2020 NATIONAL INCOME TAX WORKBOOK · 2020. 11. 10. · Notice 2019-45, 2019-32 I.R.B. 593, I.R.C. § 223 Notice 2019-45 expands the list of preventive care benefits that a high deductible

2020 NATIONAL INCOME TAX WORKBOOK

CHAPTER 14: NEW AND EXPIRING

LEGISLATION: PART 1

1COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020

After completing this session, participants will be able to do the following:

✔ Advise clients about the tax laws that were enacted or changed late in 2019

and in 2020

✔ Identify individual and business income tax exclusions, deductions, and

credits that expire in 2020; and exclusions, deductions, and credits that are

expiring in future years

2

LEARNING OBJECTIVES P. 457

COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020

Tax legislation enacted late in 2019 and in 2020 affects a variety of tax provisions.

This chapter addresses

◦ The Further Consolidated Appropriations Act, 2020 (P.L. 116-94)

◦ The Taxpayer Certainty and Disaster Tax Relief Act of 2019

◦ The Setting Every Community Up for Retirement Enhancement Act of 2019 (the

SECURE Act)

◦ Selected Notices, Procedures and other Guidance as issued by IRS or Treasury.

The Chapter is organized by topics and sub-topics.

3

INTRODUCTION P. 457

COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020

Uniform Capitalization

◦ Rev. Proc. 2020-13 provides the exclusive procedures for a taxpayer that qualifies for

the section 263A(i) small business taxpayer exemption to revoke its prior election under

section 263A(d)(3) and apply the small business taxpayer exemption in the same tax

year.

◦ Additionally, it provides the exclusive procedures for a taxpayer that becomes

ineligible to use the small business taxpayer exemption and wishes to make an election

under section 263A(d)(3) in the same tax year that it no longer qualifies for the

exemption.

◦ Cross-reference with Chapter 7, Agricultural and Natural Resource Issues, for more

detail.

COPYRIGHT LAND GRANT UNIVERSITY TAX EDUCATION FOUNDATION 2020 4

AGRICULTURAL AND NATURAL RESOURCE P.458

Reg – 125710-18, § 382

◦ Proposed regulations regarding the items of income and deduction that are included

when calculating built-in gains and losses under I.R.C. § 382. Section 382(h) explains

how to determine a loss corporation’s built-in gains and losses as of the date of the

ownership change (the change date).

◦ In general, built-in gains recognized during the 5-year period beginning on the change

date (the recognition period) allow a loss corporation to increase its section 382

limitation, whereas built-in losses recognized during the recognition period are subject

to the loss corporation’s section 382 limitation.

T.D. 9897, § 385

◦ Final regulations regarding the treatment of certain indebtedness as stock if it is issued

by a corporation to a controlling shareholder in a distribution or in another related-

party transaction that achieves an economically similar result.


BUSINESS ENTITIES - C CORPORATIONS P. 458

REG-131071-18, I.R.C. §§ 481, 1371, 1377

◦ Generally, a distribution by a C corporation to its shareholders with respect to their

stock ownership is treated as a taxable dividend to the extent of the corporation’s

earnings and profits.

◦ During the 1-year post-termination transition period (PTTP), after termination of an S-

Corp a distribution of money by the C corporation is tax-free to the extent of the

recipients basis in its stock.

◦ Proposed regulations provide rules regarding the definition of an eligible terminated S

corporation (ETSC), distributions after the PTTP.


C CORPORATIONS P. 459

T.D. 9877, I.R.C. §§ 704, 752

T.D. 9876, I.R.C. § 707

T.D. 9869, I.R.C. § 7701

◦ The final regulations clarify that partners in a partnership that owns a disregarded entity

are not employees of the disregarded entity for employment tax purposes and are

subject to self-employment tax.

Notice 2019-66, 2019-52 I.R.B. 1509, I.R.C. § 6031

Notice 2020-43, 2020-27 I.R.B. 1, I.R.C. § 6031

Cross Reference: Business Entities Chapter has more discussion.


PARTNERSHIPS P. 459

T.D. 9886, I.R.C. § 512

◦ Final regulations providing guidance on how voluntary employees’ beneficiary

associations (VEBAs) and supplemental unemployment benefit trusts (SUBs) that

provide employee benefits must calculate unrelated business taxable income (UBTI).

