What’s new for 2016—a roundup of tax changes effective this year…

A large number of important tax changes go into effect this year. Many were ushered in by the Protecting Americans from Tax Hikes (PATH) Act of 2015, although legislation enacted earlier in 2015 and in 2014 also contributed a fair share. Still other changes are the result of various administrative pronouncements by IRS

The recent legislation responsible for the lion’s share of the changed rules for 2016 consists of:

• The Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L. 114-113, 12/18/2015);
• The Fixing America’s Surface Transportation (FAST) Act (P.L. 114-94, 12/4/2015);
• The Bipartisan Budget Act of 2015 (P.L. 114-74, 11/2/2015);
• The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41, 7/31/2015);
• The Trade Preference Extension Act of 2015 (P.L. 114-27, 6/29/2015); and
• The Achieving a Better Life Experience Act of 2014 (ABLE Act), part of the Tax Increase Prevention Act of 2014 (P.L. 113-295, 12/19/2014)

April 18 will be 2016 tax deadline for most individual taxpayers. In Rev Rul 2015-13, 2015-22 IRB, IRS announced that Monday, Apr. 18, 2016 will be the tax deadline for 2015 income tax returns for individual taxpayers in most states. Because Emancipation Day (a legal holiday in the District of Columbia) falls on Saturday, April 16, in 2016, it will be observed on Friday, April 15, which pushes the tax filing deadline to the next business day – Monday, Apr. 18, 2016. However, because Patriot’s Day will be observed this year on Monday, Apr. 18, 2016 in Maine and Massachusetts, residents of those states will have until Apr. 19, 2016 to file and pay their taxes.

New exclusion for payments from certain work-learning-service programs. For amounts received in tax years beginning after Dec. 18, 2015, a taxpayer may exclude from gross income any payments from certain work-learning-service programs that are operated by a work college (as defined in section 448(e) of the Higher Education Act of 1965). (Code Sec. 117(c)(2)(C)) Under Sec. 448(e)(1) of the ’65 Higher Education Act, work colleges are public or private nonprofit, 4-year, degree-granting institutions committed to community service, which have operated a comprehensive work-learning-service program for at least two years, and which require that students participate in a comprehensive work-learning-service program.

Agricultural research organizations are 50% charities. Contributions by an individual to an organization that is a “50% charity” are deductible up to 50% of the donor’s contribution base, which is the donor’s adjusted gross income, computed without any net operating loss carryback deduction. A 30% limitation applies to an individual’s contributions to a 50% charity of appreciated capital gain property, i.e., a capital asset the sale of which at its fair market value at the time of the contribution would have resulted in long-term capital gain.

For contributions on or after Dec. 18, 2015, the PATH Act adds agricultural research organizations to the list of 50% charities. The organization must commit to use the contribution for agricultural research before January 1 of the fifth calendar year that begins after the date of the contribution. (Code Sec. 170(b)(1)(A)(ix))

Toughened rules for claiming child tax credit (CTC). Under the PATH Act, the following toughened compliance rules apply to taxpayers claiming the CTC. They all apply for tax years beginning after Dec. 31, 2015, except as otherwise noted:

• Effective for returns, and any amendment or supplement to a return, filed after Dec. 18, 2015, an individual can’t retroactively claim the child tax credit (CTC) by amending a return (or filing an original return if he failed to file) for any prior year in which the individual or a qualifying child for whom the credit is claimed did not have an individual tax identification number (ITIN). (Code Sec. 24(e)) But the provision won’t apply to any tax return (other than an amendment or supplement to a return) for any tax year that includes Dec. 18, 2015 if the return is filed on or before its due date. (PATH Act Sec. 205(c)(2))
• No CTC is allowed for any tax year in the “disallowance period” which is: (a) two tax years after the most recent tax year for which there was a final determination that the taxpayer’s CTC claim was due to reckless or intentional disregard of rules and regs (but not due to fraud); (b) 10 tax years after the most recent tax year for which there was a final determination that the taxpayer’s CTC claim was due to fraud. (Code Sec. 24(g)(1))
• If a taxpayer is denied the CTC for any tax year as a result of the deficiency procedures, then no CTC is allowed for any later tax year unless the taxpayer provides the information that IRS requires to demonstrate eligibility for the CTC. (Code Sec. 24(g)(2))
• The following are added to the mathematical or clerical errors for which IRS can make a summary assessment (i.e., with respect to which IRS can summarily assess the additional tax due without sending the taxpayer a deficiency notice): an entry on the return claiming the CTC for a tax year for which the CTCs are disallowed under Code Sec. 24(g)(1) because of an earlier CTC claim due to reckless or intentional disregard of rules and regs or fraud; and an omission of information that a taxpayer who has made an earlier CTC claim that was denied as a result of the deficiency procedures must provide under Code Sec. 24(g)(2) to demonstrate eligibility for the CTC. (Code Sec. 6213(g)(2)(P))

