President Donald Trump signed into law the bipartisan Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142) on June 5. The legislation aims to expand usability of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s ( P.L. 116-136) headliner small business loan program.

President Donald Trump signed into law the bipartisan Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142) on June 5. The legislation aims to expand usability of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s ( P.L. 116-136) headliner small business loan program.

PPP in the House
The bipartisan, bicameral-crafted P.L. 116-142 makes several changes to the rapidly implemented Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The bill, authored by House Reps. Chip Roy, R-Tex., and Dean Phillips, D-Minn., was approved in the House by a 417-to-1 vote on May 27. After a brief stall in the Senate, P.L. 116-142 cruised through the upper chamber by voice vote on June 3.

Most notably, the legislation includes some of the following PPP changes:

• Extends the expense forgiveness period from eight weeks to 24 weeks;
• Reduces the 75 percent payroll ratio requirement to 60 percent;
• Eliminates the two-year loan repayment restrictions for future borrowers;
• Allows payroll tax deferment for PPP recipients; and
• Extends the June 30, 2020, rehiring deadline to December 31, 2020.

Questions Remain
However, riding shotgun with the measure’s increased PPP flexibility is a list of remaining unanswered questions and potential issues. While policymakers and stakeholders alike await more Treasury and SBA guidance, additional legislative text is already in the works to iron out certain wrinkles in past PPP legislation and related IRS guidance.

"Our colleagues have continued to track the program’s [PPP] operation and recommend further tweaks where necessary. In recent days, Senator Collins helped strengthen and improve the House’s proposed PPP modifications before they passed the bill and sent it to us. And I know the senior Senator from Maine has already identified several more technical fixes for the new legislation that I hope Congress will address," Senate Majority Leader Mitch McConnell, R-Ky., said on June 4 from the Senate floor.

Looking Ahead to PPP Technical Corrections, Enhancements
Although the ink may still be drying on the PPP Flexibility Act, Sen. Susan Collins, R-Me., co-architect of the small business loan program, said on June 4 that her staff is currently drafting a PPP technical corrections bill. The next bill is expected to address concerns with P.L. 116-142 60 percent "cliff", among other items.

"Two of my priorities would be to correct what I believe to be a drafting error in the House bill that eliminates partial forgiveness for small businesses with PPP loans who have been unable to retain, recall, or pay their full number of employees due to circumstances beyond the employer’s control," Collins said in a June 4 statement. "The House bill contains a cliff: even if a small employer spent 59 percent out of the 60 percent of the funding designated to pay their employees, none of the loan would be forgiven. The employer would be saddled with debt." Additionally, Collins noted the next PPP bill would allow for overhead funding to be used for masks and other protective gear for employees.

Fellow PPP policy architect Senate Small Business Committee Chair Marco Rubio, R-Fla., on June 4 also alluded to another PPP bill. "I appreciate the Administration’s flexibility and commitment to address the bill’s inadvertent technical errors that could create unintended consequences for small businesses as they seek forgiveness," Rubio said in a June 4 statement. "If the Administration cannot address these issues, Congress will need to fix them through additional legislation…," Rubio said.

Tax Treatment of Ordinary Business Expenses
Additionally, Sen. John Cornyn, R-Tex., told reporters on June 4 that Senate leadership is trying to take up the bipartisan Small Business Expense Protection Bill (S. 3612). The bill would clarify that receipt and forgiveness of a PPP loan does not affect the tax treatment of ordinary business expenses.

However, according to controversial IRS Notice 2020-32, businesses that qualify for PPP loan forgiveness will not be able to deduct certain expenses, including wages, paid for by the loan. "The money coming in the PPP is not taxable. So, if the money that is coming is not taxable, you cannot double dip," Mnuchin said. But Congress’s top, bipartisan tax writers immediately voiced disapproval of IRS and Treasury’s position, stating that the IRS guidance goes against congressional intent.

"[A]s was expressed to Treasury during the development of the PPP, we did not intend to deny the deductibility of ordinary and necessary business expenses, nor did these small businesses expect to lose deductions for their business expenses when they applied for a PPP loan," Senate Finance Committee Chairman Chuck Grassley, R-Iowa, ranking member Ron Wyden, D-Ore., and House Ways and Means Committee Chair Richard Neal, D-Mass., wrote in a recent letter to Mnuchin.

