2024 Foreign Housing Expense Amounts Released, Notice 2024-31 KPMG TaxNewsFlash - United StatesMarch 20, 2024The IRS today released Notice 2024-31 [PDF 156 KB] providing the adjustments to the limitation on housing expenses, under section 911, for specifi...
No Further Funding Cuts For IRS In FY24 Other than a planned repurposing of Inflation Reduction Act supplemental funding, the Internal Revenue Service saw no other cuts as the President signed off on the resolution to keep the federa...
OR - Farm machinery exemption amended Oregon has amended the property tax exemption for farm machinery and equipment to clarify that the exemption does not include land or buildings. Furthermore, farm machinery and equipment need not be t...
Taxpayers received about $659 million in refunds during fiscal year 2023, representing a 2.7 percent increase in the amount of refunded to taxpayers in the previous fiscal year.
Taxpayers received about $659 million inrefundsduring fiscal year2023, representing a 2.7 percent increase in the amount of refunded to taxpayers in the previous fiscal year.
Therefundswere on nearly $4.7 trillion in gross revenues collected by theInternal Revenue Service, which represents about 96 percent of the funding that supports federal government operations, the agencyreportedin its annualData Bookfor fiscal year2023, which was released April 18, 2024. This is down from more than $4.9 trillion in gross tax revenues inFY2022.
Business income taxes declined in2023to nearly $457 billion inFY2023from nearly $476 billion in the previous fiscal year. Individual and estate and trust income taxes declined to nearly $2.6 trillion from just over $2.9 trillion. Employment taxes, estate and trust taxes, and excise and gift taxes all grew fiscal year-over-year.
More than 271.4 million tax returns and other forms were processed duringFY2023, theIRSreported. Of those, 163.1 million were individual tax returns. Thereportdescribes the2023filing season as"successful".
Paid prepared filed more than 84 million individual tax returns electronically, and taxpayers file nearly 2.9 million returns using theIRSFree File program, the agencyreported.
The Taxpayer Advocate Servicereportedit resolved 219,251 cases inFY2023. The top five case types included:
Processing amended returns (36,171)
Pre-refundwage verification hold (26,052)
Decedent accountrefunds(12,695)
Identity theft (11,915)
Earned Income Tax Credit (10,507)
On the compliance side, theIRSreportedthat for all returns from tax years 2013 through 2021, it examined 0.44 percent of individual returns filed and 0.74 percent of corporate returns filed. Additionally, the agency examined 8.7 percent of taxpayers filing individual returnsreportingtotal positive income of $10 million or more. Isolating tax year 2019 (the most recent year outside the statute of limitations period), the examination rate was 11.0 percent.
InFY2023, theIRSsaid it"closed 582,944 tax return audits, resulting in $31.9 billion in recommended additional tax."Additionally, the agency “completed 2,584 criminal investigations” across three areas:
1,052 illegal-source financial crimes cases
979 legal-source tax crime cases
553 narcotics-related financial crimes cases
On the collections side, theIRSinFY2024 collected more than $104.1 billion in unpaid assessments on returns filed with additional tax due, netting about $68.3 billion after credit transfers. It also assessed more than $25.6 billion in additional taxes for returns not filed timely and collected nearly $2.8 billion with delinquent returns.
The IRS announced that final regulations related to required minimum distributions (RMDs) under Code Sec. 401(a)(9) will apply no earlier than the 2025 distribution calendar year. In addition, the IRS has provided transitionrelief for 2024 for certain distributions made to designated beneficiaries under the 10-year rule. The transitionreliefextends similar relief granted in 2021, 2022, and 2023.
TheIRSannounced that final regulations related torequired minimum distributions(RMDs) underCode Sec. 401(a)(9)will apply no earlier than the 2025 distribution calendar year. In addition, theIRShas providedtransitionrelieffor2024for certain distributions made to designated beneficiaries under the 10-year rule. Thetransitionreliefextendssimilarreliefgranted in 2021, 2022, and 2023.
SECURE Act Changes
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) (P.L. 116-94) changed theRMDrules for employees and IRA owners who died after December 31, 2019. UnderCode Sec. 401(a)(9)(H)(i), if an employee in a defined contribution plan or IRA owner has a designated beneficiary, the 5-year distribution period has been lengthened to 10 years, and the 10-year rule applies regardless of whether the employee dies before the required beginning date. Proposed regulations would interpret the 10-year rule to require the beneficiary of an employee who died after his required beginning date to continue to take an annualRMDbeginning in the first calendar year after the employee’s death. This aspect of the 10-year rule differs from the 5-year rule, which required noRMDuntil the end of the 5-year period. Thus, theIRSprovidedtransitionrelieffor 2021, 2022, and 2023.
