The IRS has issued final regulations modifying reporting obligations for partnerships involved in Code Sec. 751(a) exchanges of partnership interests. The regulations remove the requirement that partnerships furnish transferors with certain information relating to unrealized receivables and inventory items by January 31 following the exchange year. The regulations are effective for returns filed for tax years ending on or after May 20, 2026.

The IRS has issued final regulations modifying reporting obligations for partnerships involved in Code Sec. 751(a) exchanges of partnership interests. The regulations remove the requirement that partnerships furnish transferors with certain information relating to unrealized receivables and inventory items by January 31 following the exchange year. The regulations are effective for returns filed for tax years ending on or after May 20, 2026.

Under Code Sec. 6050K, partnerships must file Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, for transfers involving Code Sec. 751(a) property. The IRS and Treasury Department received comments that many partnerships could not determine the information required for Part IV of Form 8308 by the January 31 furnishing deadline. As a result, the final regulations remove Reg. §1.6050K-1(c)(2) and revise Reg. §1.6050K-1(c)(1) to permit partnerships to furnish Form 8308 completed in accordance with the form instructions.

Although partnerships are no longer required to furnish Part IV information to transferors and transferees by January 31, they must still file a completed Form 8308, including Part IV, with Form 1065. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2025.

T.D. 10048

The IRS has issued guidance on qualified long-term care distributions from qualified retirement plans. The guidance affects providers of certified long-term care insurance (issuers), plan administrators, and individual participants receiving qualified long-term care distributions. The IRS also extended the general deadline for amending a plan to permit qualified long-term care distributions to December 31, 2027.

The IRS has issued guidance on qualified long-term care distributions from qualified retirement plans. The guidance affects providers of certified long-term care insurance (issuers), plan administrators, and individual participants receiving qualified long-term care distributions. The IRS also extended the general deadline for amending a plan to permit qualified long-term care distributions to December 31, 2027.

Background

The SECURE 2.0 Act of 2022 (SECURE 2.0 Act), permitted defined contribution plans to make qualified long-term care distributions, effective for distributions made after December 29, 2025. The 10 percent additional tax on early distributions would not apply to distributions under Code Sec. 401(a)(39). However, a qualified long-term care distribution would be included in the taxpayer’s gross income.

Disclosure Requirements

The guidance addresses content requirements and procedures for submitting an Issuer Disclosure to the IRS. There is no general deadline for submitting an Issuer Disclosure. However, an issuer must submit an Issuer Disclosure to the IRS before the issuer can file a long-term care premium statement with a defined contribution plan.

Distribution Requirements

Under the guidance, the plan administrator is permitted to rely on the issuer’s statement and the information provided on the long-term care premium statement in making a qualified long-term care distribution. It is optional for a plan to permit qualified long-term care distributions, but the exception to the 10% additional tax only applies if the plan permits qualified long-term care distributions, even if the employee uses a distribution to pay for long-term care insurance. Unlike other permitted distributions, a qualified long-term care distribution would not be eligible for an extended 3-year repayment to a retirement plan.

Reporting Requirements

The payment of a qualified long-term care distribution to an employee must be reported by the payor on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.

Further, issuers must make a return to the IRS using Form 1099-LPS, Long-Term Care Premiums Paid Statement. The issuer will report the long-term care premiums paid for the calendar year. The Form 1099-LPS must be filed with the IRS no later than February 1 of the calendar year following the calendar year the long-term care premium statement was filed with the plan.

Deadline Extension

The guidance extends the deadline for a plan sponsor of a defined contribution plan that is not a governmental plan, a section 403(b) plan maintained by a public school, or an applicable collectively bargained plan, to amend its plan to permit qualified long-term care distributions from December 31, 2026, to December 31, 2027. The deadlines to amend defined contribution plans that are applicable collectively bargained plans or governmental plans remain as provided in Notice 2024-02. Thus, Notice 2024-2, I.R.B. 2024-2, 316, is modified in part.

Notice 2026-33

The IRS finalized regulations treating income derived by individual members of an Indian tribe from fishing rights-related activities as compensation for purposes of limitations on benefits and contributions under a qualified retirement plan. These regulations are effective for plan years beginning on or after May 4, 2026, and affect participants, beneficiaries, sponsors, and administrators of Tribal plans.

The IRS finalized regulations treating income derived by individual members of an Indian tribe from fishing rights-related activities as compensation for purposes of limitations on benefits and contributions under a qualified retirement plan. These regulations are effective for plan years beginning on or after May 4, 2026, and affect participants, beneficiaries, sponsors, and administrators of Tribal plans.

