Protecting Americans from Tax Hikes (PATH) Act of 2015 – A Summary

Protecting Americans from Tax Hikes Act of 2015 (PATH) summarized by my friend Shirley Callahan EA.

Some highlights include:

  • Everyone will appreciate the permanency of the enhanced Educator Expenses, the Sales Tax deduction, and the R&D Credit.
  • Section 179 is made permanent at $500,000 phasing out at $2 million … and will now be indexed for inflation. Let the spending begin!
  • Bonus Depreciation will be 50% in 2015, 2016, and 2017 phasing down to 40% in 2018 and 30% in 2019.
  • Realtors Rejoice! The cancellation of debt (COD) exclusion for Qualified Personal Residences is extended through 2016 and will include those transactions entered into in 2016 but not completed until 2017.
  • Mortgage Insurance Premiums (MIP) are still deductible through 2016.

Additional details:

  1. On the road to real-time matching, due dates have been modified for reporting employee wages, independent contractors, and unemployment. These information returns will now be filed with IRS and payees by Jan 31st 2016. The March 31st extended due date for e-filers is now HISTORY, effective for 2016!
  2. To make the transition a little easier, payors of W-2s and 1099s, have been given a Safe Harbor for de minimis errors when filing these information returns and payee statements. Mistakes of $100 or less ($25 or less if WH) will be relieved of issuing corrections unless the recipient requests that a corrected statement be issued to IRS.
  3. IRS will require truncated Social Security Numbers (SSNs) on W-2s. Employers will be required to include an identifying number for each employee that is NOT the SSN.
  4. IRS has been granted additional time to review refund claims based on Earned Income Tax Credit (EITC) and the refundable Child Tax Credit (CTC). The earliest that IRS will be issuing refunds based on EITC and CTC claims will be Feb 15, 2017 for 2016TY.
  5. President Clinton’s Hope Credit has morphed into the American Opportunity Tax Credit (AOTC) and has been made permanent. Colleges and universities are now REQUIRED to report the “amount paid” NOT the “amount billed,” and their EINs are REQUIRED on the tax returns. Finally, we are relieved!
  6. But wait, they want to fine us now. Beginning Right Now! Just like the Earned Income Tax Credit (EITC), the 10-year ban for fraud convictions and 2-year ban for reckless disregard convictions will be applied to CTC and AOTC claims.
  7. Just like EITC claims, paid preparers will now face due diligence penalties of $500 for CTC and AOTC claims, and that starts right now! IRS has been fighting for proof of payments since October 2006 when they announced that 1098-Ts were NOT source documents, and could NOT be relied upon whenever the “amount billed” column is used.
  8. Paid preparer penalties for willful or reckless conduct are increased to the greater of $5000 or 75% of the preparer’s income. I wonder how much Mr. Snipes paid his people?
  9. There will be no retroactive claims of EITC after issuance of Social Security Numbers (SSN). There will be no retroactive claims of CTC or AOTC if the individual, student or qualifying child do not have an ITIN. Formerly, an undocumented worker could go back and amend 3 years of open tax returns to claim CTC, EITC, and the AOTC after obtaining the necessary SSN or ITIN that the forms required. No more will newly documented workers be issued refundable credits based on their prior undocumented presence in the U.S.
  10. The Child Tax Credit (CTC) reduced threshold is made permanent. As an incentive to work more, the ACTC (additional CTC) equals 15% of earned income greater than $3000, and will remain permanently unindexed for inflation. Is anyone explaining this to your clients?
  11. The American Opportunity Tax Credit had been scheduled to expire after 2017 is now made permanent.
  12. Enhanced Earned Income Tax Credit (EITC) is now permanent for those families with 3 or more children. To combat the marriage penalty, those who file MFJ through 2017 will be benefit from increased phase-outs of $5000, which will now be indexed for inflation.
  13. Educator Expenses for teachers K-12 as a deduction on Page 1 of the 1040 is made permanent. Beginning in 2016, the $250 will be indexed for inflation and will include professional development costs too.
  14. Employerprovided mass transit and parking benefits are made permanent.
  15. Sales Tax deduction is made permanent. Senator Reid succeeds finally.
  16. Incentives for Charitable Giving permanently extends charity deduction for contributions of real property for conservation purposes. Other enhancements have been added.
  17. Qualified charitable distributions up to $100,000 from IRAs will be permanently excluded from gross income for taxpayers at least 70½ years of age, and may include RMDs.