And while many business groups are also commending Congress’s approval of P.L. 116-142, their leadership is also calling for more PPP-related legislation. "The PPP changes passed by both chambers are another important step in providing relief to small businesses that otherwise will not survive until the economic recovery phase," U.S. Travel Association Executive Vice President of Public Affairs and Policy Tori Emerson Barnes said in a statement. However, the Travel Association, similar to other industry trade groups, has called for additional PPP enhancements.

"While this measure does a good job making the PPP work better for businesses that are eligible, other PPP enhancements will be needed to make sure all the key pieces are in place when the recovery begins—in particular, extending eligibility to non-profit and quasi-governmental entities that are vital drivers of local and regional economic development," Barnes said.

To that end, it remains unclear at this time whether additional PPP changes, enhancements, and clarifications will come by way of Treasury and SBA guidance, another stand-alone bill, or catch a ride with the next round of economic relief legislation. However, prior to the Senate’s approval of P.L. 116-142, McConnell submitted to the congressional record per Sen. Ron Johnson's, R-Wisc., hold on the bill, a letter from the measure’s bipartisan, bicameral authors and policy architects clarifying congressional intent for PPP loans covered period extension.

"The extension of the covered period in P.L. 116-142 is to allow borrowers who received PPP loans before June 30, 2020, to continue to make expenditures for allowable uses until December 31, 2020," the record states. "The extension of the covered period does not authorize the [SBA] to issue any new PPP loans after June 30, 2020, as this date remains fixed by section 1102(b) of the CARES Act."

PPP Disclosures
Meanwhile, in the spirit of PPP transparency, Rubio and Senate Small Business Committee ranking member Ben Cardin, D-Md., sent a letter this week to Treasury Secretary Mnuchin and SBA Administrator Jovita Carranza calling for more public disclosures of information related to PPP loans and borrowers. "Given the grave nature of this crisis and the unprecedented level of funding that has been appropriated, it is critical that the public and Congress have timely and complete information about where these funds are going, and the committee expects an increased level of transparency and accountability from the SBA," Rubio and Cardin wrote.

Some of the items Rubio and Cardin have requested be made publicly available on the SBA’s website include the following:

• name of business or nonprofit borrower and address,
• business type,
• lender and address,
• loan or grant amount,
• congressional district, and
• number of jobs supported.

In consultation with Treasury Department, the Small Business Administration (SBA) has issued...

In consultation with Treasury Department, the Small Business Administration (SBA) has issued:

• new and revised guidance for the Paycheck Protection Program (PPP);
• revised PPP application forms;
• a revised PPP loan forgiveness application; and
• a new "EZ" PPP loan forgiveness application.

New, Revised PPP Guidance
The guidance implements the Paycheck Protection Program Flexibility Act (PPPFA) ( P.L. 116-142), which President Trump signed on June 5, 2020. The PPPFA aims to expand usability of the PPP for small businesses provided in the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136).

The updated guidance expands PPP eligibility for business owners who have past felony convictions. Further, to implement the PPPFA, the SBA revised its first PPP interim final rule that was issued in April. As noted in Treasury’s recent announcement issued on June 8, the new rule reflects updates related to loan maturity, deferral of loan payments, and forgiveness.

The new and revised PPP guidance can be found at https://home.treasury.gov/system/files/136/PPP-IFR--Additional-Revisions-to-First-Interim-Final-Rule.pdf.

Revised PPP Applications
The SBA has issued revised the PPP application forms to conform with the changes in the guidance.

The revised Borrower application form can be found at https://home.treasury.gov/system/files/136/PPP-Borrower-Application-Form-Revised-June-12-2020.pdf.

For the revised Lender application form, see https://home.treasury.gov/system/files/136/PPP-Lender-Application-Form-Revised-June-12-2020.pdf.

Senators Request PPP Forgiveness Simplification
In a bipartisan effort, a group of over 40 senators have requested that Treasury and the SBA simplify the PPP loan forgiveness application for certain small business loans. Specifically, the senators urged Treasury and the SBA to revise the form so that it is no longer than one page for any loan under $250,000.

"While the Small Business Administrator was also given the ability to require additional documentation necessary to verify proper use of PPP funds, we believe it is beyond the program’s intent to require the information solicited in the 11-page forgiveness application that the SBA recently released," the senators wrote in a recent letter addressed to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza. "We appreciate the interest in appropriately auditing the use of government money. However, the loan forgiveness application – which understandably needs more information for loans worth significantly more than $250,000 – is three times longer than the original application for the PPP."