Guidance for SpecifiedRMDsfor2024
Under thetransitionguidance, a defined contribution plan will not be treated as having failed to satisfyCode Sec. 401(a)(9)for failing to make anRMDin2024that would have been required under the proposed regulations. Thereliefalso applies to an individual who would have been liable for an excise tax underCode Sec. 4974. The guidance applies to any distribution that, under the interpretation included in the proposed regulations, would be required to be made underCode Sec. 401(a)(9)in2024under a defined contribution plan or IRA that is subject to the rules ofCode Sec. 401(a)(9)(H)for the year in which the employee (or designated beneficiary) died if that payment would be required to be made to:
a designated beneficiary of an employee or IRA owner under the plan if the employee or IRA owner died in 2020, 2021, 2022 or 2023, and on or after the employee’s (or IRA owner’s) required beginning date and the designated beneficiary is not using the lifetime or life expectancy payments exception underCode Sec. 401(a)(9)(B)(iii); or
a beneficiary of an eligible designated beneficiary if the eligible designated beneficiary died in 2020, 2021, 2022, or 2023, and that eligible designated beneficiary was using the lifetime or life expectancy payments exception underCode Sec. 401(a)(9)(B)(iii).
Applicability Date of Final Regulations
TheIRShas announced that final regulations regardingRMDsunderCode Sec. 401(a)(9)and related provisions are anticipated to apply for determiningRMDsfor calendar years beginning on or after January 1, 2025.
The IRS, in connection with other agencies, have issued finalrules amending the definition of "short term, limited duration insurance" (STLDI), and adding a notice requirement to fixed indemnity excepted benefits coverage, in an effort to better distinguish the two from comprehensive coverage.
The IRS, in connection with other agencies, have issuedfinalrulesamending thedefinitionof"short term, limited duration insurance"(STLDI), and adding a notice requirement to fixed indemnity excepted benefits coverage, in an effort to better distinguish the two from comprehensive coverage.
Comprehensive coverage is health insurance which is subject to certain federal consumer protections. BothSTLDIand fixed indemnity excepted benefits coverage generally provide limited benefits at lower premiums than comprehensive coverage, and enrollment is typically available at any time rather than being restricted to open and special enrollment periods. However, the government is concerned about the financial and health risks that consumers face if they use either form of coverage as a substitute for comprehensive coverage, particularly as a long-term substitute. Consumers who do not understand key differences betweenSTLDI, fixed indemnity excepted benefits coverage, and comprehensive coverage may unknowingly take on significant financial and health risks if they purchaseSTLDIor fixed indemnity excepted benefits coverage under the misunderstanding that such products provide comprehensive coverage.
TheDefinitionofSTLDI
STLDIis a type of health insurance coverage sold by health insurance issuers that is primarily designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another (for example, due to application of a waiting period for employer coverage). BecauseSTLDIfalls outside of"individual health insurance coverage,"it is generally exempt from the Federal individual market consumer protections and requirements for comprehensive coverage. This can be an issue because individuals who enroll inSTLDIare often not aware that they will not be guaranteed these key consumer protections.
Under thedefinitionin thefinalrules,STLDIis health insurance coverage provided pursuant to a policy, certificate, or contract of insurance that has an expiration date specified in the policy, certificate, or contract of insurance that is no more than three months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than four months in total. For purposes of thisdefinition, a renewal or extension includes the term of a newSTLDIpolicy, certificate, or contract of insurance issued by the same issuer to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance.
STLDIissuers must display a notice on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll or reenroll in the coverage, in at least 14-point font. A sample notice has been provided by the agencies.
Fixed Indemnity Insurance
Federal consumer protections and requirements for comprehensive coverage do not apply to any individual coverage or any group health plan in relation to its provision of certain types of benefits, known as"excepted benefits."Like other forms of excepted benefits, fixed indemnity excepted benefits coverage does not provide comprehensive coverage. Rather, its primary purpose is to provide income replacement benefits. Benefits under this type of coverage are paid in a fixed cash amount following the occurrence of a health-related event, such as a period of hospitalization or illness. In addition, benefits are provided at a pre-determined level regardless of any health care costs incurred by a covered individual with respect to the health-related event. Although a benefit payment may equal all or a portion of the cost of care related to an event, it is not necessarily designed to do so, and the benefit payment is made without regard to the amount of health care costs incurred.
In an effort to give consumers an informed choice, thefinalrulesadopt the requirement of a consumer notice that must be provided when offering fixed indemnity excepted benefits coverage in the group market and update the existing notice for such coverage offered in the individual market. Thefinalruledoes not address any other provision of the 2023 proposedrules(NPRM REG-120730-21) relating to fixed indemnity excepted benefits coverage.
Effective Date
Thefinalrulesapply to newSTLDIpolicies sold or issued on or after September 1, 2024. For fixed indemnity coverage, plans and issuers will be required to comply with the notice provisions for plan years (in the individual market, coverage periods) beginning on or after January 1, 2025.
