2020 NATIONAL INCOME TAX WORKBOOK CHAPTER 14 NEW

2020 NATIONAL INCOME TAX WORKBOOK CHAPTER 14: NEW AND EXPIRING LEGISLATION: PART 1 COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 1

LEARNING OBJECTIVES P. 457 After completing this session, participants will be able to do the following: ✔ Advise clients about the tax laws that were enacted or changed late in 2019 and in 2020 ✔ Identify individual and business income tax exclusions, deductions, and credits that expire in 2020; and exclusions, deductions, and credits that are expiring in future years COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 2

INTRODUCTION P. 457 Tax legislation enacted late in 2019 and in 2020 affects a variety of tax provisions. This chapter addresses ◦ ◦ The Further Consolidated Appropriations Act, 2020 (P. L. 116 -94) The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (as part of the above) The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) Selected Notices, Procedures and other Guidance as issued by IRS or Treasury. The Chapter is organized by topics and sub-topics. Within each subtopic entries are arranged by code citation. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 3

AGRICULTURAL AND NATURAL RESOURCE P. 458 Uniform Capitalization ◦ Rev. Proc. 2020 -13 provides the exclusive procedures for a taxpayer that qualifies for the section 263 A(i) small business taxpayer exemption to revoke its prior election under section 263 A(d)(3) and apply the small business taxpayer exemption in the same tax year. ◦ Additionally, it provides the exclusive procedures for a taxpayer that becomes ineligible to use the small business taxpayer exemption and wishes to make an election under section 263 A(d)(3) in the same tax year that it no longer qualifies for the exemption. ◦ Cross-reference with Chapter 7, Agricultural and Natural Resource Issues, for more detail. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 4

BUSINESS ENTITIES PP. 458 - 460 C Corporations Partnerships Tax-Exempt Organizations COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 5

C CORPORATIONS P. 458 Reg – 125710 -18, § 382 ◦ The IRS and Treasury have issued proposed regulations on the items of income and deduction that are included when calculating built-in gains and losses under I. R. C. § 382. Section 382(h) provides rules relating to the determination of a loss corporation’s built-in gains and losses as of the date of the ownership change (the change date). In general, built-in gains recognized during the 5 -year period beginning on the change date (the recognition period) allow a loss corporation to increase its section 382 limitation, whereas built-in losses recognized during the recognition period are subject to the loss corporation’s section 382 limitation. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 6

C CORPORATIONS P. 459 T. D. 9897, § 385 ◦ The IRS and Treasury finalized regulations regarding the treatment of certain interests in corporations as stock or indebtedness. The regulations treat certain indebtedness as stock if it is issued by a corporation to a controlling shareholder in a distribution or in another relatedparty transaction that achieves an economically similar result. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 7

C CORPORATIONS P. 459 REG-131071 -18, I. R. C. §§ 481, 1377 ◦ Generally, a distribution by a C corporation to its shareholders with respect to their stock ownership is treated as a taxable dividend to the extent of the corporation’s earnings and profits. ◦ Specifically, during the post-termination transition period (PTTP), a distribution of money by the C corporation is characterized as a distribution from the corporation’s accumulated adjustments account (AAA). ◦ Proposed regulations provide rules regarding the definition of an eligible terminated S corporation (ETSC). COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 8

PARTNERSHIPS P. 459 T. D. 9877, I. R. C. §§ 704, 752 ◦ Final regulations provide guidance for a partnership to allocate its liabilities among its partners. The final regulations address when certain obligations to restore a deficit balance in a partner’s capital account are disregarded under I. R. C. § 704, when partnership liabilities are treated as recourse liabilities under I. R. C. § 752, and how bottom dollar payment obligations are treated under section 752. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 9

