LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC's 1040 Deskbook. Twenty ninth Edition (October 2016)

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1 Route To: Partners Managers Staff File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC's 1040 Deskbook Twenty ninth Edition (October 2016) Highlights of this Edition The following are some of the important update features of the 2016 edition of PPC s 1040 Deskbook: Protection Americans from Tax Hikes Act of 2015 (2015 PATH Act). The 2015 PATH Act includes new provisions that are first effective for the 2016 tax year, including changes for Section 179 expense and bonus depreciation. The Deskbook has been updated to include these new provisions. Due Diligence Requirements. Not only has the IRS been more active in reviewing a practitioner s due diligence, but also new legislation, regulations, and pronouncements have been issued in this area. The Deskbook has enhanced the general discussion of due diligence, and also includes the new due diligence rules required for claiming the child tax credit (CTC) (including the additional CTC), the American Opportunity Tax Credit (AOTC), and the consequences when prior year improper claims for these credits are filed. IRS Procedural Changes. The IRS has implemented new methods for paying taxes (including paying with cash at certain convenience stores), collecting delinquent taxes, obtaining transcripts of prior year tax returns, and has approved additional qualified private delivery services. Same Sex Marriage. The Deskbook discusses new regulations regarding the definitions of marriage, spouse, husband, and wife to be used for federal tax purposes. Quick Binder (Volume 2). The Quick Binder includes new practice aids related to the 2015 PATH Act as well as revised elections related to new IRS pronouncements. In addition to these featured items, your Deskbook includes the following update items: CHAPTER 1 Filing Status 1. Final regulations were issued in September regarding the tax treatment of same sex marriages in light of the Windsor and Obergefell decisions. The Deskbook discusses this new guidance. Key Issue 1G CHAPTER 2 Personal Exemptions CHAPTER 3 Wages and Salaries 1. This chapter includes new information about Individual taxpayer identification numbers (ITINs) and their potential expiration. Key Issue 2A tdbp16sub 1

2 CHAPTER 4 Interest and Dividend Income CHAPTER 5 Pension and Retirement Income CHAPTER 6 Other Items of Income CHAPTER 7 Adjustments to Income CHAPTER 8 Sole Proprietorships (Schedule C) 1. The Brinks Gilson case affirmed that unreasonably high compensation may be reclassified as dividends. 2. Reg , dealing with securities purchased at a discount, has been finalized. 3. Rev. Proc , methods of accounting automatic consent procedures, has superseded Rev. Proc dealing with market discount bonds. 1. An example has been added to demonstrate the use of recharacterization of a Roth IRA conversion for post year end tax planning. 2. The IRS has issued a Revenue Procedure and a Notice dealing with phased retirement distributions from a defined benefit plan. 3. The IRS has issued final regulations regarding whether disbursements from an IRA are treated as a single distribution regardless of whether made to a single destination or multiple destinations. 4. A caution has been added regarding the use of a conduit IRA and extent of control in light of the Vandenbosch and McGaugh Tax Court cases. 5. The IRS has provided a new self certification procedure for requests for waivers of the 60 day rule for failed rollovers. 1. An additional example is added to illustrate nonqualified distributions from multiple qualified tuition plan (QTP) accounts. 2. This chapter includes an expanded discussion about the wrongful incarceration exclusion. 3. The 2015 PATH Act excludes from income payments from certain work learning service programs operated by a work college 1. The Deskbook has added a discussion of a court case involving the IRA contribution AGI limits and the carryover of an excess contribution. 2. The discussion of the interaction of the Affordable Care Act with S corporations for the self employed health insurance deduction has been revised. 1. The IRS has a new Sharing Economy Tax Center which provides guidance for certain taxpayers such as Uber drivers and airbnb operators. Key Issue 4A Key Issue 4C Key Issues 4C Key Issue 5D Key Issue 5E Key Issue 5F Key Issue 5F Key Issue 5F Key Issue 6I Key Issue 6K Key Issue 6K Key Issue 7A Key Issue 7F 8 Introduction CHAPTER 9 Farm Income and Expenses (Schedule F) 1. This chapter addresses certain plants that are planted before 2020 for bonus depreciation purposes. Key Issue 9E CHAPTER 10 Rental Property (Schedule E) 1. Two new planning tips and a practice tip have been added. Key Issues 10C, 10D and 10E 2