  18. Permanently extends and enhances the deduction for charitable contributions of inventory of “apparently wholesome food” for non-corporate business taxpayers.
  19. S Corps ~ Permanently extends the rule that a shareholder’s basis in the stock of an S Corp is reduced by the shareholder’s pro rata share of the adjusted basis of property contributed by the S Corp for charitable purposes. Incentives for Growth, Jobs, Investment, and Innovation
  20. Research & Development Credit is made permanent. Beginning in 2016 some small businesses may claim the R&D Credit against AMT liability, and can be utilized by some small businesses against their FICA liabilities!
  21. Permanently extends the 20% Employer Wage Credit for employees called to active military duty.
  22. Permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.
  23. From 2010 until 2014, we were blessed with Section 179 property expensing of $500,000, phased out for purchases more than $2 million. However, effective Jan 1, 2015, expensing had reverted back to $25,000 phasing out at $200,000. Businesses have been in limbo for ALL of 2015. The PATH Act permanently increases the 179 expensing to $500,000 phasing out when purchases exceed $2 million with the added benefit of future indexing for inflation. Yahoo! Let the spending begin.
  24. A/C and heating units placed in service in tax years beginning after 2015 will be eligible for expensing too.
  25. Also made permanent is the taxpayer’s ability to revoke 179 elections without IRS consent.
  26. The 100 percent of gain on certain small business stock is extended for non-corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.
  27. Extension of reduction in S-corporation recognition period for built-in gains tax. The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.
  28. Incentives for Real Estate Investment Section 141 ~ The New Markets Tax Credit is extended authorizing the allocation of $3.5 billion of New Markets Tax Credits for each year from 2015 through 2019.
  29. The Work Opportunity Tax Credit (WOTC) is modified and extended for 5 years. The WOTC is increased to 40% of the first $6000 of wages. Congress is hoping to give retailers an incentive to hire the disabled and the economically challenged.
  30. Bonus depreciation is enhanced and extended. During 2015, 2016, and 2017 bonus depreciation will be 50%, phasing down to 40% in 2018 and 30% in 2019. Taxpayers may elect to accelerate AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015.
  31. Tax Relief for Families and Individuals ~ The exclusion from Cancellation of Debt Income (CODI) for the Qualified Principal Residence Indebtedness (QPRI) is extended through 2016 and will include debts discharged in 2017 if written agreement was entered into in 2016.
  32. Through 2016, Mortgage Insurance Premiums (MIP) will be treated as qualified mortgage residence interest phasing out when AGI is between $100,000 and $110,000.
  33. Tuition expense deduction extended through 2016 on Page 1 of the 1040 capped at $4000 and subject to phase outs.
  34. Lobbyists at work retained the extension of the 3-year recovery period for certain race horses if placed in service during 2015 or 2016.
  35. Lobbyists for motorsports entertainment complexes also retained the extension of 7-year recovery period when placed in service during 2015 or 2016.
  36. Good for Nevada mining is the extension of the election to expense mine safety equipment placed in service during 2015 and 2016.
  37. Lobbyists win again with an extension of special expensing rules for certain film and television productions through 2016. In general, only the first $15 million of costs may be expensed, and yes porn is specifically excluded.
  38. Extends through 2016 the eligibility of Section 199 Domestic Production Deduction for Puerto Rico.
  39. Extension and modification of empowerment zone tax incentives in economically distressed areas.
  40. Yo ho ho and a bottle of rum. Extension of excise taxes to Puerto Rico and the Virgin Islands for rum imported into the U.S. during 2015 and 2016.
  41. Extension of American Samoa economic development credit through 2016.
  42. The 2.3% Medical Device Excise Tax is banned for 2016 and 2017.
  43. Incentives for Energy Production and Conservation

Other Sections

Section 181 ~ Credit for nonbusiness energy property.

Section 182 ~ Credit for alternative fuel vehicle refueling property.

Section 183 ~ Credit for 2-wheeled plug-in electric vehicles.

Section 184 ~ Second generation biofuel producer credit.

Section 185 ~ Biodiesel and renewable diesel incentives.

Section 186 ~ Production credit for Indian coal facilities.

Section 187 ~ Facilities producing energy from certain renewable resources.

Section 188 ~ Credit for energy-efficient new homes.