PARTNERSHIPS P. 459 T. D. 9876, I. R. C. § 707 ◦ I. R. C. § 707 generally provides that related transfers of money or other property to and by a partnership that, when viewed together, are more properly characterized as a sale or exchange of property, will be treated either as a transaction between the partnership and one who is not a partner or between two or more partners acting other than in their capacity as partners (disguised sales). ◦ The final regulations address how partnership recourse and nonrecourse liabilities are allocated for disguised sale purposes COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 10

PARTNERSHIPS P. 459 T. D. 9869, I. R. C. § 7701 ◦ The final regulations clarify that partners in a partnership that owns a disregarded entity are not employees of the disregarded entity for employment tax purposes and are subject to selfemployment tax. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 11

PARTNERSHIPS P. 460 Notice 2019 -66, 2019 -52 I. R. B. 1509, I. R. C. § 6031 ◦ Notice 2019 -66 provides that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 (for partnership tax years beginning in 2019) but will be effective beginning in 2020 (for partnership tax years that begin on or after January 1, 2020). ◦ For 2019, partnerships and other persons must report partner capital accounts using any method available in 2018 [tax basis, section 704(b). ◦ For 2019 and subsequent years, the partnership must report negative tax basis capital accounts on a partner-by-partner basis and report a partner’s share of net unrecognized I. R. C. § 704(c) gain or loss. ◦ Additionally, the notice exempts publicly traded partnerships from the requirement to report their partners’ shares of net unrecognized section 704(c) gain or loss until further notice. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 12

PARTNERSHIPS P. 460 Notice 2020 -43, 2020 -27 I. R. B. 1, I. R. C. § 6031 ◦ Notice 2020 -43 provides that for purposes of satisfying the tax capital reporting requirement for partnership tax years that end on or after December 31, 2020, the IRS and Treasury propose to require the use of one of two alternative methods. ◦ 1) The partner’s basis in its partnership interest, reduced by the partner’s allocable share of partnership liabilities, as determined under I. R. C. § 752 (Modified Outside Basis Method); or ◦ 2) The partner’s share of previously taxed capital, as calculated under a modified version of Treas. Reg. § 1. 743 -1(d) (Modified Previously Taxed Capital Method). Cross Reference: Business Entities Chapter has more discussion. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 13

TAX-EXEMPT ORGANIZATIONS P. 460 T. D. 9886, I. R. C. § 512 ◦ Final regulations providing guidance on how voluntary employees’ beneficiary associations (VEBAs) and supplemental unemployment benefit trusts (SUBs) that provide employee benefits must calculate unrelated business taxable income (UBTI). Repeal of UBTI for Qualified Transportation Fringe Benefits, I. R. C. § 512 Notice 2020 -36, 2020 -21, I. R. B. 840, I. R. C. § 501 ◦ Contains a proposed revenue procedure that sets forth updated procedures under which organizations can request exemption from federal income tax on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 14

BUSINESS ISSUES 470 PP. 461 - Deductions Health Plans Nonrecognition (Like-Kind Exchanges) Opportunity Zones COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 15

DEDUCTIONS PP. 461 T. D. 9893, I. R. C. § 61 ◦ The IRS and Treasury issued final regulations regarding special valuation rules for employers and employees to use in determining the amount to include in an employee’s gross income for personal use of an employer-provided vehicle. ◦ Effective February 5, 2020 ◦ The final regulations update the fleet-average and vehicle cents-per-mile valuation rules to align the limitations on the maximum vehicle FMVs for use of these special valuation rules with the increases made by the TCJA to the I. R. C. § 280 depreciation limitations. The maximum base FMV amount is $50, 400 in 2020. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 16

DEDUCTIONS P. 461 Rev. Proc. 2019 -46, 209 -49 I. R. B. 1301, I. R. C. §§ 67, 217, 274 ◦ Rev. Proc. 2019 -46 updates rules for using the optional standard mileage rates to compute the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes to reflect these changes. ◦ The revenue procedure emphasizes that a taxpayer may not use the business standard mileage rate to claim a miscellaneous itemized deduction or to claim a miscellaneous itemized deduction for unreimbursed travel expenses during the suspension period. ◦ The revenue procedure provides that a member of the armed forces may still use the moving standard mileage rate to calculate the deduction for a qualified move. ◦ This revenue procedure also provides rules for substantiating, under I. R. C. § 274(d) and Treas. Reg. § 1. 274 -5 the amount of an employee’s ordinary and necessary expenses for local travel or transportation away from home that a payer (an employer, its agent, or a third party) reimburses using a mileage allowance. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 17