On the heels the senators’ request, the SBA has released both a revised, full PPP loan forgiveness application, and a new "EZ" forgiveness application (Form 3508EZ). The new EZ loan forgiveness application can be used by:

• borrowers that are self-employed and have no employees;
• borrowers that did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or
• borrowers that experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

Both the full forgiveness application and the EZ forgiveness application give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or the PPPFA’s extended 24-week covered period. The EZ application requires fewer calculations and less documentation for eligible borrowers.

The new EZ forgiveness application can be found at https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf.

The revised, full forgiveness application can be found at https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf.

The IRS is postponing deadlines for certain time-sensitive actions due to the Coronavirus Disease 2019 (COVID-19) emergency. This relief affects employment taxes, employee benefit plans, exempt organizations, individual retirement arrangements (IRAs), Coverdell education savings accounts, health savings accounts (HSAs), and Archer and Medicare Advantage medical saving accounts (MSAs).

The IRS is postponing deadlines for certain time-sensitive actions due to the Coronavirus Disease 2019 (COVID-19) emergency. This relief affects employment taxes, employee benefit plans, exempt organizations, individual retirement arrangements (IRAs), Coverdell education savings accounts, health savings accounts (HSAs), and Archer and Medicare Advantage medical saving accounts (MSAs).

With certain exceptions, the relief postpones deadlines for certain actions due to be performed on or after March 30, 2020, and before July 15, 2020. The revised deadline for an affected taxpayer to perform a time-sensitive action described in the relief is July 15, 2020, unless a different revised deadline is specified.

Qualified Retirement Plans
For employee benefit plans (including a section 403(b) plan, a governmental section 457(b) plan, a SEP plan described in section 408(k), or a SIMPLE IRA plan described in section 408(p)), or any sponsor, administrator, participant, beneficiary, disqualified person, or other person with respect to the plan, the relief affects applying for a funding waiver under Code Sec. 412(c) for a defined benefit pension plan that is not a multiemployer plan.

For multiemployer defined benefit pension plans, the relief affects actions due to be performed on or before the dates in (1) Code Sec. 432(b)(3) for certification of funded status and related notice to interested parties; (2) Code Sec. 432(c)(1) and (e)(1) for adopting a funding improvement plan or rehabilitation plan (and the notification to the bargaining parties of the schedules thereunder); or (3) Code Sec. 432(c)(6) and (e)(3) for the annual update of a funding improvement plan or a rehabilitation plan, and its contribution schedules, and the filing of those updates with the Form 5500 annual return.

For cooperative and small employer charity pension (CSEC) plans, the relief affects actions to be performed on or before the dates in (1) Code Sec. 433(c)(9) for making the contribution required to be made for the plan year; (2) Code Sec. 433(f)(3)(B) for making required quarterly installments; (3) Code Sec. 433(j)(3) for the adoption of a funding restoration plan; or (4) Code Sec. 433(j)(4) for the certification of funded status.

For filing Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, and payment of the associated excise taxes, the period beginning on March 30, 2020, and ending on July 15, 2020, will be disregarded in calculating any interest or penalty for failure to file the Form 5330 or pay the excise tax postponed under the relief. Interest and penalties on postponed filing and payment obligations will begin to accrue on July 16, 2020.

Other relief related to qualified retirement plans affects:

• extension of initial remedial amendment period for section 403(b) plans;
• certain actions affecting pre-approved defined benefit plans;
• the Employee Plans Compliance Resolution System (EPCRS); and
• requests for approval of a substitute mortality table.

Form 5498 Series
For filers of Form 5498, IRA Contribution Information, Form 5498-ESA, Coverdell ESA Contribution Information, and Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, the due date for filing and furnishing the forms is postponed to August 31, 2020, and the period beginning on the original due date of those forms and ending on August 31, 2020, will be disregarded in calculating any penalty for failure to file those forms. Penalties on the postponed filing will begin to accrue on September 1, 2020.

Employers and CPEOs
The relief applies to employers who perform correct employment tax reporting errors using the interest-free adjustment process under Code Secs. 6205 and 6413.

For certified professional employer organizations (CPEOs), the relief provides a temporary waiver of the requirement that CPEOs must file certain employment tax returns and their accompanying schedules electronically. The relief for CPEOs applies only to (1) Forms 941 filed for the second, third, and fourth quarter of 2020; and (2) Forms 943 filed for calendar year 2020. CPEOs can file paper versions of these forms and their schedules if they so choose. The waiver applies to all CPEOs, and individual waiver requests do not need to be submitted.

