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Retrospective on key tax developments in 2015

The 2015 calendar year saw many new tax developments, especially toward year-end. The Consolidated Appropriations Act, 2016, and the “Protecting Americans from Tax Hikes (PATH) Act of 2015,” both signed into law on December 18, included a number of major tax changes, including making permanent a number of key taxpayer-favorable “extender” provisions. There were also significant non-legislative tax developments during the year, many of which came in the form of traditional tax guidance—rulings, regulations, etc.—but many of which stemmed from laws and cases that, despite having a primary non-tax focus, had a significant impact on taxes. These include the Supreme Court’s landmark health care and marriage equality rulings as well as the Bipartisan Budget Act of 2015, which provided a massive overhaul of the partnership audit framework. This article provides an overview of these and other developments occurring in 2015.

Taxable & Exempt Income

…The parity provision in Code Sec. 132(f)(2), under which the monthly dollar limitation for employer-provided transit passes and commuter highway transportation equals that of employer-provided parking, was made permanent. Thus, for 2015, an employee can exclude up to $250 a month of qualified parking benefits, and $250 for the combined value of transit passes and transportation in a commuter highway vehicle. The corresponding 2016 figure is $255.
…The exception from COD income for certain discharges of qualified principal residence indebtedness was retroactively extended through 2016.
…Effective for amounts received in tax years beginning after Dec. 18, 2015, payments from certain work-learning-service programs operated by a “work college” are excluded from gross income.
…For tax years beginning before, on, or after Dec. 18, 2015, civil damages, restitution, or other monetary awards received by a taxpayer as compensation for wrongful incarceration are excluded from gross income.
…Identity protection services provided at no cost to those whose personal information may have been compromised by a data security breach are excludible from income.
…The Tax Court held that a refundable credit not based on taxes previously paid is not protected by the exclusionary effect of the tax benefit rule.
…Employer payments to Code Sec. 170(c) organizations, in exchange for vacation, sick or personal leave that employees elect to forgo, are not income or wages of the employees if made before 2016 for the relief of Ebola victims.
…Another Federal appellate court (the 7th Circuit) has affirmed that whistleblower settlements under the Federal False Claims Act are ordinary income.
…Final regs on IRS tax whistleblower awards confirm that all such awards are taxable.
…Proposed reliance regs provide that a copy of a Code Sec. 83(b) election no longer needs to be filed with a tax return.
…IRS has provided that rules for van pooling arrangements differ based on how they are owned and operated.
…IRS provided guidance on the use of smartcards, debit or credit cards, and other electronic media to provide qualified transportation fringe benefits and ruled that after 2015, employers can’t provide cash reimbursements for these benefits in areas where a terminal-restricted debit card (which can be used at points of sale where only transit fares may be purchased) is readily available.
…The definition of “small employer” for cafeteria plan purposes is revised to keep the threshold at 50 employees (previously scheduled to rise to 100 for plan years beginning on or after Jan. 1, 2016).
…IRS announced its disagreement with Tax Court cases holding that partners may exclude their shares of partnership cancellation of debt (COD) income discharged in bankruptcy reorganizations.
…Starting in 2017, the maximum amount of annual premiums that small property and casualty insurance companies can receive and still elect to be exempt from tax on their underwriting income (and instead be taxed only on taxable investment income) was increased from $1.2 million to $2.2 million (adjusted for inflation).
…Clean coal power grants received under the Energy Policy Act of 2005 are excludible from gross income by an eligible taxpayer that is not a corporation, and the taxpayer must reduce the basis of tangible depreciable property related to such grants by the amount excluded and make payments to the Treasury equal to 1.18% of the amounts excluded.
…For 2015, the maximum fair market value (FMV) for which the fleet-average valuation method can be used is $21,300 for a passenger auto and $22,900 for a truck or van.
…For 2015, the optional standard mileage rate for valuing an employee’s use of an employer-provided auto is 57.5¢ per mile (54¢ for 2016).
…For 2015, the maximum FMV for which the cents-per-mile valuation method can be used is $16,000 for passenger autos and $17,500 for a truck or van.
…For 2015, the maximum exclusion for employer-provided adoption assistance is $13,400 ($13,460 for 2016).
…For 2015 and 2016, the maximum an employee can contribute to a health FSA through salary reduction contributions is $2,550.
…For 2015 and 2016, the income threshold for the definition of a “highly compensated employee,” for purposes of the employer-owned life insurance rules, is $120,000.
…For 2015, the per-diem dollar threshold in computing the limits for the exclusion of benefits from long-term care insurance is $330 ($340 for 2016).

Deductions & Expenses of a Business

…Effective on Nov. 2, 2015, the Bipartisan Budget Act of 2015 repealed the requirement that employers with more than 200 employees automatically enroll new full-time equivalents into a qualifying health plan if offered by that employer and automatically continue enrollment of current employees.
…The simplified per diem rates for post-Sept. 30, 2015 travel are $275 for high-cost areas and $185 for all other localities (up from $259 and $172).
…The provision treating Puerto Rico as included in the U.S. for purposes of the domestic production activities deduction (DPAD) was retroactively extended through 2016.
…Temporary tax relief was provided to independent oil refiners by giving them a favorable way of accounting for transportation costs in calculating their Code Sec. 199 domestic production activities deduction.
…Receiving medical, etc. care from the Veterans Administration after Dec. 31, 2015, won’t keep a recipient from qualifying for an HSA.
…Effective for dividends received from RICs and REITs on or after Dec. 18, 2015, for purposes of the dividends received deduction, such dividends are not treated as dividends from domestic corporations, even if the RIC or REIT owns shares in a foreign corporation.
…For 2015, a high deductible health plan (HDHP) for Archer medical savings account (MSA) purposes is a health plan with an annual deductible of at least $2,200 and not more than $3,300 for individual coverage ($4,450 and not more than $6,650 for family coverage). For 2016, an HDHP for MSA purposes is a health plan with an annual deductible of at least $2,250 and not more than $3,350 for individual coverage ($4,450 and not more than $6,700 for family coverage). For both years, the maximum out-of-pocket expenses can’t exceed $4,450 for individual coverage ($8,150 for family coverage).
…For 2015 and 2016, a HDHP for health savings account (HSA) purposes is a health plan with an annual deductible that is not less than $1,300 for individual coverage and $2,600 for family coverage. Maximum out-of-pocket expenses can’t exceed $6,450 for individual coverage for 2015 ($6,550 for 2016) and $12,900 for family coverage for 2015 ($13,100 for 2016). 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 ($3,350 for 2015 and 2016) and for family coverage ($6,650 for 2015 and $6,750 for 2016).
…For 2015, the standard mileage rate for business travel is 57.5¢ (54¢ for 2016).
…For 2015, taxpayers using their car to travel to a new location because of a change in their work location may claim a 23¢ per-mile moving expense deduction (19¢ for 2016).

