Friday, December 30, 2016


Because of the Presidential campaign there was no tax legislation of any substance in 2016.  There were a few bills that dealt with limited tax matters for special situations, but really nothing of consequence for the 1040.
One bad law of note was the “US Appreciation for Olympians and Paralympians Act of 2016”, which excludes from income the value of any Olympic or Paralympic medals or winnings for certain athletes.  As was pointed out in a list of worst tax developments of 2016, “the exemption is a windfall for professional athletes but does little or nothing for struggling amateurs”.  Why should only Olympic and Paralympic winners be exempt.
And one good tax provision in the “21st Century Cures Act”.  A company with fewer than the equivalent of 50 full-time employees, and therefore a business not subject to the Obamacare employer mandate to offer insurance coverage to employees, can reimburse employees' for purchasing individual health insurance as if it were directly paying the premiums on a group health policy under a qualified small business health reimbursement arrangement.  Previously most employers who did this were subject to a penalty of up to $100 per day for each employee.
There were a few non-legislative tax developments of note in 2016.
In the 2015 Year in Taxes post I praised a provision of the PATH Act, explaining –
Educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed as is currently allowed (most institutions historically report only amounts billed), on Form 1098-T, beginning with calendar year 2016.  So, beginning with forms for tax year 2016 issued in January of 2017, the Form 1098-T students receive from colleges will actually provide important and needed information, and will no longer be as useful as ‘tits on a bull’.”
Unfortunately the week-day daily "Checkpoint Newsstand November 18, 2016" brought some bad news on my 63rd birthday (highlights are mine) -
No penalty for 2017 Forms 1098-T. IRS will extend the relief from penalties under Code Sec. 6721 and Code Sec. 6722, as described in Ann. 2016-17, to 2017 Forms 1098-T. Eligible educational institutions, therefore, will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received in Box 1 of Form 1098-T or the amount of qualified tuition and related expenses billed in Box 2 of Form 1098-T for the 2017 calendar year without being subject to penalties.
This relief is limited to 2017 Forms 1098-T required to be filed by eligible educational institutions by Feb. 28, 2018 (or Apr. 2, 2018, if filed electronically) and furnished to recipients by Jan. 31, 2018.”
What happened?
“Representatives of eligible educational institutions have informed IRS that, despite diligent efforts, the changes to accounting systems, software, and business practices that eligible educational institutions must make to implement this law change cannot be accomplished in time to apply these changes for calendar year 2017.”
So now the bulk of 2017 Form 1098-Ts will continue to be totally worthless.
There were three other developments, thankfully all good news. 
The IRS issued final regulations related to the tax treatment of same-sex marriage – states must recognize a marriage between two people of the same sex when the marriage was lawfully licensed and performed in a state where such marriage is legal, regardless of where the couple currently resides.
I will let other tax writers explain the other two (again highlights are mine) -
From “2016 Year in Review for Retirement Accounts” by Sarah Brenner of THE SLOTT REPORT -
Self-Certification – The New Fix for Late Rollovers
On August 24, 2016, the IRS released Revenue Procedure 2016-47, which provides a new and cost-free way for you to complete a late 60-day rollover of retirement funds using a self-certification procedure. The new self-certification procedure is available for missed rollover deadlines for both IRAs, including Roth IRAs, SEP IRAs and SIMPLE IRAs, and company plans. It is a game changer because it will spare many taxpayers from having to go through the costly and time-consuming process applying for a Private Letter Ruling to get late rollover relief.”
And from “The biggest tax stories of 2016” by Bill Bischoff of MARKETWATCH.COM -
Unmarried co-owners are entitled to separate home mortgage interest debt limits: 
For federal income tax purposes, you can generally deduct the interest on up to: (1) $1 million of home acquisition debt (mortgage debt taken out to acquire, build, or improve your principal residence and one other residence, such as a vacation home) and (2) $100,000 of home equity debt (mortgage debt that is secured by your principal residence or one other residence).  In a controversial 2012 decision, the U.S. Tax Court concluded that these home mortgage debt limitations to be shared by unmarried individuals who co-own expensive homes. In other words, according to the Tax Court, when two unmarried individuals co-own a principal residence (and maybe a second residence too) the combined home acquisition debt limit for the two co-owners is only $1 million, and the combined home equity debt limit is only $100,000--for a total combined debt limit of only $1.1 million (same as for a married couple).
In contrast, if the debt limits can be applied on a per-taxpayer basis, each unmarried co-owner would be entitled to a separate $1 million limit for acquisition debt and a separate $100,000 limit for home equity debt (for a total combined debt limit of $2.2 million for two unmarried co-owners).
When unmarried folks co-own expensive homes with big mortgages, this issue is a big deal.  So it was good news when the Ninth Circuit Court of Appeals in 2015 reversed the Tax Court’s decision and allowed the two unmarried co-owners in the case to benefit from separate debt limits. In 2016, the IRS threw in the towel by accepting the Ninth Circuit’s pro-taxpayer decision. I don’t say this very often, but thank you IRS!”
As for the election.  With the Republican Party in charge of the White House (not really – nobody is in charge of Trump but Trump, and Trump does whatever he wants to do, regardless of what the Republican Party wants; he will do what is best for Donald Trump and not what is best for the Republican Party or the country) and controlling both houses of Congress I expect that there will be tax reform legislation passed relatively early in 2017.  We will very likely see lower tax rates and reduced itemized deductions.  And hopefully the end of the dreaded Alternative Minimum Tax and also possibly the federal estate and gift taxes.
While the PATH Act made most of the “appropriate” former “tax-extenders” permanent, some items will expire on Saturday.  Congress adjourned for the year without dealing with theses expiring provisions.  However this is appropriate.  There was no need to extend the expiring provisions before the year end when there will be substantive tax reform legislation proposed early in 2017.
So that was the year in taxes 2016.  Fellow tax pros - did I forget anything?

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