The Treasury and IRS have issued guidance on the recent order by President Trump to defer certain employee payroll tax obligations on wages paid from September 1, 2020, through December 31, 2020. Under the guidance:

The Treasury and IRS have issued guidance on the recent order by President Trump to defer certain employee payroll tax obligations on wages paid from September 1, 2020, through December 31, 2020. Under the guidance:

• the due date for the withholding and payment of the employee’s portion of the 6.2-percent old-age, survivors and disability insurance (OASDI) tax (Social Security tax) under Code Sec. 3101(a), and the employee’s portion of the Railroad Retirement Tax Act (RRTA) Tier 1 tax that is attributable to the 6.2-percent Social Security tax under Code Sec. 3201, on applicable wages is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021; and
• the deferred taxes must be withheld and paid from wages and compensation paid between January 1, 2021, and April 30, 2021.

The guidance states that it does not separately postpone the deposit obligation for employee Social Security tax. This is because the deposit obligation does not arise until the tax is withheld, so by postponing the time for withholding the employee Social Security tax, the deposit obligation is delayed by operation of the tax regulations.

7508A Relief
In light of the coronavirus (COVID-19) disaster, President Trump issued a memorandum on August 8, 2020, directing the Treasury Secretary to use his Code Sec. 7508A authority to defer the withholding, deposit, and payment of the employee’s portion of Social Security tax, and the employee’s portion of the RRTA equivalent tax, on wages and compensation paid from September 1, 2020, through December 31, 2020. The deferral is available only for employees whose biweekly, pre-tax pay is less than $4,000, or a similar amount where a different pay period applies.

The Treasury Secretary has determined that employers required to withhold and pay the employee share of the Social Security tax under Code Sec. 3102(a) or the RRTA tax equivalent under Code Sec. 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the presidential memorandum.

Applicable Wages
The deferral applies to wages under Code Sec. 3121(a) or compensation under Code Sec. 3231(e) paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020 (collectively "applicable wages"), but only if the amount of wages or compensation paid for a biweekly pay period is less than $4,000, or the equivalent threshold amount with respect to other pay periods.

Applicable wages are determined on a pay period-by-pay period basis. If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages for the pay period. In that case, the relief provided in the guidance applies to the wages or compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.

Paying Deferred Taxes
An affected employer must withhold and pay the total applicable taxes that it has deferred ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, on any unpaid deferred taxes.

If necessary, the employer can make arrangements to otherwise collect the total deferred taxes from the employee.

The IRS has released the 2020-2021 special per diem rates. Taxpayers use the per diem rates to substantiate the amount of ordinary and necessary business expenses incurred while traveling away from home. These special per diem rates include the special transportation industry meal and incidental expenses (M&IEs) rates, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. Taxpayers using the rates and list of high-cost localities provided in the guidance must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390.

The IRS has released the 2020-2021 special per diem rates. Taxpayers use the per diem rates to substantiate the amount of ordinary and necessary business expenses incurred while traveling away from home. These special per diem rates include the special transportation industry meal and incidental expenses (M&IEs) rates, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. Taxpayers using the rates and list of high-cost localities provided in the guidance must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390.

The guidance is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only, that are paid to any employee on or after October 1, 2020, for travel away from home on or after October 1, 2020. For computing the amount allowable as a deduction for travel away from home, the guidance is effective for M&IEs or for incidental expenses only paid or incurred on or after October 1, 2020.

Transportation Industry Rates
The special M&IE rates for taxpayers in the transportation industry are:

• $66 for any locality of travel in the continental United States (CONUS), and
• $71 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method
For purposes of the high-low substantiation method, the per diem rates in lieu of the rates described in Notice 2019-55 (the per diem substantiation method) are:

• $292 for travel to any high-cost locality, and
• $198 for travel to any other locality within CONUS.

The amount of these rates that is treated as paid for meals, and the per diem rates in lieu of the rates described in Notice 2019-55 (the M&IE only substantiation method), are:

• $71 for travel to any high-cost locality, and
• $60 for travel to any other locality within CONUS

The guidance provides a list of localities that have a federal per diem rate of $245 or more, and are high-cost localities for a specified portion of the calendar year. The list differs from the high-cost locality list in Notice 2019-55:

• Added to the list: Los Angeles, California; San Diego, California; Gulf Breeze, Florida; Kennebunk/Kittery/Sanford, Maine; Virginia Beach, Virginia.
• Localities that have changed the portion of the year in which they are high-cost localities: Sedona, Arizona; Monterey, California; Santa Barbara, California; District of Columbia; Naples, Florida; Jekyll Island/Brunswick, Georgia; Boston/Cambridge, Massachusetts; Philadelphia, Pennsylvania; Jamestown/Middletown/Newport, Rhode Island; Charleston, South Carolina.
• Removed from the list: Midland/Odessa, Texas; Pecos, Texas.

The Treasury and IRS have issued final regulations that limit the Code Sec. 245A dividends received deduction and the Code Sec. 954(c) exception on distributions supported by certain earnings and profits not subject to the integrated international tax regime created by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). Proposed regulations and temporary regulations, issued on June 18, 2019, are adopted and removed, respectively.

