Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.

Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.

Pursuant to the rules of Code Sec. 530A, distributions from Trump accounts are limited during the growth period, which is the period ending on January 1 of the year in which the account beneficiary attains age 18. During the growth period, annual contributions are limited to $5,000 per year, as adjusted for inflation after 2027. Gifts of future interests in property are not eligible for the annual gift tax exclusion and must be reported on a federal gift tax return.

The safe harbor applies for a particular year if the following requirements of section 4.02 are met:

• The taxpayer is an individual;
• The only taxable gifts made by the taxpayer during the calendar year are cash contributions to one or more Trump accounts, each made before the calendar year in which the account beneficiary attains age 18;
• The taxpayer's total gifts during the calendar year to each individual who is an account beneficiary, including contributions to that individual beneficiary's Trump account, do not exceed the Code Sec. 2503(b) annual exclusion;
• Such contributions to Trump accounts during the calendar year do not generate for that year either a gift or generation-skipping transfer (GST) tax liability after application of the taxpayer's remaining applicable credit amount against the gift tax or remaining GST exemption; and
• Disregarding the Trump account contributions described in section 4.02(2) of the revenue procedure, a gift tax return is not required to be filed, and no gift tax return is otherwise filed for that calendar year by or on behalf of the taxpayer for any other purposes.

If these requirements are satisfied, each Trump account contribution made by the taxpayer during the calendar year will be treated as a completed gift to the account beneficiary that is not a future interest in property and to which the annual exclusion applies for purposes of gift and GST tax reporting. As a result, taxpayers within the scope of the safe harbor will not be required to file a gift tax return reporting the such contributions.

Rev. Proc. 2026-25

IR 2026-80

The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.

The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.

Under Code Secs. 6011 and 6707A, the IRS may identify transactions with tax avoidance potential as listed transactions. The final regulations add Reg. §1.6011-15, identifying transactions in which appreciated property is contributed to a purported CRAT, sold by the trust, and the sale proceeds are used to purchase an annuity, with the beneficiary improperly treating the annuity payments under Code Sec. 72 instead of applying the distribution ordering rules of Code Sec. 664(b).

Although participants and material advisors remain subject to the applicable disclosure requirements, organizations described in Code Sec. 170(c) that merely receive the charitable remainder interest are excluded from participant status and are not treated as parties to prohibited tax shelter transactions under Code Sec. 4965 solely because of that interest. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2024.

T.D. 10051

IR 2026-82

A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.

A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.

Background

The taxpayers sued multiple credit reporting agencies under FCRA provisions. They eventually settled with each agency. In all relevant Forms 1099–MISC the settlement amounts were reflected without the attorney’s fees and costs.

Civil Rights Interpretation for FCRA Claims Denied

The taxpayers’ FCRA claims of unlawful discrimination did not fall under Code Sec. 62(e)(18)(i). Said claims were based on fair and accurate credit reporting and not consumer privacy. Particularly, the taxpayers’ concerns did not fall under “highly sensitive” and “intimate personal information” categories.

J.W. Eiler, 167 T.C. No. 3, Dec. 62,865

The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status.

The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status. A name change following marriage should be reported to the Social Security Administration so the updated name matches Social Security records. An address change should be reported to the IRS by filing Form 8822, Change of Address, and employers, financial institutions and the U.S. Postal Service should also be notified. Marriage may also require submission of a new Form W-4, Employee's Withholding Certificate, to ensure the correct amount of tax is withheld.

Additionally, the IRS noted that the birth or adoption of a child may make a taxpayer eligible for valuable tax benefits, including the Child Tax Credit, Adoption Credit and Child and Dependent Care Credit, if applicable requirements are satisfied. Divorce or the death of a spouse may also affect filing status, tax withholding and eligibility for certain tax benefits. The IRS encouraged prompt updates to tax records, careful evaluation of changes affecting tax obligations and use of available IRS resources to better understand the tax consequences of major life events. Early action can help avoid filing issues, support accurate tax reporting, maximize available tax benefits and improve preparation for the next tax filing season.

IRS Tax Tip 2026-55

The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.

The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.

In a recently released report, TIGTA stated that from March 1, 2025, through February 28, 2026, the IRS received 51.5 million tax returns, down from 52. 4 million in the previous year, though it did see a significant drop in paper returns received from 1.2 million in 2025 to 618,000 in 2026. Of the returns received in 2026, the agency processed 50.9 million returns, down from 51.8 million.

From the beginning of the 2026 tax filing season to the end of February 2026, TIGTA reported that the inventory backlog in key tax return processing programs increased from 1.9 million to 2.4 million. Additionally, nearly 75 percent of the amended return inventory is over-aged during the 2026 tax filing season.

“Generally, inventories increase during the filing season as the IRS balances efforts to answer phone calls and reduce inventories,” TIGTA stated in the report. “However, with the reduction in staff, increases in key inventories could become a concern.”

