Welcome 2016 Federal Tax Update

Transcription

1 Welcome 2016 Federal Tax Update We will begin at the top of the hour Please have your computer speakers turned on All audio is streamed directly through the console and heard through your computer speakers. There is not a dial-in number. For technical support, please use the Q&A window 1

2 2016 Federal Tax Update Thursday, December 1 2

3 SPEAKERS Richard Croghan, Partner Dawn Rhea, Director Shannan Gardner, Partner Tom E. Sanger, Partner John Murphy, Partner 3

4 FEDERAL TAX UPDATE 1. New Filing Dates 2. Potential Tax Changes 3. Year End Tax Planning 4. Tax Accounting Updates 5. IRS Update 6. R&D Update 4

5 Tax Return Due Dates 5

6 CHANGES TO TAX RETURN DUE DATES Return Type Due Dates Under Prior Law New Law: Original and Extended Due Dates (Dates changed by law in red) Partnership (calendar year) Form 1065 April 15 Sept. 15 March 15 Sept. 15 Before Jan. 1, 2026 After Dec. 31, 2025 C Corporation (calendar year) Form 1120 March 15 Sept. 15 April 15 Sept. 15 April 15 Oct. 15 FinCEN Report 114 June 30 April 15 Oct. 15 Foreign Bank and Financial Accounts Report (FBAR) 6

7 CHANGES TO TAX RETURN DUE DATES Return Type Due Dates Under Prior Law New Law: Original and Extended Due Dates (Dates changed by law in red) C Corporation Fiscal Year End (other than 12/31 or 6/30) 15 th day of 3 rd month after YE 15 th day of 9 th month after YE 15 th day of 4 th month after year-end 15 th day of 10 th month after year-end C Corporation (6/30 Fiscal year) Form 1120 Sept. 15 March 15 Before Jan 1, 2026 After Dec. 31, 2025 Sept. 15 April 15 Oct. 15 April 15 Individual Form 1040 April 15 Oct. 15 April 15 Oct. 15 7

8 Potential Tax Changes 8

9 TRUMP VS. GOP PLAN Business Current Trump House GOP Top corporate rate 35% 15% 20% Top pass-through rate 39.6% 15% rate for pass-through entities who retain profit in the business 25% AMT If tentative min. tax > regular tax Repeal Repeal Other business provisions Retain as is Generally to be eliminated except for R&D credit Generally to be eliminated except for R&D credit and LIFO 9

10 TRUMP VS. GOP PLAN Business Current Trump House GOP Repatriation Repatriated foreign sourced-income taxed at full tax rate, with foreign tax credit allowed One time, 10% deemed repatriation One time, deemed repatriation 8.75% for cash/cash equivalents, 3.5% for otherwise, payable over 8 years NOLs 2 year carryback 20 year carry forward No change specified Eliminate carryback, Indefinite carryforward, Deduction capped at 90% of taxable income 10

11 Income tax rates Capital gains TRUMP VS. GOP PLAN Individual Current Trump House GOP 10%, 15%, 25%, 28%, 33%, 35%, 39.6% ST = ordinary, LT = 20% max, 3.8% net investment income tax (NIIT) 12%, 25%, 33% 12%, 25%, 33% Repeal NIIT Ordinary rates with 50% exclusion, Repeal NIIT AMT Imposed on individuals with certain types of income Repeal Repeal State tax deduction Those that itemize can deduct Cap itemized deductions $100k for single $200k for joint Repeal Estate Tax 40% rate, $5.45M exemption Repealed; Capital gains held until death will be subject to tax, with the first $10M tax-free Repeal 11

12 Year End Tax Planning 12

13 YEAR-END PLANNING CONSIDERATIONS IRS issued guidance to reflect changes made by the PATH Act of 2015 Section 179 expensing limit for capital expenditures: o $500,000 deduction limit extended indefinitely o $2,000,000 limitation before phase-out also extended 13

14 YEAR-END PLANNING CONSIDERATIONS Bonus depreciation was extended, subject to phase out through 2019: o 50% 2015 through 2017 o 40% 2018 o 30%