The Tax Court has ruled against the IRS's denial of a conservation easementdeduction by declaring a Treasury regulation to be invalid under the enactment requirements of the Administrative Procedure Act (APA).
TheTax Courthas ruled against the IRS's denial of aconservation easementdeductionby declaring a Treasuryregulationto beinvalidunder the enactment requirements of the Administrative Procedure Act (APA).
AnLLCconveyed aconservation easementof land to a foundation that was properly registered with the county clerk. The deed conveyed the easement in perpetuity, allowing for extinguishment only in cases where the conservation purposes became impossible to accomplish or if the property were to be condemned by the local government through eminent domain. TheLLCthen timely filed Form 1065,U.S. Return of Partnership Income,claiming a $14.8 milliondeductionunderCode Sec. 170(h)for conveyance of the easement, and included with the return Form 8283,Noncash Charitable Contributions.
The IRS disallowed thedeductionstating the conservation purpose of the easement was not"protected in perpetuity"as required byCode Sec. 170(h)(5)(A)and, specifically, by operation ofReg. § 1.170A-14(g)(6)(ii). TheLLCcontended thatReg. § 1.170A-14(g)(6)(ii)is procedurallyinvalidunder the APA and that the deed therefore need not comply with its requirements.
TheTax Courtdecided to reverse its prior position regarding the validity of thisregulationinOakbrook Land Holdings,LLC,(154TC180,Dec. 61,663; aff’d, CA-6, 2022-1 USTC ¶50,128). Despite the fact the Sixth Circuit affirmed this earlier opinion, the Eleventh Circuit had reversed theTax Courton the same issue. This case is situated in the Tenth Circuit, which had not ruled on this issue.
TheTax Courtagreed with theLLC’s argument thatReg. § 1.170A14(g)(6)(ii) isinvalidbecause the concerns expressed in significant comments filed during the rulemaking process were inadequately responded to by the Treasury Department in the finalregulation’s"basis and purpose"statement, in violation of the APA’s procedural requirements.
Four judges dissented, arguing there is no substantial basis for reversing their opinion of only four years prior, and that invalidating aregulationfor failing to include a statement of basis and purpose should not occur when the basis and purpose are"obvious."
For purposes of the energy investment credit, the IRS released 2024application and allocation procedures for the environmental justice solar and wind capacity limitation under the low-incomecommunitiesbonus credit program. Many of the procedures reiterate the rules in Reg. §1.48(e)-1 and Rev. Proc. 2023-27, but some special rules are also provided.
For purposes of theenergy investment credit, theIRSreleased2024applicationand allocation procedures for the environmental justice solar and wind capacity limitation under thelow-incomecommunitiesbonuscredit program. Many of the procedures reiterate the rules inReg. §1.48(e)-1andRev. Proc. 2023-27, but some special rules are also provided.
TheIRSwill publicly announce the opening and closing dates for the2024Program yearapplicationperiod on the Department of Energy (DOE) landing page for the Program (Program Homepage) athttps://www.energy.gov/justice/low-income-communities-bonus-credit-program. DOE will not accept newapplicationsubmissions for the2024Program year after 11:59 PM ET on the date theapplicationperiod closes. The owner of the solar or wind facility is the person who mustapplyfor an allocation and is the recipient of any awarded allocation.
An applicant mustapplyfor an allocation of Capacity Limitation through DOE online Program portal system (Portal) athttps://eco.energy.gov/ejbonus/s/. Applicants must register in the Portal before they can begin theapplicationprocess; and they must create a login.gov account before accessing the Portal. The Program Homepage includes an Applicant User Guide.
Identifying Category and Sub-Reservation
In addition to the other information detailed below, theapplicationmust identify the relevant facility category:
-- Category 1: Project Located in aLow-IncomeCommunity(and theapplicationmust also specify whether the facility is a behind the meter (BTM) or front of the meter (FTM) facility),
-- Category 2: Project Located on Indian Land,
-- Category 3: QualifiedLow-IncomeResidential Building Project, or
An applicant may submit only oneapplicationfor the2024program year. Thus, if an applicant wishes to change its chosen category (or its Category 1 sub-reservation), it must withdraw its firstapplicationand submit a second one. Otherwise, anyapplicationsubmitted after the firstapplicationis treated as a duplicateapplication.
ApplicationContents
Theapplicationmust contain all required information, documentation, and attestations submitted under penalties of perjury by a person who has personal knowledge of the relevant facts. That person must also be legally authorized to bind the applicant entity for federal income tax purposes, to communicate with DOE about theapplication, and to receive notifications, letters, and other communications from DOE and theIRS.
The guidancedetailsthe required information regarding the applicant and the facility, as well as the required documentation. The guidance also describes the information that must be submitted if an applicant wants to be considered under the additional ownership criteria or the additional geographic criteria. The DOE may require additional information in its publicly available written procedures.