The Treasury and IRS have issued final regulations that limit the Code Sec. 245A dividends received deduction and the Code Sec. 954(c) exception on distributions supported by certain earnings and profits not subject to the integrated international tax regime created by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). Proposed regulations and temporary regulations, issued on June 18, 2019, are adopted and removed, respectively.

TCJA Provisions
The TCJA transitioned the United States from a primarily deferral-based international system of taxation (i.e., current taxation of subpart F income) to a participation exemption system with immediate taxation of certain offshore earnings. The TCJA introduced:

• the Code Sec. 245A dividends received deduction;
• the Code Sec. 965 transition tax; and
• the global intangible low-taxed income (GILTI) regime under Code Sec. 951A.

The Code Sec. 245A deduction provides a 100-percent deduction to domestic corporations for certain dividends received from a specified foreign corporations (SFC) after December 31, 2017. Earnings and profits generated before the deduction became available are subject to the Code Sec. 965 transition tax on post-1986 earnings and profits.

The GILTI regime subjects certain intangible income of a controlled foreign corporation (CFC) to current taxation, for tax years starting in 2018.

The subpart F regime was retained for tax years starting in 2018. The regime subjects certain earnings of a CFC to current taxation. The regime also provides that dividends received by a CFC, from a related CFC, are not included in the recipient CFC’s income and subject to current tax under subpart F, if certain requirements are met under the Code Sec. 954(c) exception.

Earnings and profits that are previously taxed under the transition tax, or subpart F or GILTI regimes, are treated as being distributed before non-previously taxed earnings and profits, and a distribution of previously taxed earnings and profits (PTEP) is not treated as a distribution of a dividend eligible for the Code Sec. 245A deduction.

Limits on Deduction
The final regulation limit the Code Sec. 245A deduction with respect to a dividend received by a U.S. corporation from certain SFCs so that the deduction is not available for the earnings and profits attributable to base erosion-type income. The final regulations limit the deduction to the portion of the dividend that exceeds the ineligible amount of the dividend. The ineligible amount is the sum of (1) 50 percent of the extraordinary disposition amount, and (2) the extraordinary reduction amount.

An extraordinary disposition is a disposition of an asset by a SFC that:

is outside of the ordinary course of activities to a related party during the disqualified period (between January 1, 2018, and the end of the foreign corporation's last taxable year beginning before January 1, 2018), and
exceeds the lesser of $50 million or 5 percent of the gross value of the SFC’s assets.
The Code Sec. 245A deduction is limited with respect to extraordinary dispositions, because earnings and profits generated in those transactions are not subject to tax under the transition tax, or the GILTI and subpart F regimes and, as a result, are not of the residual type for which the Code Sec. 245A deduction is intended to potentially be available.

Extraordinary reductions result from transfers of CFC stock where:

a controlling Code Sec. 245A shareholder transfers more than 10 percent of its stock of the CFC, or
there is a greater than 10 percent change in the controlling Code Sec. 245A shareholder’s overall ownership of the CFC.
The Code Sec. 245A deduction is limited in connection with extraordinary reductions because the deduction can result in complete avoidance of U.S. tax with respect to subpart F income or tested income that, absent the extraordinary reduction, would have been included in income by the selling U.S. shareholder under the subpart F or GILTI regimes, respectively

The final regulations require taxpayers to compute, track, and report information relevant for determination of extraordinary dispositions and extraordinary reductions. If an SFC is sold and there is no Code Sec. 245A shareholder of the target SFC after the transaction, the extraordinary disposition account of the target SFC is generally eliminated.

A taxpayer may elect to close the tax year of the CFC for all purposes of the Code on the date of an extraordinary reduction. This prevents disallowance of the Code Sec. 245A deduction. Under the election, the CFC’s earnings and profits for the tax year up to the date of the extraordinary reduction are subject to taxation under the subpart F or GILTI regimes in the seller’s hands, while the remaining earnings and profits of the CFC for the year would be subject to taxation under the subpart F or GILTI regimes in the buyer’s hands. The final regulations clarify that there must be agreement between the buyer and seller of the CFC that was subject to the extraordinary reduction for the election to be made.

Limits on Exception
Application of the Code Sec. 954(c)(6) is also limited when portion of a dividend is paid out of an extraordinary disposition account, or when an extraordinary reduction occurs.

The Code Sec. 954(c)(6) exception is limited where its application would otherwise allow earnings and profits that had accrued after December 31, 2017 (the last measurement date for determining the amount of earnings and profits subject to the transition tax), and that was generated by income that had never been tested under the subpart F and GILTI regimes, to inappropriately qualify for an exception to the subpart F regime.

Treasury has issued final and amended regulations on the rules for distributions made by terminated S corporations during the post-termination transition period (PTTP). These regulations apply after an S corporation has become a C corporation.

Treasury has issued final and amended regulations on the rules for distributions made by terminated S corporations during the post-termination transition period (PTTP). These regulations apply after an S corporation has become a C corporation.

Generally, the regulations are applicable as of the date they are published in the Federal Register.

Eligible Terminated S Corporation (ETSC) Under Section 481
In the case of an S election revocation with a retroactive effective date, the revocation may be treated as occurring on the retroactive effective date for ETSC qualification as well.

The treasury department amended Reg. §§1.481-5(b)(2) and (3) so that a corporation may test compliance with the revocation requirement and the shareholder identity requirement on either:

• the date the revocation was made; or
• in the case of a revocation with a retroactive effective date, the date the revocation was effective.

