Due Date for FBARs Automatically Extended to October 15 Each Year

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due date for filing FinCEN Form 114 (Report of Foreign Bank and Financial Accounts) to April 15 of the following calendar year, with a six-month extension to October 15 allowed. (Previously, the due date was June 30 of the following calendar year, with no extension allowed.) In an effort to smoothly implement this change, FinCEN will grant filers failing to meet the April 15 deadline an automatic extension to October 15 each year—a specific request for extension will not be required. The announcement can be found at www.fincen.gov/news/news-releases/new-due-date-fbars-0 . [ Editor's Note: The due date for FBAR filings for foreign financial accounts maintained during 2016 is 4/18/17 (same as the federal income tax due date). An automatic extension will be granted to 10/16/17 because October 15 falls on a Sunday.]

What's new for 2017: a roundup of tax changes going into effect this year (Long Read)

The new year promises to be an challenging one for tax practitioners and taxpayers, as President-elect Trump and Congressional Republicans have promised to enact a significant tax reform package in 2017. However, even if there is no new law, practitioners and taxpayers still will have to cope with a number of tax changes that go into effect for the first time this year or apply for the first time for tax returns filed this year. Other than indexing changes and changes created by Congress's failure (as of now), to enact an extenders package to revive tax provisions that expired at the end of 2016.

Higher floor beneath medical expenses for seniors. For tax years beginning after Dec. 31, 2016, the floor beneath the itemized deduction for medical expenses of taxpayers who are age 65 or older increases from 7.5% of AGI to 10% of AGI. ( Code Sec. 213(a), Code Sec. 213(f) )

Some taxpayers may need new ITINs. Any individual filing a U.S. tax return is required to state his or her taxpayer identification number on that return. Generally, a taxpayer identification number is the individual's Social Security number (SSN). However, in the case of individuals who are not eligible to be issued an SSN, but who still have a tax filing obligation, IRS issues individual taxpayer identification numbers (ITINs) for use in connection with the individual's tax filing requirements. ( Reg. § 301.6109-1(d)(3)(i) )

The 2015 Protecting Americans from Tax Hikes (PATH) Act (P.L. 114-113) provided that an ITIN will expire if an individual fails to file a tax return (or is not included as a dependent on another's tax return) for three consecutive years. ( Code Sec. 6109(i)(3)(B)(ii) ) Under this new rule, taxpayers who have an ITIN that has not been used at least once in the past three years will no longer be able to use that ITIN on a tax return as of Jan. 1, 2017. In addition, individuals who were issued ITINs before 2013 are now required to renew their ITINs on a staggered schedule between 2017 and 2020. ( Code Sec. 6109(i)(3)(C) ) However, only ITIN holders who need to file a tax return in 2017 need to renew their ITINs; others don't need to take any action.

Accelerated due dates for W-2, 1099, etc. Forms. For wages paid to employees, and taxes withheld from employee wages before 2016, payors generally had to file a Form W-2 return with the Social Security Administration (SSA) by February 28 of the year following the calendar year for which the return had to be filed, using Form W-3, Transmittal of Wage and Tax Statements. For those W-2s, the due date for returns filed electronically was March 31. Similarly, for payments before 2016, payors generally had to file Forms in the 1099 series with IRS on or before the last day of February of the year following the calendar year for which the return had to be filed. For those 1099s, the due date for most information returns that were filed electronically was March 31.

Under the 2015 PATH Act, beginning with forms filed in 2017, Forms W-2, W-3, and returns to report non-employee compensation (e.g., Form 1099-MISC), must be filed on or before January 31 of the year following the calendar year to which such returns relate. And, those returns are no longer eligible for the extended filing date for electronically filed returns. ( Code Sec. 6071(c) )

Additionally, extensions of time to file Form W-2 with the SSA are no longer automatic. For filings due on or after Jan. 1, 2017, taxpayers may request one 30-day extension by submitting Form 8809, Application for Extension of Time to File Information Returns.

Revised due dates for partnership and C corporation returns. Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41), effective generally for returns for tax years beginning after Dec. 31, 2015 (i.e., for 2016 tax year returns filed in 2017):

1. Partnerships, as well as S corporations, must file their returns by the 15th day of the third month after the end of the tax year. ( Code Sec. 6072(b) ) For prior returns, partnerships had to file by the 15th day of the fourth month after the end of the tax year.
   