Repeal of UBTI for Qualified Transportation Fringe Benefits, I.R.C. § 512

Notice 2020-36, 2020-21, I.R.B. 840, I.R.C. § 501

◦ Contains a proposed revenue procedure that sets forth updated procedures under

which organizations can request exemption from federal income tax on a group basis

for subordinate organizations affiliated with and under the general supervision or

control of a central organization.


TAX-EXEMPT ORGANIZATIONS P. 460

T.D. 9893, I.R.C. § 61

◦ The IRS and Treasury issued final regulations regarding special valuation rules for

employers and employees to use in determining the amount to include in an

employee’s gross income for personal use of an employer-provided vehicle.

◦ Effective February 5, 2020

◦ The final regulations update the fleet-average and vehicle cents-per-mile valuation

rules to align the limitations on the maximum vehicle FMVs with the increases made by

the TCJA to the I.R.C. § 280 depreciation limitations.

◦ The maximum base FMV amount is $50,400 in 2020.


BUSINESS ISSUES - DEDUCTIONS PP. 461

Rev. Proc. 2019-46, 209-49 I.R.B. 1301, I. R.C. §§ 67, 217, 274

◦ Rev. Proc. 2019-46 updates rules for using the optional standard mileage rates to

compute the deductible costs of operating an automobile for business, charitable,

medical, or moving expense purposes to reflect these changes.

◦ The revenue procedure emphasizes that a taxpayer may not use the business standard

mileage rate to claim a miscellaneous itemized deduction or to claim a miscellaneous

itemized deduction for unreimbursed travel expenses during the suspension period.

◦ The revenue procedure provides that a member of the armed forces may still use the

moving standard mileage rate to calculate the deduction for a qualified move.

◦ This revenue procedure also provides rules for substantiating the amount of an

employee’s ordinary and necessary expenses for local travel or transportation away

from home.


BUSINESS ISSUES - DEDUCTIONS P. 461

REG-1104591-16, I.R.C. §§ 162, 6050X

◦ Proposed reliance regulations issued that describes how taxpayers and

governments can meet these requirements to be able to take a deduction for

expenses specified to be restitution, remediation, or paid to come into

compliance with a law.

◦ Restitution and Remediation

◦ Coming Into Compliance with the Law

◦ Government Reporting


BUSINESS ISSUES – DEDUCTIONS P. 462

T.D. 9874, I.R.C. §§ 168, 179

o Final regulations explaining that the acquisition of used property is eligible for bonus

depreciation if it meets certain requirements.

REG-106808-19 , I.R.C. § 168

oThe proposed regulations provide rules for the definition of qualified property for

purposes of bonus depreciation and add special rules for consolidated groups.



Rev. Proc. 2019-48, 2019-51 I.R.B. 1392, I.R.C. § 274◦ Rev. Proc. 2019-48 updates rules for using a per diem rate to substantiate the amount

of an employee’s expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payer (an employer, its agent, or a third party) reimburses.

◦ It provides that unreimbursed employee travel expenses that are miscellaneous itemized deductions subject to the 2%-of-AGI floor are not allowed for any tax year beginning after December 31, 2017, and before January 1, 2026, and a deduction for entertainment, amusement, or recreation expenses is generally disallowed.

◦ However, I.R.C. § 62(a)(2)(A) allows certain employees to deduct unreimbursed business expenses the employee pays or incurs in performing services under a reimbursement or other expense allowance arrangement with a payer and section 62(a)(1) allows self-employed persons to deduct business expenses paid or incurred.



REG-119307-19, I.R.C. § 274◦ The proposed regulations address the elimination of the deduction under section 274

for expenses related to certain transportation and commuting benefits provided by employers to their employees in tax years beginning after December 31, 2017.

◦ QTFs are defined to mean any of the following provided by an employer to an employee:

◦ Transportation in a commuter highway vehicle between the employee’s residence and place of employment

◦ Any transit pass, Qualified parking and Qualified bicycle commuting reimbursement

◦ The proposed regulations clarify three possible exceptions to the deduction disallowance under section 274(e)(2), (e)(7), and (e)(8).

◦ Included in Income

◦ Available to the Public

◦ Adequate Consideration



T.D. 9867, I.R.C. § 105

◦ The final rules also set forth conditions under which certain HRAs and other account-

based group health plans will be recognized as limited excepted benefits.

REG-109755-19, I.R.C. § 213

◦ Proposed regulations would treat direct primary care arrangements, health care

sharing ministries, and certain government-sponsored health plans as deductible under

I.R.C. § 213.

