Wednesday, June 20, 2018

IRS plans to further delay foreign currency tax rules

The Internal Revenue Service and the Treasury Department have issued a notice saying they intend to amend the Section 987 regulations on foreign currency gains and losses, delaying the applicability date by one more year.
Last October, the IRS and the Treasury issued Notice 2017-57, which previously delayed the applicability date by one year, and in Notice 2018-57, which came out Wednesday they said they were delaying the regulations by another year.
The final regulations were originally issued in December 2016, in the waning days of the Obama administration, changing how a U.S. company can measure the taxable income of a foreign business unit where the currency differs from its U.S. owner. The regulations were supposed to take effect Dec. 7, 2016, but they were among eight tax regulations that were identified in a July 2017 notice as ones that would be re-evaluated in accordance with an executive order signed by President Trump in the early days of his administration aimed at reducing burdensome federal regulations.
As part of that review, the Treasury Department and the IRS said they are considering changes to the final regulations that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations and alternative rules for determining a section 987 gain or loss.
The Treasury Department and the IRS intend to amend the tax code so the final regulations and the related temporary regulations will apply to taxable years beginning on or after the date that is three years after the first day of the first taxable year following Dec. 7, 2016.
Source: Accountingtoday.com Written by: M Cohn

Tuesday, June 12, 2018

IRS plans regulations to ease taxes on college endowments

The Internal Revenue Service said Friday it plans to issue regulations to limit the impact of a new excise tax on the endowments of private colleges and universities under the new tax law.
Under the new guidance, a private college or university that is subject to the new 1.4 percent excise tax in the Tax Cuts and Jobs Act on net investment income, and that sells property at a gain, generally can use the property’s fair market value at the end of 2017 as its basis for calculating the tax on any resulting gain. In many instances, the new stepped-up basis rule will reduce the amount of gain subject to the new tax, the IRS pointed out. The normal basis rules will still apply for calculating any loss.
In a new Notice 2018-55 that was issued Friday, the Treasury Department and the IRS said they plan to issue proposed regulations to address this along with other matters pertaining to the new excise tax. Meanwhile, affected taxpayers such as private colleges and universities can rely on the special basis step-up rule discussed in the notice. The notice also asks for public comment on other issues that should be addressed in future guidance.
The excise tax was included in the tax overhaul legislation that Congress passed in December. The tax applies to any private college or university with at least 500 full-time tuition-paying students, more than half of whom are located in the U.S., that has an endowment of at least $500,000 per student. An estimated 40 or fewer institutions are affected, but the new tax has prompted considerable concern in the academic world. In April, a pair of lawmakers, Rep. John Delaney, D-Md., and Bradley Byrne, R-Ala., introduced bipartisan legislation, the Don’t Tax Higher Education Act, that would repeal the excise tax.
According to the notice issued Friday, the basis of property held on Dec. 31, 2017, that is later sold at a gain will be not less than its fair market value on Dec. 31, 2017, plus or minus subsequent normal basis adjustments. Similarly, the Treasury Department and the IRS said they intend to propose regulations under which losses can offset gains to the extent of gains, but no capital loss carryovers or carrybacks will be allowed.
Proposed regulations also could allow losses from property sales by related organizations to offset gains realized by other related organizations. Updates on the implementation of this and other provisions of the Tax Cuts and Jobs Act can be found on the IRS’s Tax Reform page.