The number of refunds dipped to 36.5 million from 36.9 million, although there was a $360 increase in the average refund from $3,382 in 2025 to $3,742.

TIGTA also reported that the IRS did not meet its hiring goals for the 2026 tax filing season. The agency had been approved to hire 1,900 employees for submission processing (these workers process original and amended returns and resolve tax return errors) but only onboarded 800 individuals. Likewise, it was approved to hire 3,500 account management employees (handlers of taxpayer contacts through telephone and mail and process adjustments) but brought 2,300 on board.

Submission processing management said it would be onboarding new hires throughout the tax season, while account management leadership had no plans to hire new employees and would only be onboarding those who previously received offers but had delays in the hiring process.

In a positive from the 2026 season, TIGTA reported that the new and modified “e-file business rules associated with the child tax Credit, state and local tax deduction, and adoption credit are working as intended.”

Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.

Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.

According to a recent TIGTA report, during the 2025 tax filing season, the Treasury watchdog made 91 unannounced visits to TACs nationwide at various time (regular and extended hours), at the 61 visits where TIGTA staff did receive assistance, “TAC employees did not provide the correct tax law guidance during 28 of those visits (46 percent).”

TAC employees were presented with questions across one of the three areas – injured spouse, selling your main home, and American Opportunity Tax Credit. The report notes that for questions related to tax law topics, “TAC employees must use the Interactive Tax Law Assistant ITLA) tool to respond to taxpayers. The ITLA tool asks a series of questions, then generates accurate and complete responses based on the taxpayer’s situation. The tool is designed for TAC employees and is intended to improve operational performance in the areas of quality, efficiency, customers satisfaction, and employee satisfaction.”

TIGTA noted that during the 2025 filing season, “managers counseled several TAC employees for not using the ITLA tool during taxpayer interactions. During our site visits, we also observed that TAC employees did not always the ITLA tool to answer our tax law questions.”

Additionally, of those 91 visits, TIGTA “did not receive full assistance during 30 of our 91 visits due to incomplete or inaccurate responses to tax law questions, denial of entry by security or unexpected TAC closures.”

The new Bipartisan Budget Act of 2015, signed into law by President Obama in November, makes some far-reaching changes to partnership audits along with repealing automatic enrollment in health plans under the Affordable Care Act (ACA). The new law is a good preview of how Congress is looking to enhanced tax compliance as a revenue raiser. The tax compliance measures in the budget law, largely targeted to partnerships, are projected to generate more than $10 billion in revenue over 10 years.

The new Bipartisan Budget Act of 2015, signed into law by President Obama in November, makes some far-reaching changes to partnership audits along with repealing automatic enrollment in health plans under the Affordable Care Act (ACA). The new law is a good preview of how Congress is looking to enhanced tax compliance as a revenue raiser. The tax compliance measures in the budget law, largely targeted to partnerships, are projected to generate more than $10 billion in revenue over 10 years.

TEFRA repeal

More than 30 years ago, Congress passed the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The law was intended to help the IRS better audit partnerships. For many years, TEFRA worked as intended. However, as partnerships have grown in number and complexity since passage of TEFRA, the IRS has been challenged to keep up with the changes. Today, it is not uncommon for partnerships subject to TEFRA to have hundreds or even thousands of partners.

The TEFRA rules generally applied to partnerships with more than 10 partners. Partnerships with 10 or fewer partners are audited as part of each partner’s individual audit. Additionally, partnerships with 100 or more partners that elect to be treated as Electing Large Partnerships (ELPs) are subject to a unified audit under which any adjustments are reflected on the partners’ current year return rather than on an amended prior-year return.

The Budget Act repeals the TEFRA and ELP rules (with a delayed effective date, discussed below). The Budget Act replaces TEFRA with a streamlined structure for auditing partnerships and their partners at the partnership level.

As mentioned above, the TEFRA repeal is not officially effective immediately. Rather, the changes made by the 2015 Budget Act apply to returns filed for partnership tax years beginning after 2017. However, subject to certain exceptions, partnerships may choose to apply the new rules in the Budget Act to any partnership tax year beginning after the date of enactment, which is November 2, 2015.

According to the Joint Committee on Taxation (JCT), repeal of TEFRA will generate more than $9 billion in revenue over 10 years. Revenue is expected to be raised through enhanced audits of partnerships. The partnership universe is very large. For 2012, partnerships passed through $1,400.8 billion in total income minus total deductions available for allocation to their partners.

The Budget Act also clarifies that Congress did not intend for the family partnership rules to provide an alternative test for whether a person is a partner in a partnership. The determination of whether the owner of a capital interest is a partner should be made under the generally applicable rules defining a partnership and a partner. Further, the 2015 Budget Act clarifies that a person is treated as a partner in a partnership in which capital is a material income-producing factor whether the interest was obtained by purchase or gift and regardless of whether the interest was acquired from a family member. According to the JCT, this provision is projected to raise more than $1 billion over 10 years, again through enhanced compliance.