To qualify as an ETSC under Code Sec. 481, a corporation must satisfy the revocation requirement by making a revocation of its S election during the two-year period beginning on December 22. It also must satisfy the shareholder identify requirement that the owners of the stock of the corporation on the date the S election was revoked are the same owners as on December 22, 2017.

The two year period during which an S corporation can revoke its S election ends on December 23. Reg. §1.1362-2(a)(2) provides that Code Sec. 7503 applies where the last day for making a revocation occurs on a Saturday, Sunday, or legal holiday.

No Newcomer Rule
Reg. §1.1377-2(b) applies to a corporation’s taxable years beginning after the date of the publication of final regulations. It eliminates the no-newcomer rule for special treatment under Code Sec. 1371(e)(1) of distributions of money by a corporation with respect to its stock during the PTTP.

In the case of a corporation using the calendar year as its annual accounting period, newcomers are not entitled to receive distributions of the accumulated adjustments account (AAA) before January 1, 2021, unless the corporation chooses to apply Reg. §1.1377-2(b) before January 1, 2021.

The final regulations allow but do not require corporations to apply the final regulations addressing distributions made during the ETSC period to tax years beginning on or before the date that the final regulations are published.

Distributions of Money by ETSC
Reg. §1.1371-1 addresses distributions of money by an ETSC. It provides rules for qualified distributions and distributions where Code Sec. 301 applies during the tax years of the ETSC period, including the tax year in which the ETSC period ends.

Under Reg. §1.1371-2, if an intervening audit PTTP arises, the ETSC period immediately stops. Then, the ETSC period resumes provided that the ETSC’s AAA balance is greater than zero. Otherwise, later distributions by the ETSC are treated in the manner provided in Code Sec. 301(c).

Applicability Dates of the Regulations
A corporation may choose to apply the rules set forth in Reg. §§1.481-5, 1.1371-1, and 1.1371-2 to tax years beginning on or before the date the regulations are published in the Federal Register. In addition, a corporation generally may choose to not apply the no-newcomer rule in Reg. §1.1377-2(b) to tax years beginning on or before publication as long as the three year period described in Code Sec. 6501(a) has not expired.

Final regulations clarify that the amount of the rehabilitation credit for a qualified rehabilitated building (QRB) is determined as a single credit in the year the QRB is placed in service. This is the case even though the credit is allocated ratably over a five-year period. The final regulations adopt without modification proposed regulations released earlier this year ( NPRM REG-124327-19).

Final regulations clarify that the amount of the rehabilitation credit for a qualified rehabilitated building (QRB) is determined as a single credit in the year the QRB is placed in service. This is the case even though the credit is allocated ratably over a five-year period. The final regulations adopt without modification proposed regulations released earlier this year ( NPRM REG-124327-19).

TCJA Changes to Rehabilitation Credit
The Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) amended the rehabilitation credit for amounts paid or incurred after 2017. The credit is now claimed ratably over a five-year period that begins in the year the QRB is placed in service. The ratable share for each year is 20 percent of the qualified rehabilitation expenditures (QREs) for the building. However, a transition rule allows certain taxpayers to claim the credit all in one year under pre-TCJA rules if the 24- or 60-month period selected for the substantial rehabilitation test began by June 20, 2018.

Final Rehabilitation Credit Regs Include Coordination Rules and Examples
The amended version of the rehabilitation credit is still determined in the year the QRB is placed in service. This single credit is then claimed ratably over five years. This single-credit approach also applies to the recapture, basis adjustment, and leased property rules. These results are consistent with pre-TCJA law.

To reflect these changes, the final regs provide:

• a general rule for calculating the rehabilitation credit;
• definitions of "ratable share" and "rehabilitation credit determined;"
• a rule coordinating the amended credit with the Code Sec. 50 rules for the investment credit; and
• examples illustrating the interaction of the credit with Code Sec. 50(a) (recapture in case of dispositions, etc.), Code Sec. 50(c) (basis adjustment to investment credit property); and Code Sec. 50(d)(5) (relating to certain leased property when the lessee is treated as owner and subject to an income inclusion requirement).

Effective Date for Rehab Credit Regs
The final regulations apply to tax years beginning on or after the date they are published in the Federal Register. However, taxpayers may apply them to QREs paid or incurred after December 31, 2017, as long as they apply them in their entirety and in a consistent manner.

The IRS has released final regulations that clarify the definition of a "qualifying relative" for purposes of various provisions for tax years 2018 through 2025. These regulations generally affect taxpayers who claim federal income tax benefits that require a taxpayer to have a qualifying relative.

The IRS has released final regulations that clarify the definition of a "qualifying relative" for purposes of various provisions for tax years 2018 through 2025. These regulations generally affect taxpayers who claim federal income tax benefits that require a taxpayer to have a qualifying relative.

Effective Date
These regulations are effective on the date of publication in the Federal Register.