New anti-abuse measures for American opportunity tax credit (AOTC). The following toughened compliance rules apply to taxpayers claiming the AOTC. They all apply for tax years beginning after Dec. 31, 2015, except as otherwise noted:

1. Effective for returns, and any amendment or supplement to a return, filed after Dec. 18, 2015, an individual is prohibited from retroactively claiming the AOTC by amending a return (or filing an original return if he failed to file) for any prior year in which the individual or a student for whom the credit is claimed did not have an ITIN. (Code Sec. 25A(i)(6)) However, the preceding change doesn’t apply to any tax return (other than an amendment or supplement to a return) for any tax year that includes Dec. 18, 2015, if the return is filed on or before its due date. (PATH Act Sec. 206(b)(2))
2. A taxpayer may not claim an AOTC for any tax year during the disallowance period, which is: the period of 10 tax years after the most recent tax year for which there was a final determination that a taxpayer’s claim of an AOTC was due to fraud; and the period of two tax years after the most recent tax year for which there was a final determination that a taxpayer’s claim of an AOTC was due to reckless or intentional disregard of rules and regs (but not fraud). (Code Sec. 25a(i)(7)) Additionally, for a taxpayer who’s denied an AOTC for any tax year as a result of the Code’s deficiency procedures, no AOTC is allowed for any later tax year unless the taxpayer provides the information IRS may require to demonstrate eligibility for the credit. (Code Sec. 25a(i)(7)(B))
3. If a taxpayer doesn’t provide the eligibility information required by IRS, or makes an entry on a return claiming the AOTC for a tax year for which the credit is barred due to an earlier claim based on fraud or the reckless or intentional disregard of rules and regs, then IRS can deny any AOTC claimed by the taxpayer, by summary assessment (i.e., without going through the normal deficiency procedures). (Code Sec. 6213(g)(2)(Q))
4. For tax years beginning after Dec. 31, 2015, and expenses paid after that date for education furnished in academic periods beginning after that date, a taxpayer claiming the AOTC must report the employer identification number (EIN) of the educational institution to which the taxpayer makes qualified payments under the credit. (Code Sec. 25A(i)(6))
5. For expenses paid after Dec. 31, 2015, an eligible educational institution to which qualified tuition and related expenses were paid must include its employer identification number (EIN) on the information return (Form 1098-T) that it provides to IRS. (Code Sec. 6050S(b)(2)(C))
6. For expenses paid after Dec. 31, 2015 for education furnished in academic periods beginning after that date, higher education institutions must report (on Form 1098-T) only qualified tuition and related expenses actually paid (rather than choosing between amounts paid and amounts billed, as under prior law). (Code Sec. 6050S(b)(2)(B)(i)) Additionally, under the 2015 Trade Preferences Extension Act of 2015, for tax years beginning after June 29, 2015, as a condition for claiming the higher education credit under Code Sec. 25A (or the Code Sec. 222 tuition and fees deduction), a taxpayer must receive, or be treated as having received, a payee statement (generally, Form 1098-T, Copy B) that contains all of the information required to be included on the Form 1098-T information return filed with IRS, including the TIN of the student for whom the qualified tuition and related expenses were paid, or billed, for the tax year. (Code Sec. 25A(g), Code Sec. 222(d)(6)(A)) In a related change, the 2015 Trade Preferences Extension Act of 2015 waives the otherwise applicable information reporting penalty on educational institutions that fail to file Forms 1098-T with accurate TINs of students attending the educational institution if the institution certifies, under penalty of perjury, that it properly requested TINs from the students as required under Treasury regs. (Code Sec. 6724(f)) This change is effective for returns required to be made, and statements required to be furnished, after Dec. 31, 2015.

Toughened earned income tax credit (EITC) rules. Effective for returns, and any amendment or supplement to a return, filed after Dec. 18, 2015, an individual is prohibited from retroactively claiming the EITC by amending a return (or filing an original return if he failed to file) for any prior year in which the individual or a student for whom the credit is claimed did not have a valid social security number. (Code Sec. 32(m), as amended by Act Sec. 204) However, the preceding change doesn’t apply to any tax return (other than an amendment or supplement to a return) for any tax year that includes Dec. 18, 2015 if the return’s filed on or before its due date. (PATH Act Sec. 204(b))

• Here is the site: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act.                                      Good Luck…and have a great spring..!