Affordable Care Act

One of the goals of the ACA was to expand enrollment in health insurance plans. For employers with more than 200 full-time employees, the ACA required them to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any authorized waiting period), and to continue the enrollment of current employees in a health benefits plan offered through the employer. The ACA was passed in 2010 but the IRS has not issued any regulations. In fact, the IRS announced in 2012 that it was holding off on the issuance of regulations.

The 2015 Budget Act repeals the ACA’s requirement for automatic enrollment in health insurance plans. In this case, repeal is effective as of the date of enactment of the new law: November 2, 2015.

Pension plans

The Budget Act also impacts defined benefit (DB) pension plans. These are traditional pension plans maintained by employers. Current law requires DB plans to make a contribution for each plan year to fund plan benefits. The Budget Act extends funding stabilization rules for DB plans through 2019. The Budget Act also gives DB plans some flexibility in their use of mortality tables. Additionally, the Budget Act increases premiums paid by pension plans to the Pension Benefit Guaranty Corporation (PBGC).

If you have any questions about repeal of TEFRA or any of the provisions in the Budget Act, please contact our office.

Small businesses received some welcomed news in October with passage of the Protecting Affordable Coverage for Employees (PACE) Act. The new law revises the definition of small employer for purposes of market reforms under the Affordable Care Act (ACA). The PACE Act is intended to help protect small businesses from potential health care premium increases. At the same time, many small businesses wait for expected relief from potential penalties for stand-alone health reimbursement arrangements (HRAs) deemed not to comply with the ACA.

Small businesses received some welcomed news in October with passage of the Protecting Affordable Coverage for Employees (PACE) Act. The new law revises the definition of small employer for purposes of market reforms under the Affordable Care Act (ACA). The PACE Act is intended to help protect small businesses from potential health care premium increases. At the same time, many small businesses wait for expected relief from potential penalties for stand-alone health reimbursement arrangements (HRAs) deemed not to comply with the ACA.

Note. The PACE Act does not revise the ACA's employer shared responsibility provision (also known as the "employer mandate"). The PACE Act only applies to the definition of small employer under the ACA for purposes of the small group market.

Small employer market

Before the ACA, the definition of a small employer in connection with a group health plan with respect to a calendar year and a plan year was an employer who employed an average of at least two but not more than 50 employees on business days during the preceding calendar year and who employs at least 2 employees on the first day of the plan year. The ACA revised this threshold. Employers with 51 to 100 employees are treated as small employers for purposes of health insurance markets but states have the option to treat them as large employers until January 1, 2016.

This change under the ACA was projected to subject many small businesses to different rating rules and requirements, including emergency services, hospitalization, rehabilitative services), and more. One result could be that small employers would choose to self-insure instead of remaining in the small group market because those employers will no longer be subject to the various requirements of the small group market. This could further increase the premiums for small employers.

PACE Act

The PACE Act to provide relief to small businesses was introduced earlier this year. The PACE Act was passed by the House on September 28, the Senate on October 1, and signed into law by President Obama on October 7.

The PACE Act generally defines a small employer as an employer who employed an average of 1-50 employees on business days during the preceding calendar year. The PACE Act also provides states the option of extending the definition of small employer to include employers with up to 100 employees. The PACE Act is effective upon enactment.

HRAs

Following passage of the ACA, the IRS announced that certain stand-alone HRAs did not satisfy the ACA's minimum benefit and annual dollar cap requirements for health insurance plans offered by employers. Many small employers have used these arrangements to reimburse employees for health care expenses. The IRS also announced transition relief from significant potential excise taxes, but the relief has expired. Now, small businesses are looking for a legislative fix.

Pending legislation in Congress would provide such a fix. Bipartisan legislation has been introduced in the House and Senate (HR 2911; Sen. 1697) to provide permanent relief for small employers. The bills would allow small businesses to use HRAs to financially assist their employees with the purchase of health coverage and related costs without violating the ACA's market reforms. Our office will keep you posted of developments.

Protecting Affordable Coverage for Employees (PACE) Act (P.L. 114-60)

Small Business Health Care Relief Act of 2015 (HR 2911, Sen. 1697)

After acknowledging earlier this year that hackers breached one of its popular online apps, the IRS has promised more identity theft protections in the 2016 filing season. The IRS, along with partners in the tax preparation community, has identified and tested more than 20 new data elements on returns to help detect and prevent identity-theft related filings. The agency is also working to prevent criminals from accessing tax-time financial products.