Exemption Amount
On June 9, 2020, the Treasury and the IRS published a notice of proposed rulemaking REG-118997-19. Consistent with Notice 2018-70, the proposed regulations provide that, in determining whether an individual is a qualifying relative for purposes of various provisions that refer to Code Sec. 152 in tax years in which the exemption amount is zero, the Code Sec. 151(d) exemption amount will be the inflation-adjusted Code Sec. 152(d)(1)(B) exemption amount in the annual revenue procedure setting forth inflation-adjusted items that is published in the Internal Revenue Bulletin. Thus, the exemption amount to be used for this purpose is $4,150 for tax year 2018 (section 3.24 of Rev. Proc. 2017-58, 2017- 45 I.R.B. 489, modified and superseded by Rev. Proc. 2018-18, 2018-10 I.R.B. 392); $4,200 for tax year 2019 (section 3.25 of Rev. Proc. 2018-57, 2018-49 I.R.B. 827); and $4,300 for tax year 2020 (section 3.25 of Rev. Proc. 2019-44, 2019-47 I.R.B. 1093).

The IRS has announced that Medicaid coverage of Coronavirus Disease 2019 (COVID-19) testing and diagnostic services is not minimum essential coverage for purposes of the premium tax credit under Code Sec. 36B.

The IRS has announced that Medicaid coverage of Coronavirus Disease 2019 (COVID-19) testing and diagnostic services is not minimum essential coverage for purposes of the premium tax credit under Code Sec. 36B.

Under the Affordable Care Act (ACA), certain taxpayers who obtain their coverage through an Exchange may claim a premium tax credit under Code Sec. 36B. However, taxpayers are only allowed the credit for months they are not otherwise eligible for minimum essential coverage.

Minimum essential coverage includes coverage under government-sponsored programs, including Medicaid, but certain health care coverage providing limited benefits is exempted.

The Treasury Department and the IRS have determined that Medicaid coverage limited to COVID-19 testing and diagnostic services is not minimum essential coverage under a government-sponsored program. Thus, an individual’s eligibility for this coverage for one or more months does not prevent the individual from claiming the premium tax credit under Code Sec. 36B.

The IRS has released guidance in the form of questions and answers with respect to certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and the Bipartisan American Miners Act of 2019 (Miners Act).

The IRS has released guidance in the form of questions and answers with respect to certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and the Bipartisan American Miners Act of 2019 (Miners Act).

Business Credit
The SECURE ACT added a new Code Sec 45T, which provides a business credit to an eligible employer that establishes an eligible automatic contribution arrangement under a qualified employer plan. The credit is equal to $500 per year and applies to tax years beginning after December 31, 2019.

The notice clarifies than an eligible employer can only receive a credit during a single three year credit period. For example, if Employer X includes an automatic contribution arrangement for Plan A during 2021, 2022, and 2023 and then includes an automatic contribution arrangement for Plan B during 2022, 2023, and 2024, they can receive no more than $500 as a credit for 2021, 2022, and 2023, and are not permitted to receive a credit for 2024. The employer must include the same arrangement in the same plan for years two and three.

The credit applies separately to each eligible employer that participates in a multiple employer plan.

IRA Contribution Age Limit
Prior to the SECURE Act, an individual was not permitted to make contributions to their IRA if they were age 70 and 1/2 or older by the last day of the year. The SECURE Act eliminated that age limit for contributions after 2019.

The notice clarifies that a financial institution is not required to accept contributions after age 70 and 1/2, but if it does choose to accept them, it must amend its IRA contract and distribute a copy of the amendment and disclosure statement to each individual.

Individuals are not permitted to offset the amount of their required minimum distribution by the amount of their post-age 70 and 1/2 contributions for the same year.

Individuals are able to take their required minimum distributions as qualified charitable distributions. The example below illustrates how this would interact with the new lack of age limit on contributions.

Imagine Bob is over 70 and a 1/2 before 2020. He deducts $5,000 for contributions for 2020 and 2021, but makes no contribution for 2022. He makes no qualified charitable distributions for 2020 and makes qualified charitable distributions of $6,000 for 2021 and $6,500 for 2022. Bob’s excludable amount of qualified charitable distributions for 2021 is the $6,000 of qualified charitable distributions reduced by the $10,000 aggregate amount of post-age 70 1/2 contributions for 2021 and earlier taxable years. For this individual, these amounts are $5,000 for each of 2020 and 2021, resulting in no excludable amount of qualified charitable distributions for 2021 (that is, $6,000 - $10,000 = ($4,000)). The excludable amount of the qualified charitable distributions for 2022 is $2,500 ($6,500 - $4,000 = $2,500). Because the $4,000 amount reduced the excludable amount of qualified charitable distributions for 2022, that $4,000 amount does not apply again in later years, and no amount of post-age 70 1/2 contributions remains to reduce the excludable amount of qualified charitable distributions for subsequent taxable years.

Qualified Birth or Adoption Distributions
Code Sec. 72(t)(1) generally imposes a 10 percent additional tax on an early distribution from a qualified retirement plan (including an IRA or Roth IRA), unless the distribution qualifies for an exception. The SECURE Act provides a new exception to the 10 percent penalty for any qualified birth or adoption distribution up to $5,000 from an applicable retirement plan if made during the 1-year period beginning on the date on which the child is born or the adoption is finalized. The parent must include the name, age and the Taxpayer Identification Number of the child on their tax return the year the distribution is made.

