LIST OF SUBSTANTIVE CHANGES AND ADDITIONS. PPC s 1120 Deskbook. 28th Edition (October 2018)

Transcription

1 T20 10/18 Route To: Partners Managers Staff File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s 1120 Deskbook 28th Edition (October 2018) Highlights of this Edition Important new feature of the 2018 Edition of PPC s 1120 Deskbook: Coverage of tax law changes due the passage of the 2017 Tax Cuts and Jobs Act impacting the preparation of Form 1120 for In addition to these featured items, your Deskbook includes the following update items detailed below. 1. Added a summary of law changes from the 2017 Tax Introduction Cuts and Jobs Act (TCJA) that affect PSCs. CHAPTER 1 Personal Service Corporations CHAPTER 2 Tax Years CHAPTER 3 Accounting Methods 2. Added a discussion of the increased threshold for taxpayers to be able to utilize the cash method of accounting for years beginning after December 31, Updated the tax rate now applicable to PSCs due to the Added Law Change Alerts for 2017 TCJA changes to NOLs. 2. Added Law Change Alerts for the change in the corporate tax rate in the Added a Law Change Alert for the repeal of the AMT for 1. Explained the expansion of statutory cash method privilege by the Tax Cuts and Jobs Act from average annual gross receipts of $5 million to $25 million, and illustrated the application of provision in a new example. 2. Clarified the differences in applying the $25 million cash method privilege added to the Code by the TCJA compared to the former $5 million cash method privilege. 3. Explained the expansion of statutory cash method privilege for farming corporations by the TCJA, including how it compares to the former $1 million and $25 million farming cash method provisions. 4. Clarified the ability of qualified personal service corporations to use the cash method of accounting after the changes by the Key Issue 1B Key Issues 2B and 2D Key Issues 2D and 2H Key Issue 2D t20p18sub -1-

2 5. Discussed changes to the long-term contract rules by the Key Issue 3C 6. Noted that taxpayers other than tax shelters with average Key Issue 3D annual gross receipts of $25 million or less are no longer required to maintain inventories for tax purposes. 7. Explained the applicable financial statement (AFS) Key Issue 3E conformity rule, which was added to the Code by the TCJA, for recognizing income under the accrual method of accounting. 8. Explained and illustrated the rules for recognizing income Key Issue 3E from advance payments following changes by the 9. Explained the rules for recognizing income from prepaid inventory sales following changes by the Key Issue 3E CHAPTER 4 Inventory and Cost of Goods Sold CHAPTER 5 Dividends and the Dividends Received Deduction 10. Updated cites for obtaining automatic consent from the IRS to change accounting methods to the current revenue procedure. 11. Referenced a longer Section 481(a) adjustment period for eligible S corporations attributable to the voluntary revocation of their S election, which was added to the Code by the 12. Added a table summarizing the changes made to the accounting method rules by the 1. Noted that following TCJA changes, corporations meeting a $25 million average annual gross receipts test can use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor. 2. Clarified that corporations meeting the new $25 million average annual gross receipts test are not required to maintain inventories for tax purposes. 3. Noted that the distinction between changing an accounting method and correcting an error is especially significant because of the Section 481 adjustment. 4. Added practical advice for when to write-down subnormal inventory. 5. Explained that the TCJA expanded exceptions from the UNICAP rules to corporations meeting a $25 million average annual gross receipts test. 6. Described the application of the TCJA to the home construction contract exception to the UNICAP rules. 7. Clarified the capitalization of storage costs under the UNICAP regulations. 1. Updated the chapter for the TCJA reduction in dividends received deduction percentage for companies that own less than 20% of stock of distributing corporation. 2. Updated the chapter for the TCJA reduction in dividends received deduction percentage for companies that own less at least 20% but less than 80% of stock of distributing corporation. Key Issue 3F and Table T819 Key Issue 3G Illustration 3-1 Key Issue 4A Key Issue 4A Key Issue 4B Key Issue 4F Key Issue 4G Key Issue 4G Key issue 4G 10/18-2-

