Finance, investment and tax-related legislation

What's new in tax for 2017

January 16, 2017 2:23 PM

Even if there are no new laws from President-elect Trump and the Republican-controlled Congress, practitioners still will have to cope with a number of legislative changes that go into effect for the first time this year or apply for the first time for tax returns filed this year.

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Just getting started

Even without the prospect of major changes to the Tax Code from President-elect Donald Trump and the Republican-controlled Congress, practitioners still have to cope with a number of legislative changes that go into effect for the first time this year or apply for the first time for tax returns filed this year.

Robert Trinz, senior analyst at Thomson Reuters Checkpoint compiled this exhaustive list of major changes; for more detail, see his unabridged article on what’s new here.

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Higher floor beneath medical expenses for seniors

For tax years beginning after Dec. 31, 2016, the floor beneath the itemized deduction for medical expenses of taxpayers who are age 65 or older increases from 7.5 percent of AGI to 10 percent of AGI.

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Some taxpayers may need new ITINs

For individuals who are not eligible to be issued a Social Security number, but who still have a tax filing obligation, the IRS issues individual taxpayer identification numbers for use in connection with the individual's tax filing requirements.

Under the 2015 Protecting Americans from Tax Hikes Act, taxpayers who have an ITIN that has not been used at least once in the past three years will no longer be able to use that ITIN on a tax return as of Jan. 1, 2017. In addition, individuals who were issued ITINs before 2013 are now required to renew their ITINs on a staggered schedule between 2017 and 2020. However, only ITIN holders who need to file a tax return in 2017 need to renew their ITINs; others don't need to take any action.

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Accelerated due dates for W-2s, 1099s, etc.

Under the 2015 PATH Act, beginning with forms filed in 2017, Forms W-2, W-3, and returns to report non-employee compensation (e.g., Form 1099-MISC), must be filed on or before January 31 of the year following the calendar year to which such returns relate. And those returns are no longer eligible for the extended filing date for electronically filed returns. (Code Sec. 6071(c))

Additionally, extensions of time to file Form W-2 with the SSA are no longer automatic. For filings due on or after Jan. 1, 2017, taxpayers may request one 30-day extension by submitting Form 8809, Application for Extension of Time to File Information Returns.

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Revised due dates for partnership and C corporation returns

Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, effective generally for returns for tax years beginning after Dec. 31, 2015 (i.e., for 2016 tax year returns filed in 2017):

Partnerships, as well as S corporations, must file their returns by the 15th day of the third month after the end of the tax year. For prior returns, partnerships had to file by the 15th day of the fourth month after the end of the tax year.

C corporations generally must file by the 15th day of the fourth month (it had been the third month) after the end of the tax year. However, for C corporations with fiscal years ending on June 30, the filing date continues to be the 15th day of the third month after the end of the tax year. Corporations with short tax years ending anytime in June are treated as if the short year ended on June 30, and they must file by the 15th day of the third month after the end of the tax year. For C corporations with fiscal years ending on June 30, the deferred filing due date won't apply until tax years beginning after Dec. 31, 2025.

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Revised automatic extension rules for corporations

Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, effective generally for returns for tax years beginning after Dec. 31, 2015 -- i.e., for 2016 tax year returns filed in 2017 -- the three-month automatic extension of time for corporate returns in Code Sec. 6081(b) is changed to an automatic six-month extension. However, for any return for a tax year of a C corporation that ends on Dec. 31 and which begins before Jan. 1, 2026, the automatic extension period is five months (not six months). And, for any return for a tax year of a C corporation which ends on June 30 and which begins before Jan. 1, 2026, the automatic extension period is seven months (not six months).

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Safe harbor for de minimis errors on information returns and payee statements

Effective for returns and statements required to be filed after Dec. 31, 2016, the 2015 PATH Act established a de minimis safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements. If the error is $100 or less ($25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return, and no penalty is imposed.

However, if any person receiving payee statements requests a corrected statement, the penalty for failure to file a correct information return and the penalty for failure to furnish a correct payee statement continue to apply in the case of de minimis errors on that statement.