Interest Expense, Taxes & Losses

…The election under Code Sec. 164 to deduct state and local sales taxes instead of state and local income taxes was made permanent.
…The treatment of mortgage insurance premiums as qualified residence interest was retroactively extended through 2016.
…The Tax Court allowed home mortgage interest deductions for payments on a mortgage even though the taxpayer wasn’t liable on the mortgage and didn’t hold title to the underlying property.
…The 9th Circuit ruled that the home interest deduction limitation applies per taxpayer for co-owners and not per property.
…IRS extended through 2017 a safe harbor method for computing a homeowner’s mortgage interest deduction for payments made pursuant to one of several federal- or state-administered programs that provide aid to distressed homeowners.
…IRS ruled that tax equivalency payments made under a condo lease to a governmental agency were treated as real property taxes deductible under Code Sec. 164.
…The Tax Court held that passive loss self-rental rules under Code Sec. 469, which convert otherwise passive income to nonpassive, apply to S corporation rentals.

Depreciation & Expensing

…Enhanced expensing—in the form of increased limitations and treatment of certain real property as Code Sec. 179 property—was made permanent, as was the ability to revoke a Code Sec. 179 election without IRS’s consent.
…15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements was made permanent.
…Bonus first-year depreciation was retroactively extended through 2019 with a number of modifications, including a gradual reduction over that time (50% for qualified property placed in service in 2015 through 2017, 40% for 2018, and 30% for 2019).
…The enhanced first-year depreciation cap for autos and trucks was retroactively extended through 2019 and made subject to a gradual reduction ($8,000 if placed in service before 2018; $6,400 if during 2018; $4,800 for 2019).
…The choice to forego bonus depreciation and claim AMT credits instead was modified and retroactively extended through 2016.
…The expensing election for costs of film and television production was retroactively extended through 2016 and expanded to include “qualified live theater productions.”
…The short, 7-year cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes was retroactively extended through 2016.
…The classification of certain race horses as 3-year property was retroactively extended through 2016.
…Accelerated depreciation for business property on an Indian reservation was retroactively extended through 2016.
…The election to treat 50% of the cost of any qualified mine safety equipment as an expense in the tax year in which it is placed in service was retroactively extended through 2016.
…50% bonus depreciation for certain property used in biofuel production was retroactively extended through 2016.
…Eligibility of off-the-shelf computer software for Code Sec. 179 expensing was made permanent.
…Enhanced Code Sec. 179 expensing for qualified empowerment zone property was extended through 2016.
…The de minimis safe harbor for taxpayers that don’t have an applicable financial statement was raised from $500 to $2,500.
…Retail stores, otherwise ready for use, were held “placed in service” for depreciation purposes despite not yet being open to the public.
…A safe harbor was provided for retail and restaurant businesses on when to deduct or capitalize remodeling costs.
…IRS provided that buildings used primarily to sell and lease trucks, sell truck parts, and service and maintain trucks aren’t retail motor fuels outlets eligible to be 15-year MACRS property.
…IRS provided relief to taxpayers who, because of the retroactive extension of bonus depreciation for 2014, didn’t claim bonus depreciation on their initially filed returns or timely make or revoke an election out of bonus depreciation.
…For “round 4” extension property, IRS provided guidance for the election to (and out of) swapping bonus and accelerated depreciation for refundable credits.
…IRS provided guidance to taxpayers who, because of the retroactive extension of Code Sec. 179 expensing for qualified real property for 2014, didn’t carry forward unused expensing deductions for that property.
…Depreciation and expensing dollar caps were provided for autos, trucks and vans placed in service in 2015.
…Income inclusion amounts were provided for autos, trucks and vans leased in 2015.
…IRS provided that tax-exempt and not-for-profit organizations don’t qualify for the right to allocate to the designer the Code Sec. 179D energy efficient building deduction unless they are also governmental entities.
…IRS ruled that a seller that retains only a bonus royalty payable without regard to whether minerals are produced or sold didn’t have an economic interest that can support a depletion deduction.
…A district court held that an employee who made a contribution of time, skill and expertise in locating mineral properties for his employer, but made no investment of money or other property, didn’t have an economic interest that can support a depletion deduction.

Charitable Contributions & Medical Expenses

…The above-basis deduction rules for charitable contributions of food inventory by both non-corporate taxpayers and C corporations were made permanent and expanded.
…The lower shareholder basis adjustment for charitable contributions made by S corporations was made permanent.
…For contributions by individuals (including ranchers and farmers), the increased charitable deduction for qualified conservation easements was made permanent.
…For contributions by corporate ranchers and farmers, the increased charitable deduction for qualified conservation easements was made permanent and extended to also apply to Alaska Native Corporations.
…For contributions on or after Dec. 18, 2015, “agricultural research organizations” are 50% charities.
…The Tax Court has held that a conservation easement was defeated where the taxpayer retained the right to modify the boundary lines of the donated interest.
…The Ninth and Tenth Circuits have held that no deduction is allowed for a charitable donation of an interest in property subject to a mortgage unless the mortgagee, at the time of the donation, subordinates its rights in the property to the right of the donee to enforce the conservation purposes of the gift in perpetuity.
…For tax years that begin after 2015, the rule under which accrual corporations may sometimes deduct charitable contributions made after the end of their tax year applies it the contribution is made by the 15th day of the fourth month following the close of the year.
…The maximum premiums paid for a qualified long-term care insurance contract, deductible as a medical expense, have increased for 2015 and 2016.
…Deductible amounts for insubstantial benefit to donors of charitable contributions increased. Items are fully deductible if: (1) the value of all benefits received isn’t more than $105 for 2015 ($106 for 2016); or (2) the amount contributed to the charity is at least $52.50 for 2015 ($53 for 2016) and the donor receives only token benefits (bookmarks, calendars, mugs, posters, tee shirts, etc.) generally costing no more than $10.50 for 2015 ($10.60 for 2016).
…The mileage rate for use of a car for qualified medical transportation is 23¢ per mile for expenses paid or incurred in 2015 (19¢ for 2016).