Exempt Organizations
For exempt organizations, the relief applies to electronic submissions of Form 990-N under Code Sec. 6033(i), and filing suits for declaratory judgment under Code Sec. 7428.

Effect on Other Documents
Rev. Proc. 2017-18, I.R.B. 2017-5, Rev. Proc. 2017-55, I.R.B. 2017-43, Announcement 2018-5, I.R.B. 2018-13, Rev. Proc. 2019-19, I.R.B. 2019-19, Rev. Proc. 2019-39, I.R.B. 2019-42, and Rev. Proc. 2020-10, I.R.B. 2020-10, are modified. Notice 2020-18, I.R.B. 2020-15, Notice 2020-20, I.R.B. 2020-16, and Notice 2020-23, I.R.B. 2020-18, are amplified.

The IRS has issued guidance on coronavirus-related distributions and plan loans.

The IRS has issued guidance on coronavirus-related distributions and plan loans. The guidance

• presents the rules set out in Act Sec. 2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136);
• adds three new categories to the list of individuals who qualify due to adverse financial consequences;
• provides analysis and examples of repayments reporting; and
• includes safe harbors for employee certification and the plan loan payment suspension period.

Background: Coronavirus-Distributions and Plan Loan Relief
The CARES Act provides that qualified individuals may treat up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between January 1, 2020, and December 30, 2020, as "coronavirus-related" distributions. A coronavirus-related distribution is not subject to the 10-percent additional tax that otherwise generally applies to distributions made before an individual reaches age 59-1/2. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

In addition, the CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27, 2020, through December 31, 2020, and the dollar limit on loans made between March 27, 2020, and September 22, 2020, is raised from $50,000 to $100,000.

New Categories of Qualified Individuals
One of the categories of individuals who qualify for coronavirus-related distributions are those who experience adverse financial consequences as a result of coronavirus. As laid out in the CARES act, these consequences may include:

• being quarantined, being furloughed or laid off, or having work hours reduced due to such virus or disease;
• being unable to work due to lack of child care due to such virus or disease; or
• closing or reducing hours of a business owned or operated by the individual due to such virus or disease.

The CARES Act authorizes the Treasury Department to add to this list. Under the guidance, a qualified individual also includes an individual who experiences adverse financial consequences as a result of:

• a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
• the individual’s spouse or a member of the individual’s household being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
• closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

Recontributions: Recognizing Income in Year of Distribution
The new guidance goes into detail on recontributions. Individuals have up to three years to recontribute qualified distributions. Recontributed dollars are not taxed, so earlier returns may have to be amended. The rules differ depending on whether the individual is recognizing income over three years or entirely in the year of distribution.

If a taxpayer includes all coronavirus-related distributions received in a year in gross income for that year and recontributes any portion during the three-year recontribution period, the amount of the recontribution will reduce the amount of the related distribution included in gross income for the year of the distribution.

Example 1. Bob receives a $45,000 coronavirus distribution from his employer plan on November 1, 2020. Bob recontributes $45,000 to an IRA on March 31, 2021. Bob reports the recontribution on Form 8915-E, and files the 2020 federal income tax return on April 10, 2021. No portion of the coronavirus-related distribution is includible as income for the 2020 tax year. [Note: The guidance states that Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments, is expected to be available before the end of 2020.]

Example 2. The facts are the same as in Example 1, except that Bob timely requests an extension of time to file the 2020 federal income tax return and makes a recontribution on August 2, 2021, before filing the 2020 federal income tax return. Bob files the 2020 federal income tax return on August 10, 2021. As in Example 1, no portion of the coronavirus-related distribution is includible in income for the 2020 tax year because Bob made the recontribution before the timely filing of the 2020 federal income tax return.

Example 3. Cynthia receives a $15,000 distribution from an employer plan on March 30, 2020. Cynthia elects out of the 3-year ratable income inclusion on Form 8915-E and includes the entire $15,000 in gross income for the 2020 tax year. On December 31, 2022, she recontributes $15,000 to her employer plan. Cynthia will need to file an amended federal income tax return for the 2020 tax year to report the amount of the recontribution and reduce the gross income by $15,000 with respect to the coronavirus-related distribution included on the 2020 original federal income tax return.