Fishing rights-related income is exempt from federal income tax and employment tax under Code Sec. 7873. However, proposed reliance regulations would allow contributions to be made to qualified retirement plans based on fishing rights-related income. Also, plans that accept contributions of fishing rights-related income may still use safe harbor definitions of compensation. The IRS finalized this rule as proposed without material modification.

Although the final rule is somewhat limited in scope, the IRS addressed additional issues in the preamble. The IRS clarified that plan contributions attributable to a Tribal employee's fishing rights-related activiity is treated as investment in the contract under Code Sec. 72 . Thus, distributions of the amount contributed would generally be tax-free (subject to basis recovery rules) and distributions attributable to earnings would be taxable. The IRS also indicated that plans that permit designated Roth contributions may allow contributions attributable to fishing rights-related activity to be made on a Roth basis.

T.D. 10046

The IRS has introduced a streamlined option allowing taxpayers to extend the time to challenge disallowed Employee Retention Credit (ERC) claims, reducing the need for immediate refund litigation. The measure applies to taxpayers who received Letter 105-C or 106-C, are awaiting review by the IRS Independent Office of Appeals and have six months or less remaining in the statutory two-year period.

The IRS has introduced a streamlined option allowing taxpayers to extend the time to challenge disallowed Employee Retention Credit (ERC) claims, reducing the need for immediate refund litigation. The measure applies to taxpayers who received Letter 105-C or 106-C, are awaiting review by the IRS Independent Office of Appeals and have six months or less remaining in the statutory two-year period.

Taxpayers generally have two years from the disallowance notice to resolve the claim or file a refund suit, but an administrative appeal does not suspend this deadline. Once the period expires, the IRS cannot issue a refund even if the taxpayer later prevails. To address this, eligible taxpayers may execute Form 907, Agreement to Extend the Time to Bring Suit, provided it is signed by both parties before the limitation period ends.

The IRS now permits submission of Form 907 through its Document Upload Tool, with qualifying requests reviewed and confirmed in writing. While the IRS is issuing notices to eligible taxpayers, others meeting the criteria may also apply. The agency indicated that the initiative is intended to preserve taxpayer rights and facilitate administrative resolution of ERC disputes.

The IRS has established a significant issue ruling program for cerain corporate transactions (Rev. Proc. 2026-21). This program would not diminish the availability of letter rulings under existing programs. This procedure modifies and amplifies the ruling procedures provided in Rev. Proc. 2026-1, I.R.B. 2026-1, 1, and Rev. Proc. 2026-3, I.R.B. 2026-1, 143.

The IRS has established a significant issue ruling program for cerain corporate transactions (Rev. Proc. 2026-21). This program would not diminish the availability of letter rulings under existing programs. This procedure modifies and amplifies the ruling procedures provided in Rev. Proc. 2026-1, I.R.B. 2026-1, 1, and Rev. Proc. 2026-3, I.R.B. 2026-1, 143.

The significant issue ruling program allows taxpayers to request rulings on one or more issues that:

• are solely under the jurisdiction of the Associate Chief Counsel (Corporate);
• are significant issues, as defined in section 4.02 of Rev. Proc. 2026-21; and
• involve the tax consequences or characterization of a transaction (or part of a transaction) that is described in Code Sec. 332, 351, 355, 368, or 1036.

Significant Issue Ruling Program

Taxpayers may request, and the IRS may issue, a ruling on part of an integrated transaction described in the above provisions, or a ruling on a particular legal issue under a section of the Code or regulations with respect to a transaction (or part thereof) rather than a ruling that addresses all aspects of that section (or any other section) with respect to the transaction (or part thereof).

In addition, the IRS may rule on the tax consequences resulting from integrated transactions described in the above provisions to the extent that a significant issue is presented under related Code sections that address such tax consequences.

A significant issue generally is a germane and specific issue of law, provided that a ruling on the issue would not be a comfort ruling or the conclusion in such a ruling otherwise would not be essentially free from doubt.

The requests for ruling must contain (1) narrative description of the transaction that puts the significant issue in context; (2) statement identifying the issue; (3) analysis of the solvability of issue; and more.

Effect on Other Documents

Rev. Proc. 2026-1 and Rev. Proc. 2026-3 are modified and amplified.

Effective Date

The significant issue ruling program applies to all letter ruling requests described in section 4.01 of Rev. Proc. 2026-21 postmarked or, if not mailed, received by the IRS after May 5, 2026.

Rev. Proc. 2026-21

Other References:

• Code Sec. 332
• CCH Reference - FED ¶16,052.188

Other References:

• Code Sec. 351
• CCH Reference - FED ¶16,405.48

Other References:

• Code Sec. 355
• CCH Reference - FED ¶16,466.923

Other References:

• Code Sec. 368
• CCH Reference - FED ¶16,753.53

Other References:

• Code Sec. 1036
• CCH Reference - FED ¶29,702.11

The IRS has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement and historic preservation easement disputes with the IRS. The program aims to resolve cases faster and on terms that are generally more favorable than recent Tax Court decisions.