Education Tax Breaks

…The American Opportunity tax credit (AOTC) was made permanent. It was also made subject to heightened verification processes and paid-preparer due diligence requirements in order to reduce the number of improper payments.
…The up-to-$250 above-the-line deduction for teachers’ out-of-pocket classroom-related expenses was made permanent.
…The above-the-line deduction for qualified tuition and related expenses was retroactively extended through 2016.
…Starting in 2015, the definition of “qualified higher education expenses” for Sec. 529 qualified tuition programs includes certain computer and technology-based costs.
…For tax years beginning after June 29, 2015, taxpayers must receive a Form 1098-T from the educational institution containing all required information in order to claim the AOTC, the above-the-line deduction for higher education expenses, or the Lifetime Learning Credit.
…For 2015 and 2016, the AOTC phases out at the same level of modified AGI—over $80,000 ($160,000 for a joint return).
…For 2015 and 2016, the maximum AOTC/Hope Scholarship Credit is $2,500.
…For 2015, the Lifetime Learning credit phases out for taxpayers with modified AGI in excess of $55,000 ($110,000 for a joint return). For 2016, the corresponding figures are $55,000 and $111,000.
…For 2015, the higher education exclusion for savings bond income phases out ratably for taxpayers with modified AGI between $77,200 and $92,200 ($115,750 to $145,750 for joint filers). For 2016, the corresponding ranges are $77,550 to $92,550, and $116,300 to $146,300.
…For 2015 and 2016, the deduction for interest paid on qualified higher education loans phases out ratably for taxpayers with modified AGI between $65,000 and $80,000 ($130,000 and $160,000 for joint filers).

“Achieving a Better Life Experience” (ABLE) Accounts

…For tax years beginning after Dec. 31, 2014, states can allow tax-exempt “Achieving a Better Life Experience” (ABLE) accounts to assist persons with disabilities in building an account to pay for qualified disability expenses.
…Starting in 2015, ABLE accounts can be established in any State.
…Proposed reliance regs on ABLE accounts say IRS will provide transition relief to enable state programs and ABLE accounts to be brought into compliance with any requirements set forth in final regs once they are issued.
…IRS relaxed certain requirements for ABLE programs that were set out in the proposed regs. Those requirements involve establishment of safeguards to categorize distributions, collection of taxpayer identification numbers from contributors, and processing of disability certifications with signed physicians’ diagnoses.

Energy Credits

…The election by a qualified wind facility to take the energy credit instead of the production tax credit was retroactively extended for five years and will be gradually phased out over that time.
…The solar energy credit was extended for five years and will be gradually phased out over that time.
…The residential energy-efficient solar property credit, for certain qualified solar electric property expenditures and qualified solar water heating property expenditures used in a taxpayer’s residence, was extended for five years and will be gradually phased out over that time.
…The cellulosic biofuel producer credit was retroactively extended through 2016.
…The production credit for Indian coal facilities was retroactively extended through 2016 and modified.
…The biodiesel mixture excise tax refund provisions were retroactively extended through 2016.
…The election to take the energy credit instead of a production credit was retroactively extended through 2016.
…The credit for biodiesel and renewable diesel was retroactively extended through 2016.
…The credit for energy-efficient new homes was retroactively extended through 2016.
…The new qualified fuel cell motor vehicle credit was retroactively extended through 2016.
…The alternative fuel vehicle refueling property credit was retroactively extended through 2016.
…The renewable electricity production credit for the production of electricity from qualified energy resources at qualified facilities was extended through 2016 with respect to qualified facilities that use the following qualified energy resources: closed-loop biomass, open-loop biomass, geothermal energy, landfill gas, trash facilities, qualified hydropower, and marine and hydrokinetic renewable energy.
…The alternative fuels and mixtures excise tax credit was retroactively extended through 2016 and modified to provide excise tax equivalency.
…The credit for 2-wheeled electric plug-in vehicles was retroactively extended to apply to eligible vehicles acquired in 2015 and 2016—but remained lapsed for 2014 purchases.
…The energy efficient commercial building property deduction was retroactively extended through 2016 and modified to reflect updated energy efficiency standards.
…The nonbusiness energy property credit was retroactively extended through 2016 and modified.
…IRS clarified the requirements that small wind energy property must meet, and the effective date of those requirements, to qualify for the Code Sec. 48 energy credit.
…The carbon dioxide sequestration credit figures have increased for 2015.
…IRS ruled that the cost of solar panels installed in an off-site community-shared solar project qualified for the residential energy efficient property credit.
…IRS clarified that the safe harbor for partnership allocations of the Code Sec. 45 wind energy production credit does not apply to the Code Sec. 48 energy credit.