Recontributions: Recognizing Income Over Three Years
If a qualified individual includes a coronavirus-related distribution ratably over a three-year period and the individual recontributes any portion to an eligible retirement plan at any date before the timely filing of the individual’s federal income tax return (that is, by the due date, including extensions) for a tax year in the three-year period, the amount of the recontribution will reduce the ratable portion of the coronavirus-related distribution that is includible in gross income for that tax year.

Example 4. Dan receives $75,000 from his employer plan on December 1, 2020. Dan uses the three-year ratable income inclusion method. Dan makes one recontribution of $25,000 to the plan on April 10, 2022. Dan files his 2021 federal income tax return on April 15, 2022. Without the recontribution, Dan should include $25,000 in income with respect to the coronavirus-related distribution on each of his 2020, 2021, and 2022 federal income tax returns. However, as a result of the recontribution, Dan should include $25,000 in income with respect to the coronavirus-related distribution on the 2020 federal income tax return, $0 in income with respect to the coronavirus-related distribution on the 2021 federal income tax return, and $25,000 in income with respect to the coronavirus-related distribution on the 2022 federal income tax return.

Example 5. The facts are the same as in Example 4, except Dan recontributes $25,000 to the plan on August 10, 2022. Dan files the 2021 federal income tax return on April 15, 2022, and does not request an extension of time to file that federal income tax return. As a result of the recontribution, Dan should include $25,000 in income with respect to the coronavirus-related distribution on the 2020 federal income tax return, $25,000 in income with respect to the coronavirus-related distribution on the 2021 federal income tax return, and $0 in income with respect to the coronavirus-related distribution on the 2022 federal income tax return.

Carryovers. If the taxpayer recontributes an amount for a tax year in the three-year period that exceeds the amount that is otherwise includible in gross income for that tax year, the excess amount of the recontribution may be carried forward to reduce the amount of the distribution includible in gross income in the next tax year in the three-year period. Alternatively, the qualified individual is permitted to carry back the excess amount of the recontribution to a prior tax year or years in which the individual included income attributable to a coronavirus-related distribution. The individual will need to file an amended federal income tax return for the prior tax year or years to report the amount of the recontribution on Form 8915-E and reduce his or her gross income by the excess amount of the recontribution.

Example 6. Eliza receives a distribution of $90,000 from her IRA on November 15, 2020. Eliza ratably includes the $90,000 distribution in income over a three-year period. Without any recontribution, Eliza will include $30,000 in income with respect to the coronavirus-related distribution on each of the 2020, 2021, and 2022 federal income tax returns. Eliza includes $30,000 in income with respect to the coronavirus-related distribution on the 2020 federal income tax return. Eliza then recontributes $40,000 to an IRA on November 10, 2021 (and makes no other recontribution in the three-year period). Eliza may do either of the following:

• Option 1: Include $0 in income with respect to the coronavirus-related distribution on the 2021 federal income tax return. Carry forward the excess recontribution of $10,000 to 2022, and include $20,000 in income with respect to the coronavirus-related distribution on the 2022 federal income tax return.
• Option 2: Include $0 in income with respect to the coronavirus-related distribution on the 2021 tax return and $30,000 in income on the 2022 federal income tax return. Also, file an amended federal income tax return for 2020 to reduce the amount included in income as a result of the coronavirus-related distribution to $20,000 (that is, the $30,000 original amount includible in income for 2020 minus the remaining $10,000 recontribution that is not offset on either the 2021 or 2022 federal tax return).

Safe Harbor for Plan Loans
The CARES Act provides that in the case of a qualified individual with a loan from a qualified employer plan outstanding on or after March 27, 2020, if the due date for any repayment with respect to the loan occurs during the period beginning on March 27, 2020, and ending on December 31, 2020, the due date shall be delayed for one year.

Under a safe harbor provided in the guidance, a qualified employer plan will satisfy this requirement if a qualified individual’s obligation to repay a plan loan is suspended under the plan for any period beginning not earlier than March 27, 2020, and ending not later than December 31, 2020. The loan repayments must resume after the end of the suspension period, and the term of the loan may be extended by up to one year from the date the loan was originally due to be repaid.

The IRS has released guidance that provides temporary administrative relief to help certain retirement plan participants or beneficiaries who need to make participant elections by allowing flexibility for remote signatures. Specifically, the guidance provides participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from the physical presence requirement for any participant election (1) witnessed by a notary public in a state that permits remote notarization, or (2) witnessed by a plan representative using certain safeguards. The guidance accommodates local shutdowns and social distancing practices and is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) ( P.L. 116-136).