DEDUCTIONS P. 462 REG-1104591 -16, I. R. C. §§ 162, 6050 X ◦ The IRS and Treasury issued proposed reliance regulations that describe how taxpayers and governments can meet these requirements and define key terms and phrases such as restitution, remediation, and paid to come into compliance with a law. ◦ Restitution and Remediation ◦ Coming Into Compliance with the Law ◦ Government Reporting COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 18

DEDUCTIONS P. 463 T. D. 9874, I. R. C. §§ 168, 179 The final regulations provide that the acquisition of used property is eligible for bonus depreciation if it meets the following three requirements: ◦ The property was not used by the taxpayer or a predecessor at any time prior to the acquisition. ◦ The acquisition of the property meets certain related party and carryover basis requirements. ◦ The acquisition of the property meets the cost requirements of I. R. C. § 179(d)(3) and Treas. Reg. § 1. 1794(d). ◦ Predecessor includes (i) a transferor of an asset to a transferee in a transaction to which I. R. C. § 381(a) applies (carryovers in certain corporate acquisitions), (ii) a transferor of an asset to a transferee in a transaction in which the transferee’s basis in the asset is determined, in whole or in part, by reference to the basis of the asset in the hands of the transferor, (iii) a partnership that is considered as continuing under I. R. C. § 708(b)(2), (iv) the decedent in the case of an asset acquired by an estate, or (v) a transferor of an asset to a trust. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 19

DEDUCTIONS P. 464 REG-106808 -19 , I. R. C. § 168 ◦ The proposed regulations provide rules for the definition of qualified property for purposes of bonus depreciation and add special rules for consolidated groups. Additionally, the proposed regulations add transition rules for self-constructed property and add rules regarding the application of the midquarter convention, as determined under section 168(d). COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 20

DEDUCTIONS P. 464 C. C. A. 201928014, I. R. C. §§ 170, 0172 ◦ The IRS has provided guidance regarding use of charitable contribution and net operating loss (NOL) carryovers from multiple tax years. I. R. C. § 170(d)(2)(B) requires a reduction in a taxpayer’s charitable contribution carryover to the extent an excess charitable contribution reduces modified taxable income [as computed under section 172(b)(2)] and increases an NOL carryover. ◦ If the taxpayer has a charitable contribution carryover that is set to expire in the year at issue and section 170(d)(2)(B) requires a reduction in the taxpayer’s charitable contribution carryover, the taxpayer must reduce its current-year charitable contributions first. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 21

DEDUCTIONS P. 464 Rev. Proc. 2019 -48, 2019 -51 I. R. B. 1392, I. R. C. § 274 ◦ Rev. Proc. 2019 -48 updates rules for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payer (an employer, its agent, or a third party) reimburses. ◦ It provides that unreimbursed employee travel expenses that are miscellaneous itemized deductions subject to the 2%-of-AGI floor are not allowed for any tax year beginning after December 31, 2017, and before January 1, 2026, and a deduction for entertainment, amusement, or recreation expenses is generally disallowed. ◦ However, I. R. C. § 62(a)(2)(A) allows certain employees to deduct unreimbursed business expenses the employee pays or incurs in performing services under a reimbursement or other expense allowance arrangement with a payer and section 62(a)(1) allows self-employed persons to deduct business expenses paid or incurred. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 22