DOE Review and Selection
DOE will reviewapplicationsand provide a recommendation to theIRS. If the DOE identifies an error in theapplication, such as missing or incorrect information or documentation, it will notify the applicant through the Portal. The applicant will have 12 business days to correct the information; otherwise, DOE will treat theapplicationas withdrawn.
Once theapplicationperiod opens for the2024Program year, allapplicationssubmitted during the first 30 days are treated as submitted at the same time. DOE will publicly announce on the Program Homepage the opening and closing dates of this 30-day period. Ifapplicationsduring this period exhaust the available allocation for a category, DOE will conduct an allocation lottery. After the 30-day period, DOE will reviewapplicationsin the order they are submitted until the available capacity in the identified category is allocated.
Receiving an Allocation and Claiming theBonusCredit
After theIRSreceives the DOE recommendation, it will award an allocation or reject theapplication. TheIRSwill send final decision letters through the Portal, which will identify the amount of any allocation awarded. However, an allocation is not a final determination that the facility is eligible for thebonuscredit.
The owner of a facility that receives an allocation must use the Portal to report the date the facility is placed in service. The guidancedetailsthe additional information the owner must provide with the notification. After the facility is placed in service, and the owner submits the additional documentation and attestations, the owner is notified that it may claim thebonuscredit.
After theIRSawards all the Capacity Limitation within each facility category, or the2024Program year is closed, DOE will stop reviewingapplications. At the end of the2024Program year, no further action will be taken onapplicationsthat were not awarded an allocation. DOE will publicly announce on the Program Homepage when the2024Program year closes.
Effect on Other Documents
Rev. Proc. 2023-27, I.R.B. 2023-35, 655, is superseded solely with respect to the2024program year.
The IRS has provided a limited waiver of the addition to tax under Code Sec. 6655 for underpayments of estimated income taxrelated to application of the corporate alternative minimum tax (CAMT), as amended by the Inflation Reduction Act (P.L. 117-169).
TheIRShas provided a limitedwaiverof theaddition to taxunderCode Sec. 6655forunderpaymentsofestimated income taxrelatedto application of thecorporate alternative minimum tax(CAMT), as amended by the Inflation Reduction Act (P.L. 117-169).
The Inflation Reduction Act added a newcorporate AMTunderCode Sec. 55, beginning after December 31, 2022, based on acorporation's adjusted financial statement income.Code Sec. 6655generally requirescorporationsto payestimated income taxesquarterly, with anaddition to taxfor failure to make sufficient and timely payments. The quarterlyestimated tax paymentsmust add up to 100 percent of the income tax due.
Estimated Taxes
TheIRSwaivedtheaddition to taxunderCode Sec. 6655that is attributable to acorporation’sCAMTliability for the installment ofestimated taxthat is due on or before April 15, 2024, or May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024). Accordingly, a corporate taxpayer’s required installment ofestimated taxthat is due on or before April 15, 2024, or on or before May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024), need not include amounts attributable to itsCAMTliability underCode Sec. 55to prevent the imposition of anaddition to taxunderCode Sec. 6655. However, if acorporationfails to pay itsCAMTliability, other Code sections may apply. For instance,additions to taxunderCode Sec. 6651could be imposed.
Instructions to Form 2220
The instructions to Form 2220,UnderpaymentofEstimated TaxbyCorporations, will be modified to clarify that noaddition to taxwill be imposed underCode Sec. 6655based on acorporation’s failure to makeestimated tax paymentsof itsCAMTliability for any coveredCAMTyear. Taxpayers may exclude such amounts when calculating the amount of its required annual payment on Form 2220. Affected taxpayers must still file Form 2220 with their income tax return, even if they owe noestimated taxpenalty.
Applicability Date
Thewaiverof theaddition to taximposed byCode Sec. 6655applies to the installment ofestimated taxthat is due on or before April 15, 2024, or on or before May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024).
The IRS has issued proposedregulations that would provideguidance on the application of the new excise tax on repurchases of corporate stock made after December 31, 2022 (NPRMREG-115710-22). Another set of proposed rules would provideguidance on the procedure and administration for the excise tax (NPRMREG-118499-23).
The IRS has issuedproposedregulationsthat wouldprovideguidanceon the application of the newexcise taxonrepurchasesof corporatestockmade after December 31, 2022 (NPRMREG-115710-22). Another set ofproposedrules wouldprovideguidanceon the procedure and administration for theexcise tax(NPRMREG-118499-23).
Code Sec. 4501 and IRSGuidance
Beginning in 2023,Code Sec. 4501subjects a covered corporation to anexcise taxequal to one percent of the fair market value of itsstockthat is repurchased by the corporation during the tax year. Acovered corporationfor this purpose is any domestic corporation thestockof which is traded on an establishedsecuritiesmarket.
