By now, CPA tax practitioners will have fired up their tax return preparation software, installed updates, conducted staff training, and otherwise readied their tax practices to start preparing tax year 2015 returns. (And if that software is a source of heartburn, they might want to check out "2015 Tax Software Survey," JofA, Sept. 2015, page 24.)
The nearly perennial problem of congressional passage of extender provisions occurring in late December and occasionally later—after the print deadline for this article—is perhaps best addressed here by simply alerting CPAs to the list of items that may or may not be available for tax year 2015 returns and suggesting they check the daily tax news feed at thetaxadviser.com and tax and other accounting news at journalofaccountancy.com for updates.
These scores of extender provisions—ranging from such parochial interests as the Indian coal facility production credit to those of broad reliance, such as the more generous Sec. 179 expensing limits—were last renewed by the Tax Increase Prevention Act of 2014, P.L. 113-295, on Dec. 19, 2014, but only for the 2014 tax year. (For a full list of the provisions, see "Expired Tax Provisions: No Relief in Sight?" Tax Insider.) Hence, taxpayers were without the benefit of knowing whether they could take advantage of the provisions through most or all of 2015. In early October, the AICPA wrote congressional tax-writing committee chairs urging expeditious resolution of the uncertainty and describing the harm to taxpayers, practitioners, and tax administration caused by late, retroactive extensions (letter available at aicpa.org).
That said, some changes for the 2015 tax year, while less momentous than the more common or taxpayer-friendly extenders, warrant a reminder as client tax organizers are completed and CPAs start filling in the blanks on returns. For a handy tear-out reference with a broad range of standard amounts updated for the 2015 tax year, including general tax rate tables and common deductions, credits, limitations, and phaseout thresholds and ranges, see the quick guide accompanying this article. Other changes await just over the horizon in subsequent tax years but are worth noting and preparing for now.
Tucked into the Trade Preferences Extension Act of 2015 (Trade Act), P.L. 114-27, were several new provisions.
Child tax credit not refundable if excluding foreign earned income or housing costs: Section 807 of the Trade Act amended Code Sec. 24(d) to deny refundability of a portion of the child tax credit to taxpayers who elect to exclude any amount from gross income under Sec. 911 for the tax year, effective for tax years beginning after Dec. 31, 2014. Thus, if a client claims a foreign earned income or foreign housing exclusion and the refundable child tax credit won't go through, CPAs should not attempt to override their software; here is the source of the mystery.
Payee statement required for education tax benefits: Another Trade Act change that will eventually affect a significant number of taxpayers is its requirement that taxpayers claiming a higher education tax credit or deduction receive a Form 1098-T, Tuition Statement, that includes all the information required on the form. Since the provision is effective for tax years beginning after June 29, 2015, it won't generally affect individual returns for 2015, but contacts with clients during the current tax season might be a good time for CPAs to mention to them that they'll need to make sure they receive the form early next year from educational institutions if they wish to claim a credit or deduction for 2016.
Foreign students in the United States might well see an attempt by their school to obtain or verify their taxpayer identification number (TIN) for this purpose; a special rule, effective for returns and statements required to be made or furnished after Dec. 31, 2015, waives penalties on educational institutions for failure to file Form 1098-T solely by reason of failing to provide an accurate TIN on the form or other statement required under Sec. 6050S, but only if the institution certifies under penalty of perjury that it has properly requested the TIN from the student and otherwise complied with standards for obtaining the number as required under Treasury regulations (which as of this writing had yet to be promulgated).
Consistent basis reporting between estate and person acquiring property from decedent: The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Transportation Act), P.L. 114-41, introduced a basis consistency rule for certain inherited property. For property with respect to which an estate tax return is filed after July 31, 2015, and whose inclusion in the decedent's estate increased liability for estate tax (reduced by allowable credits), the basis of the property in the hands of a person acquiring the property from the decedent cannot exceed either (1) the value of the property for which the final value has been finally determined for purposes of the estate tax, or (2) for any property not described in (1), its value as identified in a statement furnished to the IRS and the recipient under new Sec. 6035.