Other Business Tax Credits

…The research credit was made permanent and, for tax years beginning after Dec. 31, 2015, creditable by certain eligible small businesses against AMT or payroll tax.
…The work opportunity tax credit was retroactively extended so that it applies to eligible veterans and non-veterans who begin work for the employer before 2020. In addition, the credit was expanded such that it can be claimed with respect to qualified long-term unemployed individuals (i.e., who have been unemployed for 27 weeks or more) who begin work for an employer after 2015.
…Empowerment zone designations were retroactively extended through 2016, rendering businesses and individuals within such a zone eligible for several empowerment zone tax breaks including a 20% wage credit.
…The production tax credit for electricity produced at qualified wind facilities was retroactively extended for five years and will be gradually phased out over that time.
…The railroad track maintenance credit was retroactively extended through 2016.
…The mine rescue team training credit was retroactively extended through 2016.
…Current low-income housing credit percentages are provided, and the minimum low-income tax credit rate for nonfederally subsidized new buildings was made permanent.
…For purposes of the low-income housing credit, the provision under which the basic housing allowance of a military member is excluded from incomes for purposes of determining eligibility as a “low-income tenant” was made permanent.
…The Indian employment tax credit was retroactively extended through 2016.
…The employer wage credit for employees who are active duty members of the uniformed services was made permanent and expanded to remove a prior limitation based on the number of employees.
…The qualified zone academy bond limitation (of $400 million) was retroactively extended through 2016.
…The possessions tax credit for American Samoa was retroactively extended through 2016.
…The new markets tax credit was retroactively extended through 2019, and the carryover period for unused new markets tax credits was extended through 2024.
…Final regs allow an election for the alternative simplified research credit on an amended return if the Code Sec. 41(a)(1) credit was not previously claimed.
…Temporary regs provide guidance on allocating the research credit to controlled groups.
…IRS issued final regs on foreign tax credit splitting rules.
…IRS provided relief to employers in certain counties in Iowa to claim the health care credit where the employers were located in areas in which no qualified health plan through a small business health options program exchange is available for all or part of 2015.

Personal Tax Credits

…The earned income credit (EIC) was made permanent. It was also made subject to expanded verification processes in order to reduce the number of improper payments.
…The maximum amount of the EIC and AGI-based phaseout thresholds increased for 2015 and 2016. The maximum EIC for 2015 is $503 (no qualifying children); $3,359 (one qualifying child), $5,548 (two qualifying children); and $6,242 (three or more qualifying children). For 2015, the credit is completely phased out at $14,820 ($20,330 for joint filers) if there are no qualifying children; $39,131 ($44,651 for joint filers) if there is one qualifying child; $44,454 ($49,974 for joint filers) if there are two qualifying children; and $47,747 ($53,267 for joint filers) if there are three or more qualifying children. The maximum EIC for 2016 is $506 (no qualifying children); $3,373 (one qualifying child), $5,572 (two qualifying children); and $6,269 (three or more qualifying children). For 2016, the credit is completely phased out at $14,880 ($20,430 for joint filers) if there are no qualifying children; $39,296 ($44,846 for joint filers) if there is one qualifying child; $44,648 ($50,198 for joint filers) if there are two qualifying children; and $47,955 ($53,505 for joint filers) if there are three or more qualifying children.
…For 2015 and 2016, the maximum amount of investment income that can be received for EIC purposes is $3,400.
…The child tax credit was made permanent. It was also made subject to heightened verification processes and paid-preparer due diligence requirements in order to reduce the number of improper payments.
…For tax years beginning after 2014, taxpayers taking the Code Sec. 911 foreign-earned income/foreign housing exclusions can’t claim the refundable child tax credit.
…The Code Sec. 35 health coverage tax credit has been retroactively extended and modified.
…The Supreme Court upheld regs authorizing the premium tax credit for persons purchasing health insurance through federally-facilitated Exchanges.
…Beginning in 2015, taxpayers must file Form 8962 with their tax return to claim the premium tax credit.
…Taxpayers who are eligible for CHIP “buy-in” programs, but who don’t enroll, can qualify for the premium tax credit.
…The AGI amounts used in computing the “saver’s” credit for elective deferrals and IRA contributions have increased for 2015 and 2016. The applicable credit percentage depends on filing status and AGI. For tax years beginning in 2015, the amounts are as follows. For joint filers: $0 to $36,500, 50%; $36,500 to $39,500, 20%; and $39,500 to $61,000, 10% (no credit if AGI is above $61,000). For heads of households: $0 to $27,375, 50%; $27,375 to $29,625, 20%; and $29,625 to $45,750, 10% (no credit if AGI is above $45,750). For all other filers: $0 to $18,250, 50%; $18,250 to $19,750, 20%; and $19,750 to $30,500, 10% (no credit if AGI is above $30,500). For tax years beginning in 2016, the amounts are as follows. For joint filers: $0 to $37,000, 50%; $37,000 to $40,000, 20%; and $40,000 to $61,500, 10% (no credit if AGI is above $61,500). For heads of households: $0 to $27,750, 50%; $27,750 to $30,000, 20%; and $30,000 to $46,125, 10% (no credit if AGI is above $46,125). For all other filers: $0 to $18,500, 50%; $18,500 to $20,000, 20%; and $20,000 to $30,750, 10% (no credit if AGI is above $30,750).

Sales & Exchanges

…The provision allowing for deferral, by a vertically integrated electric utility, of gain on sales of electric transmission property was retroactively extended through 2016.
…IRS ruled that intangible property eligible for like-kind exchange can include right to distribute and/or manufacture products.
…If an estate tax return is filed after July 31, 2015, the basis of property reported on that return can’t exceed (a) the final value of the property as determined for estate tax purposes, or (b) if that final value has not been determined, the value on a statement required to be furnished to acquirers of the property under Code Sec. 6035(a).
…For sales and exchanges of property acquired after 2015, the related party loss rules are modified to prevent the transfer of losses from tax-indifferent parties.

Capital Gains & Losses

…The 100% gain exclusion for qualified small business stock was made permanent (including the exception from minimum tax treatment).
…The Tax Court ruled that, in certain circumstances, a contractual right to purchase land can be a capital asset.
…The Tax Court held that, in a patent transfer, effective control of the transferee precludes long-term capital gain treatment since substantially all of the patent holder’s rights would not have been transferred.

