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On Dec. 19, 2014, the President signed the “Tax Increase Prevention Act of 2014” (TIPA or the Act) into law. The President’s signature sets the effective date of TIPA provisions with an effective date geared to the enactment date. It also affects some provisions that require IRS to take certain actions by dates geared to the enactment date.

Treatment of regulated investment company (RIC) as qualified investment entity extended. Gain from the disposition of a U.S. real property interest (USRPI) by a foreign person is treated as income effectively connected with a U.S. trade or business and is subject to tax and to Code Sec. 1445 withholding under the Foreign Investment in Real Property Tax Act (FIRPTA) provisions. A USRPI does not include an interest in a domestically controlled “qualified investment entity.”

Under pre-Act law, before Jan. 1, 2014, a RIC that met certain requirements could be treated as a “qualified investment entity.”

New law. TIPA retroactively extends the inclusion of a RIC within the definition of a “qualified investment entity” for one year, through Dec. 31, 2014. (Code Sec. 897(h)(4)(A), as amended by Act Sec. 133(a))

The change made by Act. Sec. 133(a) generally takes effect on Jan. 1, 2014, but the Act doesn’t impose a withholding requirement under Code Sec. 1445 for any payment made before Dec. 19, 2014 (the date of enactment). A RIC that withheld and remitted tax under Code Sec. 1445 on distributions made after Dec. 31, 2013 and before Dec. 19, 2014 isn’t liable to the distributee for such withheld and remitted amounts. (Act Sec. 133(b))

Biodiesel mixture excise tax credit extended. A producer of biodiesel and renewable diesel fuel mixtures can claim an excise tax credit, against the Code Sec. 4081 removal-at-terminal excise tax, for fuels sold or used in the U.S. equal to 50¢ multiplied by the number of gallons of alternative fuel or gasoline gallon sold or used by the taxpayer.

Under pre-Act law, the credit didn’t apply to any sale, use, or removal of fuel after Dec. 31, 2013.

New law. TIPA retroactively extends the excise tax credit for one year so that it applies to sales, use, or removal of biodiesel mixtures through Dec. 31, 2014. (Code Sec. 6426(c)(6), as amended by Act Sec. 160(a)(1))

The changes made by Act. Sec. 160 generally apply to fuel sold or used after Dec. 31, 2013. The Act directs IRS to issue guidance not later than Jan. 18, 2015 (i.e., within 30 days of the Dec. 19, 2014 enactment date), that sets out procedures and deadlines for claiming the credit for periods after Dec. 31, 2013 and before Dec. 19, 2014.

Alternate fuels & mixtures excise tax credit extended. A 50¢-per-gallon (or gasoline gallon equivalent for non-liquid fuel) excise tax credit is allowed against the Code Sec. 4041 retail fuel excise tax liability, for alternative fuel sold for use or used by a taxpayer. A credit is also allowed against the Code Sec. 4081 removal at terminal excise tax liability, for alternative fuel used to produce an alternative fuel mixture for sale or use in the taxpayer’s trade or business. A taxpayer may claim an excise tax refund (or, in some cases, a credit against income tax) to the extent the taxpayer’s alternative fuel or mixture excise tax credit exceeds the taxpayer’s Code Sec. 4041 or Code Sec. 4081 liability.

Under pre-Act law, the alternative fuel and alternative fuel mixture excise tax credit, and the refund rules generally didn’t apply for any sale or use after Dec. 31, 2013 (after Sept. 30, 2014, for all fuels involving liquefied hydrogen).

New law. TIPA retroactively extends the alternative fuel and alternative fuel mixture tax incentives through Dec. 31, 2014 (including those related to hydrogen). (Code Sec. 6426(d)(5) and Code Sec. 6426(e)(3), as amended by Act Sec. 160(b)(1); Code Sec. 6427(e)(6), as amended by Act Sec. 160(b)(2)) The amendments that pertain to hydrogen apply to fuel sold or used after Sept. 30, 2014. (Act Sec. 160(d)) The Act further directs IRS to issue guidance not later than Jan. 18, 2015 (i.e., within 30 days of the Dec. 19, 2014 enactment date) that sets out procedures and deadlines for claiming the credit for periods after Dec. 31, 2013 and before Dec. 19, 2014. (Act Sec. 160(e))

Some ABLE accounts get bankruptcy exemption. Under pre-Act law, there wasn’t a tax-advantaged savings program specifically targeted to persons with disabilities.