Under Sec. 6035(a)(2), the statements are to be furnished to any person holding a legal or beneficial interest in the property to which the estate tax return relates. These statements, otherwise due by the earlier of 30 days after the estate tax return is filed or is required to be filed (generally, nine months after the decedent's death, with a six-month extension upon request before the due date, with payment of the estimated correct amount of tax), will not in any case be due until after Feb. 29, 2016 (see Notice 2015-57). The information on the statement may be adjusted by a supplemental statement filed within 30 days after the adjustment is made.
Under Sec. 1014(f)(3), basis has been determined for purposes of (1), above, if: (1) the value is shown on the estate tax return and the IRS does not contest the value before the expiration of the time for assessing estate tax (generally, three years from filing the return); (2) the value has been determined by a court or pursuant to a settlement with the IRS; or (3) the value is specified by the IRS and is not contested by the executor of the estate.
Taxpayers and their advisers should note that while the statement requirement has been delayed, the underlying basis consistency requirement has not. Conceivably, therefore, unless the IRS also provides taxpayer relief (regulations are not expected before early 2016), the requirement could affect a 2015 income tax return reporting a disposition of inherited property to which Sec. 1014(f) applies.
Home Concrete overridden: In another change by the Transportation Act—one that could affect a 2015 or even earlier return—Congress "clarified" that in determining whether the six-year statute of limitation for assessment of tax under Sec. 6501(e) for an omission from gross income of more than 25% of the gross income shown on a return applies to a taxpayer, an omission from gross income includes an understatement by reason of an overstatement of basis. In so doing, Congress overruled the Supreme Court's holding in Home Concrete & Supply, LLC, 132 S. Ct. 1836 (2012), that overstatement of basis in a disposed asset is not an omission from gross income for purposes of determining whether the extended limitation period applies (see "Gross Income Omissions and the 6-Year Tax Assessment Period," JofA, Feb. 2015, page 54). This change applies to returns filed after the date of the Transportation Act's enactment (July 31, 2015) and returns filed on or before that date if the applicable limitation period under Sec. 6501 (without regard to the change made by the Transportation Act) did not expire before that date.
Coming in tax year 2016: Changes in business and FBAR return due dates and extensions: Yet another set of changes in the Transportation Act, new return filing deadlines, does not affect 2015 returns, but for tax years beginning after Dec. 31, 2015, for CPAs and perhaps for business clients, it will likely have major effects on planning and scheduling. Again, this tax season might be a good time to broach the subject with those clients. The filing deadline for partnerships will be the 15th day of the third month after the end of the tax year, a month earlier than currently and making it the same as for S corporations. Also, partnerships will have a six-month automatic extension, rather than the current five months.
Also starting with the 2016 tax year, the return due date for calendar-year C corporations will move from March 15 currently (or, for most corporations with fiscal tax years, the 15th day of the third month after the end of their fiscal tax year) to April 15 (or, for most corporations with fiscal tax years, the 15th of the fourth month after the tax year end). Any C corporation with a June 30 tax year end, however, will keep its Sept. 15 due date until tax years beginning after Dec. 31, 2025, when those returns will be due Oct. 15.
Furthermore, beginning with the 2016 tax year, corporations with a June 30 year end will have an extension period of seven months, to April 15. Calendar-year C corporations will continue to have a Sept. 15 extended due date (i.e., starting with the 2016 tax year, five months) until the 2026 tax year and subsequently, when they also will have a six-month extension period, to Oct. 15. C corporations with fiscal tax years that do not end on June 30 will have an extended due date of the 15th day of the 10th month after year end, effective in 2016 (i.e., a six-month extension). Confused? See an AICPA CPA Insider article describing the changes and how they can help taxpayers and preparers (and the AICPA's role in advocating for the changes), with a handy summary chart of the changes at aicpa.org.
For individual taxpayers, FinCEN Forms 114, Report of Foreign Bank and Financial Accounts (FBARs), due in tax years beginning after Dec. 31, 2015, will be due on April 15, concurrently with individual returns, rather than June 30 as formerly. Also, for the first time, FBARs will be allowed a six-month extension. For taxpayers required to file an FBAR for the first time, the IRS may waive any penalty for failure to timely request or file an extension.