After acknowledging earlier this year that hackers breached one of its popular online apps, the IRS has promised more identity theft protections in the 2016 filing season. The IRS, along with partners in the tax preparation community, has identified and tested more than 20 new data elements on returns to help detect and prevent identity-theft related filings. The agency is also working to prevent criminals from accessing tax-time financial products.

Identity theft

Combatting identity theft is on ongoing process as criminals continue to create new ways of stealing personal information and using it for their gain. Tax-related identity theft typically peaks early in the filing season. Criminals file bogus returns early so taxpayers remain unaware you have been victimized until they try to file a return and learn one already has been filed. Between 2011 and 2015, the IRS identified 19 million suspicious returns and prevented the issuance of some $60 billion in fraudulent refunds. During the 2015 filing season, the IRS detected and stopped more than 3.8 million suspicious returns.

However, criminals continue to probe for weaknesses. In May, the IRS discovered that criminals had breached its Get Transcript app. Return information of as many as 300,000 taxpayers may have been compromised, the IRS reported.

New protections

In March, the IRS began working with the return preparation community and the tax software industry to develop a coordinated response to tax-related identity theft. The stakeholders, the IRS reported, have focused on a number of areas including improved validation of the authenticity of taxpayers and information on returns, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats.

One outgrowth of the process is the creation of new data elements that can be shared at the time of filing with the IRS to help authenticate a taxpayer's identity. The IRS explained that there are more than 20 new data components. They will be submitted with electronic return transmissions during the 2016 filing season. Some of the data elements are

• Reviewing the transmission of the tax return, including the improper and/or repetitive use of internet addresses from which the return is originating;
• Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.
• Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

"We are taking new steps upfront to protect taxpayers at the time they file and beyond," IRS Commissioner John Koskinen said at a news conference in Washington, D.C. "Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season."

Financial products

Previously, the IRS announced that it would limit the number of direct deposit refunds to a single financial account or pre-paid debit card to three. Fourth and subsequent valid refunds will convert to paper checks and be mailed to the taxpayer. The IRS emphasized that it will continue to bolster its efforts to curb tax-time financial product fraud.

If you have any questions about tax-related identity theft, please contact our office.

IR-2015-117, FS-2015-23

As the calendar approaches the end of 2015, it is helpful to think about ways to shift income and deductions into the following year. For example, spikes in income from selling investments or other property may push a taxpayer into a higher income tax bracket for 2015, including a top bracket of 39.6 percent for ordinary income and short-term capital gains, and a top bracket of 20 percent for dividends and long-term capital gains. Adjusted gross incomes that exceed the threshold for the net investment income (NII) tax can also trigger increased tax liability. Accordingly, traditional year-end techniques to defer income or to accelerate deductions can be useful.

As the calendar approaches the end of 2015, it is helpful to think about ways to shift income and deductions into the following year. For example, spikes in income from selling investments or other property may push a taxpayer into a higher income tax bracket for 2015, including a top bracket of 39.6 percent for ordinary income and short-term capital gains, and a top bracket of 20 percent for dividends and long-term capital gains. Adjusted gross incomes that exceed the threshold for the net investment income (NII) tax can also trigger increased tax liability. Accordingly, traditional year-end techniques to defer income or to accelerate deductions can be useful.

Techniques for deferring income include:

• Hold appreciated assets;
• Consider a tax-fee like-kind exchange or property if disposing of appreciated assets used for investment or in a business;
• Sell depreciated capital assets, especially if capital gains have been realized;
• Hold U.S. savings bonds;
• Sell property on the installment basis;
• Defer bonuses earned in 2015 until 2016;
• Make salary-reduction contributions into employer-sponsored plans, such as 401(k) plans, 403(b) plans, and 457 plans, and into flexible spending accounts;
• Minimize retirement distributions;
• Defer billings and collections;
• Recharacterize a Roth IRA as a traditional IRA if the traditional IRA was converted to a Roth IRA in 2015, and the assets in the Roth IRA have subsequently declined in value.

It is important to monitor the progress of tax legislation. Congress has not yet renewed individual and business tax extender provisions that expired at the end of 2014, but historically Congress does renew these provisions. Extenders for individuals include the state and local sales tax deduction (in lieu of the state and local income tax deduction), the higher education tuition and fees deduction, the teacher's classroom expense deduction, and the residential energy property credit.

Techniques for accelerating deductions include into 2015:

• Bunch itemized deductions into 2015 by paying medical expenses, making charitable contributions, and paying miscellaneous expenses such as employment-related items (don't delay bill payments until 2016);
• Accelerate payments of state and local taxes by increasing withholding or making the final state estimated tax payment installment in 2015;
• Make payments/contributions by credit card (timing is based on payment by credit card, not on payment of the credit card bill);
• Use Code Sec. 179 for business expensing and bonus depreciation to write off the costs of newly-acquired equipment.

