Route To: j Partners j Managers j Staff j File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s 1040 Deskbook Thirtieth Edition (October 2017) Highlights of this Edition The following are some of the important update features of the 2017 edition of PPC s 1040 Deskbook. Disaster Tax Relief and Airport and Airway Extension Act of 2017 (2017 Disaster Relief Act). The 2017 Disaster Relief Act provides special provisions for taxpayers in the federally declared disaster areas for Hurricanes Harvey, Irma, and Maria, as well as for qualified charitable contributions to assist these taxpayers. The Deskbook has been updated to include all of these new disaster relief provisions. Casualty Losses and Involuntary Conversion Gains. The Deskbook s coverage of casualty losses and involuntary conversions has been revised and expanded. Filing Status and the Dependency Exemption. The IRS has issued new proposed regulations affecting filing status and the dependency exemption, including allowing the qualifying widow(er) status when the qualifying child is not claimed as a dependent. The Deskbook has been updated to reflect these new proposed regulations. Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). QSEHRAs are available to allow small employers that do not offer group health coverage to reimburse employees for out-of-pocket costs and not be subject to the ACA penalties. The Deskbook has added a new Key Issue to discuss these arrangements. Expiring Provisions. A number of tax provisions expired at the end of 2016, including the tuition and fees deduction and the mortgage insurance premium deductions. The Deskbook makes note of these expiring provisions with caveats about potential reinstatement. Quick Binder (Volume 2). The Quick Binder includes five new practice aids (tables, election, and checklist). In addition to these featured items, your Deskbook includes the following update items: CHAPTER 1 1. Added a discussion about proposed regulations addressing Key Issue 1A Filing Status qualifying widow(er)s. 2. Discussed Moss regarding married filing separately when thespousedoesnotsignthereturn. Key Issue 1B CHAPTER 2 Personal Exemptions 1. Mentioned Notice 2016-48 regarding procedures for applying for or renewing an Individual Taxpayer Identification Number. 2. Added a discussion of the Smyth case regarding a qualifying child. Key Issue 2A Key Issue 2A tdbp17sub 1
CHAPTER 3 Wages and Salaries CHAPTER 4 Interest and Dividend Income CHAPTER 5 Pension and Retirement Income 3. Updated for proposed regulations on dependency exemptions. 1. Added a discussion of the Box 9 Verification code to be used on e-filed returns when applicable. 2. Added a discussion of new Code FF on Form W-2, Line 12 for QSEHRAs. 1. Expanded the discussion about demutualization outside of the Ninth Circuit. 1. The IRS finalized Reg. 1.402A-1 regarding treating rollover distributions as a single distribution. 2. Mentioned the Trimmer case regarding hardship waivers when the failed to rollover within 60-day period. 3. Added a Note based on IRS Info Letter 2016-0072 regarding whether the plan or beneficiary can choose the date of the qualified plan required minimum distribution (RMD). 4. Discussed IRS Info Letter 2016-0071 on when life expectancy of non-spouse beneficiary versus five-year rule is used for determining RMDs. 5. Added a new key issue discussing the favorable retirement plan provisions for hurricane victims included in the 2017 Disaster Relief Act. Key Issues 2A and 2C Key Issue 3A Key Issue 3A Key Issue 4B Key Issue 5F Key Issue 5F Key Issue 5J Key Issue 5J Key Issue 5L CHAPTER 6 Other Items of Income CHAPTER 7 Adjustments to Income 1. Added an Observation regarding Gaylor case on constitutionality of parsonage allowance exemption. Key Issue 6B 2. Added a discussion of the Olson and Bates cases, which Key Issue 6C address the taxability of disability payments. 3. Expanded the discussion about ABLE accounts. Key Issue 6J 4. Updated the discussion regarding mortgage assistance Key Issue 6K payments for extension of the safe harbor. 1. Noted that the government is phasing out the myra program. 2. Added an Observation that an exception exists for the time test to claim moving expenses for certain taxpayers moving back to the U.S. from a foreign country. 3. Noted that the tuition and fees deduction expired at the end of 2016 but may be extended. Key Issue 7B Key Issue 7E Key Issue 7I CHAPTER 8 Sole Proprietorships (Schedule C) 4. Added an Observation based on Info Letter 2017-0003 regarding ineligibility to participate in HSA after enrolling in Medicare, even if returning to work. 5. Noted that the taxpayer must demonstrate production activity produced income in order to be able to claim the domestic production activities deduction. 1. Added a discussion of the McMillan, Price, and Judah cases on when activity was treated as a hobby rather than a trade or business. Key Issue 7K Key Issue 7L Key Issue 8A 2