15 YEAR-END PLANNING CONSIDERATIONS Taxpayer may claim accelerated AMT credit in lieu of bonus depreciation Increase in allowable AMT credit is refundable New limitation (lesser of): o 50% of minimum tax credit under 53(b) for 1 st tax year ending after 12/31/15 or o Minimum tax credit for the tax year 15

16 QUALIFIED SMALL BUSINESS STOCK (QSBS) Noncorporate taxpayers may exclude some or all of the gain on the sale of QSBS. Made permanent by PATH act in Exclusion for QSBS: o 100% for QSBS issued after 9/28/10 o 75% for QSBS issued after 2/17/09 and before 9/28/10 o 50% gain is QSBS issued after 8/10/93 and before 2/17/09 Stock must be of a qualified small business, originally issued stock held for at least 5 years, of an active business, of a business with less than $50,000,000 in assets (See IRC 1202 for all requirements). Exclusion is limited to the greater of $10,000,000 or 10 times stock basis. 16

17 Tax Accounting Updates 17

18 TAX ACCOUNTING UPDATES FASB Simplification Framework o Classification of Deferred Taxes o Share-based Payments o Intra-entity Transfers of Assets Other Changes Affecting Tax Accounting o Lease Accounting o Revenue Recognition 18

19 CLASSIFICATION OF DEFERRED TAXES ASU Current rule: Separate DTAs and DTLs into current and noncurrent on a classified balance sheet New rule: All deferred items classified as noncurrent Aligns GAAP with IFRS Effective date (early adoption permitted): o Public: Annual periods beginning after 12/15/16 o Others: Annual periods beginning after 12/15/17 19

20 STOCK-BASED COMPENSATION ASU Current rule: Excess tax benefits and tax deficiencies recorded in equity as increase or decrease in APIC pool. New rule: Excess tax benefits and tax deficiencies recognized in the income statement. Recognize benefits regardless of taxes payable. Effective dates (early adoption permitted): o Public: Annual periods beginning after 12/15/16 o Others: Annual periods beginning after 12/15/17 20

21 INTRA-ENTITY TRANSFERS OF ASSETS (OTHER THAN INVENTORY) ASU Current rule: No recognition of current or deferred taxes until asset is sold to an outsider. New rule: Selling member recognizes tax exp or benefit immediately. Buying member records deferred taxes on balance sheet and income statement. Effective dates (early adoption permitted): o Public: Annual periods beginning after 12/15/17 o Others: Annual periods beginning after 12/15/18 21

22 ACCOUNTING FOR LEASES ASU New rules bring more leases onto the balance sheet as capitalized leases. No change in tax rules for operating v. capitalized leases. Thus, more book/tax differences. Can also impact state tax Property factor if based on book. Effective date: o Public: Annual periods beginning after 12/15/18 o Others: Annual periods beginning after 12/15/19 22

23 ACCOUNTING FOR REVENUE RECOGNITION ASU New standard will likely affect the timing and measurement of revenue recognized for book. Tax recognition that follows book (such as contracts with advanced payments) will change. May require IRS consent to change to new book method or new recordkeeping if not changing. Effective dates (early adoption after 12/15/16) o Public: Annual periods beginning after 12/15/17 o Others: Annual periods beginning after 12/15/18 23

24 IRS Update 24

25 IRS UPDATE OVERVIEW Common Issues Raised on Audit Potential for Tax Reform Changes to Large Business & International ( LB&I ) Exam Process IRS Payroll Exams Bipartisan Budget Act of 2015 ( BBA ) Changes to IRS Appeals 25

26 COMMON ISSUES RAISED ON EXAMS R&D credits DPAD Transaction costs Deferred revenue International disclosures 26

27 POTENTIAL FOR REFORM Reform potential in 2017 o Potential for overhaul of 1986 Internal Revenue Code o Potential restructure of the IRS and the exam process Potential for a streamlined IRS consisting of three branches: o Individuals o Businesses o Small Claims Court type dispute resolution Stay tuned for legislative developments 27