Repurchaseincludesstockredemptions and economically similar transactions as determined by the IRS. The amount of repurchase subject to the tax is reduced by the value of newstockissued to the public or employees during the year. Repurchase of the covered corporation’sstockby its specified affiliate (a more-than-50-percent owned domestic subsidiary or partnership) also subjects the covered corporation to theexcise tax.
Theexcise taxdoes not apply if the total amount ofstockrepurchasesduring the year is less than $1 million and in certain other situations.
Notice 2023-2, 2023-3 I.R.B. 374, provides initialguidanceregarding the application of theexcise tax. It describes rules expected to be provided in forthcomingproposedregulationsfor determining the amount ofstockrepurchaseexcise taxowed, along with anticipated rules for reporting and paying any liability for the tax.
ProposedOperative Rules under Code Sec. 4501 (NPRMREG-115710-22)
Theproposedregulationswouldprovidegeneral rules regarding the application and computation of thestockrepurchaseexcise tax, the statutory exceptions, and the application ofCode Sec. 4501(d). Specifically, theproposedregulationswouldprovideguidanceaddressing the following:
Certain issues related to the effective date and transition relief, including:
repurchasesbefore January 1, 2023, are not taken into account for purposes of applying the de minimis exception;
in the case of a covered corporation that has a tax year that both begins before January 1, 2023, and ends after December 31, 2022, that covered corporation may apply the netting rule to reduce the fair market value of the covered corporation’srepurchasesduring that tax year by the fair market value of all issuances of itsstockduring the entirety of that tax year;
contributions to an employer-sponsored retirement plan during the 2022 portion of a tax year beginning before January 1, 2023, and ending after December 31, 2022, should be taken into account for purposes ofCode Sec. 4501(e)(2);
the date of repurchase for a regular-way sale ofstockon an establishedsecuritiesmarket is the trade date.
Definition ofstockand the application of theexcise taxto various types ofstock, options, and financial instruments. Theproposedregulationsgenerally would maintain the definition of"stock"fromNotice 2023-2, but would exclude"additional tier 1 preferredstock"; therefore, unless the limited-scope exception regarding additional tier 1 preferredstockapplies, thestockrepurchaseexcise taxwould apply to preferredstockin the same manner as to commonstock.
Rules for valuation ofstock. Generally, theproposedregulationswould adopt the valuation approach ofNotice 2023-2that the fair market value ofstockrepurchased or issued is the market price of thestockon the date thestockis repurchased or issued, respectively.
Rules for timing of issuances andrepurchases. The approach thatstockgenerally should be treated as repurchased when tax ownership of thestocktransfers to the covered corporation or to the specified affiliate (as appropriate) would generally be retained.
Rules regarding becoming or ceasing to be a covered corporation and determining specified affiliate status.
Rules regardingCode Sec. 301distributions, and complete and partial liquidations.
Treatment of taxable transactions, including LBOs and other taxable"take private"transactions.
Application of the statutory exceptions, including repurchase as part of a reorganization, contributions to employer-sponsored retirement plans, the de minimis exception,repurchasesby dealers insecurities,repurchasesby RICs and REITs, and the dividend exception.
Application of the netting rule (the adjustment forstockissued by a covered corporation, includingstockissued or provided to employees of a covered corporation or its specified affiliate).
Considerations for mergers and acquisitions with post-closing price adjustments and troubled companies.
Theproposedregulations, other than theproposedregulationsunderCode Sec. 4501(d), would generally apply torepurchasesofstockof a covered corporation occurring after December 31, 2022, and during tax years ending after December 31, 2022, and to issuances and provisions ofstockof a covered corporation occurring during tax years ending after December 31, 2022. However, certain rules that were not described in Notice 2023-2 would apply torepurchases, issuances, or provisions ofstockof a covered corporation occurring after April 12, 2024, and during tax years ending after April 12, 2024.
Except as described below, so long as a covered corporation consistently follows the provisions of theproposedregulations, the covered corporation may rely on theseproposedregulationswith respect to (1)repurchasesofstockof the covered corporation occurring after December 31, 2022, and on or before the date of publication of finalregulationsin the Federal Register, and (2) issuances and provisions ofstockof the covered corporation occurring during tax years ending after December 31, 2022, and on or before the date of publication of finalregulationsin the Federal Register.
In addition, so long as a covered corporation consistently follows the provisions of Notice 2023-2 corresponding to the rules in theproposedregulations, the covered corporation may choose to rely on Notice 2023-2 with respect to (1)repurchasesofstockof a covered corporation occurring after December 31, 2022, and on or before April 12, 2024, and (2) issuances and provisions ofstockof a covered corporation occurring during taxable years ending after December 31, 2022, and on or before April 12, 2024.