2. C corporations generally must file by the 15th day of the fourth month (had been third month) after the end of the tax year. However, for C corporations with fiscal years ending on June 30, the filing date continues to be the 15th day of the third month after the end of the tax year. Corporations with short tax years ending anytime in June are treated as if the short year ended on June 30, and they must file by the 15th day of the third month after the end of the tax year. For C corporations with fiscal years ending on June 30, the deferred filing due date won't apply until tax years beginning after Dec. 31, 2025.
   Revised automatic extension rules for corporations. Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, effective generally for returns for tax years beginning after Dec. 31, 2015, i.e., for 2016 tax year returns filed in 2017, the 3-month automatic extension of time for corporate returns in Code Sec. 6081(b) is changed to an automatic 6-month extension. However, for any return for a tax year of a C corporation which ends on December 31 and which begins before Jan. 1, 2026, the automatic extension period is five months (not six months). And, for any return for a tax year of a C corporation which ends on June 30 and which begins before Jan. 1, 2026, the automatic extension period is seven months (not six months). ( Code Sec. 6081(b))
   Safe harbor for de minimis errors on information returns and payee statements. In general, except where there is reasonable cause and no willful neglect and subject to certain other exceptions, a failure to include all of the information required to be shown on an information return or a payee statement with respect to an information return, or any inclusion of incorrect information on an information return or payee statement, is subject to a penalty. The amount of the penalty depends on various factors, including whether the payor is a small business.
   Effective for returns and statements required to be filed after Dec. 31, 2016, the 2015 PATH Act established a de minimis safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements. If the error is $100 or less ($25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return, and no penalty is imposed. ( Code Sec. 6721(c)(3)(A) ; Code Sec. 6722(c)(3)(A) )
   However, if any person receiving payee statements requests a corrected statement, the penalty for failure to file a correct information return and the penalty for failure to furnish a correct payee statement continue to apply in the case of de minimis errors on that statement. ( Code Sec. 6721(c)(3)(B) ; Code Sec. 6722(c)(3)(B) )
   Qualified small employer HRAs exempt from ACA market reform requirements. Generally effective for years beginning after Dec. 31, 2016, the "21st Century Cures Act" (P.L. 114-255) provides that a "qualified small employer HRA" is not treated as a group health plan for income tax purposes (except for Code Sec. 4980I(f)(4) (which defines a group health plan), as amended, and notwithstanding any other provision of the Code). ( Code Sec. 9831(d)(1) ) There are similar exceptions for ERISA and Public Health Services (PHS) Act purposes.
   Observation: Thus, under the Act, a qualified small employer HRA will not face the Code Sec. 4980D excise tax levied on group health plans that don't meet the Affordable Care Act (ACA) market reform requirements.
   In general, a qualified small employer HRA is one that satisfies the following requirements:
   
3. (1)  It is maintained by an eligible employer. ( Code Sec. 9831(d)(2)(A)(ii) ) An eligible employer is one that employs fewer than 50 employees and does not offer a group health plan to any of its employees. ( Code Sec. 9831(d)(3)(B) )
   
4. (2)  It is provided on the same terms to all eligible employees, defined as any employee of an eligible employer, except that the arrangement may exclude from consideration employees who haven't completed 90 days of service, employees who haven't attained age 25, part-time or seasonal workers, employees covered in a collective bargaining unit, and certain nonresident aliens. ( Code Sec. 9831(d)(2)(A)(ii), Code Sec. 9831(d)(3)(A) )
   
5. (3)  It is funded solely by an eligible employer, and no salary reduction contributions may be made under the HRA. ( Code Sec. 9831(d)(2)(B)(i) )
   
6. (4)  It provides, after the employee provides proof of coverage, for the payment of, or reimbursement of, an eligible employee for expenses for medical care (as defined in Code Sec. 213(d) ) incurred by the eligible employee or the eligible employee's family members (as determined under the HRA's terms) ( Code Sec. 9831(d)(2)(B)(ii) ) and
   
7. (5)  The amount of payments and reimbursements do not exceed $4,950 ($10,000 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee). ( Code Sec. 9831(d)(2)(B)(iii) ) For any year beginning after 2016, the above dollar amounts are subject to cost of living increases. ( Code Sec. 9831(d)(2)(D)(ii) ) For employees who are covered by a qualified arrangement for less than an entire year, the above dollar amounts are prorated. Code Sec. 9831(d)(2)(D)(i))
   For purposes of Code Sec. 105 (amounts received under accident and health plans) and Code Sec. 106(contributions by employer to accident and health plans), payments or reimbursements from a qualified small employer HRA of an individual for medical care (as defined in Code Sec. 213(d)) will not be treated as paid or reimbursed under employer-provided coverage for medical expenses under an accident or health plan if, for the month in which such medical care is provided, the individual does not have minimum essential coverage under Code Sec. 5000A(f). ( Code Sec. 106(g))
   Additionally, for any month that an employee is provided a small employer HRA that constitutes "affordable coverage," as defined, the employee is not eligible for a premium assistance tax credit under Code Sec. 36B. ( Code Sec. 36B(c)(4)(A) ) (A reduced credit may be available if the small employer HRA does not constitute affordable coverage.)
   
   
   

21st Century Cures Act Establishes Small Employer HRAs

Under the 21st Century Cures Act enacted 12/13/16, certain small employers are allowed to offer Health Reimbursement Arrangements (HRAs) to employees without also offering other health insurance coverage in 2017. The HRA must meet certain requirements and the amount the employer can contribute to the HRA is limited. Additionally, reimbursements to the employee for medical expenses are tax-free only if the employee is enrolled in other health coverage (e.g., individual coverage) that is minimum essential coverage. The HRAs also can affect an employee's eligibility for a premium tax credit, or the amount of premium tax credit that is available. The new law also provides that small employers that have reimbursed individual health insurance premiums from a standalone HRA before 1/1/17 will not be subject to the Section 4980D penalty.