CHAPTER 9 Farm Income and Expenses (Schedule F) CHAPTER 10 Rental Property (Schedule E) CHAPTER 11 Tax Accounting Methods CHAPTER 13 Net Operating Losses CHAPTER 14 Depreciation CHAPTER 15 Automobiles and Listed Property CHAPTER 16 Passive Activities 2. Added a new key issue on QSEHRAs for new health reimbursement arrangements that became available beginning on or after January 1, 2017, to eligible small employers as a way to assist employees with paying for health insurance premiums and other medical costs. 1. Added an alert regarding a new IRS audit program for farmers. 2. Added a discussion about capitalized fertilizer costs, including a new example. 3. Discussed the Backemeyer case about prepaid farm supplies inherited from an estate. 4. Added a new election for new depreciation rules for certain plants. 1. Mentioned the Cooke case regarding adequate records for time spent on repairs and maintenance on vacation home. 2. Added a Caution regarding use of Prop. Reg. 1.280A-1(c)(2) to claim renting out a portion of home is not subject to vacation home limitations in light of the Morcos case. 3. Added a Caution regarding tax schemes for short-term self-rentals of home to corporation. 1. Discussed the Shiner case regarding when restrictive endorsement does not constitute constructive receipt. 2. Rev. Proc. 2017-30 regarding automatic change in accounting method has superseded by Rev. Proc. 2016-29. 3. Mentioned IRS Notice 2017-17 regarding the qualifying same-year accounting method change for adoption of new revenue recognition standards issued by FASB. 1. Expanded the discussion about nonbusiness losses when calculating a net operating loss. 2. Added the Vichich case to the discussion of NOLs for deceased taxpayers. 1. Rev. Proc. 2016-29, related to changes in accounting methods, has been superceded by Rev. Proc. 2017-30. 2. Added a reference to Rev. Proc. 2017-33, which provides additional guidance for depreciation provisions of the 2015 PATH Act. 3. Added a variation to Example 14D-1 regarding using Section 179 to avoid application of the mid-quarter convention. 1. Noted that the plug-in motor vehicle credit for two-wheeled vehicles expired at the end of 2016 but the credit is still available for qualified four-wheeled vehicles. 1. Discussed the Hardy case on when a grouping of trade or business activities can be inferred. Key Issue 8F Introduction Key Issue 9C Key Issue 9C Key Issue 9E Key Issue 10A Key Issue 10C Key Issue 10E Key Issue 11A Key Issue 11C Key Issue 11C Key Issue 13A Key Issue 13E Key Issue 14A Key Issues 14B, 14C, and 14E Key Issue 14D Key Issue 15H Key Issue 16A 3
CHAPTER 17 Pass-through Entities CHAPTER 18 Securities Transactions 2. Updated and expanded the discussion of real estate professionals, including the addition of a new observation and a new example. 1. Added a Practice Tip regarding the IRS campaign to crack down on S corporation shareholders deducting losses in excess of basis. 2. Discussed the Franklin case regarding shareholder basis for debt. 3. Added a Practice Tip to ask if Form 8971 was received by beneficiary of estate. 4. Updated the discussion on ACA implications for S corporation shareholders, including a mention of small employers who adopt a QSEHRA. 1. Added a discussion of the Turan case regarding proper identification of method used to identify shares of stock sold. 2. Discussed the McKelvey case regarding the effect of the option writer extending the expiration date of a public stock option on the open status of the option. 3. Added a discussion of a private letter ruling that clarifies the definition of a qualified trade or business for purposes of the exclusion of gain from the sale of qualified small business stock. Key Issue 16H Key Issue 17C Key Issue 17C Key Issue 17G Key Issue 17H Key Issue 18A Key Issue 18E Key Issue 18I 4. Expanded the discussion of virtual currency. Key Issue 18K CHAPTER 19 Installment Sales, Like-kind Exchanges, and Conversions of Property CHAPTER 20 Trade or Business Property Transactions CHAPTER 21 Bad Debt Losses, Debt Discharge Income, and Foreclosures 1. Added a Practice Tip on how to accelerate gain on an installment sale when the date for electing out of the installment sale has passed. 