Tax Accounting

…The “Ratable Service Contracts” safe harbor treats economic performance as occurring on a ratable basis over the term of the service contract.
…Small businesses adopting the tangible property regs can make an associated accounting method change on the cut-off basis without filing Form 3115.
…IRS ruled that, under the mark-to-market rule, fair market value isn’t less than nonrecourse debt to which security is subject.

Tax Withholding

…IRS will begin accepting applications for professional employer organization (PEO) certification on July 1, 2016.
…For 2015 and 2016, 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 $1,050 and includes more than $350 of unearned income.
…For 2015, the threshold amount for cash payments to domestic service employees (e.g., nannies) to be subject to FICA is $1,900 ($2,000 for 2016).
…Starting in 2016, motion picture payroll service companies that qualify as “motion picture project employers” can be treated as the employer of their film and television production workers for Federal employment tax purposes.

Individual Tax Computation

…The standard deduction amounts for 2015 and 2016 are as follows: for joint filers and surviving spouses, $12,600; for heads of household, $9,250 for 2015 ($9,300 for 2016); for singles, $6,300; and for marrieds filing separately, $6,300. For 2015 and 2016, the basic standard deduction of individuals who can be claimed as dependents by another taxpayer can’t exceed the greater of (a) $1,050 or (b) $350 plus the individual’s earned income; and, it can’t be more than the regular basic standard deduction amount (i.e., $6,300).
…For 2015, the inflation-adjusted AGI thresholds at which the overall limitation on itemized deductions (the “Pease” limitation) applies are: $309,900 for joint returns or surviving spouses ($311,300 for 2016), $284,050 for heads of household ($285,350 for 2016), $258,250 for single filers ($259,400 for 2016), and $154,950 for married individuals filing separately ($155,650 for 2016).
…For 2015, the personal exemption amount is $4,000 ($4,050 for 2016).
…For 2015, the inflation-adjusted threshold amounts at which the personal exemption phaseout (PEP) begins are: $309,900 for joint returns or surviving spouses ($311,300 for 2016), $284,050 for heads of household ($285,350 for 2016), $258,250 for single filers ($259,400 for 2016), and $154,950 for married individuals filing separately ($155,650 for 2016).
…For 2015 and 2016, under the kiddie tax, the parents’ highest tax rate applies to a child’s unearned income over $2,100.
…For 2015, the dollar thresholds for the optional methods of computing net earnings from self-employment are $5,248 and $7,320 ($5,457 and $7,560 for 2016).
…The 8th Circuit held that Conservation Reserve Program payments to non-farmers aren’t self-employment income; but IRS won’t follow the decision in any circuit for payments after 2007.

Alternative Minimum Tax

…For 2015, the inflation-adjusted amount used to determine the tentative minimum tax is $185,400 ($186,300 for 2016).
…For tax years beginning in 2015, the individual alternative minimum tax (AMT) exemption amounts are: $53,600 for unmarried individuals, $83,400 for married individuals filing jointly, and $41,700 (50% of the joint filing amount) for married individuals filing separately. The corresponding 2016 amounts are $53,900, $83,800, and $41,900.
…For tax years beginning in 2015, the AMT exemption amount for estates and trusts is $23,800 ($23,900 for 2016).
…For 2015 and 2016, the AMT exemption amount for a child subject to the kiddie tax is $7,400.
…Starting in 2016, a corporation is subject to a 23.8% alternative tax rate on its qualified timber gain.

Corporations & Partnerships

…The reduced 5-year recognition period for determining the net recognized built-in gain of an S corporation was made permanent.
…The lower shareholder basis adjustment for charitable contributions made by S corporations was made permanent.
…IRS provided that payments for a negative easement constitute rents for purposes of computing personal holding company income.
…Revised underpayment periods apply for purposes of the penalty for underpayment of corporate estimated tax.
…IRS held that LIFO recapture is triggered by a QSub election.
…The accumulated adjustments account of an S corporation doesn’t survive a break in S status.
…Long-term exempt rates for the Code Sec. 382 limitation ranged from a low of 2.47% to a high of 2.82%.
…IRS issued a second round of anti-inversion guidance that makes inverting more difficult and limits the tax benefits for inverted corporations.
…Interest regs allow partnerships to use the interim closing method or the proration method when there is a change in a partner’s interest in the partnership during the year.
…Proposed reliance regs on “hot assets” provide a hypothetical sale approach for determining whether Code Sec. 751(b) applies to a distribution and give taxpayers flexibility to adopt a reasonable method to reflect the tax consequences.
…Generally effective for partnership tax years beginning after Dec. 31, 2015, the Bipartisan Budget Act of 2015 clarified that Congress didn’t intend for the “family partnership rule” to provide an alternative test for whether a person is a partner in a partnership.

Income Taxation of Trusts & Estates

…For 2015, the threshold amounts of taxable income of trusts and estates to which the 0%, 15% and 20% rates for capital gains and qualified dividends apply are: 0% for amounts up to $2,500 ($2,550 for 2016); 15% for amounts over $2,500 and up to $12,300 (over $2,550 and up to $12,400 for 2016); and 20% for amounts over $12,300 ($12,400 for 2016).
…For 2015, the threshold amounts for the personal exemption for a qualified disability trust are $258,250 ($259,400 for 2016).
…Final regs clarify how to determine the basis in a term interest in a charitable remainder trust (CRT), for purposes of computing gain or loss on a sale or other disposition.
…Effective for trust terminations after Dec. 18, 2015, the valuation method used when there is an early termination of certain CRUTs is clarified.

Exempt Organizations

…For 2015, tax-exempt organizations may exclude annual dues up to $160 from unrelated taxable income ($161 for 2016).
…The special rule for certain payments to a tax-exempt organization from a controlled entity (which alters their treatment for purposes of determining the organization’s unrelated business taxable income) was made permanent.

