On December 18, 2015, President Obama signed the “Protecting Americans From Tax Hikes Act of 2015” (the “PATH Act”), the most significant tax legislation to pass Congress this year. The PATH Act consists primarily of extensions of numerous expired tax provisions (some permanently) as well as modifications to tax administration and various miscellaneous tax matters. CB Tax Accounting Inc summarizes the more important provisions of the PATH Act.
The following provisions that had expired at the end of 2014 have been permanently extended effective January 1, 2015:
- Parity is reinstated for the exclusion of employer provided qualified transportation fringe benefits and for employer provided parking benefits.
- Election to deduct state and local sales taxes in lieu of state and local income taxes.
- The R&D Tax Credit is permanently extended; eligible small businesses may use the credit to offset both regular tax and AMT liabilities, as well as payroll taxes.
- Reinstates and expands the differential wage payment credit for employees who are active duty members of the uniformed services.
- 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified leasehold improvements.
- Exclusion for 50% of gain from sale of certain small business stock.
- The 5-year recognition period for built-in gains tax of S corporations.
- Subpart F exception for active financing income.
- The minimum applicable percentage of 9% for low-income housing tax credit for newly constructed non-Federally subsidized buildings.
- Inclusion of mutual funds as qualified investment entity under FIRPTA.
The following provisions are extended through December 31, 2019:
- The Work Opportunity Tax Credit is extended and expanded to include employers who hire individuals who are qualified long-term unemployment recipients.
- 50% bonus depreciation, with phase-downs beginning in 2018.
- Subpart F look-through rule.
The following provisions are extended through December 31, 2016:
- Exclusion from gross income of COD on principal residences.
- Treatment of mortgage insurance premiums as qualified residence interest.
- Above-the-line deduction for qualified tuition expenses.
- Tax incentives for Empowerment Zones.
- Suspension of medical device excise tax.
- Energy-efficient commercial buildings deduction.
FILING AND ADMINISTRATIVE PROVISIONS
The following filing and administrative provisions are either new or modified:
- The due date for Forms W-3 is changed to January 31.
- Safe harbor from penalties for failure to file a correct information return and furnish a correct payee statement where statement is otherwise correctly filed but contains a de minimis error of the amount required to be reported.
- Modification of certain rules related to ITIN application procedures and other rules.
- Amends the definition of underpayments applicable in determining accuracy-related and fraud penalties by including erroneously claimed refundable credits in the amount of the underpayment.
- Increase penalty rate on paid tax return preparers for understatements due to willful or reckless conduct to the greater of $5,000 or 75% of the income derived by the preparer with respect to the return or claim for refund.
- IRS employees are prohibited from using personal email accounts for official government business.
- Changes the administrative appeals procedures relating to adverse determinations of tax-exempt status.
- IRS employees are to be terminated for taking official actions for political purposes.
- Gift tax will not apply to the transfer of money or other property to an organization exempt from tax under sections 501(c)(4), (5), or (6).
- IRS has authority to extend the use of truncated SSNs on Form W-2.
- Enrolled agents may use the designations “enrolled agent”, “EA”, or “E.A.”
- Expand access to Tax Court for interest abatement cases, spousal relief, and collection cases.
- Tax Court proceedings to be conducted under the Federal Rules of Evidence.
The following miscellaneous provisions are either new or modified:
Section 529 is modified by:
- Amending the definition of qualified higher education expenses to include the purchase of computer or peripheral equipment;
- Repealing the rules requiring aggregation of section 529 accounts for the purpose of calculating the amount of a distribution included in a taxpayer’s income; and
- Refunds of any higher education expenses reinvested in a beneficiary’s account within 60 days will not be subject to tax.
Numerous changes are made to the treatment of real estate investment trusts, including:
- Making a REIT generally ineligible to participate in a tax-free spin-off under section 355 as either a distributing or controlled corporation;
- Reducing the permitted percentage of total REIT assets that may be securities of one or more taxable REIT subsidiaries to 20%;
- Expanding the amount of property that a REIT may sell within the safe harbor provisions from 10% of the aggregate basis or fair market value to 20%;
- Repealing the preferential dividend rule for publicly-offered REITs;
- Limiting the aggregate amount of dividends designated by a REIT for a taxable year under all of the designation provision to the amount of dividends paid with respect to the taxable year;
- Treating debt instruments of publicly offered REITs as qualified real estate assets for purposes of meeting the 75% asset test, subject to special limitations;
- Modifying the calculation of REIT earnings and profits to avoid duplicate taxation;
- Expanding exceptions from FIRPTA for certain REIT stock; and
- Increasing withholding tax on dispositions of US real property interests from 10% to 15%, with some exceptions.
Section 267(d) is amended to provide that the basis of property in the hands of a transferee with respect to property sold or exchanged between related parties will be its cost.