DEDUCTIONS P. 465 REG-100814 -19, I. R. C. § 274 ◦ Specifically, the proposed regulations address the elimination of the deduction under section 274 for expenditures related to entertainment, amusement, or recreation activities, and provide guidance to determine whether an activity is of a type generally considered to be entertainment. ◦ The proposed regulations also address the limitations on the deduction of food and beverage expenses under section 274(k) (no lavish expenses, and taxpayer must be present) and (n) (the 50% limitation), and the exceptions to those limitations under section 274(e)(2), (3), (4), (7), (8), and (9). Cross Reference: Agricultural and Natural Resources Chapter discusses this topic. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 23

DEDUCTIONS P. 465 REG-119307 -19, I. R. C. § 274 ◦ The proposed regulations address the elimination of the deduction under section 274 for expenses related to certain transportation and commuting benefits provided by employers to their employees in tax years beginning after December 31, 2017. ◦ QTFs are defined to mean any of the following provided by an employer to an employee: ◦ Transportation in a commuter highway vehicle between the employee’s residence and place of employment ◦ Any transit pass ◦ Qualified parking ◦ Qualified bicycle commuting reimbursement COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 24

DEDUCTIONS P. 465 REG-119307 -19, I. R. C. § 274 (Continued) ◦ The proposed regulations clarify three possible exceptions to the deduction disallowance under section 274(e)(2), (e)(7), and (e)(8). ◦ Included in Income ◦ Available to the Public ◦ Adequate Consideration COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 25

HEALTH PLANS P. 466 T. D. 9867, I. R. C. § 105 ◦ The final rules also set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 26

HEALTH PLANS P. 466 REG-109755 -19, I. R. C. § 213 ◦ Proposed regulations would treat direct primary care arrangements, health care sharing ministries, and certain government-sponsored health plans as deductible under I. R. C. § 213. ◦ Cross Reference to Business Tax Issues chapter provides more detail. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 27

HEALTH PLANS P. 466 Notice 2019 -45, 2019 -32 I. R. B. 593, I. R. C. § 223 ◦ Notice 2019 -45 expands the list of preventive care benefits that a high deductible health plan (HDHP) can provide under I. R. C. § 223(c)(2) without a deductible, or with a deductible below the applicable minimum deductible (self-only or family) for an HDHP. ◦ The notice provides that certain specified medical care services received, and items purchased, including prescription drugs for certain chronic conditions, should be classified as preventive care for someone with that chronic condition. ◦ The specified services and items are treated as preventive care only when prescribed to prevent the exacerbation of the chronic condition or the development of a secondary condition. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 28

NONRECOGNITION (LIKE-KIND EXCHANGES) P. 467 REG-117589 -18, I. R. C. § 1031 ◦ Issued proposed regulations that would add a definition of real property for purposes of a section 1031 like-kind exchange. ◦ Real Property: Inherently Permanent Structures ◦ See list, p. 467 ◦ Structural Components ◦ See list, p. 468 ◦ Four factors ◦ Unsevered Products of Land ◦ Intangible Assets ◦ Incidental Personal Property COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 29

OPPORTUNITY ZONES 469 P. Qualified Opportunity Fund Frequently Asked Questions, I. R. C. § 1400 Z ◦ Investors can defer tax on any prior gains invested in a QOF or QOZ business until the earlier of the date on which the investment is sold or exchanged, or December 31, 2026. ◦ If the investor holds the investment for longer than 5 years, there is a 10% exclusion of the deferred gain. If the investment is held for more than 7 years, the 10% exclusion increases to 15%. T. D. 9889, I. R. C. § 1400 Z ◦ The final regulations provide additional guidance for taxpayers eligible to elect to temporarily defer the inclusion in gross income of certain gains if corresponding amounts are invested in certain equity interests in QOFs or a QOZ business, and guidance on the ability of such taxpayers to exclude from gross income additional gain recognized after holding those equity interests for at least 10 years. Cross Reference to Business Tax Issues Chapter for further discussion COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 30

INDIVIDUAL ISSUES PP. 470 - 472 Deductions Exclusions Losses COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 31

