning credit phases out over higher levels of modified AGI.
  • For Coverdell education savings accounts (CESAs), $2,000 contribution limit, higher phase-out ranges, and other enhancements are made permanent.
  • Exclusion for employer-provided education assistance (including assistance for graduate-level courses) is made permanent.
  • Exclusion for awards received under the National Health Service Corps and Armed Services Health Professions scholarship programs is made permanent.
  • For student loan interest deduction, removal of 60-month limit and increased phase-out ranges are made permanent.
  • Phaseout ranges are provided for the deduction for interest paid on qualified higher education loans in 2013 and 2014. For 2013, the deduction phases out ratably for taxpayers with modified AGI between $60,000 and $75,000 ($125,000 and $155,000 for joint returns). For 2014, the deduction phases out ratably for taxpayers with modified AGI between $65,000 and $80,000 ($130,000 and $160,000 for joint returns).
  • Up-to-$250 above-the-line deduction for teachers out-of-pocket classroom-related expenses applies through 2013.
  • Above-the-line deduction for qualified tuition and related expenses applies through 2013.

Business and Personal Tax Credits

  • The railroad track maintenance credit is retroactively extended for two years through 2013.
  • The mine rescue team training credit is retroactively extended for two years through 2013.
  • Revenue Procedure provides new safe harbor for partnership allocations of rehabilitation credits.
  • The work opportunity tax credit is retroactively extended for two years through 2013.
  • The cellulosic biofuel producer credit is modified and extended for one year through 2013.
  • The research credit is modified and retroactively extended for two years through 2013.
  • The minimum low-income tax credit rate for nonfederally subsidized new buildings is extended for allocations before 2014.
  • The production credit for Indian coal facilities is extended for one year through 2013.
  • A facility using wind to produce electricity will be a qualified facility if it is placed in service before 2014. The credits for facilities producing energy from certain renewable resources are modified to include facilities, the construction of which begins before 2014.
  • The Indian employment tax credit is retroactively extended for two years through 2013.
  • The new markets tax credits is retroactively extended for two years through 2013.
  • Sequester reduces tax-exempt employer’s small business health care credit.
  • The credit for biodiesel and renewable diesel is retroactively extended for two years through 2013.
  • The credit for energy-efficient new homes is retroactively extended for two years through 2013.
  • The credit for energy-efficient appliances is retroactively extended for two years through 2013.
  • The employer wage credit for employees who are active duty members of the uniformed services is retroactively extended for two years through 2013.
  • Nonrefundable personal credits can offset alternative minimum tax and regular tax.
  • Earned income tax credit changes relating to higher amounts for eligible taxpayers with three or more children, and increases in threshold phaseout amounts for singles, surviving spouses, and heads of households are extended for five years through 2017.
  • The maximum amount of the earned income tax credit (EITC) and AGI-based phaseout thresholds increase for 2013. The maximum EITC for 2013 is $487 (no qualifying children); $3,250 (one qualifying child), $5,372 (two qualifying children); and $6,044 (three or more qualifying children). The credit is completely phased out at $14,340 ($19,680 for joint filers) if there are no qualifying children; $37,870 ($43,210 for joint filers) if there is one qualifying child; $43,038 ($48,378 for joint filers) if there are two qualifying children; and $46,227 ($51,567 for joint filers) if there are three or more qualifying children.
  • The maximum amount of disqualified income that can be received for EIC purposes increases for 2013 to $3,300 ($3,350 for 2014).
  • Final regs explain “affordability” of employer-sponsored coverage for health care premium tax credit.
  • Transition relief allows certain small employers to claim Code Sec. 45R health care credit.
  • The adoption credit rules (but not refundability provisions) are made permanent.
  • Eased rules in qualifying for the refundable child credit are extended for five years through 2017.
  • The nonbusiness energy property credit is retroactively extended for two years through 2013.
  • The alternative fuel vehicle refueling property credit (nonhydrogen property) is retroactively extended for two years through 2013.
  • The credit for 2- or 3-wheeled plug-in electric vehicles is modified and retroactively extended for two years through 2013.
  • The AGI amounts used in computing the “saver’s” credit for elective deferrals and IRA contributions increase for 2013 and 2014. The applicable credit percentage depends on filing status and AGI. For tax years beginning in 2013, the amounts are: For joint filers: $0 to $35,500, 50%; $35,500 to $38,500, 20%; and $38,500 to $59,000, 10% (no credit if AGI is above $59,000). For heads of households: $0 to $26,625, 50%; $26,625 to $28,875, 20%; and $28,875 to $44,250, 10% (no credit if AGI is above $44,250). For all other filers: $0 to $17,750, 50%; $17,750 to $19,250, 20%; and $19,250 to $29,500, 10% (no credit if AGI is above $29,500).
  • Qualified zone academy bonds are retroactively extended for two years through 2013.
  • Sequester reduces direct payment of refundable tax credit bonds.
  • The American Samoa economic development credit is modified and extended through 2014.
  • The Supreme Court held that a U.K. windfall tax qualified for the foreign tax credit.

