LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s 1065 Deskbook. Twenty-seventh Edition (October 2016)

Transcription

1 Route To: j Partners j Managers j Staff j File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s 1065 Deskbook Twenty-seventh Edition (October 2016) Highlights of this Edition The following are some of the important update features of the 27th edition of PPC s 1065 Deskbook. 1. Disguised Sale Rules. In October 2016, new temporary and final regulations were issued providing guidance relating to disguised sales of property to or by a partnership and the allocation of liabilities for disguised sale purposes. The Deskbook has been updated for these new rules. 2. New Audit Rules. The TEFRA audit provisions were repealed by The 2015 Bipartisan Budget Act for tax years beginning after A discussion has been added that includes coverage of the new rules for auditing partnership returns, the special rules for electing large partnerships and the election to apply the new rules early. 3. Bonus Depreciation. The Protecting Americans from Tax Hikes (PATH) Act of 2015 retroactively extended bonus deprecation for qualifying assets placed in service through The discussion addresses changes that affect the calculation of bonus depreciation, the impact on AMT, new autos and light trucks, and qualified improvement property. 4. Section 179 Expense Deduction. The PATH Act made permanent the increased amount allowable Section 179 expense deduction that were applied to tax years beginning in and also added some taxpayer-friendly provisions for tax years beginning in 2016 and beyond. This edition of the Deskbook addresses those. 5. New Practice Aids. Several new elections have been added, including a sample election for partnerships to apply the new partnership audit rules before 2018 and several new sample elections related to the recently issued tangible property tax regulations. In addition to these featured items, your Deskbook includes the following update items: Chapter Chapter 2 Contributions of Property or Services Chapter 4 Accounting Methods t65p16sub 1. Clarified that the special basis from debt rules under Reg can potentially apply when properties burdened by liabilities are contributed to a partnership. 2. Added coverage of new rules that can trigger immediate gain recognition when appreciated property is contributed by U.S. personstopartnershipswith related foreign partners. 3. Updated the discussion of the Section 83(b) election due to the IRS issuing final regulations. 1. Added a discussion of the Giant Eagle case in which the court allowed a deduction when the taxpayer established liability by applying the all-events test. 2. Added a discussion of accruing contested liabilities when there is a transfer to a trust account. 3. Added a discussion regarding how to handle a change in accounting method when the taxpayer is under audit. 1 Key Issue 2B Key Issue 2E Key Issue 2H Key issue 4B Key issue 4B Key Issue 4D

2 Chapter 5 Tax Elections Chapter 6 The TMP, Amended Returns, and Due Diligence in Form 1065 Preparation Chapter 7 Trade or Business Income Chapter 9 Nonbusiness Income Chapter 10 Installment Sales and Like-kind Exchanges Chapter 11 Trade or Business Property Transactions Chapter 12 Debt Discharge Income and Foreclosures Chapter 13 Other Deductions 1. Added information on the penalty for failure to file a partnership return. 2. Clarified the filing requirements after an existing spousal partnership elects spousal qualified joint venture treatment. Key Issue 5B Key Issue 5B 1. Added a key issue that addresses the new partnership audit rules Key Issue 6D that were introduced by the 2015 Bipartisan Budget Act. 2. Reiterated the change in filing due date for partnership tax returns. Key Issue 6E 3. Added reference to Battle Flat case, where penalties were accessed Key Issue 6G for failure to file a partnership return. 4. Expanded discussion on tax due diligence and tax preparation Key Issue 6J consideration by adding coverage of the AICPA Statement of Standards on Tax Services. 5. Enhanced the discussion on due diligence. Key Issue 6M 1. Added a new key issue regarding the reporting of oil and gas Key Issue 7G income. 1. Add a discussion on reporting income produced from crowdfunding. 1. Added a discussion regarding the sale of a tenancy-in-common interest. 2. Added the Bartell court case to the discussion for reverse like-kind exchanges. 3. Expanded the discussion regarding the proper handling of installment notes that have insufficient interest. 1. Added a discussion on reporting gain or loss from Section 1256 contracts. 2. Updated discussion on replacement period for involuntary conversions when taxpayer receives proceeds on multiple dates. 3. Addresses the Adkins case which addressed the timing for deducting losses from fraudulent investment schemes. 4. Updated the discussion regarding the election to deduct disaster losses incurred in a federally declared disaster area due to the changes made by the issuance of temporary regulations and a revenue procedure. Key Issue 9A Key Issue 10I Key Issue 10M Key Issue 10H Key Issue 11A Key Issue 11E Key Issue 11F Key issue 11F 5. Added a discussion on the abandonment of partnership interests. Key Issue 11G 1. Expanded discussion of reducing tax attributes after excluding Key Issue 12A partnership debt discharge income. 2. Noted the issuance of Rev. Rul that clarifies the definition Key Issue 12B of qualified real property business debt. 3. Added a discussion on determining the character of foreclosure Key Issue 12C gains and losses. 4. Expanded the discussion of distinguishing partnership recourse Key Issue 12C debt from partnership nonrecourse debt. 1. Added a discussion and an example on how to handle franchise fees for income tax purposes. Key Issue 13F 2

