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Archive for Annette Nellen

TCJA Guidance Report from Treasury Inspector General For Tax Administration

Annette Nellen Regarding Treasury Inspector General Report

On May 14, TIGTA released a report, Status of the Office of Chief Counsel’s Issuance of TCJA Guidance. It reviewed the process for issuing guidance on the 100+ provisions of the Tax Cuts and Jobs Act (P.L. 115-97; 12/22/17). It also lists the guidance issued through the end of March (83 items) and what is expected from that date (95 items). A good amount of this includes Treasury Decisions, meaning final regs of the numerous proposed regs issued so far. Here is the detail of what they still plan to issue:

44 Treasury Decisions
35 NPRMs
4 Revenue Rulings
6 Revenue Procedures
4 Notice
1 Announcement
1 Undetermined

Appendices to the report list the specific topics of the guidance.

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Tax Reform – A Few Provisions In Track Changes

Annette Nellen Tax Reform Changes

I often find it helpful to see how tax legislation changes existing Internal Revenue Code sections. So, I took a few and made the modifications called for in P.L. 115-97 (12/22/17) (the Tax Cuts and Jobs Act), and show how they change the relevant Code section using track changes.  I also include the effective date information.  For the changes to 448, I also include a caution about how the favorable methods changes don’t apply to “tax shelters” which could include some limited partnerships and LLCs even though they don’t act like a typical tax shelter.

Here are the ones I modified:

Section 1 – tax rates including kiddie tax change

Section 62 – changes to AGI

Section 163 – changes to mortgage interest and the new interest limitation for non-small entities (and tax shelters – see comment above)

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Tax, Tokens And The Blockchain – H.R. 2144 of 116th Congress

Annette Nellen - Blockchain

Introduced on April 9 2019, the Token Taxonomy Act of 2019 (H.R. 2144) would “amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude digital tokens from the definition of a security, to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography, to adjust taxation of virtual currencies held in individual retirement accounts, to create a tax exemption for exchanges of one virtual currency for another, to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash, and for other purposes.”

The proposed di minimis exemption is worded as follows:

SEC. 139G. GAIN FROM SALE OR EXCHANGE OF VIRTUAL CURRENCY.

“(a) In General.—Gross income shall not include gain from the sale or exchange of virtual currency (as defined under section 408(m)) for other than cash or cash equivalents.

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Tax Reform Ideas To Reflect How Small Businesses Operate In The Modern World

Annette Nellen - Changes

The Tax Cuts and Jobs Act brought several improvements for small businesses, most notably, favorable accounting methods such as use of the cash method and not having to deal with the Unicap rules. The AICPA Tax Section recently posted a position paper noting 13 more changes that would further help modernize the Code to reflect how small businesses operate. Some of these would more completely simplify what Congress started with the TCJA.

For example, the TCJA increased the Section 179 expensing amount to $1 million, adjusted for inflation annually. But, despite the fact that intangibles are important to all sizes of businesses today (and for the past two decades), it only applies to tangible assets (and off-the-shelf software), not intangible assets, such as acquisition of a patent or domain name.

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President Trump’s FY 2020 Budget Proposal For IRS

Annette Nellen - President Trumps FY 2020 IRS Budget

President Trump released his FY 2020 budget proposal on March 12. [A Budget for a Better America – Promises Kept. Taxpayers First, page 82] It slightly increases IRS funding to “expand and strengthen tax enforcement.” Such efforts “are estimated to generate approximately $47 billion in additional revenue at a cost of $15 billion, yielding a net savings of $33 billion over 10 years.  The Budget also includes several proposals to ensure that taxpayers comply with their obligations and that tax refunds are only paid to those who are eligible, including:  improving oversight of paid tax preparers; giving IRS the authority to correct more errors on tax returns before refunds are issued; requiring a valid Social Security Number for work in order to claim certain tax credits; and in-creasing wage and information reporting.”

The budget also notes that there is $290 million for the IRS’ multiyear effort to modernize its IT. The report notes that while about 90% of individuals file electronically, most other interactions between the IRS and taxpayers is via the mail, “which slows the resolution of issues.”

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NTA Suggests Greater Transparency – Great Ideas!

Annette Nellen - Greater Transparency For Taxpayers

The IRS National Taxpayer Advocate’s Annual Report to Congress released in February ( IR-2019-11 (2/12/19) + Report) includes the 2nd edition of the “Purple Book” with 59 legislative recommendations to improve taxpayer rights and tax administration. Two of the recommendations aim to strengthen taxpayer rights. They also improve the transparency of the tax system, which is a principle of good tax policy.

The two recommendations:

1. Codify as Section 1 of the Internal Revenue Code:
a. The Taxpayer Bill of Rights (at present, see Section 7803(a)(3)).
b. A Taxpayer Rights Training Requirement, and
c. The IRS Mission Statement

2. Require the IRS to issue all taxpayers a “receipt” that shows how their tax dollars are spent.

For details, see links and all 59 recommendations here.

These are great ideas as they bring greater attention to these important items to help taxpayers better understand the tax system and the federal budget.

I recommend they go farther:

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Tips For Tax Practitioners And Their Clients

Annette Nellen - Tax Reform Changes

Following is an excerpt from my February Note from the AICPA Tax Executive Committee Chair. For complete note (for AICPA Tax Section members) – click here.
Given the number of TCJA changes, incomplete guidance and many other issues, I offer the following suggestions to share with your clients to help them avoid surprises later.