Section 189 ~ Second generation biofuel plant property.

Section 190 ~ Energy efficient commercial buildings deduction.

Section 191 ~ Sales for qualified electric utilities.

Section 192 ~ Excise tax credits relating to alternative fuels.

Section 193 ~ Credit for new qualified fuel cell motor vehicles. Program Integrity

The integrity of the tax system is the target of these provisions. Projected to save $7 billion over 10 years, Congress hopes these Program Integrity Provisions will reduce fraud, abuse, and improper payments in refundable credit programs.

Section 201 ~ Modified filing dates! On the road to real-time matching, this has been a long time coming. This provision modifies the filing dates on employee wages such as W-2, W-3, 1099-MISC, 1096, and unemployment statements to be filed with IRS and taxpayers by Jan 31. The Mar 31 due date for efilers is HISTORY.

This provision is effective for returns and statements filed in 2017. Waiting for the uproar on this. Refunds with EITC and CTC claims will not be paid before February 15th .

Hoping to reduce fraud, Section 201 also provides additional time for the IRS to review refund claims based on EITC and refundable CTC. IRS is not answering the phones, so how long is this going to take to resolve? Will the noncredit portion of the refund be released?

Section 202 ~ Safe harbor for de minimis errors on information returns and payee statements. Mistakes of $100 or less ($25 or less if WH) will be relieved of issuing corrections unless the recipient requests a corrected statement be issued to IRS.

Section 203 ~ ITIN tracking and monitoring. ITIN renewals will be staggered between 2017 and 2020. ITINs unused for 3 consecutive years will be expelled from the system.

By 2020 all ITIN applications will be filed in person only.

Section 204 ~ Prevention of retroactive claims of EITC after issuance of social security number.

Section 205 ~ Prevention of retroactive claims of CTC for any prior year in which the individual or a qualifying child for whom the credit is claimed did not have an ITIN.

Section 206 ~ Prevention of retroactive claims of AOTC for any prior year in which the individual or a student for whom the credit is claimed did not have an ITIN.

Section 207 ~ Expanding paid-preparer due diligence penalties to $500 for CTC and AOTC claims for tax years beginning after Dec 31, 2015.

Section 208 ~ 10-year ban for fraud convictions and 2-year ban for reckless disregard convictions will be applied to CTC and AOTC claims for tax years beginning after Dec 31, 2015.

IRS is being given new authority to issue an assessment as a math error:

(1) a taxpayer claimed the EITC, CTC, or the AOTC during which a taxpayer is not permitted to claim such credit as a consequence of having made a prior or reckless claim; and

(2) there was an omission of information required by the Secretary relating to a taxpayer making improper prior claims of the CTC or the AOTC.

Section 209. This provision applies the 20-percent accuracy related underpayment penalty for erroneous claims to include the refundable portion of credits reversing the Tax Court decision in Rand v. Commissioner.

The Tax Court ruled that for purposes of determining the amount of an underpayment for purposes of the penalty provisions, the tax shown on the return may not be less than zero. Thus, no accuracy-related penalty or fraud penalty may be imposed to the extent the refundable credits reduce the tax imposed below zero. That was then. This is now.

Section 210 ~Paid preparer penalties increase to the greater of $5000 or 75% of the preparer’s income for those tax preparers who engage in willful or reckless conduct on returns prepared in tax years ending after the date of enactment.

Section 211 ~ EINs will be required for AOTC for tax years beginning after Dec 31, 2015.

Section 212 ~ Amount paid is what educational institutions will now report for qualified tuition and related expenses. No longer will colleges have the choice to use the amounts billed for expenses paid after Dec 31, 2015.

Section 301 ~ Work Colleges Program. Payments from certain work-learning service programs will be excluded from gross income.

Section 302 ~ 529 plan distributions may be used to pay for computer equipment and technology. Certain tuition refunds may be rolled back into the 529 plan if completed within 60 days of receipt.

Section 303 ~ Elimination of residency requirement for qualified ABLE programs.

Section 304 ~ A wrongfully incarcerated individual is defined and is permitted to exclude from gross income civil damages, restitution, or other monetary awards received as compensation for wrongful incarceration.

Section 306 ~ Rollovers permitted from other retirement plans into simple retirement accounts.

Section 307 ~ Technical amendment relating to rollover of amounts received in certain bankruptcies by qualified airline employees and rolled over.