The distribution can be made from any eligible retirement plan described in Code Sec. 402(c)(8)(B), other than a defined benefit plan. Therefore, a Code Sec. 401(a) qualified defined contribution plan, a Code Sec. 403(a) annuity plan, a Code Sec. 403(b) annuity contract, a governmental Code Sec. 457(b) plan, or an IRA is eligible to permit a qualified birth or adoption distribution. Eligible adoptees include any individual who has not attained age 18 or is physically or mentally incapable of self support as defined in Code Sec. 72(m)(7), but does not include an individual who is a child of the taxpayer’s spouse. Each parent can receive a qualified distribution up to $5,000 with respect to the same adoptee, and can receive multiple distributions if they have multiple births (ex. Twins or triplets).

Eligible retirement plans are not required to permit distributions for qualified birth or adoption distributions, but if they do not, individuals can still take the distribution and treat it as a qualified birth or adoption distribution on their federal tax return. Plans must accept recontribution of the distribution, if the following apply:

(a) the plan permits qualified birth or adoption distributions;

(b) the individual received a qualified birth or adoption distribution from that plan; and

(c) the individual is eligible to make a rollover contribution to that plan at the time the individual wishes to recontribute the qualified birth or adoption distribution to the plan.

Qualified birth or adoption distributions are not treated as eligible rollover distributions for purposes of the direct rollover rules, Code Sec. 402(f) notice requirements, and the mandatory withholding rules.

Difficulty of Care Payments
Code Sec. 408(o) provides that designated nondeductible contributions may be made on behalf of an individual to an IRA. A difficulty of care payment is a type of qualified foster care payment that is excludable from gross income.

The notice clarifies that difficulty of care payments received by an employee from a person other than his or her employer are not included as compensation. If an employer does not make difficulty of care payments, then the plan does not need to amend the plan to include the payments in the plan’s definition of compensation. However, if the employer begins to make difficulty of care payments, the plan must be amended.

Participation Rights Expanded for Part-Time Employees
Prior to the SECURE Act, employers that maintained a 401(k) plan were not required to offer it to part-time employees who work less than 1,000 hours per year. The rules require only that employers offer the plan to any employee who has both attained age 21 and has completed at least one year of service. A "year of service" is defined as a 12-month period during which the employee has worked at least 1,000 hours. Someone who works a bare 1,000 hours would be averaging 19.2 hours per week.

Under the SECURE Act, employers with 401(k) plans must offer employees who work between 500 and 1000 hours year an additional track to 401(k) participation. Employees must be able to satisfy participation requirements by completing either:

• the existing one year of service requirement, working at least 1,000-hours, or
• the new three consecutive 12-month periods of service requirement working at least 500 hours in each period.

The three-consecutive-years-of-service track is not available for an employee unless the employee reaches age 21 by the close of the last of the 12-month periods.

For purposes of determining vesting rights to employer contributions for 500-hour track employees, each 12-month period for which the employee has at least 500 hours of service is treated as a year of service. For purposes of the break-in-service rules, a 1-year break in service includes a year in which the employee has not completed at least 500 hours of service.

These amendments apply to plan years beginning after December 31, 2020, except that 12-month periods beginning before January 1, 2021, are not taken into account. The IRS guidance clarifies that this exception does not extend to the special vesting rules.

Plan Amendments
The deadlines to amend a retirement plan for provisions of the SECURE Act, the regulations thereunder, or Act Sec. 104 of the Miners Act are as follows. Note these amendment deadlines apply to both required and discretionary plan amendments.

• Qualified plans. For a qualified plan that is not a governmental plan or an applicable collectively bargained plan, the deadline is the last day of the first plan year beginning on or after January 1, 2022. The plan amendment deadline for a qualified governmental plan or for an applicable collectively bargained plan is the last day of the first plan year beginning on or after January 1, 2024. A plan sponsor may amend its plan after these dates, but they are not entitled to anti-cutback relief.
  
• Section 403(b) plans. The deadline for a Code Sec. 403(b) plan that is not maintained by a public school is the last day of the first plan year beginning on or after January 1, 2022. The deadline is for a plan maintained by a public school is the last day of the first plan year beginning on or after January 1, 2024. A plan sponsor may amend its plan after these dates, but they are not entitled to anti-cutback relief.
  
• Code Sec. 457(b) governmental plans. The deadline is the later of (i) the last day of the first plan year beginning on or after January 1, 2024, or (ii) if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary that the plan was administered in a manner that is inconsistent with the requirements of Code Sec. 457(b).
  
• IRAs. The deadline to amend the trust governing an IRA is December 31, 2022, or such later date as the Secretary prescribes in guidance. In the case of a deemed IRA, the deadline is the deadline applicable to the plan under which the deemed IRA is established.

Reduction in Minimum Age for In-Service Distributions
A qualified pension plan cannot make distributions to an employee who is still in-service (that is, working for the employer) prior to a certain age. The Miners Act lowered the minimum age from age 62 to age 59 1/2. Similarly, the Miners Act changed the rule for an eligible government deferred compensation plans under Code Sec. 457(b), reducing the minimum age to the calendar year the participant turns age 70 1/2 to age 59 1/2. These amendments apply to plan years beginning after December 31, 2019.

IRS guidance clarifies that neither a qualified plan nor a Code Sec. 457(b) governmental plan is required to provide for in-service distributions due to changes in the Miners Act. For example, a qualified plan that provides for in-service distributions commencing at age 62 is not required to be amended to provide for in-service distributions commencing at age 59 1/2. Also, the guidance clarifies that a change in the in-service distribution minimum age does not necessarily affect the plan’s existing normal retirement age.

