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Chapter 1 2015 New Law The Surface 1-11 Transportation and Veterans Health Care Choice Improvement Act of 2015 (7/31/15)

1-11 Modified Return Filing Dates and Extension Dates For 2016 Returns 1-13 Due Date Chart from AICPA (link)

June 30 No Ext. April 15 Oct. 15 For returns for tax years beginning after Dec. 31, 2015 (2016 FBARS) 1-18 FBAR FAQ s

Basis Consistency For Estate Tax Property and Information 1-13 Reporting of Estate Tax Value Basis Consistency Requirement (Sec. 1014(f))

For estate tax returns filed after July 31, 2015, beneficiary s basis must not exceed estate tax value Underpayment of income tax due to inconsistent basis is subject to the 20- percent accuracyrelated penalty (section 6662(b)(8)).

Only applies if inclusion in the decedent s estate increased the estate tax liability 2015 Gross Estate filing threshold: $5.43 million

Estate Reporting Applies to 706s filed after July 31, 2015 (Sec. 6035) The executor of any estate required to file a return under section 6018(a) must furnish, both to the IRS and [the beneficiary of the property]

a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the IRS may prescribe. (Section 6035(a)(1)) Due Date of Statement The IRS will prescribe the due date, but it can be no later than the earlier of 30 days after the Form 706 is required to be filed (including extensions), or 30 days after the 706 is filed (Sec. 6035(a)(3)(A))

Form 8971, Sch A Column B Description of property acquired from the decedent and the schedule and item number where reported on Form 706. If beneficiary acquired a partial interest in the property indicate the % acquired here. Column C Did this asset increase estate tax? Y/N

Column D Valuation Date Column E Estate Tax Value

Sec. 1014(a): [T]he basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall be the fair market value of the property at the date of the decedent's death, Reg. 1.1014-1(a): The purpose of section 1014 is, in general, to provide a basis for property acquired from a decedent which is equal to the value placed upon such property for purposes of the Federal estate tax.

Reg. 1.1014-4(b): Multiple Interests. Where more than one person has an interest in property acquired from a decedent, the basis of such property shall be determined and adjusted without regard to the multiple interests.. Form 8971, Schedule A Notice to Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, IRC sec. 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional

Notice 2015-57 Delay in Due Date of New Statement Notice 2015-57 For statements required to be filed before February 29, 2016, the due date under section 6035(a)(3) is delayed to February 29, 2016.

The notice does not delay the effective date of sec. 6035 which applies to estate tax returns filed after July 15, 2015 DRAFT Part II How many beneficiaries received (or are expected to receive) property from the estate? For each beneficiary, provide the information requested below

Notice to Executors Only Schedule A to beneficiary. Form 8971 and each Sch A goes to IRS. Do not provide 8971 to beneficiary. Retain copies for estate s records. Open Question: 1-15 Observation Must estates that file (optionally) Form 706 solely to elect portability, file the new basis reports?

The statute authorizes the IRS to issue regulations as necessary to carry out [section 6035], including to property with regard to which no estate tax return is required to be filed The recently finalized regulations on portability declare that [a]n estate that elects portability will be considered, for purposes of subtitle B and subtitle F of the Internal Revenue Code (Code), to be required to file [an estate tax] return under section 6018(a). Reg. 20.2010 2(a)(1).

Section 6035 Reporting is in by Subtitle F The IRS is aware of the issue

JCT Revenue Estimate $1.542 billion over fiscal years 2015-25 1-16 Clarification of 6-Year Statute of Limitations with Overstatement of Basis.

An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission of gross income. Effective for returns filed after July 2015 or if S of L is open as of July 2015 More Information on Form 1098 With Respect to 1098s Furnished After 2016 1-17

Due Feb. 29, 2016 if Paper Filed Due Feb. 28, 2017 if Paper Filed 2016 Form 1098

JCT Revenue Estimate = $1.806 billion 1-23 Prior Law First Effective in 2015

1-23 ABLE Act TYB on or after 1/1/2015 Eligible for ABLE Acct if entitled to social security benefits for blindness or disability before age 26 or

File a disability certification, which is a signed statement by a physician acknowledging disability or blindness before age 26 Doctor Certifies That:

the individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or is blind (sec. 529A(e)(2)(A)(i)) No age requirement to open the account as long as the eligible individual became disabled before age 26.

One ABLE account Per Beneficiary Maximum annual contribution is the gift tax exclusion amount ($14,000 in 2015) Tax Advantage

No deduction for contributions, but The ABLE account is not taxable and distributions are tax free if used for qualified disability expenses (QDEs). QDEs: Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness,

financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses approved by the Secretary. Prop. Regs. Preamble: qualified disability expenses should be broadly construed to permit the inclusion of basic living expenses and should not be limited to expenses for items for which there is a medical necessity

For example, expenses for common items such as smart phones could be considered qualified disability expenses if they are an effective and safe communication or navigation aid for a child with autism. The Non-Tax Advantage

ABLE account is generally disregarded for purposes of other means-tested federal programs: Medicaid, Supplemental Security Income (SSI) Social Security Disability Insurance (SSDI) Helpful because, for example, Medicaid and the SSI program benefits may be lost if an individual s assets exceed $2,000

Exception The ABLE Act allows disabled individuals to accumulate no more than $100,000 of assets without the loss of SSI benefits.

If the $100,000 limit is exceeded, SSI benefits are suspended not terminated; when the account balance falls below $100,000, SSI benefits are restored. Also, in the case of the SSI program, distributions for housing expenses are not disregarded.

However, ABLE accounts, when established, create a Medicaid lien for Medicaid benefits received after that date (claimed at death) The medicaid payback requirement is a disadvantage to ABLE accounts compared to to special needs trusts or 529 qualified tuition programs

A special needs trust (SNT), is not funded with money from the beneficiary, but: No dollar limits No payback for Medicaid benefits Cannot Use Another New State s LawABLE Act Program

2015 PATH ACT Can Use Another State s ABLE Act Program Can rollover from 529 Plan California ABLE Act Signed by Governor October 11, 2015 AB 449 SB 324

California Revenue and Taxation Code Change Sec. 23711.4 For taxable years beginning on or after January 1, 2016, section 529A shall apply R&T Sec. 23711.4

A 2.5% penalty (instead of 10%) for distributions not used for disability expenses Welfare and Institutions Code Change New Section 4877 (10/11/2015) Official Announcement: will implement next year (2016)