Identity theft fraud: Nearly two-thirds of the CPA tax preparers responding to the JofA's most recent tax software survey said that one or more of their clients had been victimized by identity theft tax fraud ("2015 Tax Software Survey," JofA, Sept. 2015, page 24), reflecting what is widely acknowledged to be a serious and growing problem. Nearly 40% of the survey respondents who reported some identity theft victimization among their clients said resolving the issues was difficult or very difficult. Moreover, a recent report to Congress by National Taxpayer Advocate Nina Olson suggests that even taxpayers whose identities haven't been stolen may be adversely affected by the IRS's filters for detecting identity theft as those filters generate false positives. During the 2015 filing season, the IRS's Taxpayer Protection Program (TPP) delayed more than 1.5 million returns with refund claims as potentially reflecting identity theft fraud (as of April 23, 2015), 104% more than for the same period in 2014. However, of those flagged returns, more than one-third turned out to be false positives, that is, legitimate refund claims.
Taxpayers whose refunds were held up were told in a notice to call a TPP phone line to verify their identity, but it suffered from a poor level of service similar to the one that plagued callers to the general IRS help line. Only 17% of callers on average throughout the filing season got through to a live person, and for three consecutive weeks in February, the average was below 10%. For those who did get through, time spent on hold averaged over an hour during the first week of February and never averaged less than 19.2 minutes for any week after Jan. 3 (see Taxpayer Advocate Service, Fiscal Year 2016 Objectives Report to Congress, Vol. 1, pages 17 and 25—26, available at taxpayeradvocate.irs.gov.
It would be heartening to imagine that the IRS's initiatives to devote more employees and resources more intelligently to better detect and redress these crimes, as well as its "Security Summit" project with state taxing authorities, tax software providers, and other stakeholders, will make the 2016 filing season less fraught. In October, the IRS announced that some of the Security Summit's recommendations would be adopted and in place in time to improve the security of taxpayers' identities and its data systems for this filing season. However, another shoe may drop. Criminals were able to hack into the IRS's Get Transcript online application last year and access the account information of more than 300,000 taxpayers. Presumably, they did so with the goal of using that information to file more fraudulent refund claims.
The IRS issues six-digit identity protection personal identification numbers (IP PINs) to victims of tax identity theft. In the 2014 tax filing season, it issued more than 1.2 million of them. In an October 2015 update to FAQs on its website (available at irs.gov, the IRS revised one of its policies for IP PINs for the 2016 filing season and after. Taxpayers who are issued an IP PIN for a tax year (a new one is issued for each succeeding year) must use it to confirm their identity on any e-filed tax return for that year and any delinquent returns filed during that calendar year (and they should use it on any paper-filed return to avoid delays). Previously, an IP PIN issued to a taxpayer's dependent did not have to be entered on a return on which that individual is claimed. However, starting Jan. 1, 2016, dependents' IP PINs must be used in all required fields, or the return will be rejected.
Tangible property final regulations: While the new final regulations for business tangible property, or "repair" regulations, were effective for the 2014 tax year, the extent of the changes and ongoing need to file accounting method change requests to adopt the new rules may require attention for 2015 as well (see "Change Is Coming: Accounting Method Changes Under the Tangible Property Regulations," JofA, April/May 2015, page 76).
While the 2016 tax filing season features some new provisions and, likely, some familiar challenges, CPA tax practitioners can take measures to ensure as smooth a trajectory as possible to April 15. Many resources are available to members of the AICPA Tax Section, and news and articles at journalofaccountancy.com and thetaxadviser.com will, as usual, provide updates and insights.
About the author
Paul Bonner is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at firstname.lastname@example.org or 919-402-4434.
- Depreciation, Amortization, and Property Transfers: Issues and Strategies, 2015 Edition (#PTX1503D, online access)
- Managing Your Tax Season, Third Edition (#PTX1402P, paperback; #PTX1402E, ebook)
- 1040 Tax Return Workshop (#746410, text)
- Hottest Tax Topics for 2015 (#733139, text; #163731, one-year online access)
- Identity Theft: Preventing, Detecting, and Investigating Identity Theft (#753508, text; #163031, one-year online access)
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