For a business to start writing off the cost of depreciable equipment and property, it is necessary that the equipment be placed in service. To write off costs in 2015, the equipment must be placed in service by December 31, 2015. The "placed-in-service" requirement applies, for example, for taking depreciation, especially first-year bonus depreciation, under Code Sec. 168, expensing of the cost of property under Code Sec. 179, and other write-offs such as the investment tax credit under Code Sec. 46.

For a business to start writing off the cost of depreciable equipment and property, it is necessary that the equipment be placed in service. To write off costs in 2015, the equipment must be placed in service by December 31, 2015. The "placed-in-service" requirement applies, for example, for taking depreciation, especially first-year bonus depreciation, under Code Sec. 168, expensing of the cost of property under Code Sec. 179, and other write-offs such as the investment tax credit under Code Sec. 46.

The actual date an asset is placed in service is particularly important in the case of year-end acquisitions. Thus, determining when property is placed in service is an important concept for year-end planning.

Under the current legislative regime, some tax provisions are renewed from year-to-year but have not been permanently extended (such as bonus depreciation and enhanced Code Sec. 179 expensing). The year that the property is placed in service thus determines whether or not the tax benefit is available in addition to the year for which a business claims the benefit.

Depreciation begins in the tax year that an asset is placed in service. An asset is placed in service (for purposes of computing depreciation or claiming the investment credit) on the date that it is in a condition or state of readiness for a specifically assigned function on a regular, ongoing basis, for use in a trade or business, for the production of income, in a tax-exempt activity, or in a personal activity. The placed-in-service date is not necessarily the date that the property is acquired. This distinction should also be kept in mind where a tax provision has requirements for the acquisition date as well as the placed-in-service date.

An asset actually put to use in a trade or business is clearly placed in service. If the asset is not yet put to use, it is still considered placed in service if the taxpayer has done everything needed to put the asset to use. For example, a canal barge was placed in service in the year acquired, even though it was not used until the following year because the canal was frozen.

A building that is intended to house machinery and equipment is placed in service when the building's construction is substantially complete, whether or not the machinery and equipment have been placed in service. A federal district court concluded that a building designed to be a retail store was placed in service when the building was substantially complete, even though the building was not yet open to the public. For a building (as opposed to equipment) the issuance of a certificate of occupancy is a key factor that indicates the building has been placed in service.

A business operated by two or more owners can elect to be taxed as a partnership by filing Form 8832, the Entity Classification Election form. A business is eligible to elect partnership status if it has two or more members and:

A business operated by two or more owners can elect to be taxed as a partnership by filing Form 8832, the Entity Classification Election form. A business is eligible to elect partnership status if it has two or more members and:

• is not registered as anything under state law,
• is a partnership, limited partnership, or limited liability partnership, or
• is a limited liability company.

Publicly traded businesses cannot elect to be treated as partnerships. They are automatically taxed as corporations.

Form 8832 allows a business to select its classification for tax purposes by checking the box on the form: partnership, corporation, or disregarded. If no check-the-box form is filed, the IRS will assume that the entity should be taxed as a partnership or disregarded as a separate entity. An LLC that makes no federal election will be taxed as a partnership if it has more than one member and disregarded if it has only one member. An LLC must make an affirmative election to be taxed as a corporation. The IRS language on Form 8832 uses the term "association" to describe an LLC taxed as a corporation.

Form 8832 has no particular due date. There is a space on the form (line 4) for the entity to note what date the election should take effect. The date named can be no earlier than 75 days before the form is filed, and no later than 12 months after the form is filed. It is most important to file Form 8832 within the first few months of operations if the entity desires a tax treatment that differs from the tax status the IRS will apply by default if no election is made.

A few businesses do not qualify to be partnerships for federal tax purposes. These are:

1. a business that is a corporation under state law,
2. a joint stock company (a corporation without limited liability),
3. an insurance company,
4. most banks,
5. an organization owned by a state or local government,
6. a tax-exempt organization
7. a real estate investment trust, or
8. a trust.

Although these businesses cannot be partnerships, they can be partners in a partnership (they can join together to form a partnership).

Of course, whether your business is best operated as a partnership, as a corporation or as another type of entity should not only be driven by short-term tax considerations. How you envision your business will develop over time, whether your business is asset or service intensive, and what personal financial stake you plan to take, among other factors, are all additional factors that should be considered.

Taxpayers that invest in a trade or business or an activity for the production of income can only deduct losses from the activity or business if the taxpayer is at risk for the investment. A taxpayer is at risk for the amount of cash and the basis of property contributed to the activity. Taxpayers are also at risk for amounts borrowed if the taxpayer is personally liable to pay the liability, or if the taxpayer has pledged property as security for the loan (other than property already used in the business).