The IRS has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement and historic preservation easement disputes with the IRS. The program aims to resolve cases faster and on terms that are generally more favorable than recent Tax Court decisions. Since 2020, the IRS has settled 405 cases through earlier initiatives, although taxpayers still had to pay penalties and were allowed only limited deductions for certain out-of-pocket costs. More than 1,100 conservation easement cases currently remain pending before the IRS and the Tax Court. Under the new initiative, many eligible partnerships will not have to make an upfront payment to participate. In addition, taxpayers whose earlier settlement offers expired or were rejected may now have another chance to resolve their cases, while some partnerships that were not previously eligible may also qualify. IRS Chief Executive Officer Frank J. Bisignano said Congress created the conservation easement deduction to encourage legitimate preservation efforts rather than tax shelters based on inflated property values.

The IRS said partnerships that accept the offer during the initial 90-day period generally will not be allowed a charitable contribution deduction, but they may qualify for a limited deduction tied to certain out-of-pocket expenses. Those partnerships generally would face a 10 percent gross valuation misstatement penalty, while partnerships settling during an additional 45-day period generally would face a 20 percent penalty. Interest also will continue to accrue as required by law. At the same time, the IRS noted that courts have repeatedly reduced claimed deductions and upheld significant penalties in conservation easement disputes. Certain cases, such as those already tried or currently under appeal, will not qualify for the initiative. The IRS added that eligibility will depend on the status and specific facts of each case.

Following a 2026 tax filing season that was consistent with the 2025 season, the American Institute of CPAs offered legislators a series of recommendations to help improve filing season in the future.

Following a 2026 tax filing season that was consistent with the 2025 season, the American Institute of CPAs offered legislators a series of recommendations to help improve filing season in the future.

“Based on limited and anecdotal information, many practitioners noted that the IRS appeared to operating consistently compared with the prior year’s service,” AICPA said in a recent letter to the Senate Finance Committee’s top leadership following a hearing on the 2026 tax filing season, adding that data currently available shows “tax return processing remained relatively consistent, though the quality of telephone services appeared to vary depending on the hotline.”

AICPA did observe that while Internal Revenue Service modernization efforts have allowed for consistent customer service levels compared to recent prior years, “IRS customer service has not returned to pre-COVID-19 pandemic levels according to IRS data and the AICPA’s most recent annual membership survey.”

With that, the industry organization offered recommendations in the areas of governance and oversight, taxpayer services, and dedicated practitioner services.

In the area of IRS governance and oversight, AICPA recommended the following:

• Requiring a Government Accountability Office review to determine whether a private sector board with sufficient authority to hold the IRS accountable and oversee implementation of key recommendations from advisory groups;
• Re-establish the annual joint hearing review to focus on strategic and business plans, taxpayer service and compliance, technology and modernization, and the filing season; and
• The Joint Committee on Taxation should provide a bi-annual report on the overall state of the Federal tax system.

In the area of taxpayer service, the following recommendations were offered:

• Hire more qualified and experienced professionals from the private sector, adequately train all agency employees, skillfully manage IRS resources, and ensure organizational alignment between Congress, the executive branch, and the IRS;
• Congress should determine what the appropriate level of service is and then ensure that the appropriate resources are allocated to achieve that level;
• Continue to improve the technology infrastructure modernization; and
• Effectively utilize customer satisfaction surveys to assess IRS performance, improve the taxpayer experience, and effectuate modernization efforts or process improvement.

AICPA pushed for the passage of the Taxpayer Assistance and Services Act, which it states “would significantly improve IRS services, reinforce fairness and transparency in our tax system, and reduce tax administrative burdens on taxpayers and practitioners, including many critical tax provisions for which AICPA has previously advocated.”

In the area of dedicated practitioner services, AICPA recommended:

• Create consolidated dedicated “executive-level” practitioner services comparable to private sector services that are implemented and adapted based on practitioner feedback solicited periodically; and
• Continue to expand the functionality of a robust and enhanced tax professional account as part of the IRS’s online portal with account access to all of a practitioner’s client information, allowing for IRS to communicate directly with authorized practitioners, enable a centralized login system, and prioritize the protection and privacy of user identities and data;
• Provide practitioners with a robust practitioner priority hotline with high-skilled employees capable of resolving complex technical and procedural issues; and
• Assign customer service representatives to each geographic area to address unusual or complex issues that practitioners were unable to resolve through the priority hotlines.

The letter to the Senate Finance Committee leadership and other AICPA 2026 tax policy and advocacy comment letter can be found here.

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.