The IRS has released guidance that provides temporary administrative relief to help certain retirement plan participants or beneficiaries who need to make participant elections by allowing flexibility for remote signatures. Specifically, the guidance provides participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from the physical presence requirement for any participant election (1) witnessed by a notary public in a state that permits remote notarization, or (2) witnessed by a plan representative using certain safeguards. The guidance accommodates local shutdowns and social distancing practices and is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) ( P.L. 116-136).

Conditions for Participant Elections
Reg. §1.401(a)-21 sets forth standards for the use of an electronic medium to provide applicable notices to recipients or to make participant elections with respect to a retirement plan, an employee benefit arrangement, or an individual retirement plan. Reg. §1.401(a)-21(e)(6) defines a participant election as any consent, election, request, agreement, or similar communication made by or from a participant, beneficiary, alternate payee, or an individual entitled to benefits under a retirement plan, employee benefit arrangement, or individual retirement plan. Reg. §1.401(a)-21(d) sets forth the following conditions for participant elections:

• The individual must be effectively able to access the electronic medium used to make the participant election;
• The electronic system must be reasonably designed to preclude any person other than the appropriate individual from making the participant election;
• The electronic system must provide the individual making the participant election with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective; and
• The individual making the participant election, within a reasonable time, must receive confirmation of the election through either a written paper document or an electronic medium under a system that satisfies the applicable notice requirements under Reg. §1.401(a)-21.

Applicability
While this temporary relief, which covers the period from January 1, 2020, through December 31, 2020, is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by section 2202 of the CARES Act, the temporary relief applies to any participant election that requires the signature of an individual to be witnessed in the physical presence of a plan representative or notary.

The IRS has released a revenue procedure that describes temporary safe harbors for the purpose of determining the federal tax status of certain arrangements that hold real property as trusts in response to the COVID-19 emergency. Specifically, the Service has provided temporary relief to arrangements that are treated as trusts under Reg. §301.7701-4(c) which are, or have tenants who are, experiencing financial hardship as a result of COVID-19, to allow them to make certain modifications to their mortgages loans and their lease agreements, and to accept additional cash contributions without jeopardizing their tax status as grantor trusts. This revenue procedure also indicates that a cash contribution from one or more new trust interest holders to acquire a trust interest or a non-pro rata cash contribution from one or more current trust interest holders must be treated as a purchase and sale under Code Sec. 1001 of a portion of each non-contributing (or lesser contributing) trust interest holder’s proportionate interest in the trust’s assets.

The IRS has released a revenue procedure that describes temporary safe harbors for the purpose of determining the federal tax status of certain arrangements that hold real property as trusts in response to the COVID-19 emergency. Specifically, the Service has provided temporary relief to arrangements that are treated as trusts under Reg. §301.7701-4(c) which are, or have tenants who are, experiencing financial hardship as a result of COVID-19, to allow them to make certain modifications to their mortgages loans and their lease agreements, and to accept additional cash contributions without jeopardizing their tax status as grantor trusts. This revenue procedure also indicates that a cash contribution from one or more new trust interest holders to acquire a trust interest or a non-pro rata cash contribution from one or more current trust interest holders must be treated as a purchase and sale under Code Sec. 1001 of a portion of each non-contributing (or lesser contributing) trust interest holder’s proportionate interest in the trust’s assets.

Applicability
This revenue procedure applies to arrangements that are trusts under Reg. §301.7701-4(c) and Rev. Rul. 2004-86, 2004-2 CB 191, and that hold real property and engage in one or more of the actions described in sections 6.02, 6.03, or 6.04 of this revenue procedure.

Background
The IRS and the Treasury Department received comments addressing arrangements organized as trusts under Reg. §301.7701-4(c) and Rev. Rul. 2004-86 that hold rental real property. The commenters reported that many of these arrangements and their tenants are experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency.

Rev. Proc. 2020-26
The IRS and the Treasury Department issued certain safe harbors in Rev. Proc. 2020-26, I.R.B. 2020-18, 753. Under the safe harbors, certain modifications of mortgage loans in connection with forbearance programs described in that guidance are not treated as replacing the unmodified obligation with a newly issued obligation, as giving rise to prohibited transactions, or as manifesting a power to vary.