Sales & Exchanges

  • Tax-free exchange of life insurance contract or annuities applies to beneficiaries after death of owner.
  • State treatment of property as real or personal not determinative for like-kind exchange purposes.
  • Depreciation part of standard mileage rate remains at 23¢ for 2013.

Capital Gains & Losses

  • Maximum tax rate on long-term capital gains of higher income noncorporate taxpayers increased to 20% in tax years beginning after 2012.
  • 100% gain exclusion for qualified small business stock is retroactively restored and extended through 2013.
  • An obligation under a debt instrument may be a position in personal property that is part of a straddle.
  • Temporary regs provide rules for determining when to take unrealized gain or loss into account on mixed straddles established after Aug. 1, 2013.
  • IRS provides guidance for allocating gain on the sale of qualified real property for which a Code Sec. 179 election was made between Code Sec. 1245 property and Code Sec. 1250 property.

Tax Accounting

  • Automatic change in accounting procedures will apply for repair/capitalization regs under Code Sec. 162 and Code Sec. 263.

Tax Withholding

  • Worker providing services in multiple roles can be both an employee and an independent contractor, when working on two projects for the same company.
  • IRS released a revised Form 8952 to apply for the misclassified worker settlement program.
  • Settlement payment for age discrimination treated as wages for FICA purposes.
  • The Supreme Court is to decide circuit split on FICA tax treatment of severance pay.
  • Beginning in 2013, the voluntary withholding rate on unemployment benefits permanently remains at 10%.
  • Beginning in 2013, the optional flat withholding rate for supplemental wage payments totaling $1 million or less for a calendar year permanently remains at 25%.
  • Beginning in 2013, the mandatory flat withholding rate for supplemental wage payments totaling more than $1 million for a calendar year is increased to 39.6% (from 35%).
  • IRS provided guidance on whether an employee may ask for additional withholding on supplemental wages.
  • For 2014, an employee who can be claimed as a dependent on someone else’s return can’t claim an exemption from withholding if his income exceeds $1,000 and includes more than $350 of unearned income.
  • IRS has provided optional procedures for employers to adjust the employment taxes of same-sex spouses for 2013 and prior years.
  • Threshold amount for cash payments to domestic service employees (e.g., nannies) to be subject to FICA is $1,800 for 2013 ($1,900 for 2014).
  • Beginning in 2013, the withholding rate on gambling proceeds permanently remains at 25%.
  • Beginning in 2013, the backup withholding rate on reportable payments permanently remains at 28%.