Source: accountingtoday.com Written by: M Cohn

Wednesday, June 6, 2018

IRS budgets $291M on technology for tax reform

The Internal Revenue Service plans to spend close to $300 million to implement the new tax law, including approximately $20 million for an estimated 450 new forms, instructions and publications.
According to a spending plan posted by The Wall Street Journal, the IRS intends to update 140 of its computer systems to handle the Tax Cuts and Jobs Act. The agency is estimating it will require 542 additional hours of employee effort to modify its existing tax-processing systems to incorporate the many changes to tax credits, deductions and brackets, as well as establish new system functionality and workflows, manage programs and integrate services, and facilitate tax reform human capital planning, acquisitions, and financial planning.
Congress set aside $320 million of the IRS's budget of $11.4 billion this year in order to handle the new tax law. The IRS is estimating that its customer service assistors will need to answer 4 million additional phone calls to maintain their current level of service, representing a 17 percent increase over fiscal year 2017.
Training and familiarizing employees to answer questions about the tax overhaul will be key. For taxpayer-facing employees who answer the phones and handle walk-in appointments at Taxpayer Assistance Centers, the IRS expects to conduct approximately 40,000 hours of training on the various provisions and changes at a cost of about $1.8 million. The estimate also includes costs for the IRS Chief Counsel to review the training materials and provide interpretative advice, the IRS noted.
The IRS also plans to conduct extensive outreach to help prepare small businesses and tax preparers, in addition to training its employees about the new tax rules. The IRS typically holds more than 1,000 outreach events a year to educate thousands of taxpayers and tax professionals. “We expect the number of events and participants to significantly increase as a result of tax reform,” said the IRS.
The IRS intends to do outreach through both traditional media and social media. The agency anticipates increased interest and participation at its main events this year. It noted that early registration at this summer’s IRS Nationwide Tax Forums is already running 10 to 15 percent ahead of last year. “We anticipate requests for face-to-face events will increase 25 to 30 percent, particularly after more published legal guidance comes out in the weeks and months ahead,” said the IRS.
In the meantime, the IRS is continuing to consolidate its processing centers in response to continued increases in electronic filing. According to a new report from the Treasury Inspector General for Tax Administration that was released Monday, IRS management announced plans in 2016 to further consolidate Tax Processing Centers from five to two by the end of fiscal year 2024 as a result of the continued decreases in paper-filed tax returns. The IRS anticipates using the projected five-year cost savings of about $266 million to focus on taxpayer service, tax enforcement and information technology.

Source: Accountingtoday.com Written by: M. Cohn

Thursday, May 31, 2018

IRS provides info on tax reform changes to moving, mileage and travel expenses

The Internal Revenue Service offered information Friday about changes from the Tax Cuts and Jobs Act on the rules for moving expenses, vehicle expenses and unreimbursed employee expenses, along with higher depreciation limits for some vehicles.
The TCJA, the tax overhaul that Congress passed last December, suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, until Jan. 1, 2026. During that suspension period, the IRS won’t allow deductions for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. However, the suspension doesn’t apply to members of the armed forces on active duty who move because of a military order related to a permanent change of station.
Unreimbursed employee expense deduction
The new tax law also suspends all miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. The change has an impact on expenses such as uniforms, union dues and the deduction for business-related meals, travel and entertainment that the employer isn’t reimbursing.
That means the business standard mileage rate listed in Notice 2018-03, which was issued before the tax overhaul passed, can’t be used to claim an itemized deduction for unreimbursed employee travel expenses in taxable years starting after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance on the matter Friday in Notice 2018-42. It supersedes the earlier notice and includes info about the update to the standard mileage rates, along with details about the suspension of the deduction for operating a vehicle for moving purposes.

2018 standard mileage rates
In Notice 2018-03, which the IRS issued earlier this year, the standard mileage rates for use of a car, van, pickup or panel truck for 2018 remain:
• 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
• 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
• 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.
The standard mileage rate for business comes from a yearly study of fixed and variable costs of operating an automobile, while the rate for medical purposes depends on variable costs.
Taxpayers can opt to calculate the actual costs of using their vehicle instead of using the standard mileage rates.
A taxpayer can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle, however. On top of that, the business standard mileage rate can’t be used for more than four vehicles simultaneously.
Increased depreciation limits
The new tax law ups the depreciation limitations for passenger automobiles that have been placed in service after Dec. 31, 2017, for purposes of calculating the allowance under a fixed and variable rate plan. The maximum standard automobile cost can’t exceed $50,000 for passenger automobiles, trucks and vans that have been placed in service after Dec. 31, 2017. Prior to the change, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.