Final regulations provide additional guidance on the base erosion and anti-abuse tax (BEAT) under Code Sec. 59A. The regulations also address certain aspects of the BEAT under Code Secs. 1502 and 6031.

Final regulations provide additional guidance on the base erosion and anti-abuse tax (BEAT) under Code Sec. 59A. The regulations also address certain aspects of the BEAT under Code Secs. 1502 and 6031.

The final regulations retain the basic approach and structure of the 2018 proposed regulations ( NPRM REG-112607-19), with certain revisions. The final regulations generally provide rules addressing the following:

• the determination of a taxpayer’s aggregate group for purposes of determining gross receipts and the base erosion percentage;
• an election to waive deductions for purposes of the BEAT;
• the application of the BEAT to partnerships; and
• the anti-abuse rule provided in Reg. §1.59A-9(b)(4) with respect to certain basis step-up transactions.

Determination of Taxpayer’s Aggregate Group
The final regulations provide guidance regarding how a taxpayer determines its aggregate group. Specifically, rules are provided for the calculation of gross receipts and the base erosion percentage when either the taxpayer or a member of the taxpayer’s aggregate group has a short tax year. The final regulations generally retain the rule in the 2018 proposed regulations that permits the use of a reasonable approach to determine whether a taxpayer’s aggregate group meets the gross receipts test and base erosion percentage test with respect to a short tax year of the taxpayer. The final rules provide examples of methods that may or may not constitute a reasonable approach.

In addition, the final regulations provide guidance on how the gross receipts and the base erosion percentage of an aggregate group are determined when members join or leave a taxpayer’s aggregate group, such as through a sale of the stock of a member to a third party. Clarification is provided regarding the close of the tax year rule for determining gross receipts and base erosion percentage. The final rules also address concerns regarding over-and under-counting of gross receipts of aggregate group members with different tax years.

Finally, guidance is provided on the application of the aggregate group rules to predecessors and successors.

Election to Waive Allowable Deductions
The final regulations address the election to waive allowable deduction and more specifically:

• when a taxpayer is eligible to make the BEAT waiver election;
• the effect of the BEAT waiver election on the base erosion percentage (whether deductions
• waived pursuant to the BEAT waiver election should be included in the denominator of the base erosion percentage);
• a reduction of waived deductions during audit or on an amended return;
• a waiver of life and non-life reinsurance premiums;
• procedures for making the BEAT waiver election;
• the application of the BEAT waiver election to partnerships;
• the application of the BEAT waiver election to consolidated groups; and
• the interaction of the BEAT waiver election with other regulations.

Application of the BEAT to Partnerships
The final regulations expand the ECI exception to apply to certain partnership transactions. The regulations also clarify the treatment of curative allocations and the partnership anti-abuse rule for derivatives.

Anti-abuse Rules of Reg. §1.59A-9 for Basis Step-up Transactions
The anti-abuse rule of Reg. §1.59A-9 is revised to address concerns about the breadth of this rule and its potential to create a "cliff effect," whereby a minimal amount of pre-transaction basis step-up could disqualify an entire transaction that would have otherwise qualified for the specified nonrecognition transaction exception.

Possible Future Guidance Concerning the QDP Reporting Requirements
The IRS is currently studying the interaction of the QDP exception, the BEAT netting rule in Reg. §1.59A-2(e)(3)(iv), and the QDP reporting requirements in Reg. §1.59A-6 and Reg. §1.6038A-2(b)(7)(ix) and considering whether future guidance may be appropriate.

Applicability Date
The final regulations generally apply to tax years beginning on or after the date they are published in Federal Register. Certain rules apply to tax years ending on or after December 2, 2019. However, taxpayers may apply these final regulations in their entirety for tax years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply these regulations in their entirety for all subsequent tax years. Alternatively, taxpayers may apply only Reg. §§1.59A-3(c)(5) and (6) for tax years beginning after December 31, 2017, and before their applicability date, provided that, once applied, taxpayers must continue to apply them in their entirety for all subsequent tax years. Taxpayers may also rely on Proposed Reg. §§1.59A-2(c)(2)(ii) and (c)(4) through (c)(6), and 1.59A-3(c)(5) and (c)(6) in their entirety for tax years beginning after December 31, 2017, and before the date of publication of these final regulations in the Federal Register.

The new year brings a new tax filing season. Mid-April may seem like a long time away in January but it is important to start preparing now for filing your 2011 federal income tax return.  The IRS expects to receive and process more than 140 million returns during the 2012 filing season.  Early planning can help avoid any delays in the filing and processing of your return.

Records

Initially, you will need to gather your records for 2011. A helpful jumping-off point is to review your 2010 return. Your personal situation may be unchanged from when you filed your 2010 return or it may have changed significantly.  Either way, your 2010 return is a good vantage point for assembling the materials you will need to prepare your 2011 return.

If you need a copy of your previous year(s) return information, you have several options. You can order a copy of your prior-year return. Alternatively, you may order a tax return transcript or a tax account transcript.  A tax return transcript shows most line items from your return as it was originally filed, including any accompanying forms and schedules.  However, a tax return transcript does not reflect any changes you or the IRS made after the return was filed. A tax account transcript shows any later adjustments you or the IRS made after the tax return was filed. 