Regulated Investment Companies & Real Estate Investment Trusts

…Regulated investment companies (RICs) must report capital gains passed through to shareholders by the rate group of the capital gains (e.g., as 25% rate gain for unrecaptured Code Sec. 1250 gains, 28% rate collectibles gain, etc.).
…The exemption for RIC interest-related dividends and short-term capital gains dividends was made permanent.
…Effective for distributions on or after Dec. 7, 2015, a spin-off involving a real estate investment trust (REIT) will qualify as tax-free only if both the distributing and controlled corporations are REITs. The Act also restricts the ability of non-REITs that were parties to a tax-free spin-off, to elect REIT status.
…Starting in 2018, securities of one or more taxable REIT subsidiaries held by a REIT may not represent more than 20% of the value of the REIT’s assets (down from 25%).
…Effective for tax years beginning after Dec. 18, 2015, there is an alternative condition that a REIT can satisfy for purposes of qualifying for a safe harbor under which certain sales of property won’t constitute “prohibited transactions” triggering the prohibited transactions tax.
…Starting in 2015, the preferential dividend rule is repealed for publicly offered REITs.
…IRS is given authority to provide an appropriate remedy for preferential dividend distributions by non-publicly offered REITs where the distribution is inadvertent or due to reasonable cause.
…Starting in 2015, the aggregate amount of dividends that can be designated by a REIT as qualified dividends or capital gain dividends is limited to the dividends actually paid by the REIT.
…Starting in 2016, certain debt instruments of publicly offered REITs and mortgages are treated as “real estate assets.”
…Starting in 2015, ancillary personal property that is leased with real property is treated as real property for purposes of the 75% asset test, and a mortgage on such property is treated as real property for purposes of both the 75% income and asset tests if certain requirements are met.
…Starting in 2016, income from hedges of previously acquired hedges that a REIT entered to manage risk associated with liabilities or property that have been extinguished or disposed is not included in gross income under the 95% or 75% income tests.
…Starting in 2016, the calculation of REIT earnings and profits is modified to avoid duplicate taxation.
…Starting in 2016, a taxable REIT subsidiary can provide a broader range of services to the REIT without triggering the prohibited transactions tax.
…Effective for dispositions and distributions on or after Dec. 18, 2015, the maximum stock ownership that a shareholder can hold in a publicly traded corporation to avoid having stock that is treated as a U.S. real property interest (USRPI) was doubled, to 10%, and publicly-traded entities can own and dispose of any amount of stock in a REIT without the REIT stock being treated as a USRPI except to the extent that an investor in the shareholder holds more than 10% of that class of REIT stock.
…Effective for dividends received from RICs and REITs on or after Dec. 18, 2015, for purposes of the dividends received deduction, such dividends are not treated as dividends from domestic corporations, even if the RIC or REIT owns shares in a foreign corporation.

Retirement Plans

…The rule allowing up to $100,000 in required minimum distributions from IRAs to be contributed tax-free to charity was made permanent.
…For 2015, and 2016, the limit on 401(k) plan elective deferrals is $18,000.
…For 2015 and 2016, the catch-up contribution limit for 401(k), Code Sec. 457, and most Code Sec. 403(b) participants is $6,000.
…For 2015 and 2016, compensation for “highly compensated employee” status is more than $120,000.
…For 2015 and 2016, annual additions under a participant’s defined contribution plans cannot exceed $53,000.
…For 2015 and 2016, the annual benefit provided under a defined benefit plan cannot exceed $210,000.
…After 2015, the exception to the retirement plan early withdrawal penalty includes a broader category of governmental workers who have reached age 50.
…The IRA deduction phaseout amounts have increased for 2015 and 2016.
…The allowable Roth IRA contribution phaseout amounts have increased for 2015 and 2016.
…Starting in 2016, the exception to the 10% penalty on withdrawals from retirement accounts before age 50 applies to nuclear materials couriers, United States Capital Police, Supreme Court Police, and diplomatic security special agents.
…Effective Jan. 1, 2017, IRS will eliminate the staggered 5-year remedial amendment cycles for individually designed plans.
…Forthcoming regs will ban replacing defined benefit plan lifetime income with a lump sum payment.
…Permitting transfers of excess pension assets to retiree health accounts has been extended through Dec. 31, 2025.
…The flat-rate, per-participant premium paid by single-employer plans covered by the ERISA termination insurance program is $57 for 2015, $64 for 2016, $68 for 2017, $73 for 2018, and $78 for 2019, at which time it will be re-indexed for inflation.
…The variable-rate premium paid by single-employer defined benefit plans in respect to unfunded vested benefits was raised by an additional $2 in 2017, an additional $3 in 2018, and an addition $3 in 2019.
…For plan years beginning in 2025, the premium due date for flat- and variable-rate premiums was accelerated to the 15th day of the ninth calendar month beginning on or after the first day of the premium payment year.
…For plan years beginning after 2015, the determination of whether a private sector defined benefit pension plan has “credible information” for purposes of using a separate mortality table (i.e., one not provided by Treasury) is made in accordance with established actuarial credibility theory, and the plan may use tables that are adjusted from the Treasury tables if such adjustments are based on a plan’s experience.
…The current funding stabilization percentages for valuing single-employer defined benefit pension plan liabilities have been extended, such that the 10% corridor on interest rates will continue through 2019 then increase by 5% per year through 2023, at which point it will remain permanently at 30%.
…The Treasury Department expanded the ways that taxpayers can fund myRAs (“my Retirement Accounts,” a government-administered Roth IRA).
…For contributions after Dec. 18, 2015, a taxpayer can roll over amounts from an employer-sponsored retirement plan to a SIMPLE IRA if the plan has existed for at least two years.
…Effective for payments made after Dec. 18, 2015, the special rule under current law for certain benefits paid by accident or health plans of a public retirement system is extended to apply to such benefits paid by plans established by or on behalf of a State or political subdivision, as well as plans funded by trusts that are voluntary employees’ beneficiary associations.
…Effective for contributions made within 180 days of receipt (or, if later, the period beginning on Dec. 18, 2014 and ending 180 days later), the portion of amounts that certain bankrupt airlines paid to certain airline employees, that the employees can contribute to an IRA without being subject to the normal IRA annual contribution limits, was expanded.