◦ Cross Reference to Business Tax Issues chapter provides more detail.


HEALTH PLANS P. 466

Notice 2019-45, 2019-32 I.R.B. 593, I.R.C. § 223

◦ Notice 2019-45 expands the list of preventive care benefits that a high deductible

health plan (HDHP) can provide under I.R.C. § 223(c)(2) without a deductible, or with a

deductible below the applicable minimum deductible (self-only or family) for an HDHP.

◦ The notice provides that certain specified medical care services received, and items

purchased, including prescription drugs for certain chronic conditions, should be

classified as preventive care for someone with that chronic condition.

◦ The specified services and items are treated as preventive care only when prescribed

to prevent the exacerbation of the chronic condition or the development of a

secondary condition.


HEALTH PLANS P. 466

REG-117589-18, I.R.C. § 1031

◦ Issued proposed regulations that would add a definition of real property for purposes of

a section 1031 like-kind exchange.

◦ Real Property: Inherently Permanent Structures

◦ See list, p. 467

◦ Structural Components

◦ See list, p. 468

◦ Four factors

◦ Unsevered Products of Land

◦ Intangible Assets

◦ Incidental Personal Property


NONRECOGNITION (LIKE-KIND EXCHANGES) P.467

What items would be considered Real Property for a § 1031 exchange per the

proposed regs?

A. A 5-story parking garage

B. The elevators inside the garage

C. Affixed signs to direct traffic within the garage

D. All of the above, if within the same transaction


CHAPTER 14 – QUESTION 1

What items would be considered Real Property for a § 1031 exchange per the proposed regs?

A. A 5-story parking garage

B. The elevators inside the garage

C. Affixed signs to direct traffic within the garage

D. All of the above, if within the same transaction

All of the above. The garage is real property. The elevators are a structural component. And the signs are incidental personal property.



Qualified Opportunity Fund Frequently Asked Questions, I.R.C. § 1400Z

◦ Investors can defer tax on any prior gains invested in a QOF or QOZ business until the earlier of the date on which the investment is sold or exchanged, or December 31, 2026.

◦ If the investor holds the investment for longer than 5 years, there is a 10% exclusion of the deferred gain. If the investment is held for more than 7 years, the 10% exclusion increases to 15%.

T.D. 9889, I.R.C. § 1400Z

◦ The final regulations provide additional guidance for taxpayers eligible to elect to temporarily defer the inclusion in gross income of certain gains if corresponding amounts are invested in certain equity interests in QOFs or a QOZ business, and guidance on the ability of such taxpayers to exclude from gross income additional gain recognized after holding those equity interests for at least 10 years.

Cross Reference to Business Tax Issues Chapter for further discussion


OPPORTUNITY ZONES P. 469

REG-118997-19, I.R.C. §§ 24, 152

◦ The IRS and Treasury have issued proposed regulations that define a qualifying

relative for tax years 2018 through 2025.

◦ The individual must receive more than one-half of his or her support from the

taxpayer claiming the individual as a qualifying relative.

◦ The proposed regulations provide that the exemption amount for these other

tax purposes is $4,150 for 2018, adjusted for inflation for 2019 through 2025

($4,300 for 2020).


INDIVIDUAL ISSUES - DEDUCTIONS P. 470

A qualified relative must make less than $_________ in 2020 to meet the gross

income test.

A. $4,150

B. $4,300

C. $4,250

D. $4,350



A qualified relative must make less than $_________ in 2020 to meet the gross

income test.

A. $4,150

B. $4,300

C. $4,250

D. $4,350

$4,300 is the exemption amount as indexed for inflation for 2020.



Disaster Act § 102, I.R.C. § 163

◦ The Disaster Act extends the treatment of mortgage insurance premiums as qualified

residence interest through December 30, 2020.


◦ The Disaster Act extends the 7.5% medical expense deduction floor for tax years beginning before January 1, 2021.


◦ The Disaster Act extends the deduction for qualified tuition and related expenses to

December 31, 2020.

Disaster Act Title I Subtitle B Various Code Provisions


INDIVIDUAL ISSUES - DEDUCTIONS P. 470


◦ The Disaster Act extends the income exclusion for discharge of qualified principal

residence indebtedness. The exclusion is effective for discharges after December 31,

2017, and before January 1, 2021.