Section 308 ~ Treatment of early retirement distributions is clarified for nuclear materials couriers, United States Capitol Police, Supreme Court Police, and diplomatic security special agents.

Section 309 ~ Extension of tax collection period will not be permitted for members of the Armed Forces who are hospitalized as a result of combat zone injuries.

Section 331 ~ Deductibility of charitable contributions to agricultural research organizations

Section 333 ~ Modifications to alternative tax for certain small insurance companies.

Section 334 ~ Treatment of timber gains.

Section 335 ~ Hard cider vs. wine. Modifying the definition to answer the question when does cider become alcohol?

Section 336 ~ This provision prevents the IRS from aggregating certain church plans together for purposes of the non-discrimination rules.

Section 341 ~ Updated standards for energy efficient commercial buildings deduction.

Section 342 ~ Excise tax credit equivalency for liquefied petroleum gas and liquefied natural gas.

Section 343 ~ Exclusion from gross income of certain clean coal power grants to noncorporate taxpayers.

Section 344 ~ Clarification of the valuation method for the early termination of certain charitable remainder unitrusts.

Section 345 ~ Prevention of related-party loss rules, to prevent losses from being shifted from a taxindifferent party (e.g., a foreign person not subject to U.S. tax) to another party in whose hands any gain or loss with respect to the property would be subject to U.S. tax.

Section 346 ~ This provision allows motion picture payroll services companies to be treated as the employer of their film and television production workers for Federal employment tax purposes.

Section 401 ~ The Act codifies the Taxpayer Bill of Rights (TBOR) that has been long promoted by National Taxpayer Advocate, Nina Olson. To insure that IRS employees know their jobs and understand the Taxpayer Bill of Rights, IRS employees are required to take annual ethics training just like us.

TBOR include the right to:

1. be informed;

2. quality service;

3. pay no more than the correct amount of tax;

4. challenge the position of the IRS and be heard;

5. appeal a decision of the IRS in an independent forum;

6. finality;

7. privacy;

8. confidentiality;

9. retain representation;

10. a fair and just tax system

Section 402 ~ IRS employees are now prohibited from using personal email accounts for official business. Inspired by the Lois Lerner saga.

Section 403 ~ Taxpayers whose privacy has been breached by IRS employees will maintain a basic right to information about the investigation of their case.

Section 404 ~ Tax-exempt status of certain organizations requires the IRS to create procedures under which a 501(c) organization facing an adverse determination may request administrative appeal to the IRS Office of Appeals.

Section 405 ~ Streamlined recognition process for organizations seeking tax exemption under section 501(c)(4).

Section 406 ~ 501(c)(4) organizations and other exempt organizations are permitted to seek review in Federal court of any revocation of exempt status by the IRS.

Section 407 ~ Expand the grounds for termination of employment of an IRS employee to include performing, delaying, or failing to perform any official action (including an audit) by an IRS employee for the purpose of extracting personal gain or benefit for a political purpose.

Section 408 ~ Transfers to organizations exempt from tax under section 501(c)(4), (5), and (6) of the tax code are exempt from the gift tax.

Section 409 ~ Extending authority to IRS to require truncated SSNs on W-2s. Employers will be required to include an identifying number for each employee, RATHER THAN using the SSN on the W-2.

Section 410 ~ Enrolled Agents have the right to use the designation “enrolled agent,” “EA,” or “E.A.” in those states whose laws have been preventing EAs from using their credentials.

Section 411 ~ Partnership audit rules. The provision corrects and clarifies certain technical issues in the partnership audit rules enacted in the Bipartisan Budget Act of 2015.

Section 421 ~ Filing period for interest abatement cases. This provision permits a taxpayer to seek review by the Tax Court of a claim for interest abatement when the IRS has failed to issue a final determination.

Section 422 ~ Small tax case election for interest abatement cases. This provision expands the current law procedures for the Tax Court to consider small tax cases where the amount in dispute is under $50,000 to include the review of IRS decisions not to abate interest.

Section 423 ~ Clarifies that Tax Court decisions in cases involving spousal relief and collection cases are appeal-able to the U.S. Court of Appeals.

Section 424 ~ Suspension of the statute of limitations for filing petition of spousal relief and collection cases.

Section 441~ This provision clarifies that the Tax Court is not an agency of, and shall be independent of, the Executive Branch. The provision is effective upon the date of enactment.