2. Expanded the discussion of involuntary conversions of principal residences, including the discussion of interplay of involuntary conversion rules and Section 121 gain exclusion and the addition of two new examples. 1. Added a discussion, including an example, of potential Section 1250 recapture when bonus depreciation is claimed on qualified improvement property that is not also qualified real property for 15-year depreciation. 1. Added detail about Shaw in the discussion of bad debts for family loans. 2. Discussed Sensenig and Scheuer to help distinguish loans from capital contributions. 3. Added a discussion regarding certain private college loans and how to treat the income resulting from a discharge. 4. Expanded the discussion on when exclusion of discharge of qualified principal residence indebtedness may be allowed in 2017, although it has expired for most properties at the end of 2016. Key Issue 19C Key Issue 19I Key Issue 20G Key Issue 21A Key Issue 21A Key Issue 21B Key Issue 21B 4
CHAPTER 22 Personal Residence Transactions CHAPTER 23 Below-market Loans CHAPTER 24 Standard Deduction 5. Mentioned the Schieber case in which pension plan interests were excluded in a cancellation of debt insolvency. 1. Added Wickershamand Blatt for additional support for the principal residence determination. 2. Added a discussion about the gift portion of a principal residencesalebasedonthefiscalini case. Key Issue 21C Key Issue 22A Key Issue 22A 1. Added an alert about intrafamily loans. Key Issue 23C 1. New regulations were issued defining marriage, superseding Rev. Rul. 2013-17. Introduction CHAPTER 25 Medical Expenses CHAPTER 26 Charitable Contributions CHAPTER 28 Other Itemized Deductions CHAPTER 29 Interest Expense 2. Added a discussion of the additional standard deduction for qualified hurricane casualty losses included in the 2017 Disaster Relief Act. 1. Noted that the 7.5% of AGI limitation for medical expenses for taxpayers 65 and older expired at the end of 2016. 1. Discussed the special provisions added by the 2017 Disaster Relief Act for qualified charitable contributions for hurricane relief. 2. Discussed the 15 West 17th Street case regarding requirement for contemporaneous acknowledgment. 3. Discussed the RERI Holdings I case regarding failure to include cost or basis on Form 8283. 4. Mentioned the Gemperle case on when certain types of appraisal must be attached to return. 5. Added a Caution regarding IRS Notice 2017-10, as modified by IRS Notice 2017-29, on certain syndicated conservation easements. 6. Expanded the discussion regarding qualified charitable distributions from an IRA. 1. Expanded the discussion of personal casualty losses, including special tax relief for certain hurricane victims under the 2017 Disaster Relief Act. 2. Added the Howard case related to employee expense reimbursements. 3. Included a discussion related to MBA not deductible as minimum education requirement (Creigh). 4. Expanded the discussion of gambling losses with Bon Viso. 5. Evans discusses claim of right adjustment for fraudulently obtained funds. 6. Added a table of key issues related to special tax provisions for disasters. 1. Added a Caution regarding the omission of interest capitalization during the construction or improvement of real estate. Key Issue 24A Introduction Key Issue 26A Key Issue 26C Key Issue 26C Key Issue 26C Key Issue 26D Key Issue 26I Key Issue 28A Key Issue 28C Key Issue 28D Key Issue 28F Key Issue 28G Illustration 28-3 Key Issue 29B 5
CHAPTER 30 Self-employment Tax CHAPTER 34 Excise and Other Taxes CHAPTER 35 Personal Credits 2. Discussed the Wainwright case on when a taxpayer is eligible to claim home mortgage interest. 3. Added a discussion of the Housing Finance Agency Hardest Hit Fund and the amount applicable homeowners may deduct as home mortgage interest. 4. Noted that the mortgage insurance premium deduction has expired but may be extended. 1. Added a discussion of the Castigliola and Hardy cases regarding when partners or LLC members are subject to SE tax. 2. Added a Caution regarding the use of proposed regulations for limited partners in light of recent guidance. 1. Noted that repayments of retirement distributions allowed by the 2017 Disaster Relief Act are not subject to the excess contribution penalty. 2. Noted that qualified hurricane distributions allowed by the 2017 Disaster Relief Act are not subject to the early distribution penalty. 3. Discussed the repayment of qualified housing distributions if a new home could not be purchased or constructed because of a hurricane, including adding a variation to an example. 4. Added a Preparation Pointer stating that the IRS will not accept 2017 returns with no indication of the taxpayer meeting the minimum essential health care coverage requirement, or an exception if applicable. 