SECURE Act § 50, I.R.C. § 1

◦ The SECURE Act repeals the TCJA provisions that taxed unearned income of children at

the trust and estate rates. The repeal is effective for tax years beginning after

December 31, 2019, but taxpayers can elect to apply the amendment for tax years

beginning in 2018 or 2019 (or both)


INDIVIDUAL ISSUES - EXCLUSIONS P. 471

Cross-Reference to Individual Issues: Part 1

Disaster Act Title II, I.R.C. §§ 38, 72t, 7508A

◦ The Disaster Act extends the term qualified disaster area to include areas in which a

major disaster was declared between January 1, 2018, and 60 days after the

enactment of the act (December 20, 2019).

◦ It allows penalty-free qualified disaster relief distributions (up to $100,000) from a

retirement plan, and it allows the taxpayer to re-contribute certain distributions.

◦ The Disaster Act provides for plan loans.

◦ The act provides an automatic 60-day extension of filing deadlines for certain

taxpayers affected by federally declared disasters.


INDIVIDUAL ISSUES - LOSSES P. 471

P.M.T.A. 2019-008, I.R.C. § 165

◦ For tax years 2018 through 2025, I.R.C. § 165(h) (5), as amended by the TCJA, limits

personal casualty loss deductions to losses attributable to a federally declared disaster.

◦ The IRS has issued guidance stating that a personal non-federally declared disaster loss

that occurred prior to December 31, 2017, but was not sustained until after December

31, 2017, is not deductible.

◦ The personal casualty loss does not have to occur in a disaster area to be deductible,

but it must occur in the state receiving the federal disaster declaration.



T.D. 9878, I.R.C. § 165

◦ An election under section 165(i) to deduct a disaster loss for the preceding year is

made either on an original federal income tax return for the preceding year or an

amended federal income tax return for the preceding year.

◦ The due date for making the election is 6 months after the due date for filing the

taxpayer’s federal income tax return for the disaster year (determined without regard

to any extension of time to file).

◦ The election may be revoked on or before the date that is 90 days after the due date

for making the election.



Both of these are covered in the IRS Issue Chapter

Virtual Currency

Withholding Estimator


IRS ISSUES PP. 472- 473

Rev. Proc. 2019-38, 2019-42, I.R.B. 942, I.R.C. § 199A

◦ Rev. Proc. 2019-38 finalizes a safe harbor for treating a rental real estate enterprise as a

trade or business for purposes of the I.R.C. § 199A qualified business income (QBI)

deduction. The determination to use this safe harbor must be made annually.

◦ Cross Reference to the QBID Chapter


QUALIFIED BUSINESS INCOME DEDUCTION P. 473

ABLE Accounts

Contributions

Distributions

Qualified Tuition Plan


RETIREMENT, SAVINGS AND INVESTMENT PP. 475 - 478

REG-128246-18, I.R.C. § 529A

◦ Proposed regulations confirm that the employed designated beneficiary, or the person

acting on his or her behalf, is solely responsible for ensuring that the section 529A

requirements are met and for maintaining adequate records for that purpose.

◦ The proposed regulations provide that a qualified ABLE program must return to the

designated beneficiary any contributions of the designated beneficiary’s

compensation in excess of the limit.

◦ Failure to return the excess funds by the due date of the beneficiary's return (including

extensions) results in 6% excise tax.


ABLE ACCOUNTS P. 475

SECURE Act § 113, I.R.C. § 72t

◦ The SECURE Act adds a penalty-free withdrawal from a retirement plan for a qualified

birth or adoption distribution made after December 31, 2019.

◦ The distribution to an individual for any birth or adoption cannot exceed $5,000.

◦ A qualified birth or adoption distribution means any distribution from an applicable

eligible retirement plan to an individual if made during the 1-year period beginning on

the date on which a child of the individual is born or on which the individual finalizes the legal adoption of an eligible adoptee.


RETIREMENT - DISTRIBUTIONS P. 476

Beginning in 2020, taxpayers can withdraw up to $5,000 from their IRA for

expenses paid for the birth or adoption of their child without a 10% penalty.

A. True

B. False



Beginning in 2020, taxpayers can withdraw up to $5,000 from their IRA for

expenses paid for the birth or adoption of their child without a 10% penalty.

A. True

B. False

True



REG- 132210-18, I.R.C. § 401

◦ Proposed regulation update the tables used to determine required minimum

distribution amounts.