2017 Standard Mileage Rates for Business, Medical and Moving Announced

The Internal Revenue Service today issued the 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 53.5 cents per mile for business miles driven, down from 54 cents for 2016
• 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
• 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.   The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements are described in Rev. Proc. 2010-51. Notice 2016-79, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

New Version of Form I-9 Released

The U.S. Citizenship and Immigration Services (USCIS) has released a new version of Form I-9 (Employment Eligibility Verification). Dated 11/14/16, the form includes several changes, including prompts to ensure information is entered correctly, the ability to enter multiple preparers and translators, a dedicated area for additional information, and a supplemental page for the preparer/translator. According to the USCIS, the revised form is easier to complete on a computer and streamlines the certification process for certain foreign nationals. Employers are required to use the new form by 1/22/17. Until then, employers can either continue to use the version dated 3/8/13 or use the updated form. More information is available at www.uscis.gov/news/news-releases/uscis-revises-form-i-9-used-all-new-hires-us

IRS advises taxpayers in the sharing economy on how to meet their tax responsibilities

In a newly launched web page, the “Sharing Economy Resource Center,” IRS has provided guidance to taxpayers involved in the sharing economy (also called the on-demand, gig or access economy) to help them quickly locate the resources they need to satisfy their tax obligations.

Background. IRS notes that an emerging area of activity in the past few years has changed how people commute, travel, rent vacation places and perform many other activities. The sharing economy allows individuals and groups to utilize technology advancements to arrange transactions to generate revenue from assets they possess. Typically, the Internet is used to connect suppliers willing to provide services or the use of assets—apartments for rent, cars for transportation services, etc.—to consumers. These platforms are also used to connect workers and businesses for short-term work, such as household chores or technology services. Although this is a developing area of the economy, there are tax implications for the companies that provide the services and the individuals who perform the services.

New guidance. IRS notes that if a taxpayer receive income from a sharing economy activity, it's generally taxable. This is true even if the taxpayer even didn't receive a Form 1099-MISC (Miscellaneous Income), Form 1099-K (Payment Card and Third Party Network Transactions), Form W-2 (Wage and Tax Statement), or some other income statement. There is likely a tax obligation even if the taxpayer pursued this activity as a side job or as a part time business and even if the taxpayer was paid in cash. On the brighter side, depending upon the circumstances, some or all of the taxpayer's business expenses may be deductible, subject to the normal tax limitations and rules.
IRS has provided guidance to taxpayers with the release of its new “Sharing Economy Resource Center” webpage (at https://www.irs.gov/businesses/small-businesses-self-employed/sharing-economy-tax-center). IRS offers tips and resources on a variety of topics ranging from filing requirements and making quarterly estimated tax payments to self-employment taxes and special rules for reporting vacation home rentals. Some topics include:

• . . . Taxes. Income received is generally taxable, even if the recipient doesn't receive a Form 1099, W-2 or some other income statement and even if the activity is only part-time or a sideline business.
• . . . Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a person who uses his car for business often qualifies to claim the standard mileage rate, currently 54¢ a mile for 2016.
• . . . Rentals. Special rules generally apply to the rental of a home, apartment or other dwelling unit that is used by the taxpayer as a residence during the tax year. Usually, rental income must be reported in full, any expenses need to be divided between personal and business purposes and special deduction limits apply. But if the dwelling unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible.
• . . . Estimated payments. Those involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on Apr. 15, June 15, Sept. 15 and Jan. 15. Form 1040-ES is used to figure these payments.
• . . . Payment options. The fastest and easiest way to make estimated tax payments is to do so electronically using IRS Direct Pay or the Treasury Department's Electronic Federal Tax Payment System (EFTPS).
• . . . Withholding. Alternatively, those involved in the sharing economy who are employees at another job can often avoid needing to make estimated tax payments by having more tax withheld from their paychecks. Form W-4 can be filed with an employer to request additional withholding.

                                   
                   

GSA Releases Domestic Per Diem Rates for Fiscal Year 2017

The General Services Administration (GSA) has released the federal domestic per diem rates for fiscal year 2017. The IRS permits taxpayers to use these rates to substantiate business expenses under IRC Sec. 274(d) for lodging, meals, and incidental expenses incurred while traveling away from home. The maximum standard per diem rate has increased from $140 to $142 ($91 for lodging and $51 for meals and incidental expenses). Per diem rates for localities without standard rates range from $142 to $436. The updated rates are effective from 10/1/16 through 9/30/17 and may be downloaded in Excel format via http://www.gsa.gov/portal/content/103168 . GSA Per Diem Bulletin FTR 17-01, 8/12/16.