DEDUCTIONS P. 470 REG-118997 -19, I. R. C. §§ 24, 152 ◦ The IRS and Treasury have issued proposed regulations that define a qualifying relative for tax years 2018 through 2025. ◦ The individual must also receive more than one-half of his or her support from the taxpayer claiming the individual as a qualifying relative. ◦ However, the definition of a qualifying relative is still relevant for purposes of the credit for other dependents, and head of household filing status. The proposed regulations provide that the exemption amount for these other tax purposes is $4, 150 for 2018, adjusted for inflation for 2019 through 2025 ($4, 300 for 2020). COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 32

DEDUCTIONS P. 470 T. D. 9864, I. R. C. §§ 162, 0164, 170 ◦ Final regulations address contributions to a charity in return for a state and local tax credit or deduction. The final regulations retain the rule that a taxpayer generally is not required to reduce its charitable contribution deduction on account of its receipt of state or local tax deductions. ◦ The charitable contribution deduction under section 170 may not exceed the amount of cash paid and the fair market value (FMV) of property transferred to an organization described in section 170(c) over the FMV of goods or services the organization provides in return. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 33

DEDUCTIONS P. 470 Disaster Act § 102, I. R. C. § 163 ◦ The Disaster Act extends the treatment of mortgage insurance premiums as qualified residence interest through December 30, 2020. Disaster Act § 103, I. R. C. § 213 ◦ The Disaster Act extends the 7. 5% medical expense deduction floor for tax years beginning before January 1, 2021. Disaster Act § 104, I. R. C. § 222 ◦ The Disaster Act extends the deduction for qualified tuition and related expenses to December 31, 2020. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 34

DEDUCTIONS P. 471 Disaster Act Title I Subtitle B Various Code Provisions ◦ See extensive list of extensions in the left-hand column of page 471. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 35

EXCLUSIONS P. 471 Disaster Act § 101, I. R. C. § 108 ◦ The Disaster Act extends the income exclusion for discharge of qualified principal residence indebtedness. The exclusion is effective for discharges after December 31, 2017, and before January 1, 2021. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 36

INCOME TAX P. 471 SECURE Act § 50, I. R. C. § 1 ◦ The SECURE Act repeals the TCJA provisions that taxed unearned income of children at the trust and estate rates. The repeal is effective for tax years beginning after December 31, 2019, but taxpayers can elect to apply the amendment for tax years beginning in 2018 or 2019 (or both) COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 37

LOSSES P. 471 Disaster Act Title II, I. R. C. §§ 38, 72 t, 7508 A ◦ The Disaster Act extends the term qualified disaster area to include areas in which a major disaster was declared between January 1, 2018, and 60 days after the enactment of the act (December 20, 2019). ◦ It allows penalty-free qualified disaster relief distributions (up to $100, 000) from a retirement plan, and it allows the taxpayer to re-contribute certain distributions. ◦ The Disaster Act provides for plan loans, and it provides an employee retention credit for employers affected by qualified disasters. It also increases the limit for qualified disaster contributions to a charitable organization and provides special rules for qualified disasterrelated personal casualty losses. ◦ The act provides an automatic 60 -day extension of filing deadlines for certain taxpayers affected by federally declared disasters. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 38

LOSSES P. 472 P. M. T. A. 2019 -008, I. R. C. § 165 ◦ For tax years 2018 through 2025, I. R. C. § 165(h) (5), as amended by the TCJA, limits personal casualty loss deductions to losses attributable to a federally declared disaster. ◦ The IRS has issued guidance stating that a personal non-federally declared disaster loss that occurred prior to December 31, 2017, but was not sustained until after December 31, 2017, is not deductible. ◦ The personal casualty loss does not have to occur in a disaster area to be deductible, but it must occur in the state receiving the federal disaster declaration. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 39