3 T20 10/18 3. Clarified the definition of a qualifying dividend eligible for Key Issue 5E the 100% dividends received deduction. 4. Added a discussion of the new deduction for the foreign source portion of dividends received by domestic corporations from 10% owned foreign Key Issue 5E CHAPTER 6 Sales/Exchanges of Capital Assets and Business Property CHAPTER 7 Other Income Issues CHAPTER 8 The Passive Activity Loss (PAL) and At-risk Rules CHAPTER 11 Taxes and Interest CHAPTER 12 Charitable Contributions 5. Replaced completed Form 1120 Schedule C (Dividends and Special Deductions) with 2018 versions reflecting revised deduction percentages implemented by the 6. Revised the summary of dividends received deduction practice tool for the revised deduction percentages implemented by the 1. Summarized the changes by the TCJA to definition of a capital asset. 2. Explained the revisions to the term contribution to capital in IRC Sec. 118(b) by the 3. Clarified whether bonus depreciation is subject to Section 1250 recapture. 4. Discussed changes to the like-kind exchange rules by the TCJA; specifically, the tightening of the types of property eligible for nonrecognition treatment. 5. Cited the transition rule to the TCJA change to the types of property eligible for like-kind exchange treatment. 6. Clarified whether multiple like-kind exchanges in the same tax year can be reported on the same Form Addressed the trap for the unwary upon the exchange of depreciable real estate for land where depreciation has been taken in excess of straight line (e.g., bonus depreciation on qualified improvement property). 8. Addressed post-tcja exchanges involving personal property as boot potentially subject to IRC Sec Cited a situation where electing out of installment sale treatment may be desirable if the likelihood of collecting payments in a contingent sale is low. 1. Updated the discussion for reportable insurance policy sale for contracts transferred for value. 1. Alerted readers to the repeal of NOL carrybacks and explained the impact on passive losses allowed in the year of the carryforward. 1. Added a discussion for the limitation of business interest expense under IRC Sec. 163(j). Illustrations 5-1, 5-2, and 5-3 Practice Aid O109 Key Issue 6A Key Issue 6C Key Issue 6F Key Issue 6K Key Issue 6M Key Issue 7C Key Issue 8E Key Issue 11C 2. Explained the new 2018 limitation on deducting business Key Issue 11K interest and repeal of the earnings stripping rules by the 1. Updated to reflect the repeal of AMT under the 2. Added a court case, Wendell Falls, where the IRS Key Issue 12C disallowed a charitable deduction for a conservation easement. t20p18sub -3-

4 3. Updated the discussion on substantiation requirements Key Issue 12G for final regulations issued related to substantiation and reporting requirements CHAPTER Updated the depreciation discussion for repeal of AMT for Depreciation 2. Noted changes made by the TCJA to the ADS recovery period for residential rental property. Key Issue 13C 3. Updated the discussion for all the following changes, Key Issue 13C including recently related to bonus depreciation, including: a. The recently issued proposed regulations providing guidance for bonus depreciation. b. Property that qualifies for bonus depreciation. c. Property that does not qualify for bonus depreciation. d. Original use and acquisition tests. e. Bonus depreciation following a like-kind exchange. f. Bonus depreciation with regards to vehicles. g. Qualified improvement property. 4. Updated the discussion for changes made to Section 179 Key Issue 13I expenses made by the TCJA, including: a. The increase in amount allowed. b. Property that qualifies for the Section 179 deduction. c. Section 179 deduction for vehicles. CHAPTER 14 Amortization CHAPTER 15 Pension and Profitsharing Plans and Other Benefits CHAPTER 16 T&E, Club Dues, Gifts, Directors Fees, Autos, and Airplanes 1. Updated the amortization discussion for the repeal of AMT for 1. Updated annual limits for cost of living adjustments. 2. Added a discussion that allows qualified employees of Key Issue 15F private companies to elect to defer income from qualified equity grants beyond the tax year generally required by IRC Sec. 83(a). 3. Updated the Affordable Care Act's (ACA's) discussion for Key Issue 15G the TCJA s permanent reduction of the ACA's individual shared responsibility payment to zero. 1. Added several alerts regarding miscellaneous itemized deductions no longer deductible for employees with reimbursed business expenses. 2. Added a discussion of entertainment expenses repealed Key Issue 16A by the Added an alert about federal per diem lodging rates, not Key Issue 16C including lodging taxes that may be separately deductible. 4. Updated the guidance for 2018 federal per diem rates for Key Issue 16C high-cost localities. 5. Updated the guidance and examples on deductible meals Key Issue 16D for changes made by the Added a tip on classifying meal and entertainment Key Issue 16F expenses based on percent deductible. 7. Updated the discussion of payments to universities for Key Issue 16G athletic event ticket rights for changes made by the /18-4-