In the case of mortgage loans held by real estate mortgage investment conduits (REMICs) and investment trusts, Rev. Proc. 2020-26 applies to—

• Forbearance (and all related modifications) of a federally backed mortgage loan or a federally backed multifamily mortgage loan, if the forbearance is provided under section 4022 or 4023, respectively, of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) ( P.L. 116-136) (CARES Act Forbearances); and
• Forbearances (and all related modifications) that are not CARES Act Forbearances, that are agreed to by the borrower of any Federally backed or non-Federally backed mortgage loan, and that are provided by a holder or servicer of the loan under a forbearance program for borrowers experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency.

The forbearance programs covered are those (a) which are identical or similar to those described in section 2.07 of Rev. Proc. 2020-26; and (b) pursuant to which, between March 27, 2020, and December 31, 2020, inclusive, the borrower requests or agrees to the forbearance (and all related modifications).

The IRS has announced various extensions of deadlines for qualified opportunity funds and their investors due to the Coronavirus pandemic.

The IRS has announced various extensions of deadlines for qualified opportunity funds and their investors due to the Coronavirus pandemic.

180-Day Investment Period
Generally taxpayers must reinvestment capital gain in a qualified opportunity fund (QOF) within 180 days after the gain is realized from a sale or exchange. Under the guidance, if the last day of the 180-day investment period falls on or after April 1, 2020, and before December 31, 2020, the last day of the investment period is automatically postponed to December 31, 2020.

90-Percent Investment Standard
The guidance also provides that a QOF’s failure to hold 90 percent of its assets in qualified opportunity zone property on any semi-annual testing date that falls on or after April 1, 2020 and ends on or before December 31, 2020 is due to reasonable cause on account of the COVIS-19 pandemic. Therefore, the failure to satisfy the 90-percent test does not affect an entity’s status as a QOF or prevent an investment in the entity from being a qualified investment. Penalties due to failure to satisfy the 90-percent investment standard during this period are waived.

30-month Substantial Improvement Period Tolled
The 30-month period during which property held by a QOF or qualified opportunity zone business must be substantially improved is tolled during the period beginning on April 1, 2020, and ending on December 31, 2020.

24-Month Extension of Working Capital Safe Harbor Spending Deadline
Qualified opportunity zone businesses holding working capital intended to be covered by the 31-month working capital safe harbor before December 31, 2020, receive up to an additional 24 months to spend the working on qualifying property. This extension is allowed under the QOF regulations on account of the prior declaration of a Federally declared disaster relating to the pandemic effective on January 20, 2020.

12-Month Extension of Reinvestment Period for QOFs
Finally, if any part of the 12-month period during which a QOF may reinvest returns of capital and proceeds from the sale of qualified opportunity property in other qualified opportunity zone property includes January 20, 2020, the reinvestment period is extended up to an additional 12 months. Again, this extension is allowed under the QOF regulations due to the disaster declaration.

Notice 2020-23, I.R.B. 2020-18, 742 is modified.

The IRS has issued proposed regulations clarifying the definition of a qualifying relative for various tax benefits for tax years 2018 through 2025 in which the dependent exemption amount is zero. During these years, the exemption amount will be inflation adjusted as provided in annual IRS guidance in determining whether an individual is a qualifying relative such as for head of household filing status and $500 child tax credit.

The IRS has issued proposed regulations clarifying the definition of a qualifying relative for various tax benefits for tax years 2018 through 2025 in which the dependent exemption amount is zero. During these years, the exemption amount will be inflation adjusted as provided in annual IRS guidance in determining whether an individual is a qualifying relative such as for head of household filing status and $500 child tax credit.

Qualifying Relative
A taxpayer may claim a qualifying relative as a dependent on his or her return provided certain requirements are met, including that the individual’s gross income is less than the exemption amount for the tax year. The exemption amount is zero (-$0-) for tax years beginning in 2018 through 2025 and no deduction may be claimed for a dependency exemption. However, the rules for determining who is a qualifying relative remain applicable for claiming other tax benefits in 2018 through 2025.

Inflation-Adjustment Exemption Amount
Consistent with Notice 2018-70, I.R.B. 2018-38, 441, the proposed regulations provide that in determining whether an individual is a qualifying relative for purposes of various tax provisions in 2018 through 2025 the exemption amount will be the inflation-adjusted. The IRS will publish the exemption amount annually in guidance. For example, the exemption amount is $4,200 for 2019 ( Rev. Proc. 2018-57, I.R.B. 2018-49, 827) and $4,300 for 2020 ( Rev. Proc. 2019-44, I.R.B. 2019-47, 1093).