LOSSES P. 472 T. D. 9878, I. R. C. § 165 ◦ An election under section 165(i) to deduct a disaster loss for the preceding year is made either on an original federal income tax return for the preceding year or an amended federal income tax return for the preceding year. ◦ The due date for making the election is 6 months after the due date for filing the taxpayer’s federal income tax return for the disaster year (determined without regard to any extension of time to file). ◦ The election may be revoked on or before the date that is 90 days after the due date for making the election. Cross-Reference to Individual Issues: Part 1 COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 40

IRS ISSUES 473 PP. 472 - Virtual Currency Withholding Estimator COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 41

VIRTUAL CURRENCY P. 472 IRS issued expanded FAQs to support Notice 2014 -21 Rev. Rul. 2019 -24, 2019 -44 I. R. B. 1004, I. R. C §§ 61, 1001 ◦ A hard fork is unique to distributed ledger technology and occurs when virtual currency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger. ◦ Following a hard fork, transactions involving the new cryptocurrency are recorded on the new distributed ledger and transactions involving the legacy cryptocurrency continue to be recorded on the legacy distributed ledger. ◦ An airdrop is a means of distributing units of virtual currency to the distributed ledger addresses of multiple taxpayers. ◦ Rev. Rul. 2019 -24 considers whether a taxpayer has gross income under I. R. C. § 61 as a result of a hard fork of virtual currency. ◦ Cross Reference to IRS Issues Chapter COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 42

WITHHOLDING ESTIMATOR P. 473 I. R. 2019 -139 ◦ The IRS has replaced its Withholding Calculator with a Tax Withholding Estimator, which is an expanded online tool. The new Tax Withholding Estimator offers workers, retirees, selfemployed individuals, and other taxpayers, a step-by-step tool to determine the amount of income tax they should have withheld from wages and pension payments. ◦ Cross Reference to IRS Issues Chapter COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 43

QUALIFIED BUSINESS INCOME DEDUCTION P. 473 Rev. Proc. 2019 -38, 2019 -42, I. R. B. 942, I. R. C. § 199 A ◦ Rev. Proc. 2019 -38 finalizes a safe harbor for treating a rental real estate enterprise as a trade or business for purposes of the I. R. C. § 199 A qualified business income (QBI) deduction. The determination to use this safe harbor must be made annually. ◦ Cross Reference to the QBID Chapter COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 44

QUALIFIED BUSINESS INCOME DEDUCTION P. 473 T. D. 9899, I. R. C. § 199 A ◦ Final regulations provide guidance on the treatment of previously suspended losses included in QBI. The regulations also provide guidance to determine the section 199 A deduction for taxpayers that hold interests in regulated investment companies, and certain trusts and estates. ◦ The final regulations apply to tax years beginning after August 24, 2020. However, taxpayers may choose to apply the amendments to Treas. Reg. §§ 1. 199 A-3 and 1. 199 A-6 to tax years beginning on or before August 24, 2020. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 45

QUALIFIED BUSINESS INCOME DEDUCTION P. 474 Suspended Losses ◦ Treas. Reg. § 1. 199 A-3(b)(1)(iv) provides that previously disallowed losses or deductions [including under sections 465, 469, 704(d), and 1366(d)] allowed in the tax year are generally taken into account for purposes of computing QBI, except to the extent the losses or deductions were disallowed, suspended, limited, or carried over from tax years ending before January 1, 2018. These losses are used, for purposes of section 199 A, in order from the oldest to the most recent on a first-in, first-out (FIFO) basis. ◦ The final regulations clarify that this list of loss disallowance and suspension provisions is not exhaustive. ◦ Example 14. 1 Partial Loss Disallowance ◦ Example 14. 2 Suspended Loss from an SSTB COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 46