3 Chapter 14 Taxes and Interest Expense Chapter 15 Depreciation and Depletion Chapter 16 Retirement Plans and Fringe Benefits Chapter 17 Travel and Entertainment Expenses Chapter 18 Domestic Production Activities Deduction (Section 199) Chapter 19 Charitable Contributions Chapter 20 Schedule K-1, Capital Account Reconciliation with Schedules M-1, M-2, and M-3 1. Provided an example of electing to capitalize, rather than deduct property taxes on unimproved property. 1. Updated for the changes made by the PATH Act that affect the calculation of bonus depreciation, including the impact on AMT, new autos and light trucks, and qualified improvement property. 2. Updated for the changes made by the PATH Act that affect the calculation of Section 179 expense deductions. 3. Noted the issuance of a revenue procedure that deals with the safe harbor accounting method for certain retail and restaurant operators to determine whether costs were incurred to refresh or remodel buildings. 1. Updated for inflation adjusted contribution limits. 2. Updated commuter transportation and transit passes amounts for Updated for the 2016 per diem amounts used for the high/low method. 2. Added a discussion regarding the treatment of expenses to attend business-related conventions outside North America, on cruise ships, or luxury water travel. 1. Expanded the discussion on repackaging activities to include guidance contained in proposed regulations. 2. Enhanced the discussion for recent IRS advice that addressed allocating gross receipts from the sale of clothing manufactured outside of the U.S. in conjunction with advertising revenue associated with a catalog produced in the U.S. 3. Enhanced the discussion regarding the determination of W-2 wages with guidance provided in 2015 temporary and proposed regulations. 1. Updated the discussion of conservation easement contributions to reflect recent tax cases and changes made by the 2015 PATH Act. 2. Added an example that computes the reduction to a qualified conservation contribution due to claiming a building rehabilitation credit. 3. Updated the discussion of food inventory donations for changes made by the 2015 PATH Act. 1. Updated the discussion for changes made to filing requirements of Schedule M-3 for certain partnerships. Key Issue 14I Key Issue 15B Key Issue 15F Key Issue 15L Key Issue 16A Key Issue 16C Key Issue 17E Key Issue 17H Key Issue 18B Key Issue 18B Key Issue 18E Key Issue 19C Key Issue 19C Key Issue 19C Key Issue 20K 3

4 Chapter 21 Pass-through Items Chapter 23 Reporting Credits Allocated to Partners Chapter 24 Basis in the Interest (Outside Basis) Chapter 25 Partner s Basis from Liabilities Chapter 26 Making Valid Tax Allocations Chapter 28 Allocations When Partners Interests Change During the Year Chapter 29 At-Risk Activities Chapter 30 Passive Activities 1. Noted the addition of new line items on Form 1065 Schedule B. Key Issue 21A 2. Expanded the discussion on FATCA reporting requirements Key Issue 21H including the requirement for specified domestic entities to file Form 8938 (Statement of Specified Foreign Financial Assets) for tax years beginning after Noted that the enhanced oil recovery credit, which has been phased Key Issue 23A out since 2005, is applicable for tax years beginning in Added a discussion on temporary regulations which give the lessors Key Issue 23C of investment credit property the ability to treat the lessees as having acquired the investment credit property. 3. Noted the extension of empowerment zone designations. Key Issue 23E 1. Clarified treatment of alternative minimum tax (AMT) losses that are Key Issue 24E deferred due to insufficient outside basis. 1. Added coverage of the temporary and final Section 752 regulations issued in October 2016 that address the allocation of liabilities with regards to disguised sales and certain guarantees of partnership liabilities. 2. Clarified that the general rule under the Section 752 regulations that calls for ignoring the net worth of partners in determining how to allocate recourse liabilities does not apply to a partner that is a disregarded single-member LLC whose only asset is an interest in the partnership in question. 3. Covered a recent IRS pronouncement with regards to the impact of so-called bad boy guarantees of partnership nonrecourse debt. 4. Explained how debt can change from recourse to nonrecourse as it goes up the chain in a tiered ownership arrangement. 1. Added coverage that addresses partnership allocations of creditable foreign tax expenditures. 1. Updated the discussion regarding varying interest rules for changes made in recently issued final regulations. 1. Discussed an IRS chief counsel advice dealing with a guaranty arrangement in which partners could not increase their amount at risk. 2. Addressed bad-boy guarantees and how they are to be handled when determining whether debt is qualified nonrecourse debt for the at-risk rules. 1. Clarified the partner-level impact of partnership grouping of activities. Throughout Key Issue 25D Key Issue 25F Key Issue 25G Key Issue 26K Key Issue 28B Key Issue 29C Key Issue 29C Key Issue 30G 4

5 Chapter 31 Transactions between Partners and s Chapter 35 LLCs and LLPs Chapter 37 Death of a Partner Elections 1. Addresses the topic that a person cannot be an employee of a partnership in which he is also a partner. The discussion includes reference to a recent case ruling and temporary regulations. 2. Added coverage of temporary and final regulations issued in October 2016 that deal with disguised sale rules. 3. Added coverage of the capital gain disallowance rule for depreciable property under IRC Sec with regards to related parties. 1. Discussed temporary regulations issued to clarify the treatment of compensation paid by a disregarded single member LLC which is held by a partnership. 1. Added coverage of how to make a specific bequest of a partnership interest with a transfer on death designation. 1. Added a sample election for early application of the new partnership audit rules that were established by The 2015 Bipartisan Budget Act. 2. Added the following new sample elections for the tangible property regulations. Election to Capitalize Rotable, Temporary, and Standby Emergency Spare Parts. Key issue 31B Key issue 31D Key issue 31F Key Issue 35A Key Issue 37A Election E211 Election E801 Election to Treat a Partial Disposition as a Disposition. De Minimis Safe Harbor Expensing Election. Election to Capitalize Employee Compensation and Overhead Costs. Election E802 Election E803 Election E804 Safe Harbor for Deducting Costs of Improving Eligible Building Property. Election E805 Election to Capitalize Repairs and Maintenance Costs Consistent with Books. 3. Updated the election under IRC Sec. 165(i) for deducting a disaster loss occurring in a federally declared disaster area due to changes made by a recently issued temporary regulation and revenue procedure. Election E806 Election E918 5

6 6