Foreign Entities, Income & Transactions

…The Subpart F exception for active financing income was made permanent and expanded.
…The look-through rule under which certain payments between related controlled foreign corporations (CFCs) are not treated as foreign personal holding company income (FPHCI) was retroactively extended to apply to tax years of a foreign corporation beginning before 2020, and tax years of U.S. shareholders within which such tax years of foreign corporations end.
…The treatment of a regulated investment company (RIC) as a qualified investment entity treatment under FIRPTA was made permanent.
…Effective for dispositions and distributions after Dec. 18, 2015, any USRPI held by a qualified foreign pension or retirement fund is excluded from the Foreign Investment in Real Property Tax Act (FIRPTA).
…Effective for dispositions occurring 60 days after Dec. 18, 2015, the rate of withholding on dispositions of USPRIs is generally increased to 15%.
…Effective for dispositions on or after Dec. 18, 2015, the “cleansing rule” applies only to interests in a corporation that is not a qualified investment entity.
…Corporate inversion regs provide a bright-line substantial business activities test.
…Proposed reliance regs provide rules on the imposition of, and exemption from, the 2% tax on foreign procurement payments.
…Revised due dates apply for foreign corporations filing Form 1120F in 2016.

IRS Administration & the Tax Court

The following are generally effective Dec. 18, 2015 (i.e., the date that the PATH Act was enacted), except as otherwise provided.

…The IRS Commissioner must ensure that IRS employees are familiar, and act in accordance, with the taxpayer bill of rights.
… IRS employees cannot use personal email accounts for official business.
…In the case of an investigation involving certain violations relating to an individual’s return or return information, IRS may disclose to complainants whether an investigation has been initiated, is open, or is closed.
…IRS must provide for a streamlined recognition process for organizations seeking tax exemption under Code Sec. 501(c)(4).
…Code Sec. 501(c)(4) organizations and other exempt organizations must be allowed to seek review in Federal court of any revocation of exempt status.
…Taking official actions for political purposes is grounds for terminating an IRS employee’s employment.
…The gift tax doesn’t apply to contributions to certain tax-exempt organizations.
…Employers must include an “identifying number” for each employee, rather than the employee’s social security number, on Form W-2.
…Enrolled agents approved by IRS can use the designation “enrolled agent,” EA, or E.A.
…A taxpayer can seek review of a claim for interest abatement when IRS failed to issue a final determination.
…The current procedures for the Tax Court to consider small tax cases are expanded to include the review of IRS decisions not to abate interest if the amount of interest for which abatement is sought doesn’t exceed $50,000.
…Tax Court decisions in cases involving spousal relief and collection cases are appealable to the U.S. Court of Appeals for the Circuit in which an individual’s legal residence is located or in which a business’s principal place of business or principal office of agency is located.
…The statute of limitations is extended in cases involving spousal relief or collections when a bankruptcy petition has been filed and a taxpayer is prohibited from filing a Tax Court petition.
…The Tax Court must conduct its proceedings in accordance with the
Federal Rules of Evidence.
…The same general management, administrative, and expenditure authorities that are available to Article III courts and the Court of Appeals for Veterans Claims are extended to the Tax Court.
…Effective for determinations made after May 19, 2014, IRS is required to create procedures for a Code Sec. 501(c) organization facing an adverse determination to request administrative appeal to the IRS Office of Appeals.
…The Tax Court is authorized to establish procedures for the filing of complaints with respect to the conduct of any Tax Court judge or special trial judge and for the investigation and resolution of these complaints, effective for proceedings begun 180 days after Dec. 18, 2015.

Returns & Payment of Tax

…The filing deadline for 2015 individual returns is Apr. 18, 2016 (Apr. 19, 2016 for MA and ME residents).
…For 2015, individual return filing thresholds have increased to: $10,300 for single taxpayers ($11,850 if 65 or over); $20,600 for married filing jointly ($21,850 if one spouse is 65 or over, and $23,100 of both are 65 or over); $4,000 if married filing separately; $13,250 for head of household ($14,800 if 65 or over); and $16,600 for a surviving spouse ($17,850 if 65 or over). For 2016, the thresholds are: $10,350 for single taxpayers ($11,900 if 65 or over); $20,700 for married filing jointly ($21,950 if one spouse is 65 or over, and $23,200 of both are 65 or over); $4,050 if married filing separately; $13,350 for head of household ($14,900 if 65 or over); and $16,650 for a surviving spouse ($17,900 if 65 or over).
…For 2015, the income tax return filing threshold for a bankruptcy estate of an individual is $10,300 ($10,350 for 2016).
…For tax years that begin after 2015, domestic C corporations will have to file their returns by the 15th day of the 4th month after the end of the tax year (except for C corporations with a tax year that ends on June 30, for which this change won’t apply until tax years beginning after 2025).
…For tax years that begin after 2015, forthcoming regs will provide that most corporations can get an automatic 6-month extension to file their income tax returns; but for tax years beginning after 2015 and before 2026, the automatic extension for calendar year C corporations will be five months (seven months for a C corporation with a tax year that ends June 30).
…For tax years beginning after 2015, a partnership will have to file its income tax return by 15th day of the 3rd month after the end of the partnership’s tax year. Forthcoming regs are to provide a 6-month automatic extension for tax years that begin after 2015.
…For tax years beginning after 2015, IRS is directed to modify its regs to provide that the maximum extension for the returns of trusts filing Form 1041 will be a 5 1/2-month period ending on Sept. 30 for calendar year taxpayers.
…For tax years beginning after 2015, IRS is directed to modify its regs to provide an Apr. 15 FBAR filing deadline.
…Proposed regs would significantly alter the existing innocent spouse regs.
…IRS extended through 2017 information reporting penalty relief for mortgage servicers and state housing finance agencies relating to governmental homeowner assistance payments made to distressed homeowners.
…New requirements apply to requests for individual taxpayer identification numbers (ITINs) made after Dec. 18, 2015; individuals who were issued ITINs before 2013 are required to renew their ITINs on a staggered schedule between 2017 and 2020; and an ITIN will expire if the individual fails to file a tax return for three consecutive years.
…Effective for returns and statements relating to calendar years after Dec. 18, 2015, Forms W-2, W-3, and returns to report non-employee compensation must be submitted by Feb. 28 of the following year and are no longer eligible for the extended filing date for electronically filed returns.
…Effective for returns and statements required to be filed after 2016, there is a new safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements, where the error is $100 or less ($25 or less in the case of errors involving tax withholding).
…Effective for returns filed after Dec. 18, 2015 (or earlier, if the statute of limitations period for assessment has not expired), for certain penalty purposes, an “underpayment” includes the excess of the refundable credits over the tax (i.e., that excess is taken into account as negative amount of tax).
…Effective for claims filed after Dec. 18, 2015, the exception from the erroneous claims penalty for the EITC was repealed.
…Effective for tax returns prepared for tax years ending after Dec. 18, 2015, the preparer willful or reckless conduct penalty is equal to the greater of $5,000 or 75% (up from 50%) of the income derived by the tax return preparer as to the return or claim.