QUALIFIED BUSINESS INCOME DEDUCTION P. 475 Trusts or Estates with Separate Shares ◦ Under the proposed regulations, a trust described in I. R. C. § 663(c) with substantially separate and independent shares for multiple beneficiaries will be treated as a single trust for purposes of determining whether the taxable income of the trust exceeds the threshold amount. ◦ The final regulations clarify that, in the case of a trust or estate described in section 663(c) with substantially separate and independent shares for multiple beneficiaries, the trust or estate is treated as a single trust or estate not only for purposes of determining whether the taxable income of the trust or estate exceeds the threshold amount but also in determining taxable income, net capital gain, net QBI, W-2 wages, UBIA of qualified property, qualified REIT dividends, and qualified PTP income for each trade or business of the trust or estate, and computing the W-2 wage and UBIA of qualified property limitations. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 47

RETIREMENT, SAVINGS AND INVESTMENT PP. 475 - 478 ABLE Accounts Contributions Distributions Qualified Tuition Plan COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 48

ABLE ACCOUNTS P. 475 REG-128246 -18, I. R. C. § 529 A ◦ Proposed regulations confirm that the employed designated beneficiary, or the person acting on his or her behalf, is solely responsible for ensuring that the section 529 A requirements are met and for maintaining adequate records for that purpose. ◦ To minimize burdens for the designated beneficiary and the qualified ABLE program, the proposed regulations provide that ABLE programs may allow a designated beneficiary or the person acting on his or her behalf to certify, under penalties of perjury, that he or she is a designated beneficiary. ◦ The proposed regulations provide that a qualified ABLE program must return to the designated beneficiary any contributions of the designated beneficiary’s compensation in excess of the limit. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 49

CONTRIBUTIONS 476 P. SECURE Act § 106, I. R. C. § 219 ◦ Under the SECURE Act, for purposes of determining eligibility for IRA contributions, compensation includes any amount that is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study. SECURE Act § 107, I. R. C. § 219 ◦ The SECURE Act repeals the maximum age for traditional IRA contributions, effective for tax years beginning after December 31, 2019. The repeal does not change the age for qualified charitable contributions, which can only be made on or after the date the taxpayer attains age 70½. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 50

DISTRIBUTIONS P. 476 SECURE Act § 113, I. R. C. § 72 t ◦ The SECURE Act adds a penalty-free withdrawal from a retirement plan for a qualified birth or adoption distribution made after December 31, 2019. ◦ The distribution to an individual for any birth or adoption cannot exceed $5, 000. ◦ A qualified birth or adoption distribution means any distribution from an applicable eligible retirement plan to an individual if made during the 1 -year period beginning on the date on which a child of the individual is born or on which the individual finalizes the legal adoption of an eligible adoptee. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 51

DISTRIBUTIONS P. 476 T. D. 9875, I. R. C. § 401 ◦ Final regulations amend the rules for hardship distributions from section 401(k) plans. ◦ adding “primary beneficiary under the plan” as an individual for whom qualifying medical, educational, and funeral expenses may be incurred; ◦ modifying the expenses for damage to a principal residence to provide that for this purpose the limitations in section 165(h)(5) (which require that a personal casualty loss be attributable to a federally declared disaster) do not apply; and ◦ adding a new type of expense to the list, relating to expenses incurred as a result of certain disasters. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 52

DISTRIBUTIONS P. 477 REG- 132210 -18, I. R. C. § 401 ◦ Proposed regulation update the tables used to determine required minimum distribution amounts. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 53

DISTRIBUTIONS P. 477 SECURE Act § 114, I. R. C. § 401 ◦ The SECURE Act increases the required minimum distribution beginning date from 70½ to 72. With some exceptions, the required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 72, or the calendar year in which the employee retires. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 54

DISTRIBUTIONS P. 477 SECURE Act § 401, I. R. C. § 401 ◦ Under the SECURE Act, the account must be distributed to the designated beneficiaries within 10 years of the date of death, regardless of whether the employee (or IRA owner) died before the required beginning date. ◦ An eligible designated beneficiary is: ◦ Surviving spouse ◦ Child of account owner under the age of majority ◦ Beneficiary who is disabled ◦ Beneficiary who is chronically ill with illness expected of be lengthy ◦ Beneficiary who is not more than 10 years younger than the account owner Cross-Reference to Retirement and Investments Chapter COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 55