Individual Tax Computation

  • The wage base for computing the Social Security tax (OASDI) in 2014 increased to $117,000 from $113,700 in 2013.
  • IRS issued final regs on the additional 0.9% Medicare tax on employee compensation and self-employment income.
  • For 2013 and later years, the above-the-line deduction for self-employment tax is 50% of all self-employment tax.
  • IRS released the standard deduction amounts for 2013 and 2014. For joint filers and surviving spouses, it is $12,200 for 2013 ($12,400 for 2014); for heads of household, it is $8,950 for 2013 ($9,100 for 2014); for singles, it is $6,100 for 2013 ($6,200 for 2014); and for marrieds filing separately, it is $6,100 for 2013 ($6,200 for 2014). For 2013 and 2014, the basic standard deduction of individuals who can be claimed as dependents by another taxpayer can’t exceed the greater of (a) $1,000 or (b) $350 plus the individual’s earned income; and, it can’t be more than the regular basic standard deduction amount shown above ($6,100 for 2013; $6,200 for 2014).
  • For 2013 and later years, the overall limitation on itemized deductions (the “Pease” limitation) is restored. For 2013, it applies when AGI exceeds $300,000 for joint returns, $275,000 for heads of household, $250,000 for single filers, and $150,000 for married individuals filing separately.
  • For 2013, the personal exemption amount is $3,900 ($3,950 for 2014).
  • For 2013 and later years, the personal exemption phaseout (PEP) applies. For joint filers and surviving spouses, the phaseout begins to apply at $300,000 for 2013 ($305,050 for 2014) and is completed at $422,500 for 2013 ($427,550 for 2014). For heads of household, the phaseout begins to apply at $275,000 for 2013 ($279,650 for 2014) and is completed at $397,500 for 2013 ($402,150 for 2014). For single filers (other than surviving spouses and heads of household), the phaseout begins to apply at $250,000 for 2013 ($254,200 for 2014) and is completed at $372,500 for 2013 ($376,700 for 2014). For marrieds filing separately, the phaseout begins to apply at $150,000 for 2013 ($152,525 for 2014) and is completed at $211,250 for 2013 ($213,775 for 2014).
  • The sunset of a favorable income tax rate structure for individuals and marriage penalty relief in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16) was eliminated.
  • The tax rates on individuals’ incomes for 2013 and later years include a seventh, higher, tax bracket. The tax rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
  • Under the kiddie tax, the parents’ highest tax rate applies to a child’s unearned income over $2,000 for 2013 and 2014.
  • For 2013, the dollar thresholds for the optional methods of computing net earnings from self-employment are $4,640 and $6,960 ($4,800 and $7,200 for 2014).
  • Final regs clarify application of the 3.8% net investment income tax that applies after 2012. IRS also issues proposed reliance regs on the 3.8% surtax, that deal with the computation of net investment income with respect to a number of specialized provisions and situations.

Alternative Minimum Tax

  • The statutory amount that is part of the calculation of tentative minimum tax, which is adjusted for inflation for any tax year beginning in 2013 and thereafter, is $179,500 for 2013 ($182,500 for 2014).
  • Increased individual AMT exemption amounts apply for tax years beginning in 2013 and thereafter. The 2013 amounts are: $51,900 for unmarried individuals, $80,800 for married individuals filing jointly, and $40,400 (50% of the joint filing amount) for married individuals filing separately. These amounts phase out at high levels of income.
  • For estates and trusts, the AMT exemption amount for tax years beginning in 2013 is $23,100 ($23,500 for 2014) less 25% of alternative minimum taxable income (AMTI) exceeding $76,950 ($78,250 for 2014). Thus, no exemption is available when AMTI reaches $169,350 for 2013 ($172,250 for 2014).
  • The AMT exemption amounts and phase-out of exemption amounts are adjusted for inflation for any tax year beginning in 2013 and thereafter.
  • The AMT exemption amount for a child subject to the kiddie tax can’t exceed the child’s earned income for the tax year plus $7,150 for 2013 ($7,250 for 2014). But this exemption amount can’t be more than the child’s regular AMT exemption, i.e., the unmarried individual’s $51,900 (before a phaseout) exemption amount for 2013 ($52,800 for 2014).

Corporate Tax Computation & S Corporations

  • Accumulated earnings tax rate increases to 20% for tax years beginning in 2013 and thereafter.
  • Personal holding company penalty tax rate increases to 20% for tax years beginning in 2013 and thereafter.
  • IRS provides new simplified methods for taxpayers to request relief for late S corporation and related elections.
  • IRS privately rules that a membership interest can satisfy the requirement for tax-free distribution that a distribution be made “with respect to its stock.”
  • Reduced 5-year recognition period for S corporation’s built-in gains applies for tax years beginning in 2011, 2012, and 2013.
  • A Court of Appeal held that if a shareholder fails to claim a suspended loss deduction and is later time-barred from doing so, he can’t claim a corresponding increase in basis.