A covered corporation that relies on the provisions of Notice 2023-2 corresponding to theproposedrules with respect to (1)repurchasesoccurring after December 31, 2022, and on or before April 12, 2024, and (2) issuances and provisions ofstockof a covered corporation occurring during tax years ending after December 31, 2022, and on or before April 12, 2024, may also choose to rely on the provisions of theproposedregulationswith respect to (1)repurchasesoccurring after April 12, 2024, and on or before the date of publication of finalregulationsin the Federal Register, and (2) issuances and provisions ofstockof a covered corporation occurring after April 12, 2024, and on or before the date of publication of finalregulationsin the Federal Register.
Special applicability dates are provided for theproposedrules underCode Sec. 4501(d).
Rules Regarding Procedure and Administration (NPRMREG-118499-23)
The IRS has alsoproposedregulationswithguidanceon the manner and method of reporting and paying thestockrepurchaseexcise tax. Theseproposedregulationsproviderequirements for return and recordkeeping, the time and place for filing the return and paying the tax, and tax return preparers.
Consistent with Notice 2023-2, theproposedregulationsadd rules on procedure and administration inproposedsubpart B of theproposedStockRepurchaseExcise TaxRegulations(26 CFR part 58) underCode Secs. 6001,6011,6060,6061,6065,6071,6091,6107,6109,6151,6694,6695, and6696.
In addition to requiring theexcise taxto be reported on IRS Form 720, Quarterly FederalExcise TaxReturn, theproposedregulationsinclude items relevant to tax forms other than Form 720 (such as Form 1120, U.S. Corporation Income Tax Return, and Form 1065, U.S. Return of Partnership Income) to assist in identifying transactions subject to the tax.
Applicability Date ofProposedProcedural Rules
ProposedReg. §58.6001-1would be applicable torepurchases, adjustments, or exceptions required to be shown in anystockrepurchaseexcise taxreturn required to be filed after the date of publication of finalregulationsin the Federal Register.
The rest of theproposedregulationswould be applicable tostockrepurchaseexcise taxreturns and claims for refund required to be filed after the date of publication of finalregulationsin the Federal Register.
Effect on Other Documents
Notice 2023-2, 2023-3 I.R.B. 374, is obsoleted forrepurchases, issuances, and provisions ofstockof a covered corporation occurring after April 12, 2024.
Requests for Comments
Written or electronic comments and requests for a public hearing with respect to theproposedoperative rules must be received by the date that is 60 days after April 12, 2024, the date of publication in the Federal Register. Comments and requests for a public hearing on theproposedprocedural rules must be received by the date that is 30 days after publication in the Federal Register.
The IRS has provided guidance regarding whether taxpayers receiving loans under the Paycheck Protection Program (PPP) may deduct otherwise deductible expenses. Act Sec. 1106(i) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136) did not address whether generally allowable deductions such as those under Code Secs. 162 and 163 would still be permitted if the loan was later forgiven pursuant to Act Sec. 1106(b). The IRS has found that such deductions are not permissible.
The IRS has provided guidance regarding whether taxpayers receiving loans under the Paycheck Protection Program (PPP) may deduct otherwise deductible expenses. Act Sec. 1106(i) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136) did not address whether generally allowable deductions such as those under Code Secs. 162 and 163 would still be permitted if the loan was later forgiven pursuant to Act Sec. 1106(b). The IRS has found that such deductions are not permissible.
PPP Loans The CARES Act expanded the Small Business Administration’s (SBA’s) existing Section 7(a) loan program to include certain PPP loans. The PPP is made available from the SBA to provide small businesses with loans to help pay payroll costs, mortgages, rent, and utilities during the COVID-19 (coronavirus) crisis. All payments of principal, interest, and fees under the loans are deferred for at least 6 months. The loans are also forgiven for amounts payroll costs, mortgage or rent obligations, and certain utility payments incurred between February 15 and June 30. The loans are 100 percent guaranteed by the SBA.
Deductions Prohibited If the SBA forgives a taxpayer’s PPP loan pursuant to Act. Sec. 1106(b) of the CARES Act, the amount of the loan is excluded from gross income. Under Reg. §1.265-1 taxpayers cannot deduct expenses that are allocable to income that is either wholly excluded from gross income or wholly exempt from the taxes. This rule exists in order to prevent double tax benefits. Thus, the IRS has determined that taxpayers who have their PPP loans forgiven may not deduct any business or interest expenses related to the income associated with the loan.
Treasury and the Small Business Administration (SBA) have worked together to release the Paycheck Protection Program (PPP) Loan Forgiveness Application. According to Treasury’s May 15 press release, the application and correlating instructions inform borrowers how to apply for forgiveness of PPP loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act ( P.L. 116-136). The PPP was enacted under the CARES Act to provide eligible small businesses with loans during the COVID-19 pandemic.