Demonstrators outside the Supreme Court in advance of the court's rulling that the ACA was constitutional

A demonstrator in support of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds up a "ACA is Here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg

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Qualified small employer HRAs exempt from ACA market reform requirements

Generally effective for years beginning after Dec. 31, 2016, the 21st Century Cures Act provides that a "qualified small employer HRA" is not treated as a group health plan for income tax purposes (except for Code Sec. 4980I(f)(4), which defines a group health plan), as amended, and notwithstanding any other provision of the Code). There are similar exceptions for ERISA and Public Health Services Act purposes.

Observation: Thus, under the act, a qualified small employer HRA will not face the Code Sec. 4980D excise tax levied on group health plans that don't meet the Affordable Care Act market reform requirements.

A demonstrator in support of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds up a "ACA is Here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg

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Due dates for filing key ACA information returns are deferred

In Notice 2016-70, 2016-49 IRB, the IRS extended certain due dates for the 2016 Affordable Care Act information reporting requirements under Code Sec. 6055 and Code Sec. 6056. The due date for furnishing to individuals the 2016 Form 1095-B, Health Coverage, has changed from Jan. 31, 2017, to Mar. 2, 2017. The due date for furnishing to individuals the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, also has changed from Jan. 31, 2017, to Mar. 2, 2017.

However, the due date for filing with IRS the 2016 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2016 Form 1095-B, Health Coverage, the 2016 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, remains unchanged at Feb. 28, 2017; if filing electronically, the due date is March 31, 2017.

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Refundable corporate AMT credits reduced

Corporations eligible for additional first-year depreciation deduction under Code Sec. 168(k) can choose instead to accelerate use of prior-year minimum tax credits, treating the accelerated credits as refundable credits – but corporations making this Code Sec. 168(k)(4) election will find that a portion of their requested refund will be subject to the sequester reduction.

Refund payments processed on or after Oct. 1, 2016, and on or before Sept. 30, 2017, as well as credit elect and refund offset transactions processed on or after Jan. 1, 2017, and on or before Sept. 30, 2017, will be reduced by the fiscal year 2017 sequestration rate of 6.9 percent (up from 6.8 percent), irrespective of when the original or amended tax return was received by IRS.

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Changes for alternative tax election by nonlife insurance companies

Under former Code Sec. 831(b), nonlife insurance companies with net written premiums, or direct written premiums if greater, not in excess of $1.2 million in the tax year could elect to be taxed, at regular corporate rates, only on taxable investment income, instead of being taxed on both investment and underwriting income. Under the 2015 Protecting Americans from Tax Hikes Act, for tax years beginning after Dec. 31, 2016, the $1.2 million maximum amount of annual premiums increases to $2.2 million and is adjusted for inflation ($2,250,000 for 2017).

Additionally, for tax years beginning after Dec. 31. 2016, a diversification requirement applies if a nonlife insurance company makes the election.

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Increased user fees for pre-filing agreements

A pre-filing agreement allows Large Business and International (LB&I) taxpayers to request an examination and resolve specific issues relating to returns that are neither due (taking into account any extensions of time to file) nor filed. Taxpayers are subject to a user fee (which is generally nonrefundable) if they are selected to participate in the PFA program. Under Rev Proc 2016-30, 2016-21 IRB, for PFA requests submitted on or after Jan. 1, 2017, the fee increases from $134,000 to $218,600. A fee is assessed for each separate and distinct issue.

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Information reporting by brokers on certain tax-exempt obligations

Under Code Sec. 6045, every person doing business as a broker must make a return showing the name and address of each customer, with details regarding gross proceeds and other information as IRS may require. Specifically, brokers must report adjusted basis for a covered security (as defined by Code Sec. 6045(g)(3)(A)) and whether any gain or loss upon the sale of the security is long-term or short-term. Additionally, Code Sec. 6049 requires the reporting of interest payments (including accruals of original issue discount, or OID, treated as payments).

Under final regs, for tax-exempt obligations acquired on or after Jan. 1, 2017, a payor must report under Code Sec. 6049 the daily portions of OID on a tax-exempt obligation. In addition, for tax years beginning after Dec. 31, 2016, the final regs allow, but don't require, a broker to report OID and acquisition discount for a tax-exempt obligation that is a covered security acquired before Jan. 1, 2017.