3 CHAPTER 11 Tax Accounting Methods CHAPTER 12 Travel and Entertainment CHAPTER 13 Net Operating Losses CHAPTER 14 Depreciation CHAPTER 15 Automobiles and Listed Property CHAPTER 16 Passive Activities CHAPTER 17 Pass through Entities CHAPTER 18 Securities Transactions CHAPTER 19 Installment Sales, Like kind Exchanges, and Conversions of Property CHAPTER 20 Trade or Business Property Transactions 1. Rev. Proc , relating to automatic changes in accounting methods, has been superseded by Rev. Proc The Mills case reflects the importance of following proper procedures for requesting a change in accounting method. 1. Rev. Rul updates the list of Caribbean islands that are included in the North American area for purposes of attending conventions. 1. The Deskbook has added discussion of NOLs in relationship to the NIIT. 1. The 2015 PATH Act provided new provisions for the Section 179 deduction. The Deskbook has been updated to include the latest provisions. 2. Bonus depreciation is now available for qualified improvement property. 3. The Deskbook reflects the differences between qualified improvement property and qualified leasehold improvements. 1. The Steinberger case discusses when grouping of certain activities were appropriate. 1. The Lamas Richie case discusses taxability of partnership income when the partner is unaware of any return or distributions. 2. The Deskbook has added discussion of cancellation of debt income attributable to the pass through entity. 3. The Frank Aragona Trust case discusses when activities of the trustees are considered in determining whether a trust materially participated in real estate operations. 1. The final regulations dealing with tax accounting for gains and losses in money market funds have been incorporated into the discussion. 2. A warning has been added about the uncertainties surrounding the tax implications of virtual currency. 3. The IRS now permits automatic revocation of the Section 475(f) election for traders to mark to market. 1. A caution was added regarding Section 1239 treatment applying to an installment sale to a child s entity, as opposed to directly to the child. 2. CCA discusses whether one asset with multiple uses can be bifurcated into two assets for purposes of a like kind exchange. 1. The Deskbook discusses the capitalization of restoration costs after a casualty under the provisions of the tangible property regulations. Throughout Key Issue 11C Key Issue 12E Key Issue 13A Key Issues 14B Key Issue 14C Key Issue 14E Key Issue 16A Key Issue 17A Key Issue 17A Key Issue 17G Key Issue 18B Key Issue 18K Key Issue 18L Key Issue 19B Key Issue 19H Key Issue 20F 3

4 CHAPTER 21 Bad Debt Losses, Debt Discharge Income, and Foreclosures CHAPTER 22 Personal Residence Transactions CHAPTER 23 Below market Loans CHAPTER 24 Standard Deduction CHAPTER 25 Medical Expenses CHAPTER 26 Charitable Contributions CHAPTER 27 Deductible Taxes CHAPTER 28 Other Itemized Deductions CHAPTER 29 Interest Expense CHAPTER 30 Self employment Tax 1. Rev. Rul discusses two taxpayer situations where debt was forgiven on property used in a real property trade or business. 2. The Newman case discusses whether an insolvent taxpayer who overdrew funds from his checking account was able to exclude the full amount from cancellation of debt income. 3. A planning tip was added on avoiding adverse tax consequences by using nonrecourse financing and using property in a trade or business rather than as investment property. 1. A preparation pointer has been added suggesting practitioners file Form 8275 if their client takes the tax court position regarding losses on self employment income.. 1. The Deskbook has added discussion of the interaction between charitable contribution carryovers and net operating loss carryovers.. 1. The Adkins case discusses the timing of theft loss deductions. 2. This chapter has added discussion concerning deductibility of specialized master s programs. 3. The Kopaigora case addresses whether temporary unemployment prevents a deduction for educational expenses. 4. This chapter discusses the reversal of the Nacchio decision regarding the deductibility of penalties. 5. The Tanzi case discusses the deductibility of increasing general knowledge. 1. The Jackson case discusses whether the taxpayer was disallowed a mortgage interest deduction when he was a cohabitating partner who did not actually own the home. 2. The IRS acquiesced on the Voss case that the qualified residence interest limitation is applied on a per individual basis, not a per residence basis. 1. The Peterson case discusses when certain post retirement benefit payments may be subject to SE tax. Key Issue 21B Key Issue 21C Key Issue 21E Key Issue 24B Key Issue 26B Key Issue 28A Key Issues 28D Key Issues 28D Key Issues 28G Key Issues 28C Key Issue 29D Key Issue 29D Key Issue 30A 4