If you changed your name as a result of marriage or divorce since you filed your 2010 return, you must advise the IRS. Your name as it appears on your return needs to match the name registered with the Social Security Administration. A mismatch will likely delay the processing of your return.

Forms W-2

Many taxpayers cannot begin preparing their 2011 income tax returns until they have their Forms W-2, Wage and Tax Statement. Employers have until January 31, 2012 to send you a 2011 Form W-2 earnings statement.  If you do not receive your W-2 by the deadline, contact your employer. If you do not receive your W-2 by mid-February, contact the IRS.  You still must file your return or request an extension to file even if you do not receive your Form W-2. In certain cases, you may be able to file Form 4852, Substitute for Form W-2, Wage and Tax Statement.

Filing deadline

April 15, 2012 is a Sunday. Returns would normally be due the next day, April 16, 2012. However, April 16 is a holiday in the District of Columbia (Emancipation Day). As a result, the due date for 2011 returns is April 17, 2012.  If the mid-April tax deadline clock runs out, you can get an automatic six-month extension of time to file through October 17. However, this extension of time to file does not give you more time to pay any taxes due.  To obtain an extension, you need to file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Casualty losses

Many taxpayers experienced family, business and personal losses from hurricanes, tropical storms, wild fires, floods, and other natural disasters in 2011.  For federal tax purposes, a casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a hurricane, tornado, fire, or other disaster.

Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss from a federally-declared disaster, you can choose to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster happened. This means you can deduct a 2011 loss on your 2011 return or amended return for that preceding tax year (2010).   If you have any questions about a casualty loss, please contact our office.

Retirement savings

Just because the calendar moved from 2011 to 2012 doesn’t necessarily mean you missed out on contributing to a retirement savings plan. You can contribute up to $5,000 to a traditional IRA for 2011 and you can make the contribution as late as April 17, 2012. However, if you or your spouse is covered by an employer retirement plan, this will affect how much, if any, of your contribution is tax deductible.  Individuals age 50 and older may qualify for a catch-up contribution of $1,000 on top of the $5,000 maximum.  Different rules apply to other types of retirement savings plans.  Our office can review these rules in detail with you.

IRS Fresh Start Initiative

In 2011, the IRS announced a new program, called the Fresh Start Initiative, to help distressed taxpayers. The IRS adjusted its lien policies, increased the dollar threshold when liens are generally issued, made it easier for taxpayers to obtain lien withdrawals, and extended the streamlined offer-in-compromise program.  Previously, the IRS had given its employees greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances where a taxpayer has recently lost a job, is relying solely on Social Security, or is paying significant medical bills.

If you are experiencing hardship, the most important thing you can do is to remain in compliance with your tax obligations. If you owe back taxes, now is the time to pay them, if possible, or enter into an installment agreement, if you qualify, with the IRS. The IRS wants to see you making a good faith effort to pay your taxes.

Tax law changes

Along with assembling records and reviewing activities in 2011, it’s a good idea to review some of the tax law changes in 2011 that may affect your return.  Our office can review your 2010 return and see which areas may have been affected by tax law changes for your 2011 return.  In some cases, popular tax incentives that were available in 2010 were extended into 2011. You don’t want to miss out on any available tax breaks.

If you have any questions about preparing for the 2012 filing season, please contact our office.

As 2012 gets underway, Congress has extended the employee-side payroll tax cut but a laundry list of tax incentives have expired and their renewal is in doubt.  The fate of these incentives, along with the Bush-era tax cuts, will dominate debate in Washington D.C. in 2012.  At the same time, tax planning in a time of uncertainty appears to have become the new normal.

Payroll tax cut

The Temporary Payroll Tax Cut Continuation Act of 2011, approved by Congress on December 23 and signed by President Obama the same day, extends the 2011 payroll tax holiday through the end of February 2012. The employee-share of OASDI taxes is 4.2 percent for the period January 1, 2012 through February 29, 2012 (10.4 percent for self-employment income). The new law also includes a recapture provision for certain individuals.  However, the House Ways and Means Committee reported that the recapture provision will only apply if the payroll tax reduction is not extended for the remainder of 2012.  Lawmakers are expected to extend the employee-side payroll tax cut through the end of 2012, although not before difficult negotiations.

One speed bump to extending the payroll tax cut through the end of 2012 is its cost. The two-month extension is paid for by increasing certain fees charged to mortgage lenders.  A full-year extension will require additional offsets (unless Congress decides not to offset an extension). Lawmakers are reportedly discussing additional revenue raisers, such as unspecified changes to the S corporation rules and the closing of a loophole for corporate jets.  Other revenue raisers reportedly under consideration are repeal of certain oil and gas preferences and repeal of the last-in, first-out (LIFO) method of accounting.  A variety of spending cuts are also on the table.

Extenders

After December 31, 2011, many popular but temporary tax breaks expire.  The incentives, which are known as “extenders,” impact individuals and businesses.  Some of the more popular individual extenders are the state and local sales tax deduction, the higher education tuition deduction, and the teachers’ classroom expense deduction.  For businesses, the research tax credit is one of the most important extenders. 