5 T20 10/18 8. Updated the guidance for nonbusiness flights on company-owned aircraft for changes made by the 2017 Key Issue 16M CHAPTER 17 Net Operating Losses CHAPTER 18 Alternative Minimum Tax CHAPTER 19 Personal Holding Company Tax CHAPTER 21 Credits CHAPTER 22 Tax Payments CHAPTER 25 Controlled Groups CHAPTER 26 Consolidated Returns 1. The Tax Cuts and Job Act repealed corporate AMT. Key Issue 17B 2. Included changes to net operating loss deductions for C Key Issue 17B corporations resulting from the TCJA, including repeal of NOL carryback provisions for most C 3. Described changes resulting from the TCJA to carryback and carryforward provisions for farming business losses. 4. Updated the discussion for the repeal of the domestic production activity deduction. 1. Updated information for the repeal of AMT for 1. Updated the discussion for the general elimination of the two-year carryback of NOL. 2. Updated discussions and examples for the repeal of AMT for 1. Updated information for the repeal of AMT for 2. Updated the discussion of the enhanced oil recovery credit for the adjustment factor and phaseout amount. 3. Added a discussion for the Section 45 Paid Family and Medical Leave Credit. 4. Updated the discussion of foreign income tax credit for the expansion of the separate limitation baskets. 5. Updated the discussion of the minimum tax credits as changed by the 6. Updated the discussion on claiming the investment credit for rehabilitation expenditures as changed by the 1. Updated the discussion of corporations expecting an NOL carryback for changes made by the 1. Updated discussions for repeal of AMT for corporations and the reduction in tax rate. 1. Added a discussion of the interaction of the regulations that defer the timing of intercompany transactions and the related party rules under IRC Sec Expanded the discussion of the eligibility for separate entity reporting with IRS consent. 3. Updated the discussion for changes to NOL deduction and carryovers from the 4. Added a discussion of how the new limit on business interest expense applies to consolidated returns. 5. Expanded the discussion on items required by the regulations to be computed on the consolidated basis. Key Issues 17B and 17C Key Issue 17B Key Issue 19B Key Issue 19C Key Issue 21A Key Issue 21A Key Issue 21D Key Issue 21F Illustration 21-3 Key Issue 26D Key Issue 26D Key Issue 26E Key Issue 26E Key Issue 26E t20p18sub -5-

6 6. Added a discussion on how the carryover of items Key Issue 26E required to be computed on the consolidated basis are allocated to subsidiaries when separate returns are required. 7. Added a discussion of the unified loss rules. Key Issue 26G 8. Added additional advantages to filing a consolidated Illustration 26-1 return. CHAPTER 27 Related Party Rules and Shareholder/ Corporation Transactions 1. Updated the Section 1031 exchange discussion for the change in law regarding personal property. Key Issue 27H CHAPTER 28 Stock Purchases Treated as Asset Acquisitions (Sections 336 and 338) CHAPTER 29 Limitations Due to Ownership Changes (the Section 382, 383, and 384 Rules) CHAPTER 31 Incorporation CHAPTER 32 Liquidation CHAPTER 33 Filing Form 1120 CHAPTER 33 Amended Returns, Claims for Refunds, and Assessments of Tax 1. Added a discussion to identify key differences between the Section 336(e) and Section 338(h)(10) elections. Key Issue 28I 1. Updated the discussion of NOL carrybacks as changed by the 2. Updated the discussion for the definition of a loss Key Issue 29B corporation for the inclusion of disallowed business interest as added by the 1. Updated the disclosure requirements under Reg Key Issue 31D 3(b) for contributed assets in a Section 351 exchange. 1. Updated the discussion related to the capital gain tax Key Issue 32A rates at the shareholder level. 1. Added an observation about a circumstance when late Key Issue 33A election relief is not available. 2. Updated the discussion of handling a name change Key Issue 33C return in the Modernized e-file system. 3. Added a Caution about a paper filed Form Key Issue 33C 4. Added a Preparation Pointer about considering appealing Key Issue 33E a reasonable cause rejection. 5. Enhanced the discussion warning preparers to be vigilant Key Issue 33G in protecting the EFINs and PTINs. 6. Added a Preparation Pointer suggesting an alternative to Key Issue 33J providing taxpayer information to a third party. 1. Included changes to net operating loss deductions for C Key Issue 34D corporations resulting from the TCJA, including repeal of NOL carryback provisions for most C 2. Described changes resulting from the TCJA to carryback Key Issue 34D and carryforward provisions for farming business losses. 10/18-6-