Taxpayers that invest in a trade or business or an activity for the production of income can only deduct losses from the activity or business if the taxpayer is at risk for the investment. A taxpayer is at risk for the amount of cash and the basis of property contributed to the activity. Taxpayers are also at risk for amounts borrowed if the taxpayer is personally liable to pay the liability, or if the taxpayer has pledged property as security for the loan (other than property already used in the business).

At-risk or not?

A taxpayer is not at risk for a nonrecourse loan, since there is no personal liability. However, amounts at risk include "qualified nonrecourse financing" used in connection with the holding of real estate. A taxpayer also is not at risk for contributions that are protected against loss by a guarantee, stop loss arrangement, or other similar arrangement. For certain activities, such as farming, oil and gas exploration, motion pictures, and the leasing of Code Sec. 1245 property, a taxpayer is not at risk for amounts borrowed from related persons or from persons who have an interest in the activity (other than as a creditor).

Scope of at-risk rules

The at-risk rules apply to all trade or business activities and to activities for the production of income. The rules apply to individuals, partners, S corporation shareholders, estates, trusts, and certain closely-held corporations. The at-risk rules generally do not apply to widely-held C corporations, whether public or private. There also is an exception for equipment leasing activities of closely-held corporations.

Deduction of losses

The taxpayer's amount at risk limits the allowable loss from the activity.  The loss subject to the at-risk limitation is the excess of allowable deductions over the income received from the activity for that year. Under proposed regulations under Code Sec. 465, losses that are allowed as deductions for the tax year reduce the taxpayer's at-risk amount for the activity for the succeeding year. Losses that are denied under the at-risk rules can be carried over to subsequent years and deducted against amounts at risk in the subsequent years.

Adjustment of amount at risk

The amount at risk must be adjusted each year. At the close of the tax year, the following procedures are used to determine the amount at risk:

• As stated above, amounts at risk at the end of the prior year must be reduced by the amount of loss allowed in that prior year;
• Amounts at risk are increased by items, such as contributions of money or property, that add to the amount at risk; and
• Amounts at risk are decreased by items, such as withdrawals of money or property, which reduce the amount at risk.

The IRS expects to receive more than 150 million individual income tax returns this year and issue billions of dollars in refunds. That huge pool of refunds drives scam artists and criminals to steal taxpayer identities and claim fraudulent refunds. The IRS has many protections in place to discover false returns and refund claims, but taxpayers still need to be proactive.

The IRS expects to receive more than 150 million individual income tax returns this year and issue billions of dollars in refunds. That huge pool of refunds drives scam artists and criminals to steal taxpayer identities and claim fraudulent refunds. The IRS has many protections in place to discover false returns and refund claims, but taxpayers still need to be proactive.

Tax-related identity theft

Tax-related identity theft most often occurs when a criminal uses a stolen Social Security number to file a tax return claiming a fraudulent refund. Often, criminals will claim bogus tax credits or deductions to generate large refunds. Fraud is particularly prevalent for the earned income tax credit, residential energy credits and others. In many cases, the victims of tax-related identity theft only discover the crime when they file their genuine return with the IRS. By this time, all the taxpayer can do is to take steps to prevent a recurrence.

Being proactive

However, there are steps taxpayers can take to reduce the likelihood of being a victim of tax-related identity theft. Personal information must be kept confidential. This includes not only an individual's Social Security number (SSN) but other identification materials, such as bank and other financial account numbers, credit and debit card numbers, and medical and insurance information. Paper documents, including old tax returns if they were filed on paper returns, should be kept in a secure location. Documents that are no longer needed should be shredded.

Online information is especially vulnerable and should be protected by using firewalls, anti-spam/virus software, updating security patches and changing passwords frequently. Identity thieves are very skilled at leveraging whatever information they can find online to create a false tax return.

Impersonators

Criminals do not only steal a taxpayer's identity from documents. Telephone tax scams soared during the 2015 filing season. Indeed, a government watchdog reported that this year was a record high for telephone tax scams. These criminals impersonate IRS officials and threaten legal action unless a taxpayer immediately pays a purported tax debt. These criminals sound convincing when they call and use fake names and bogus IRS identification badge numbers. One sure sign of a telephone tax scam is a demand for payment by prepaid debit card. The IRS never demands payment using a prepaid debit card, nor does the IRS ask for credit or debit card numbers over the phone.

The IRS, the Treasury Inspector General for Tax Administration (TIGTA) and the Federal Tax Commission (FTC) are investigating telephone tax fraud. Individuals who have received these types of calls should alert the IRS, TIGTA or the FTC, even if they have not been victimized.

Tax-related identity theft is a time consuming process for victims so the best defense is a good offense. Please contact our office if you have any questions about tax-related identity theft.