Wednesday, May 23, 2018

Thomson Reuters reports on state taxes on e-commerce

Thomson Reuters released a report Tuesday examining how states are imposing corporate income taxes on out-of-state e-commerce sites.
The report comes amid speculation over a high-profile case that the Supreme Court is expected to decide by June that could change the way states collect taxes from e-commerce merchants, potentially overturning the landmark Quill decision from 1992 that imposed a physical presence test on state sales taxes.
Thomson Reuters’ Checkpoint Catalyst editorial team sent a detailed survey to state tax authorities asking for information about how they approach various e-commerce technologies, including cloud computing, digital products, and others. The second annual Checkpoint Catalyst special report, State Corporate Income Tax: E-Commerce Study 2018, examined whether a state can levy taxes on a seller whose only contact with the state is engaging in purely digital transactions and, if so, how the state obtains the receipts.
“This year’s results continue to reflect a broad range of state responses to questions involving corporate income tax nexus and apportionment for pure e-commerce,” said Salim Sunderji, managing director, Checkpoint, with the Thomson Reuters Tax & Accounting business, in a statement Tuesday. “Tax and accounting professionals whose clients engage in these types of transactions will benefit from the high-level overview.”
Thomson Reuters released a separate Checkpoint special report Monday on the impact of the Tax Cuts and Jobs Act on disclosures of public companies’ financial reporting and disclosure obligations. The report, Effects of the Tax Cuts and Jobs Act on Public Company Disclosures, discusses recent SEC staff guidance, including the accounting obligations of SEC registrants when conducting an assessment for some of the tax effects of the TCJA and the disclosures that registrants are expected to offer about the material financial reporting impacts of the new tax law for which the accounting is incomplete.
For another report released this week, Thomson Reuters commissioned Celent to conduct independent market research on integrated governance, risk and compliance. The findings appear in the report, Achieving Integrated GRC in an Interconnected Digital Age, which examines technologies such as big data, artificial intelligence, machine learning and blockchain. The report indicates risk operations continue to be held back by inflexible technology.

Source: accountingtoday.com Written by: M. Cohn

Wednesday, May 16, 2018

IRS adjusts health savings account limits for 2019

The Internal Revenue Service has issued a revenue procedure providing the 2019 inflation-adjusted amounts for health savings accounts.

In Revenue Procedure 2018-30, the IRS said the annual limitation on deductions for an individual with self -only coverage under a high deductible health plan is $3,500 for calendar year 2019. Also for next year, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000.


A “high deductible health plan” is defined as a health plan with an annual deductible of no less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co- payments, and other amounts, but not premiums) don’t exceed $6,750 for self-only coverage or $13,500 for family coverage for 2019.
Earlier this year, the IRS changed the family coverage contribution limit for 2018 for HSAs from $6,900 to $6,850 in response to the Tax Cuts and Jobs Act, but then reversed course and raised it again to $6,900.
Source: accountingtoday.com by: M. Cohn

Wednesday, May 9, 2018

5 tax reform twists businesses need to know more about

The Treasury Department has been directed to remove two existing regulations for every new one it issues going forward. While these moves are intended to reduce the volume of regulations and to clarify the new law, tax and regulatory executives at businesses of varied sizes are still looking for clarification across many key areas, particularly when it comes to the ramifications of the Tax Cuts and Jobs Act.
While the size, entity type and geographic footprint of a business yields many company-specific questions and tax scenarios, what is known about the implementation of the new tax law today does permit the identification of some broad areas of observation and discussion. Here are several specific examples:

1. GILTI
When the Tax Cuts and Jobs Act became law, most of the discussion centered on individual and domestic business tax reform changes. However, several of the international tax provisions in this law may have a significant impact on taxpayers. A new category of income, “global intangible low-taxed income,” or GILTI, will require businesses to recognize a percentage of previously deferred foreign earnings via a minimum tax on a controlled foreign corporation’s income, offset by a 10 percent reduction roughly equal to the adjusted tax basis of the CFC’s depreciable tangible personal property. While conformity laws are expected in some states, not all states may conform to the federal GILTI provisions.
To prepare, taxpayers should analyze their existing foreign structures to ensure they have appropriate expense allocations and add GILTI implications into their tax rate forecasts and provisions. Similarly, as some of the offsets of this provision are only available to C corporations, taxpayers should examine their overall tax position to determine which alternative tax strategies could be required to mitigate the GILTI impact.