5 CHAPTER 31 Alternative Minimum Tax CHAPTER 32 Kiddie Tax CHAPTER 33 Tax on Lump sum Distributions 2. Temp. Reg T provides guidance on when a single member owner of an LLC is subject to SE tax. 3. Reg provides the definitions for marriage, husband, and wife for federal tax purposes in light of the Obergefell decision. 1. The Vichich case discusses the handling of the carryforward of the minimum tax credit upon the death of a spouse.. 1. An example was added regarding electing to be taxed on the full fair market value of a lump sum distribution. Key Issue 30A Key Issue 30F Key Issue 31E Key Issue 33B CHAPTER 34 Excise and Other Taxes CHAPTER 35 Personal Credits CHAPTER 36 Business Credits CHAPTER 37 Foreign Tax Credit CHAPTER 38 Tax Payments 1. This chapter has added discussion regarding the King case and its affect on federal exchanges under the Affordable Care Act. 1. The 2015 PATH Act added restrictions on the ability to claim the CTC and the AOTC when prior year improper claims are filed. The Deskbook discusses these restrictions. 2. The 2015 PATH Act extended specific due diligence requirements to tax preparers claiming the CTC and AOTC. The Deskbook has added a discussion of these requirements and the potential penalty for noncompliance. 3. A discussion has been added regarding the 2015 PATH Act s delay of tax refunds for tax returns claiming the refundable additional CTC and the earned income credit (EIC). 4. The Deskbook has enhanced its discussion of the applicability of Form 1098 T (Tuition Statement) when claiming the AOTC, resulting from several 2015 PATH Act changes. 5. The Deskbook has enhanced its discussion of the various reporting requirements necessary to claim the AOTC, resulting from several 2015 PATH Act changes. 6. Numerous proposed regulations have been added to the discussion of the AOTC, to conform various changes resulting from the 2015 PATH Act. 7. A case has been added that further clarifies what does not constitute earned income for purposes of the EIC. 1. This chapter now includes discussion of the research credit. Key Issue 34G Key Issues 35C and 35D Key Issues 35C and 35D Key Issues 35C and 35F Key Issue 35D Key Issue 35D Key Issue 35D Key Issue 35F Key Issue 36A 1. Cuba as no longer a sanctioned country. Key Issue 37B 1. A note was added about the IRS now offering taxpayers the option of making their tax payments in cash at participating retail stores. Key Issue 38D 5

6 CHAPTER 39 Filing Returns QUICK REFERENCE TABLES DEPRECIATION TABLES AUTO TABLES DEPRECIATION TABLES ELECTIONS CHECKLISTS 1. WORKSHEETS An observation was added that the IRS will begin using four private agencies to collect certain overdue federal tax debts in An alert was added that the fees for installment agreements will increase as of January 1, An alert was added about the Get Transcript Online program offered by the IRS. 2. This chapter includes additions to designated private delivery services for tax returns. 3. This chapter has an added discussion about timely filing when Guralnik did not use designated private delivery services during a snow storm. 4. A taxpayer s stamped certified envelope was not received in a timely manner when not certified by the US Post Office. 5. An observation regarding annulment versus divorce has been added. 6. This chapter discusses innocent spouse rules when criminal penalties are involved. 7. The chapter has increased its discussion of due diligence requirements. 8. Streamlined Foreign Offshore Procedures and Streamlined Domestic Offshore Procedures are discussed. 9. Offshore Voluntary Disclosure Program discussion is added to this chapter. QUICK REFERENCE BINDER 1. Notices and provide transitional guidance for work opportunity tax credit eligibility. 1. A new table has been added comparing the treatment of certain real property for bonus depreciation and Section 179 expense in light of the new PATH Act provisions.. 1. A new table has been added comparing the treatment of certain real property for bonus depreciation and Section 179 expense in light of the new PATH Act provisions. 1. The Deskbook has added an election to treat a partial disposition as a disposition. 2. The IRS has provided a new self certification procedure for requests for waivers of the 60 day rule for failed rollovers. 3. The IRS now permits automatic revocation of the Section 475(f) election for traders to mark to market. 4. The IRS issues new regulations and Rev. Proc regarding how to elect to claim a disaster loss in the tax year prior to the disaster year. Key Issue 38D Key Issue 38D Introduction Key Issue 39B Key Issue 39B Key Issue 39B Key Issue 39C Key Issue 39C Key Issue 39I Key Issue 39J Key Issue 39J T1101 D205 D205 E408 E701 E907 E1001 6

7 OTHER PRACTICE AIDS 1. The Deskbook has added a new flowchart for determining filing status. 2. A new sample statement for deducting long term care expenses has been added. O204 O505 7