◦ The SECURE Act increases the required minimum distribution beginning date from 70½

to 72. With some exceptions, the required beginning date means April 1 of the

calendar year following the later of the calendar year in which the employee attains

age 72, or the calendar year in which the employee retires.


RETIREMENT - DISTRIBUTIONS P. 477


◦ The SECURE Act expands the term qualified higher-education expenses to include

expenses for fees, books, supplies, and equipment required for the participation of a

designated beneficiary in an apprenticeship program registered and certified with the

Secretary of Labor.

◦ Higher-education expenses also include principal and interest on any qualified

education loan to the designated beneficiary or a sibling of the designated

beneficiary, up to a maximum $10,000.


QUALIFIED TUITION PLAN P. 478

Income Inclusion

◦ T.D. 9870, I.R.C. § 451

◦ The TCJA added I.R.C. § 451(c), which generally requires an accrual method

taxpayer that receives any advance payment described in section 451(c)(4) during

the tax year to include the advance payment in income in the tax year of receipt.

◦ REG-104870-18, I.R.C. § 451

◦ The TCJA amended I.R.C. § 451(b) to provide that, for a taxpayer using an accrual

method of accounting, the all-events test with respect to any item of gross income

(or portion thereof) is not treated as met any later than when the item (or portion

thereof) is included in revenue for financial accounting purposes

◦ REG-104554-18, I.R.C. § 451

◦ The proposed regulations explain the deferral method for a taxpayer with an AFS.


TAX ACCOUNTING PP. 478

T.D. 9861, I.R.C. §§ 6051, 6052

◦ To aid employers’ efforts to protect employees from identity theft, these regulations allow employers to voluntarily truncate employees’ social security numbers (SSNs) on copies of Forms W-2, Wage and Tax Statement, that are furnished to employees.

Form 1040-SR

◦ For taxpayers 65 and older beginning in 2019 tax year

Electronic Form 1040-X

◦ Available for electronic filing

Form 1099-NEC

◦ Required to be used beginning with tax year 2020, for non-employee compensation

T.D. 9903

◦ (PTIN) fee to $21 per application; there is also a $14.95 fee to 3rd –party contract processor.


TAX PRACTICE P. 479

The total cost to renew a PTIN this year is $_______

A. $63.00

B. $21.00

C. $35.95

D. None of the above



The total cost to renew a PTIN this year is $_______

A. $63.00

B. $21.00

C. $35.95

D. None of the above

$35.95. Application fee of $21.00 and the processing fee of $14.95.



Gifts

Itemized Deductions


TRUSTS AND ESTATES P. 479

REG-113295-18, I.R.C. §§ 67, 642

◦ Four items not miscellaneous itemized deductions (See list)

◦ Provides guidance for trusts and estates relative to NOLs and Capital Loss Carryovers

under I.R.C. § 642(h)


TRUST & ESTATE - ITEMIZING DEDUCTIONS P. 480

REG-132741-17, I.R.C. §§ 3401, 3402

◦ Proposed regulations provide guidance for employers on the amount of federal

income tax to withhold from an employee’s wages. The proposed regulations reflect

that the TCJA replaced withholding exemptions with withholding allowances.

◦ The proposed regulations clarify that employers using the percentage method of

withholding must compute the tax withholding amount based on the entry for the

employee’s anticipated filing status or marital status.

◦ To select the MFJ status on Form W-4, the employee must meet four requirements; see

list

◦ The proposed regulations define a withholding allowance but otherwise intend to use

forms, instructions, and publications to provide computational details. There are seven

factors that determine the withholding allowance; see list.


WITHHOLDING AND ESTIMATED TAXES P. 480

Figure 14.1 is based on a list prepared by the staff of the Joint Committee on

Taxation. For purposes of compiling this list, the staff of the Joint Committee on

Taxation considers a provision to be expiring if, at a statutorily specified date, the

provision expires completely or reverts to the law in effect before the present-law

version of the provision.

◦ The first column is the Internal Revenue Section for each provision, in numerical order.

◦ The middle column is a brief description of the provision.

◦ The last column is date of the provision’s expiration.


TABLE OF EXPIRATIONS DATES PP. 482 - 485


QUESTIONS ???

Documents

2020 NATIONAL INCOME TAX WORKBOOK · 2020. 11. 10. · Notice 2019-45, 2019-32 I.R.B. 593, I.R.C. § 223 Notice 2019-45 expands the list of preventive care benefits that a high deductible