Corporate Transactions

  • IRS issues final regs barring use of controlled corporations to avoid related corporation redemption rules.
  • Rule treating ordinary income from disposition of Section 306 stock as qualified dividend income is made permanent.
  • Final regs modify the application of Code Sec. 382 segregation rules to small shareholders.
  • Monthly long-term exempt rates for the Code Sec. 382 limitation ranged from a low of 2.7% to a high of 3.5%.
  • IRS issues final regs on deemed asset sale treatment for certain transactions under Code Sec. 336(e).
  • IRS issues final regs on outbound stock transfers from a U.S. person to a foreign corporation.
  • Collapsible corporation rules are permanently repealed.

Trust, Estates, & Decedents

  • ESBTs are taxed at a flat rate of 39.6% on some income.
  • Final regs clarify application of the post-2012 3.8% net investment income tax. IRS also issued proposed reliance regs dealing with the computation of net investment income with respect to a number of specialized provisions and situations.
  • Court denied NOL carryover from terminated bankruptcy estate to debtor.

Exempt Organizations

  • IRS issues guidance for Type III supporting organizations.
  • For 2013, unrelated business taxable income excludes annual dues of up to $155 ($158 for 2014) per member received by agricultural or horticultural organizations.

Retirement Plans

  • IRS issues final regs on suspending 401(k) safe harbor contributions. For 2013 and 2014, the limit on 401(k) plan elective deferrals is $17,500.
  • For 2013 and 2014, compensation for “highly compensated employee” status is $115,000.
  • For 2013, the limit on annual additions to a defined compensation plan is $51,000 ($52,000 for 2014).
  • For 2013, the maximum annual benefit from a defined benefit plan is $205,000 ($210,000 for 2014).
  • IRS provides post-Windsor guidance to same-sex married couples with respect to cafeteria plans and HSAs.
  • The rule allowing up to $100,000 in required minimum distributions from IRAs to be contributed tax-free to charity applies through 2013.

Foreign Income & Transactions

  • Final regs are issued on treatment of dividend equivalents.
  • Final, temp & prop regs clarify PFIC owner determinations and filing requirements.
  • Final regs are issued providing additional guidance on withholding on payments to foreign financial institutions and others (FATCA withholding).
  • IRS postpones implementation dates in FATCA regs, with withholding being implemented in phases beginning on July 1, 2014.
  • IRS issues final foreign financial institution agreement & new FATCA guidance.

Returns and Payment of Tax

  • IRS announced a late January 31 start date for the 2014 filing season.
  • Individual return filing thresholds increase from 2013 to 2014:
    Single taxpayer: $10,000 for 2013 ($10,150 for 2014)
    Single taxpayer (age 65 or over): $11,500 for 2013 ($11,700 for 2014)
    Married filing joint return: $20,000 for 2013 ($20,300 for 2014)
    Married filing joint return (one 65 or over): $21,200 for 2013 ($21,500 for 2014)
    Married filing joint return (both 65 or over): $22,400 for 2013 ($22,700 for 2014)
    Married filing separate return: $3,900 for 2013 ($3,950 for 2014)
    Head of Household: $12,850 for 2013 ($13,050 for 2014)
    Head of Household (65 or over): $14,350 for 2013 ($14,600 for 2014)
    Surviving spouse: $16,100 for 2013 ($16,350 for 2014)
    Surviving spouse (65 or over): $17,300 for 2013 ($17,550 for 2014)
  • For joint return purposes, an individual is married to a person of the same sex if the individuals are lawfully married under state law. For this purpose, individuals are legally married if their marriage was validly entered into under state law (“state of celebration”), even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.
  • New guidelines for taxpayers requesting equitable relief from income tax liability under the innocent spouse rules apply to requests filed (or pending) after Sept. 15, 2013.
  • Income tax return filing threshold for a bankruptcy estate of an individual is $10,000 for 2013 ($10,150 for 2014).
  • For covered securities acquired after 2013, brokers have to report bond premiums and acquisition premiums.
  • Mandatory employer and insurer reporting requirements under Code Sec. 6055 and Code Sec. 6056 and employer shared responsibility payments under Code Sec. 4980H, which were to have gone into effect on Jan. 1, 2014, are postponed until Jan. 1, 2015.
  • For less complex debt instruments acquired after 2013, brokers have to report information relating to the basis of the debt instrument and character of any gain. For more complex debt instruments, brokers don’t have to report the information until after 2015.
  • New final mortgage insurance premium reporting regs apply to 2013 and thereafter.
  • Applicable large employers and insurers don’t have to report information about an employee’s insurance coverage for periods beginning after 2014.
  • A district court enjoined IRS from enforcing its regulatory scheme for registered tax return preparers.
  • Information return preparers can use truncated TINs (TTINs) on certain paper payee statements.