An employer must withhold income taxes from compensation paid to common-law employees (but not from compensation paid to independent contractors). The amount withheld from an employee's wages is determined in part by the number of withholding exemptions and allowances the employee claims. Note that although the Tax Code and regulations distinguish between withholding exemptions and withholding allowances, the terms are interchangeable. The amount of reduction attributable to one withholding allowance is the same as that attributable to one withholding exemption. Form W-4 and most informal IRS publications refer to both as withholding allowances, probably to avoid confusion with the complete exemption from withholding for employees with no tax liability.

An employer must withhold income taxes from compensation paid to common-law employees (but not from compensation paid to independent contractors). The amount withheld from an employee's wages is determined in part by the number of withholding exemptions and allowances the employee claims. Note that although the Tax Code and regulations distinguish between "withholding exemptions" and "withholding allowances," the terms are interchangeable. The amount of reduction attributable to one withholding allowance is the same as that attributable to one withholding exemption. Form W-4 and most informal IRS publications refer to both as withholding allowances, probably to avoid confusion with the complete exemption from withholding for employees with no tax liability.

An employee may change the number of withholding exemptions and/or allowances she claims on Form W-4, Employee's Withholding Allowance Certificate. It is generally advisable for an employee to change his or her withholding so that it matches his or her projected federal tax liability as closely as possible. If an employer overwithholds through Form W-4 instructions, then the employee has essentially provided the IRS with an interest-free loan. If, on the other hand, the employer underwithholds, the employee could be liable for a large income tax bill at the end of the year, as well as interest and potential penalties.

How allowances affect withholding

For each exemption or allowance claimed, an amount equal to one personal exemption, prorated to the payroll period, is subtracted from the total amount of wages paid. This reduced amount, rather than the total wage amount, is subject to withholding. In other words, the personal exemption amount is $4,000 for 2015, meaning the prorated exemption amount for an employee receiving a biweekly paycheck is $153.85 ($4,000 divided by 26 paychecks per year) for 2015.

In addition, if an employee's expected income when offset by deductions and credits is low enough so that the employee will not have any income tax liability for the year, the employee may be able to claim a complete exemption from withholding.

Changing the amount withheld

Taxpayers may change the number of withholding allowances they claim based on their estimated and anticipated deductions, credits, and losses for the year.  For example, an employee who anticipates claiming a large number of itemized deductions and tax credits may wish to claim additional withholding allowances if the current number of withholding exemptions he is currently claiming for the year is too low and would result in overwithholding.

Withholding allowances are claimed on Form W-4, Employee's Withholding Allowance Certificate, with the withholding exemptions. An employer should have a Form W-4 on file for each employee. New employees generally must complete Form W-4 for their employer. Existing employees may update that Form W-4 at any time during the year, and should be encouraged to do so as early as possible in 2015 if they either owed significant taxes or received a large refund when filing their 2014 tax return.

The IRS provides an IRS Withholding Calculator at www.irs.gov/individuals that can help individuals to determine how many withholding allowances to claim on their Forms-W-4. In the alternative, employees can use the worksheets and tables that accompany the Form W-4 to compute the appropriate number of allowances.

Employers should note that a Form W-4 remains in effect until an employee provides a new one. If an employee does update her Form W-4, the employer should not adjust withholding for pay periods before the effective date of the new form. If an employee provides the employer with a Form W-4 that replaces an existing Form W-4, the employer should begin to withhold in accordance with the new Form W-4 no later than the start of the first payroll period ending on or after the 30th day from the date on which the employer received the replacement Form W-4.

In Rev. Proc. 2015-20, the IRS substantially simplified the requirements for small businesses to adopt the tangible property regulations (the "repair regulations") for 2014. The relief allows small businesses to change their accounting methods, to comply with the regulations, without having to apply Code Sec. 481 and without having to file Form 3115, Application for Change in Accounting Method.

In Rev. Proc. 2015-20, the IRS substantially simplified the requirements for small businesses to adopt the tangible property regulations (the "repair regulations") for 2014. The relief allows small businesses to change their accounting methods, to comply with the regulations, without having to apply Code Sec. 481 and without having to file Form 3115, Application for Change in Accounting Method.

The repair regulations are broad and comprehensive, applying to any business that uses tangible property. The regulations totally redo the rules for deducting and capitalizing expenses associated with fixed assets. IRS adopted final regulations in September 2013, effective for tax years beginning on or after January 1, 2014. Taxpayers also have the option of applying the final regulations in 2012 and/or 2013.

Change of accounting method

Taxpayers ordinarily have to file Form 3115 to request IRS consent to change a method of accounting. The IRS provided automatic consent for taxpayers to change their accounting methods to comply with the repair regulations, but this did not relieve taxpayers of the requirement to file Form 3115. Furthermore, taxpayers changing their accounting method must apply Code Sec. 481(a), which requires them to calculate an adjustment to their accounting treatment of the same items for prior years, as if the new method were used in the prior years.  Code Sec. 481 is designed to prevent any duplication of deductions or omission of income upon a change in accounting method.