Tax Audits, Deficiencies, Refunds & Penalties

…Generally effective for returns filed for partnership tax years beginning after Dec. 31, 2017, the Bipartisan Budget Act of 2015 repealed the TEFRA unified partnership audit rules and the electing large partnership rules, replacing them with a more streamlined set of partnership audit rules.
…An understatement of gross income due to an overstatement of basis is an omission from gross income for purposes of the 6-year limitations period.
…For taxes assessed before, on, or after Dec. 18, 2015, for certain armed forces members, the period during which IRS may collect taxes may not be extended by reason of continuous hospitalization or for the 180 days following—i.e., it expires 10 years after assessment plus the actual time spent in a combat zone.
…Final regs provide guidance on the extended limitations period for unreported listed transactions.
…The Federal Circuit held that a promoter’s fraudulent intent was insufficient to the keep limitations period open indefinitely.
…For tax years beginning after 2015 (after 2025, for C corporations with a tax year ending on June 30), a quick refund of corporate estimated tax overpayments must be filed after the tax year ends and on or before the 15th day of the 4th month after the year ends.
…Overpayment and underpayment interest rates for all four quarters of 2015 were the same as the rates that applied for the 4th quarter of 2014.
…For 2015 and 2016, the minimum failure to file penalty on income tax returns filed more than 60 days late, unless due to reasonable cause, is the lesser of $135 or the amount of tax required to be shown on the return.
…Certain civil penalties on tax return preparers, and total maximum amounts that can be imposed, increase for 2015 and 2016.
…Effective for both new and renewal Preparer Tax Identification Number (PTIN) applications filed on or after Nov. 1, 2015, the regular annual fee is $33 per year and the outside vendor fee is $17.
…For 2015, the monthly national average bronze plan premium for purposes of the individual shared responsibility payment is $207 for an individual, $1,035 for a family of 5 or more.
…Higher penalties for failure to file information returns and provide payee statements apply with respect to returns and statements required to be filed after 2015, and the penalty amounts are adjusted for inflation.
…For 2015 and 2016, failure to file a partnership return exposes the partnership to a $195 per-partner, per-month penalty.
…For 2015 and 2016, failure to file an S corporation return exposes the S corporation to a $195 per-shareholder, per-month penalty.
…Effective for payments made after Oct. 3, 2015, IRS won’t levy on Social Security disability insurance payments.
…Starting in 2017, no credit or refund for an overpayment for a tax year will be made to a taxpayer before the 15th day of the second month following the close of that tax year if the taxpayer claimed the EITC or additional child tax credit on the tax return.

Estate, Gift & Generation-Skipping Transfer Taxes

…Final regs clarify portability rules regarding the deceased spousal unused exclusion (DSUE) amount.
…An executor must file an estate tax return if the decedent’s gross estate at death exceeds the basic exclusion amount ($5,430,000 for 2015, $5,450,000 for 2016).
…IRS will not automatically issue estate tax closing letters for returns filed on or after June 1, 2015.
…The Tax Court found that a taxpayer was considered the owner of certain accounts for estate tax purposes because he exercised sufficient control over the investment decisions of those accounts.
…For 2015, the basic exclusion amount for gifts and estates has increased to $5,430,000 ($5,450,000 for 2016).
…For 2015 deaths, the total decrease in the value of all real property under the special use valuation election may not exceed $1,100,000 ($1,110,000 for 2016 deaths).
…For 2015, the applicable credit amount has increased to $2,117,800 ($2,125,800 for 2016), i.e., the tax that would otherwise be imposed on $5,430,000 ($5,450,000 for 2016).
…For 2015 and 2016, the gift tax annual exclusion remains at $14,000.
…For 2015, the gift tax annual exclusion for gifts to a noncitizen spouse increased to $147,000 ($148,000 for 2016).
…For 2015, the GST exemption increased to $5,430,000 ($5,450,000 for 2016).

Miscellaneous Other Developments

…The effective date of the “Cadillac” excise tax on high cost employer-sponsored coverage under Code Sec. 4980I was pushed back for two years such that it is now scheduled to go into effect for tax years beginning after Dec. 31, 2019.
…The Cadillac tax was removed from the list of nondeductible taxes such that, when it goes into effect, the coverage provider—typically, the health insurance provider or employer—will be able to deduct payments of this tax from gross income.
…The annual fee on health insurance providers was suspended for one year (2017).
…There is a 2-year moratorium on the 2.3% medical device excise tax—i.e., it will not apply to sales during 2016 and 2017.
…The increase to $13.25 (from $10.50) per gallon limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands was retroactively extended through 2016.
…Effective for calendar quarters beginning more than one year after Dec. 18, 2015, producers of alcohol that reasonably expect to be liable for not more than $50,000 per year in alcohol excise taxes can pay such taxes on a quarterly basis rather than twice per month (and annually, for those reasonably expecting to be liable for not more than $1,000 per year).
…Starting in 2017, the definition of “hard cider” is modified for purposes of the excise tax on alcohol.
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