Treasury and the Small Business Administration (SBA) have worked together to release the Paycheck Protection Program (PPP) Loan Forgiveness Application. According to Treasury’s May 15 press release, the application and correlating instructions inform borrowers how to apply for forgiveness of PPP loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act ( P.L. 116-136). The PPP was enacted under the CARES Act to provide eligible small businesses with loans during the COVID-19 pandemic.
Additionally, SBA is expected to issue regulations and guidance to assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities, according to Treasury.
Measures included in the application and instructions intended to reduce compliance burdens and simplify the process for borrowers include:
options to calculate payroll costs using an "alternative payroll covered period" that aligns with borrowers’ regular payroll cycles;
flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan;
step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness;
borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30; and
the addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.
Although you may want your traditional individual retirement accounts (IRAs) to keep accumulating tax-free well into your old age, the IRS sets certain deadlines. The price for getting an upfront deduction when contributing to a traditional IRA (or having a rollover IRA) is that Uncle Sam eventually starts taxing it once you reach 70½. The required minimum distribution (RMD) rules under the Internal Revenue Code accomplish that.
Although you may want your traditional individual retirement accounts (IRAs) to keep accumulating tax-free well into your old age, the IRS sets certain deadlines. The price for getting an upfront deduction when contributing to a traditional IRA (or having a rollover IRA) is that Uncle Sam eventually starts taxing it once you reach 70½. The required minimum distribution (RMD) rules under the Internal Revenue Code accomplish that.
If distributions do not meet the strict minimum requirements for any one year once you reach 70½, you must pay an excise tax equal to 50 percent, even if you kept the money in the account by mistake.
Required minimum distribution
The traditional IRA owner must begin receiving a minimum amount of distributions (the RMD) from his or her IRA by April 1 of the year following the year in which he or she reaches age 70½. That first deadline is referred to as the required beginning date.
If, in any year, you as a traditional IRA owner receive more than the RMD for that year, you will not receive credit for the additional amount when determining the RMD for future years. However, any amount distributed in your 70½ year will be credited toward the amount that must be distributed by April 1 of the following year. The RMD for any year after the year you turn 70½ must be made by December 31 of that year.
Distribution period
The distribution periodis the maximum number of years over which you are allowed to take distributions from the IRA. You calculate your RMD for each year by dividing the amount in the IRA as of the close of business on December 31 of the preceding year by your life expectancy at that time as set by special IRS tables. Those tables are found in IRS Publication 590, "IRAs Appendix C."
Example: Say you were born on November 1, 1936, are unmarried, and have a traditional IRA. Since you have reached age 70½ in 2007 (on May 1 to be exact), your required beginning date is April 1, 2008. Assume further that as of December 31, 2006, your account balance was $26,500. Using Table III, the applicable distribution period for someone your age as of December 31, 2007 (when you will be age 71) is 26.5 years. Your RMD for 2007 is $1,000 ($26,500 ÷ 26.5). That amount must be distributed to you by April 1, 2008.
The RMD rules do not apply to Roth IRAs; they only apply to traditional IRAs. That is one of the principal estate planning reasons for setting up a Roth IRA or rolling over a traditional IRA into a Roth IRA. The downside of a Roth IRA, of course, is not getting an upfront deduction for contributions, or having to pay tax on the balance when rolled over from a traditional IRA into a Roth IRA.
Please contact this office if you need any help in determining a RMD or in deciding whether a rollover to a Roth IRA now to avoid RMD issues later might make sense for you.
Q. I use my computer for both business and pleasure and I am confused about how much I can deduct. Also, how are PDAs such as Palm Pilots, etc. deducted for tax purposes?
Q. I use my computer for both business and pleasure and I am confused about how much I can deduct. Also, how are PDAs such as Palm Pilots, etc. deducted for tax purposes?
A. Because computers and peripheral equipment are viewed as more susceptible than other business property to unwarranted deductions for personal use, they are subject to special scrutiny under the tax law. This scrutiny comes from their classification as "listed property," which limits the amount that may be deducted each year.
A computer as listed property only becomes an issue if it is not used exclusively in business. If a computer is used exclusively at the taxpayer's regular business establishment or in the taxpayer's principal trade or business, the listed property limitations don't apply at all.
Any computer that you use predominately for pleasure may not be written-off over its life nearly as quickly as exclusive-use computers. If your business usage does not meet the predominant use test, you are relegated to using a much slower depreciation method (the ADS, straight-line method) over the longer-ADS recovery period.
Your computer will meet the predominant use test for any tax year if its qualified business use is more than 50% of its total use. You must review your computer's usage and determine the percentage usage for each of its various uses (business, investment, and personal). When computing the predominant use test, any investment use of your computer cannot be considered as part of the percentage of qualified business use. However, you do use the combined total of business and investment use to figure your depreciation deduction for the property. It's up to you to prove business use to the IRS; the IRS does not need to prove personal use to reject your deductions.