Deficiencies, Refunds & Penalties

  • In fiscal year 2012, IRS audited 1.0% of individual returns filed in the previous year.
  • IRS’s small business fast track settlement program goes nationwide.
  • Final regs increase installment agreement, offer-in-compromise fees.
  • Guidance clarifies treatment of statutory deficiency notices issued pursuant to a civil examination for tax periods also covered by a restitution order and restitution-based assessments.
  • Overpayment and underpayment interest rates for all four quarters of 2013 (and the first quarter of 2014) were the same as the rates that applied for the fourth quarter of 2012.
  • S Ct finds that the valuation misstatement penalty applied to partnership’s sham transaction.
  • Proposed reliance regs clarify material advisor penalty and allow for 20-day discretionary extension.
  • Mandatory employer and insurer reporting requirements under Code Sec. 6055 and Code Sec. 6056 and employer shared responsibility payments under Code Sec. 4980H, which were to have gone into effect on Jan. 1, 2014, are postponed until Jan. 1, 2015.
  • Proposed reliance regs provide guidance on terms relevant to the employer’s shared responsibility mandate and provide general operating rules and transition relief associated with its implementation.
  • IRS provides penalty relief for good faith, but incorrect, information reporting under Code Sec. 6050W for payments in 2012 and 2013 on returns filed in 2013 and 2014.

Estate, Gift & GST Taxes

  • The basic exclusion amount for gifts and estates, and the exemption amount for the generation-skipping transfer (GST) tax, is $5,250,000 for 2013 ($5,340,000 for 2014). The corresponding unified credit amount (the tax otherwise imposed on the exclusion amount) is $2,045,800 in 2013 ($2,081,800 in 2014).
  • The maximum 2013 and 2014 estate, gift and GST tax rates are 40%.
  • New Schedule PC, Protective Claim for Refund, preserves estate’s right to a refund of estate taxes paid when a claim or expense that is the subject of unresolved controversy at the time of filing the return later becomes deductible.
  • Finding Section 3 of the Defense of Marriage Act to be unconstitutional, the Supreme Court allows a marital deduction for property left to the decedent’s same-sex spouse.
  • Code Sec. 2010(c)(4) is amended, conforming to the regs, by replacing basic exclusion amount with applicable exclusion amount.
  • Regs flesh out portability election for decedents dying after 2010.
  • Forms 706 and 709 include a new section and schedule, respectively, for portability.
  • An executor must file an estate tax return if the decedent’s gross estate at death exceeds the basic exclusion amount ($5,250,000 for estates of individuals dying in 2013; $5,340,000 for estates of individuals dying in 2014).
  • The Ninth Circuit finds that an executor’s reliance on an accountant, which caused a delay in filing the estate tax return, was not reasonable.
  • Fixed-dollar gifts of limited liability company (LLC) interests aren’t void as against public policy.
  • Gift tax annual exclusion is $14,000 for 2013 and 2014.
  • For 2013, $143,000 ($145,000 for 2014) may be transferred to a noncitizen spouse free of gift tax.