One immediate change that many taxpayers will notice is a drop in transit benefits.  In 2011, commuters benefitted from more generous transit benefits.  The 2011 monthly limit on the tax benefit for transit and vanpools of $230 per month reverts to $125 per month in 2012. However, the monthly limit for qualified parking provided by an employer to its employees for 2012 will increase to $240, up $10 from the limit in 2011.

Several bills have been introduced in Congress to extend the expiring incentives. However, the bills have languished in committee. One reason for the lack of movement is that Congress can extend the incentives in 2012 and make them retroactive to January 1, 2012.  The extenders are also separate from the temporary Bush-era tax cuts, which are scheduled to expire after December 31, 2012.  Many lawmakers do not want to link the extenders to the more-controversial Bush-era tax cuts.

IRS budget

One bill that did pass Congress at year-end 2011 was a fiscal year 2012 budget for the IRS.  Congress voted to cut $305 million from the IRS’s FY 2012 budget.  How this cut will impact IRS operations is unknown. In November 2011, the IRS offered buyouts and early outs to back-office employees to reduce its greatest expense: employee payroll.  The IRS could also delay some business systems modernizations to save money.  The IRS will likely keep customer service as close as possible to full funding, especially during the busy 2012 filing season.

Tax planning

One of the most significant challenges to long-term tax planning is the on-again, off-again nature of many tax incentives.  Temporary incentives, such as the research tax credit and the state and local sales tax deduction, have become de facto permanent incentives because they are regularly extended.   Nonetheless, they are temporary. Because of their temporary nature, taxpayers must have two tax plans: one that takes into account an extension of the incentives, and a second plan that does not.

If you have any questions about tax planning and tax legislation in 2012, please contact our office.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires certain U.S. taxpayers to report their interests in specified foreign financial assets.  The reporting requirement may apply if the assets have an aggregate value exceeding certain thresholds. The IRS has released Form 8938, Statement of Specified Foreign Financial Assets, for this reporting requirement under FATCA.

Reporting

For now, only specified individuals are required to file Form 8938, but specified U.S. entities will eventually also have to file the form. Taxpayers who do not file a federal income tax return for the year do not have to File Form 8938, even if the value of their foreign assets exceeds the normal reporting threshold.

Individuals who have to file Form 8938 include U.S. citizens, resident aliens for any part of the year, and nonresident aliens living in Puerto Rico or American Samoa.

Reporting applies to specified foreign financial assets. Specified foreign financial assets include:

• A financial account maintained by a foreign financial institution;
• Other foreign financial assets, such as stock or securities issued by a non-U.S. person, or an interest in a foreign entity.

The aggregate value of the individual’s specified foreign financial assets must exceed specified reporting thresholds, as follows:

• Unmarried U.S. taxpayers, and married U.S. taxpayers filing a separate return – more than $50,000 on the last day of the year, or more than $75,000 at any time during the year;
• U.S. married taxpayers filing a joint return – more than $100,000 on the last day of the year, or more than $150,000 at any time during the year; or
• Taxpayers living abroad: if filing a joint return, more than $400,000 on the last day of the year, or more than $600,000 during the year; other taxpayers, more than $200,000 on the last day of the year, or more than $300,000 at any time during the year.

Taxpayers who report assets on other forms, such as Form 3520, do not have to report the asset on Form 8938, but must use Form 8938 to identify other forms on which they report.

Filing

Reporting applies for tax years beginning after March 18, 2010, the date that FATCA was enacted. Most taxpayers, such as those who report their taxes for the calendar year, must start filing Form 8938 with their 2011 income tax return.

If you have any questions about Form 8938, please contact our office.

Depreciation is a reasonable allowance for wear and tear on property used in a trade or business or for the production of income. Property is depreciable if it has a useful life greater than one year and depreciates in value. Property that appreciates in value may also  depreciate if subject to wear and tear. Depreciation ends in the tax year that the asset is retired from service (by sale, exchange, abandonment or destruction) or that the asset is fully depreciated.

Assets with useful lives of one year or less can be deducted as current expenses in the year of their costs. Depreciation cannot be claimed on an asset that is acquired and disposed of in the same year.

Depreciation begins in the tax year that the property is placed in service for either the production of income or for use in a trade or business. Property generally is considered placed in service when it is in a condition or state of readiness to be used on a regular, ongoing basis. The property must be available for a specifically assigned function in a trade or business (or for the production of income).

An asset actually put to use in a trade or business is clearly considered placed in service. If, on the other hand, an asset is not actually put to use, it is generally not considered placed in service unless the taxpayer has done everything he or she can to put the asset to use. For example, a barge was considered placed in service in the year it was acquired, even though it could not be actually used because the body of water was frozen. For a building that is intended to house machinery and equipment, the building's state of readiness is determined without regard to whether the machinery and equipment has been placed in service. Leased property is placed in service by the lessor when the property is held out for lease.

Generally, the year property is placed in service is the tax year of acquisition, but it could be a later time. An asset cannot be placed in service any sooner than the time that the business actually begins to operate.

In the case of agriculture, livestock cannot be depreciated until it reaches maturity and can be used; orchards cannot be depreciated until the trees produce marketable quantities of crops. Prior to those times, costs must be capitalized and cannot be written off.

Especially at year-end, placing an asset in service before the new year can mean the difference between claiming a substantial amount of depreciation on this year's return instead of waiting a full year. If you have any questions on how to qualify a business asset under this deadline, please contact this office.