28 CHANGES TO LB&I EXAM PROCESS LB&I Examination Process effective May 1, 2016 o Change from entity-focused to issue-focused exams o An issue team with technical knowledge of a given issue will be assigned to the exam (potential for multiple issues) o New procedures found in IRM 4.46 Issue-based approach focuses LB&I s resources on areas of strategic noncompliance risk Initial campaigns to be announced in early 2017 o IRS indicated campaign announcement will include rationale for each campaign and details on what LB&I hopes to achieve with the campaign 28

29 IRS PAYROLL EXAMS Increase in number of Internal Referrals to Employment Tax Employee v. Independent Contractor Fringe Benefits o For Silicon Valley clients under exam o In evaluating perks/fringe benefits, IRS is utilizing information publicly available Glassdoor.com Articles on the company Information published by the company s recruiters 29

30 BIPARTISAN BUDGET ACT OF 2015 ( BBA ) BBA passed late 2015 (effective tax years beginning after 12/31/17) o Significantly changes the manner in which the IRS conducts audits of partnerships/llcs taxed as partnerships o Raise revenues without raising taxes by allowing IRS to collect tax at partnership entity level rather than individual level BBA Repeals: o TEFRA Uniform Audit Provisions, Electing Large Partnership Operating Rules, Electing Large Partnership Administrative/Audit provisions Replaces TEFRA with a single streamlined set of audit rules IRS currently working on Proposed Regulations for this new audit regime Partnerships can elect to use the new audit rules for tax years beginning after 11/2/15 Consideration should be given to current partnership agreements with respect to the BBA 30

31 CHANGES TO IRS APPEALS Effective October 3, 2016, Appeals implemented changes to its case transfer and conference procedures Appeals will not transfer cases solely upon taxpayer request The decision to hold an in-person conference can be made upon the request of the taxpayer or at the suggestion of the hearing officer with the decision resting on concurrence with an Appeals Team Manager; however, specific facts and circumstances as identified in the Internal Revenue Manual will be considered o Such facts and circumstances considered include: Substantial books and records cannot be easily referenced Appeals Officer unable to judge credibility of taxpayers testimony without in-person conference 31

32 R&D Update 32

33 R&D CREDIT OVERVIEW Governed by IRC 41 and 174 New or significantly improved product or processes 4 Part Test o o o o Business Component (Qualified Purpose) Technical Uncertainty Process of Experimentation Technological in Nature Qualified Expenses o o o Wages Supplies Contract Research (at 65% of cost) Total federal credit is generally 5%-10% of qualified expenditures Credits can carry back 1 year and forward 20 33

34 PATH ACT Permanent Extension of R&D credit AMT Offsets for Eligible Small Businesses Payroll Tax Offsets for Qualified Small Businesses 34

35 PAYROLL TAX OFFSETS FOR QUALIFIED SMALL BUSINESSES Up to $250,000 available to companies that have: o Gross receipts for five years or less. A company isn t eligible if it generated gross receipts prior to 2012 o Less than $5 million in gross receipts in 2016 and for each subsequent year the credit is elected o Qualifying research activities and expenditures 35

36 WHEN DOES THIS NEW PAYROLL TAX OFFSET TAKE EFFECT? Available for qualified expenses incurred in 2016 Elected on 2016 federal income tax return (cannot amend) Claimed on quarterly payroll returns (e.g., Form 941) 1 File 2016 federal income tax returns by March 30, 2017 to apply the payroll tax offset to the second quarter Earliest taxpayers are likely to see a benefit is July 2017, when they file their quarterly payroll tax returns for the second quarter (Form 941) 36

37 AMT OFFSETS FOR ELIGIBLE SMALL BUSINESSES Eligible small businesses: o Not publicly traded o Less than $50M in average annual gross receipts over prior three years Tentative minimum tax is treated as zero o Effect is that credit can offset both regular and AMT liability 5-year carryback and 20-year carryforward Applies to credits generated in 2016 forward 37

38 QUESTIONS? Richard Croghan, Partner Dawn Rhea, Director Shannan Gardner, Partner Tom E. Sanger, Partner John Murphy, Partner 38