2. Section 162(m)
This section of the Tax Code prohibits publicly held corporations from deducting more than $1 million per year in compensation paid to each of certain covered employees. With an eye toward reining in performance-based compensation exceptions, the proposed revisions to this section stem from public outcry in the late 2000s over exorbitant executive bonus structures. Questions remain as to what might be grandfathered in from previous law and what might not. “There was always an exception for performance-based compensation,” said Ronnie Brown, vice president of tax at National Vision Inc., who teaches at Georgia State University’s J. Mack Robinson College of Business. “Those rules have been tightened a bit. Companies may look at their compensation structures more and make sure they look at the 162(m) regime.”

3. Transition taxes
To offset potential revenue from transitioning to a quasi-territorial tax regime, a one-time deferred income inclusion on previously deferred and untaxed income will be subject to a mandatory transition tax in the United States at either an 8 percent tax rate for illiquid assets or a 15.5 percent tax rate for earnings attributable to liquid assets measured at Nov. 2, 2017, or Dec. 31, 2017, whichever is higher. New sourcing rules also change where activities are considered taxed. The law changes the current worldwide taxation system (with some deferrals) to a participation exemption (via a dividend received deduction) with current taxation of some types of income. This tax will affect U.S. persons who own 10 percent of the vote or value of a specified foreign corporation. Therefore, this provision could impact not just U.S. corporations owning foreign subsidiaries, but also foreign private equity funds and their U.S. owners.
The relatively low rates of the transition tax are designed to facilitate the return of the estimated $2.5 trillion in accumulated foreign earnings – earnings that, under the higher tax rates of the prior tax law, were largely left tax-deferred in foreign subsidiaries. Early trends indicate that the law is achieving its desired impact. However, some companies may still not be able to bring this money back to the United States due to the working capital needs in their foreign operations, as well as withholding tax at the local level.

4. Section 163(j)
The deductibility of net business interest expense generally will be limited to 30 percent of adjusted taxable income. Moreover, there is no grandfather provision for loans made prior to the enactment of the law, so interest on these prior loans will also be subject to this new limitation. This may result in less borrowing by businesses with a corresponding turn to equity transactions, as not only will the interest deduction be limited but the deduction itself is not as valuable now that the corporate tax rate has been reduced to 21 percent. Additionally, the law does not address whether a consolidated group is treated as a single taxpayer in the calculation of this deduction, which requires further clarification.
5. Conformity laws
For companies operating across numerous states, new federal regulations present challenges if states do not conform with the federal provisions. The state income tax implications of the new legislation vary widely depending on states’ automatic or fixed conformity to the Internal Revenue Code and based on states’ appetite for amending their tax laws after the law’s enactment. Generally, however, the tax reform will have the effect of increasing most businesses’ effective state income tax rate due to the broadened federal income tax base without a corresponding reduction in the state tax rate. For example, Georgia recently enacted HB 918, which resulted in GILTI income being subject to tax despite Georgia’s historical stance of not subjecting foreign dividend income to taxation.

Shortly after taking office last January, the Trump administration set in motion a process requiring the Treasury to identify and reduce tax regulatory burdens. The Treasury has responded by proposing the removal of hundreds of burdensome or obsolete regulations. Under the requirement to remove two old regulations for every new one, the Treasury now can issue regulations to answer the many questions and provide the clarity that corporations will need as they plan for and comply with the provisions of the most significant tax legislation in the last 30 years.
Source: accountingtoday.com Author: J. Pickett