QUALIFIED TUITION PLAN P. 478 SECURE Act § 302, I. R. C. § 529 ◦ The SECURE Act expands the term qualified higher-education expenses to include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor. ◦ Higher-education expenses also include principal and interest on any qualified education loan to the designated beneficiary or a sibling of the designated beneficiary, up to a maximum $10, 000. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 56

TAX ACCOUNTING PP. 478 Income Inclusion ◦ T. D. 9870, I. R. C. § 451 ◦ The TCJA added I. R. C. § 451(c), which generally requires an accrual method taxpayer that receives any advance payment described in section 451(c)(4) during the tax year to include the advance payment in income in the tax year of receipt. ◦ REG-104870 -18, I. R. C. § 451 ◦ The TCJA amended I. R. C. § 451(b) to provide that, for a taxpayer using an accrual method of accounting, the all-events test with respect to any item of gross income (or portion thereof) is not treated as met any later than when the item (or portion thereof) is included in revenue for financial accounting purposes ◦ REG-104554 -18, I. R. C. § 451 ◦ The proposed regulations explain the deferral method for a taxpayer with an AFS. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 57

TAX PRACTICE P. 479 T. D. 9861, I. R. C. §§ 6051, 6052 ◦ To aid employers’ efforts to protect employees from identity theft, these regulations allow employers to voluntarily truncate employees’ social security numbers (SSNs) on copies of Forms W-2, Wage and Tax Statement, that are furnished to employees. Form 1040 -SR ◦ For taxpayers 65 and older beginning in 2019 tax year Electronic Form 1040 -X ◦ Available for electronic filing Form 1099 -NEC ◦ Required to be used beginning with tax year 2020, for non-employee compensation T. D. 9903 ◦ (PTIN) fee to $21 per application; there is also a $14. 95 fee to 3 rd –party contract processor. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 58

TRUSTS AND ESTATES 479 P. Gifts Itemized Deductions COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 59

GIFTS 479 P. T. D. 9884, I. R. C. § 2010 ◦ Final regulations ensure that a decedent’s estate is not inappropriately taxed on gifts that were sheltered from gift tax by the increased basic exclusion amount when the gifts were made. The final regulations are effective on and after November 26, 2019. ◦ Cross-Reference to Trusts and Estates Chapter COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 60

ITEMIZING DEDUCTIONS P. 480 REG-113295 -18, I. R. C. §§ 67, 642 ◦ Four items not miscellaneous itemized deductions (See list) ◦ Provides guidance for trusts and estates relative to NOLs and Capital Loss Carryovers under I. R. C. § 642(h) COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 61

WITHHOLDING AND ESTIMATED TAXES 480 P. REG-132741 -17, I. R. C. §§ 3401, 3402 ◦ Proposed regulations provide guidance for employers on the amount of federal income tax to withhold from an employee’s wages. The proposed regulations reflect that the TCJA replaced withholding exemptions withholding allowances. ◦ The proposed regulations clarify that employers using the percentage method of withholding must compute the tax withholding amount based on the entry for the employee’s anticipated filing status or marital status. ◦ To select the MFJ status on Form W-4, the employee must meet four requirements; see list ◦ The proposed regulations define a withholding allowance but otherwise intend to use forms, instructions, and publications to provide computational details. There are seven factors that determine the withholding allowance; see list. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 62

TABLE OF EXPIRATIONS DATES PP. 482 - 485 Figure 14. 1 is based on a list prepared by the staff of the Joint Committee on Taxation. For purposes of compiling this list, the staff of the Joint Committee on Taxation considers a provision to be expiring if, at a statutorily specified date, the provision expires completely or reverts to the law in effect before the present-law version of the provision. ◦ The first column is the Internal Revenue Section for each provision, in numerical order. ◦ The middle column is a brief description of the provision. ◦ The last column is date of the provision’s expiration. COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 63

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