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Technical correction bills introduced in Congress cover PATH Act and recent legislation

H.R. 4891, the “Technical Corrections Act of 2016.”

S. 2658, the “Technical Corrections Act of 2016.”

Technical Explanation of the Technical Corrections Act of 2016 (JCX-16-16, Apr. 11, 2016).

On April 11, in companion bills, House Ways and Means Chairman Kevin Brady (R-TX) introduced H.R. 4891, and Senate Finance Committee Chairman Orrin Hatch (R-UT) introduced S. 2658—”the Technical Correction Act of 2016″ (the Act)—which could possibly be attached to a Federal Aviation Administration (FAA) bill (S. 2658) now under consideration in the Senate. While the bills would primarily make technical corrections to the Protecting Americans From Tax Hikes Act of 2015 (PATH Act, P.L. 114-113, 12/18/2015 ), provisions in other legislation would be covered, as well, including: the Consolidated Appropriations Act, 2016 (P.L. 114-113, 12/18/2015); the Fixing America’s Surface Transportation Act (FAST Act, P.L. 114-94, 12/4/2015); the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41, 7/31/2015); the Stephen Beck, Jr., ABLE Act of 2014 (P.L. 113-295); the American Taxpayer Relief Act of 2012 (P.L. 112-240); and the United States–Korea Free Trade Agreement Implementation Act (P.L. 112-41). This article reviews some of the more significant changes, as described in the Joint Committee on Taxation’s explanation of these provisions.

The provisions relating to the PATH Act include:

Transit parity. The PATH Act created permanent parity in the fringe benefit exclusion for employer-provided parking and employer-provided benefits for mass transit and van pooling (both of which are subject to inflation indexing) by changing the monthly transit/vanpooling limit in Code Sec. 132(f)(2) to $175 for both. However, the PATH Act failed to include a conforming change to repeal the base year rule for indexing for transit/vanpooling. The Act would repeal the transit/vanpooling base year rule.

Research credit. The Act would clarify that the alternative incremental credit (which expired in 2008) was not reinstated by the PATH Act and would make conforming changes.

Bonus depreciation. The Act would clarify that, among the criteria in the PATH Act for certain property having a longer production period to be treated as qualified property, the requirement that the property be acquired pursuant to a written contract before 2020 requires that the contract be a written binding contract.

The Act would clarify that, with regard to the special rules for certain plants bearing fruits and nuts, the phase-down percentages apply to specified plants that are planted or grafted in 2018 (40%) and 2019 (30%), and not to plants that are grafted to a plant that has already been planted before 2018 or 2019, respectively.

The PATH Act extended and modified the additional first-year depreciation deduction for five years, generally through 2019 (through 2020 for certain longer-lived and transportation property (LLTP)). The 50% allowance is phased down for property placed in service in tax years beginning after 2017 (after 2018 for LLTP). The Act would clarify that for LLTP placed in service in 2018, 50% applies to the entire adjusted basis, and that for LLTP placed in service in 2019, 40% applies to the entire adjusted basis.

The Act would clarify that if for a tax year a taxpayer makes both an election under Code Sec. 168(k)(7) not to claim bonus depreciation for all property in a particular class of property and an election under Code Sec. 168(k)(4) to claim alternative minimum tax (AMT) credits in lieu of bonus depreciation, Code Sec. 168(k)(4) doesn’t apply to property in the particular class.

Failure to furnish correct payee statements. The Act would clarify that Code Sec. 6722(c)(3)(A) (relating to failure to furnish correct payee statements) refers to payee statements that are furnished (rather than filed). A corresponding change would be made in the effective date stated in the PATH Act to refer to statements that are furnished (rather than provided).

Requirements for the issuance of ITINs. The Act would clarify that community-based Certified Acceptance Agents are among the entities that are available to individuals living abroad who wish to obtain individual’s taxpayer identification numbers (ITINs) for purposes of meeting their U.S. tax filing obligations.

The Act would clarify that the expiration of ITINs that have not been used for three consecutive tax years is to occur on the date following the due date of the tax return for such third consecutive tax year. For ITINs issued before Jan. 1, 2013, the ITIN will expire on the applicable date, or if earlier, the day following the due date of the tax return for the third consecutive tax year such ITIN was not used on a return. In the event that such an ITIN hasn’t been used for three (or more) consecutive tax years on the tax return due date for the 2015 tax year, the ITIN will expire on the day following that date.

The Act would also clarify that the effective date, which provides that the above PATH Act provision is effective for ITIN applications made after the PATH Act’s date of enactment, doesn’t prevent the provision relating to outstanding ITINs from taking effect.

Erroneous claims for refund or credit. The PATH Act provided a rule for a reasonable cause exception for erroneous claims for refund or credit. The Act would state that the effective date is for claims filed after the date of enactment of the PATH Act.

Restriction on tax-free spin-offs involving real estate investment trusts (REITs). The Act would clarify that, for purposes of Code Sec. 355(h)(2)(B), control of a partnership means ownership of at least 80% of the profits interests and at least 80% of the capital interests (not that control is limited to exactly 80% ownership).

…Exception from the Foreign Investment in Real Property Tax Act (FIRPTA) for certain stock of REITs. The Act would clarify that under Code Sec. 897(k), the definition of a qualified collective investment vehicle that is eligible for benefits of a comprehensive income tax treaty with the U.S. includes an exchange of information program only if the dividends article in the treaty imposes conditions on the benefits allowable in the case of dividends paid by a REIT.

The Act would also clarify the effective date for the determination of domestic control by stating that the rule applies with respect to each testing period ending on or after the PATH Act’s date of enactment (not that the rule takes effect on the date of enactment).

The provision relating to the Consolidated Appropriation Act covers:

…Transportation costs of independent refiners. In Code Sec. 199(c)(3)(C), the Consolidated Appropriations Act provided that in computing oil-related qualified production activities income, the amount allocated to domestic production gross receipts for costs related to the transportation of oil is 25% of the properly allocable amount. The Act would clarify that Code Sec. 199(c)(3)(C) applies for purposes of calculating qualified production activities income under Code Sec. 199(c) and for purposes of calculating oil-related qualified production activities income under Code Sec. 199(d)(9).

The provision relating to the FAST Act covers:

…Denial of passport. With regard to judicial review of the Secretary’s certification that an individual has a seriously delinquent tax debt, either in a U.S. district court or in the Tax Court, the Act would clarify that the party against whom a Tax Court petition is filed is the Commissioner of the Internal Revenue Service. The Act would also provide a tie-breaker rule clarifying that the court first acquiring jurisdiction over the action has sole jurisdiction.

The provision relating to the Surface Transportation and Veterans Health Care Choice Improvement Act covers:

…Consistent value for transfer and income tax purposes. The Surface Transportation Act generally required that an heir who inherits property from a decedent claim a basis no greater than the final value of the property for estate tax purposes (Code Sec. 1014(f)). Under Code Sec. 6662(b)(8), a penalty is imposed in the case of an inconsistent estate basis. There is an “inconsistent estate basis” if the basis of property claimed on a return exceeds the basis as determined under the consistency requirement set out in Code Sec. 1014(f). The penalty could be viewed as applying when an heir claims a basis higher than the final estate tax value by reason of making basis adjustments relating to post-acquisition events (e.g., improvements to the property). This result is not intended. Therefore, the Act would modify the definition of “inconsistent estate basis” to avoid this unintended result.

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