New law. As discussed in detail at Weekly Alert ¶ 23 12/24/2014, for tax years beginning after Dec. 31, 2014, TIPA allows states to establish tax-exempt “Achieving a Better Life Experience” (ABLE) accounts to assist persons with disabilities in building an account to pay for qualified disability expenses. One provision related to ABLE accounts provides that property of a bankruptcy estate doesn’t include funds placed in an ABLE account no later than 365 days before the filing date of the bankruptcy petition. (11 USC 541(b)(10) as amended by Act Sec. 104(a) Div B), but only if the designated beneficiary of the account was the debtor’s child, stepchild, grandchild, or step-grandchild for the tax year for which funds were placed in the account. (11 USC 541(b)(10)(A))

And, the exclusion is limited to $6,225 for funds placed in all ABLE accounts having the same designated beneficiary no earlier than 720 days nor later than 365 days before the filing date. (11 USC 541(b)(10)(C))

Other rules limit this exemption; one such rule provides that no exemption is provided for contributions in excess of the annual contribution limit, which is the annual gift tax exclusion amount. (11 USC 541(b)(10)(B))

These provisions apply to bankruptcy cases begun under title 11 of the U.S. Code on or after Dec. 19, 2014. (Act Sec. 104(d) Div B)

Certified professional employer organizations. Under pre-Act law, when a business contracts with a professional employer organization (PEO) to administer its payroll functions, the business customer remains responsible for all withholding taxes with respect to its employees. Thus, even though the PEO pays the employees, the customer remains liable if the PEO fails to withhold or remit the taxes or otherwise comply with related reporting requirements.

New law. For wages paid by a certified PEO for services performed by an employee on or after Jan. 1, 2016, (i.e., the first calendar year beginning more than 12 months after the Dec. 19, 2014 enactment date), the Act authorizes IRS to certify qualifying PEOs, which would allow the PEO to become solely responsible for the customer’s employment taxes. To be certified by IRS, a PEO has to satisfy various requirements—such as reporting obligations, posting a bond in case the PEO fails to satisfy its employment tax withholding and payment obligations, and submitting audited financial statements—intended to ensure that the PEO properly remits wages and employment taxes. The PEO is also subject to an annual fee of $1,000. (Act Sec. 206 Div B) IRS must establish the PEO certification program not later than July 1, 2015 (i.e., six months before the above effective date).

Exclusion of dividends from controlled foreign corporations from the definition of personal holding company income. Under current law, the personal holding company tax, i.e., an additional 20% tax on personal holding company income (Code Sec. 541), applies to the retained passive income of corporations that are majority-owned by five or fewer individuals and more than 60% of whose income consists of certain types of passive income (Code Sec. 542) such as dividends, interest, and royalties—including dividends derived from an active trade or business of a foreign subsidiary (Code Sec. 543(a)(1)).

New law. For tax years ending on or after Dec. 19, 2014, the Act excludes dividends received from a foreign subsidiary from personal holding company income, though the dividends would remain subject to corporate income tax. (Act Sec. 207 Div B)

Increase in continuous levy. The effect of a levy on “specified payments” payable to or received by a taxpayer is continuous from the date the levy is first made until the levy is released, if the levy is approved by IRS. (Code Sec. 6331(h)(1)) Specified payments include certain government payments and certain amounts otherwise exempt from levy. (Code Sec. 6331(h)(2)) With exceptions not relevant here, this continuous levy attaches to up to 15% of any specified payment due to the taxpayer. (Code Sec. 6331(h)(1))

New law. For payments made after June 17, 2015 (i.e., 180 days after the date of enactment), IRS is authorized to continuously levy up to 30% of specified payments to a Medicare provider. (Act Sec. 209 Div B)