In order to claim your computer expenses, you must meet the adequate records requirements by maintaining a "log" or other documentary evidence that sufficiently establishes the business/investment percentage claimed. The log should be similar to a log you would keep to track your auto expenses, indicating date, time of usage, business or nonbusiness, and business reason. Good documentation is always the key to success if your return is ever audited.
Finally, what about application of these rules to PDA's? The shorter the designated "life" of the property, the faster you can write-off its cost. Cell phones are generally considered 7-year property (the cost is depreciated over seven years). Computers are generally considered 5-year property, and computer-software normally is 3-year property. PDA's are generally classified as 5-year property, being considered wireless computers. If a PDA includes a cell phone feature, as long as that feature is not predominant and removable, it continues to fall under the 5-year property rule. Software that you may download to your PDA is 3-year property. Software that you buy already loaded into the PDA, however, is 5-year property. Monthly charges for a wireless service provider are deductible as paid each month, just as your business would deduct any phone or internet service bill.
Most homeowners have found that over the past five to ten years, real estate -especially the home in which they live-- has proven to be a great investment. When the 1997 Tax Law passed, most homeowners assumed that the eventual sale of their home would be tax free. At that time, Congress exempted from tax at least $250,000 of gain on the sale of a principal residence; $500,000 if a joint return was filed. Now, those exemption amounts, which are not adjusted for inflation, don't seem too generous for many homeowners.
Most homeowners have found that over the past five to ten years, real estate -especially the home in which they live-- has proven to be a great investment. When the 1997 Tax Law passed, most homeowners assumed that the eventual sale of their home would be tax free. At that time, Congress exempted from tax at least $250,000 of gain on the sale of a principal residence; $500,000 if a joint return was filed. Now, those exemption amounts, which are not adjusted for inflation, don't seem too generous for many homeowners.
What can be done?
Keeping lots of receipts is one answer! Remember, it will be the gain on your home that is potentially taxable, not full sale price. Gain is equal to net sales price minus an amount equal to the price you paid for your house (including mortgage debt) plus the cost of any improvements made over the years. Bottom line: If your residence has gain that will otherwise be taxed, you will get around 30 percent back on the cost of the improvements (assume your tax bracket is about 30 percent when you sell), simply by keeping good records of those improvements.
The basis of your personal residence is generally made up of three basic components: original cost, improvements, and certain other basis adjustments
Original cost
How your home was acquired will need to be considered when determining its original cost basis.
Purchase or Construction. If you bought your home, your original cost basis will generally include the purchase price of the property and most settlement or closing costs you paid. If you or someone else constructed your home, your basis in the home would be your basis in the land plus the amount you paid to have the home built, including any settlement and closing costs incurred to acquire the land or secure a loan.
Gift. If you acquired your home as a gift, your basis will be the same as it would be in the hands of the donor at the time it was given to you.
Inheritance. If you inherited your home, your basis is the fair market value on the date of the deceased's death or on the "alternate valuation" date, as indicated on the federal estate tax return filed for the deceased.
Divorce. If your home was transferred to you from your ex-spouse incident to your divorce, your basis is the same as the ex-spouse's adjusted basis just before the transfer took place.
Improvements
If you've been in your home any length of time, you most likely have made some home improvements. These improvements will generally increase your home's basis and therefore decrease any potential gain on the sale of your residence. Before you increase your basis for any home improvements, though, you will need to determine which expenditures can actually be considered improvements versus repairs.
An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. The cost of any improvements cannot be deducted and must be added to the basis of your home. Examples of improvements include putting room additions, putting up a fence, putting in new plumbing or wiring, installing a new roof, and resurfacing your patio. It doesn't need to be a big project, however, just relatively permanent. For example, putting in a skylight or a new kitchen sink qualifies.
Repairs, on the other hand, are expenses that are incurred to keep the property in a generally efficient operating condition and do not add value or extend the life of the property. For a personal residence, these costs do not add to the basis of the home. Examples of repairs are painting, mending drywall, and fixing a minor plumbing problem.
Other basis adjustments
Additional items that will increase your basis include expenditures for restoring damaged property and assessing local improvements. Some common decreases to your home's basis are:
Insurance reimbursements for casualty losses.
Deductible casualty losses that aren't covered by insurance.
Payments received for easement or right-of-way granted.
Deferred gain(s) on previous home sales before 1998.
Depreciation claimed after May 6, 1997 if you used your home for business or rental purposes.
Recordkeeping
In order to document your home's basis, it is wise to keep the records that substantiate the basis of your residence such as settlement statements, receipts, canceled checks, and other records for all improvements you made. Good records can make your life a lot easier if the IRS ever questions your gain calculation. You should keep these records for as long as you own the home. Once you sell the home, keep the records until the statute of limitations expires (generally three years after the date on which the return was filed reporting the sale).