  1. The TCJA is comprised of over 100 changes with little time for the IRS to issue guidance on all of them before 2018 returns are due.
  2. A good amount of guidance has been issued, but much of it is transitional or interim. That means the guidance might only apply for 2018; a rule could apply differently in 2019.
  3. The Joint Committee on Taxation’s Bluebook, which explains the TCJA, states over 70 times that technical corrections may be needed to achieve what legislators intended. For example, footnote 209 of the Bluebook states that a technical correction may be needed to reflect the intent that wages are not considered when calculating an excess business loss under the new Sec. 461(l).  Form 461Limitation on Business Losses, used for measuring an excess business loss, though,  includes wages (the form follows the statute, as required).
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Update On State Reactions To South Dakota V. Wayfair Decision

Annette Nellen Update On Wayfair

What are some states saying about the U.S. Supreme Court’s decision in South Dakota v Wayfair, et al [see my 6/22/18 post for more on the case]

Here is news from several states. I don’t think most states will strive to collect below the thresholds of the South Dakota law, but you never know. I think we’ll hear from more states by early 2019 and perhaps even from a few members of Congress. I’ll continue to update this post.

States in bold are full members of the Streamlined Sales and Use Tax project. The SSUTA scheduled an emergency meeting of the SSUTA Board for July 19-20 to discuss the Wayfair decision. Agenda items included use of the Central Registration System and the Certified Service Provider system by non-members.

Also look for what applies for local governments, particularly in Alabama, California (see below), Colorado, and Louisiana.

Also, on 6/29/18, the National Conference of State Legislatures released its Principles of State Implementation after South Dakota v. Wayfair. This 1-page document suggests that states be prepared before more broadly enforcing tax collection and wait  until 1/1/19 to start collecting. It also includes suggestions for states that that have not adopted the Streamlined Sales and Use Tax Agreement (SSUTA).

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Important Tax Reform Reminders: Some Changes Are Not Final

Annette Nellen - Tax Reform Changes

The Tax Cuts and Jobs Act enacted on December 22, 2017 was mostly effective starting in 2018. That was not enough time for anyone to get a good understanding of all of its over 100 changes and the effect and relevance.  The IRS has issued a lot of guidance, but there wasn’t enough time to even get all of this finalized by the time any estimated tax payments for 2018 returns were due.

If any practitioners have ever used Reg. 1.163-8T, 1.163-10T or temporary regulations under section 469, that’s a reminder that guidance for some areas changed or added by the Tax Reform Act of 1986 are not yet final!  And there are areas of many Code sections without sufficient guidance, such as Section 1202 added in 1993, but now widely used due to its now 100% gain exclusion (rather than the original 50%) and its reference in new Section 199A on the qualified business income deduction.
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Tax Cuts And Jobs Act – Professor Annette Nellen Highlights Changes In Tax Legislation On Existing Tax Code

Tax Reform – A Few Provisions In Track Changes

I often find it helpful to see how tax legislation changes existing Internal Revenue Code sections. So, I took a few and made the modifications called for in P.L. 115-97 (12/22/17) (the Tax Cuts and Jobs Act), and show how they change the relevant Code section using track changes.  I also include the effective date information.  For the changes to 448, I also include a caution about how the favorable methods changes don’t apply to “tax shelters” which could include some limited partnerships and LLCs even though they don’t act like a typical tax shelter.

Here are the ones I modified:

Section 1 – tax rates including kiddie tax change

Section 62 – changes to AGI

Section 163 – changes to mortgage interest and the new interest limitation for non-small entities (and tax shelters – see comment above)

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What The Taxman Can Learn From Crypto

We are in the midst of a “Fourth Industrial Revolution” in which technology is advancing at an exponential pace, bringing us mostly digital tools and processes. In the tax world, “digital” translates to: “how do rules designed for a tangible world apply?”

Cryptocurrency is a great example to remind us that tax as well as other laws and compliance processes need to be fluid to keep our economy moving ahead. Inaction or inappropriate responses can shut down or decelerate advancements that benefit society and lead to further technological progress.

From the late 1960s, when software was decoupled from hardware, to the birth of bitcoin nearly a decade ago, what have we learned that can help us deal with this asset and its uses as we encounter even more new forms of technology, uses and ways of doing business? This article suggests four tax lessons.

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Partnerships And Passthrough Entities – What Do You Do?

Question: Jane is a Partner in a partnership with a July 31 year end. What information does she use to calculate the Sec. 199A deduction she claims on her 2018 Form 1040, U.S. Individual Income Tax Return?

Short Answer: Jane uses the information from her partnership Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., for the year ended July 31, 2018. It doesn’t matter that the K-1 includes months prior to the effective date of Sec. 199A because this provision applies to individuals for their tax years beginning after Dec. 31, 2017.

Now, the longer explanation:

P.L. 115-97, known as the Tax Cuts and Jobs Act (TCJA), added several new provisions to the tax code, many of which add complexity in terms of new calculations, interplay with other provisions and past tax decisions, and tax planning changes. Among these changes is new Sec. 199A potentially allowing a 20% deduction against qualified business income for certain noncorporate taxpayers. This provision consumes nine pages of the 185-page public law.

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