Small businesses in particular had complained to the IRS about the burden of implementing the regulations with a full Code Sec. 481 adjustment. Taxpayers would be required to go back in time (as far back as their books allow) and redo their analysis of prior year tangible property costs.

Relief

The IRS has now responded by providing relief from the requirements for changing an accounting method. Small business taxpayers can make the change without filing Form 3115 and without having to make a 481 adjustment. Instead, taxpayers can make the change on a "cutoff" basis, by taking into account only amounts paid or incurred, and dispositions of property, in their 2014 tax year. In effect, small business taxpayers can make the change prospectively.

The relief applies to a taxpayer that has one or more separate and distinct trade(s) or business(es) with either total assets under $10 million at the start of the 2014 tax year, or that has average annual gross receipts of $10 million or less for the prior three years.

Claiming relief

Because the IRS provided automatic consent, taxpayers making the change for 2014 would not have to file Form 3115 until the deadline for their 2014 income tax return, either March 15 or, with an extension, September 15. So taxpayers (and their tax representatives) are right in the middle of the process to comply with the regulations for 2014. The timing of the IRS's relief, in February 2015, is opportune, and gives small businesses plenty of time to comply with the regulations for 2014.

The relief is elective. Small businesses can follow normal change of accounting procedures, or can use the relief provided in Rev. Proc. 2015-20. There are trade-offs to claiming the relief. For some taxpayers, there may be tax savings from applying Code Sec. 481 to prior years, regardless of the burden involved to make the calculations. Furthermore, taxpayers that do not file Form 3115 will not get audit protection for tax years before 2014.

Rev. Proc. 2015-20, IR-2015-29

Form  1095-A, Health Insurance Marketplace Statement, is a new information return. The IRS requires the Health Insurance Marketplace to report certain information  about every individual who receives health insurance coverage through the Marketplace to the agency and also to the enrollee. Form 1095-A reports information about the individual(s) covered by Marketplace coverage, the starting and ending dates of coverage, and the insurer that provided coverage. Form 1095-A also reports the cost of coverage, the plan's total monthly payment, any advance payment, and more.

Form 1095-A, Health Insurance Marketplace Statement, is a new information return. The IRS requires the Health Insurance Marketplace to report certain information about every individual who receives health insurance coverage through the Marketplace to the agency and also to the enrollee. Form 1095-A reports information about the individual(s) covered by Marketplace coverage, the starting and ending dates of coverage, and the insurer that provided coverage. Form 1095-A also reports the cost of coverage, the plan's total monthly payment, any advance payment, and more.

Copies to IRS and enrollees

IRS rules require the Marketplace to file Form 1095-A with the agency and provide a copy to individuals on or before January 31, 2015, for coverage in 2014. If an individual did not receive a Form 1095-A in February 2015, he or she should contact the Marketplace and not the IRS. The IRS has cautioned that it is unable to answer questions about the information on Form 1095-A or about missing or lost forms because these forms come from the Marketplace.

Form 1040

Health insurance obtained through the Marketplace satisfies the requirement under the Patient Protection and Affordable Care Act (PPACA) that all individuals carry minimum essential health coverage, unless exempt. On 2014 Form 1040, U.S. Individual Income Tax Return, the IRS has added a new line on which individuals will report if they had minimum essential coverage for 2014 (and on Forms 1040-EZ and 1040A). Individuals who had coverage through the Marketplace for 2014 will check this box on their Form 1040.

Code Sec. 36B credit

According to the IRS, nearly nine out of 10 individuals who obtained health insurance coverage through the Marketplace in 2014 qualified for the Code Sec. 36B premium assistance tax credit. This credit helps to offset the cost of health insurance. Form 1095-A includes information about the credit that individuals will need when they file their returns, such as the second lowest cost Silver Plan.

All individuals who claim the Code Sec. 36B credit must file a return. The IRS has developed a special form (Form 8962, Premium Tax Credit) for individuals to file with their return.

Many enrollees in Marketplace coverage were likely eligible for advance payments of the credit to their insurer. In this case, these individuals must reconcile the amount of the advance payment with the amount of the actual credit when they file their 2014 returns.  Keep in mind that that changes in income, family size or other life events may result in the amount of the actual credit being different from the amount estimated by the Marketplace at the time coverage was obtained.  If an individual's actual allowable credit is less than the amount of advance credit payments, the difference, subject to certain caps, will be subtracted from any refund or added to any balance due. If the actual allowable credit is more than the advance credit payments, the difference will be added to any refund or subtracted from any balance due.

Errors

In late February, the U.S. Department of Health and Human Services (HHS) announced that some 800,000 Forms 1095-As reporting coverage for 2014 were calculated incorrectly by the Marketplace.  HHS has advised enrollees that they should receive corrected Forms 1095-A in early March. If you have any questions about your Form 1095-A please contact our office.