1. Added a Practice Tip to present solutions to the potential cash flow issues arising from the timing of paying adoption expenses several months before obtaining the benefit of the adoption credit. 2. Added a Law Change Alert for the child tax credit and earned income credit (EIC) regarding special earned income rule for victims of Hurricanes Harvey, Irma, and Maria. 3. Added a Practice Tip discussing the issue of whether high school dual credit courses may qualify for an education credit. 4. Added a discussion of new proposed regulations concerning childless taxpayers claiming the EIC and the IRS s new position on this topic. 5. Added a discussion of a court case illustrating how aggressive the IRS has become on assessing preparer penalties when preparers do not exercise proper due diligence when claiming the EIC. 6. Added a discussion of court cases concerning whether hobby income or income of a taxpayer in a state security hospital qualifies as earned income for purposes of the EIC. Key Issue 29D Key Issue 29D Key Issue 29D Key Issue 30A Key Issue 30A Key Issue 34A Key Issue 34B Key Issue 34B Key Issue 34G Key Issues 35B Key Issues 35C and 35F Key Issues 35D Key Issue 35F Key Issue 35F Key Issue 35F 6
CHAPTER 36 Business Credits 7. Added a discussion of two cases requiring the repayment of advance payments of the Premium Tax Credit (PTC) when the taxpayers seemed to not be at fault. 8. Added a note that taxpayers should verify amounts reported on Form 1095-A (Health Insurance Marketplace Statement) by a federally facilitated marketplace by using the Health and Human Services look-up tool. 1. Noted that the alternative motor vehicle credit and alternative fuel vehicle refueling property credit are only available for qualified property purchased by December 31, 2016, and placed in service in 2017. 2. Added a discussion of the new Employee Retention Credit available to qualified employers affected by Hurricanes Harvey, Irma, and Maria as authorized by the 2017 Disaster Relief Act. Key Issue 35H Key Issue 35H Introduction and Key Issue 36B Key Issue 36A CHAPTER 37 Foreign Tax Credit CHAPTER 38 Tax Payments 1. Added a Practice Tip about multiple forms of Form 1116 needed for different types of income. Key Issue 37C 1. Added a Caution regarding potential fraud attempts. Introduction 2. Added an Observation regarding the ability to delay third Key Issue 38A and fourth quarter ES payments for certain hurricane victims. 3. Added a Practice Tip regarding use of Offers in Compromise. Key Issue 38D CHAPTER 39 Filing Returns 4. Expanded coverage of when private collection agencies will be used to collect taxes owed. 5. Revised and expanded the coverage of installment agreements and online payment agreements. 1. Added a Practice Tip regarding Equifax credit freeze and theirsgettranscriptonlineprogram. 2. Added the Vichich case to address the carryover of minimum tax credit for decedents. 3. Discussed the Smyth case regarding the hand delivery of returns. 4. Mentioned the Tilden case regarding a stamps.com postmark not being the same as the U.S. Postal Service postmark. 5. Discussed Edwards regarding the invalidity of a joint return filed during divorce proceedings when one spouse does not sign the joint return. Key Issue 38D Key Issue 38D Introduction to 39 Key Issue 39A Key Issue 39B Key Issue 39B Key Issue 39C 6. Update the discussion about PTIN fees. Key Issue 39I 7. Discussed Gubser case related to willful violations of FBAR filing requirements. Key Issue 39J QUICK REFERENCE TABLES QUICK REFERENCE BINDER 1. Updated the table to reflect potential Section 1250 recapture when bonus depreciation is claimed on certain qualified improvement property. Table T801 7
ELECTIONS CHECKLISTS 2. Added a new table on the buyer s treatment of closing costs and other items affecting basis. 3. Added a new table reflecting eligible rollovers between plan types. 4. Added a new table discussing the new Employee Retention Credit available to qualified employers affected by Hurricanes Harvey, Irma, and Maria as authorized by the 2017 Disaster Relief Act. 1. Added a new election statement for electing to claim additional first-year depreciation for certain specified plants in the year planted or grafted to another plant. 1. Revised the Checklist for Determining Minimum Essential Health Insurance Coverage. 2. Added a new checklist on required substantiation when an appraisal is required for a non-cash charitable contribution. Table T813 Table T1008 Table T1112 Election E409 Checklist C109 Checklist C111 8