Proposed regulations provide guidance regarding the elimination of the deduction for expenses related to qualified transportation fringe benefits (QTFs) provided to an employee. The Tax Cuts and Jobs Act (P.L. 115-97) eliminated the deduction, effective for amounts paid or incurred after December 31, 2017.

Proposed regulations provide guidance regarding the elimination of the deduction for expenses related to qualified transportation fringe benefits (QTFs) provided to an employee. The Tax Cuts and Jobs Act (P.L. 115-97) eliminated the deduction, effective for amounts paid or incurred after December 31, 2017.

In general, the proposed regulations refine guidance previously provided in Notice 2018-99, 2018-52 I.R.B. 1067. They provide a general rule and three simplified methodologies to determine the amount of QTF parking expense that is nondeductible when a parking facility is owned or leased by an employer. Additionally, the proposed regulations address the disallowance of deductions for expenses related to providing employees transportation in a commuter highway vehicle and transit passes.

The proposed regulations include definitions from Notice 2018-99, with modifications in response to public comments, as well as new definitions to clarify application of the rules.

If an employer pays a third party for its employee’s QTF, the disallowance is generally calculated as the taxpayer’s total annual cost of the QTF paid to the third party.

In valuing a QTF relating to employee-owned or leased parking facilities, an employer may choose to apply the general rule or any of the three simplified methods for each tax year and each parking facility: the "qualified parking limit methodology," the "primary use methodology," or the "cost per space methodology." Statistical sampling may be used with the general rule or simplified methodologies.

The general rule allows a taxpayer to calculate the disallowed amount based on a reasonable interpretation of the statute. However, the actual expense paid or incurred in providing the QTF must be used. The value of the QTF to the employee is ignored. In addition, the employee must allocate parking expenses to reserved employee spaces, and properly apply the exception for parking made available to the general public. Parking spaces may be aggregated by geographical location.

Special rules explain how to allocate mixed parking expenses, aggregate parking spaces by geographic location, and remove inventory/unusable spaces from available parking spaces. Five or few reserved parking spaces may be disregarded if the reserved spaces are 5 percent or less of total parking spaces.

Effective Date
The proposed regulations will apply in tax years beginning on or after the date they are published as final regulations. However, a taxpayer may rely on the proposed regulations for expenses paid or incurred in tax years beginning after December 31, 2017. Alternatively, a taxpayer may rely on the guidance provided in Notice 2018-99 until the regulations are published as final.

Proposed regulations would define expenditures for direct primary care arrangements and health care sharing ministry memberships as amounts paid for medical care. Thus, amounts paid for those arrangements may be deductible medical expenses. The proposed regulations also clarify that amounts paid for certain arrangements and programs, such as health maintenance organizations (HMO) and certain government-sponsored health care programs, are amounts paid for medical insurance.

Proposed regulations would define expenditures for direct primary care arrangements and health care sharing ministry memberships as amounts paid for medical care. Thus, amounts paid for those arrangements may be deductible medical expenses. The proposed regulations also clarify that amounts paid for certain arrangements and programs, such as health maintenance organizations (HMO) and certain government-sponsored health care programs, are amounts paid for medical insurance.

President Trump's Executive Order 13877, "Improving Price and Quality Transparency in American Healthcare to Put Patients First" (84 FR 30849) directed Treasury to treat expenses related to these types of arrangements as eligible medical expenses.

These regulations are proposed to apply for tax years that begin on or after the date of publication of a Treasury Decision adopting these rules as final regulations.

Caution: Characterization of direct primary care arrangements and health care sharing ministry memberships as medical insurance may affect eligibility to contribute to a health savings account (HSA). For an individual in a direct primary care arrangement, the type of coverage provided by the arrangement will affect eligibility. Membership in a health care sharing ministry would preclude an individual from contributing to an HSA.

Direct Primary Care Arrangement
A direct primary care arrangement is a contract between an individual and one or more primary care physicians under which the physician or physicians agree to provide medical care for a fixed annual or periodic fee without billing a third party.

The IRS requests comments on whether to expand the definition to include a contract with nurse practitioners, clinical nurse specialists, or physician assistants who provide primary care services. The IRS also requests comments on whether the final regulations should clarify the treatment of other types of arrangements that are similar to direct primary care arrangements, such as an agreement between a dentist and a patient to provide dental care, or a physician and patient to provide specialty care.

Health Care Sharing Ministry
The proposed regulations define a health care sharing ministry as an organization:

• that is described in Code Sec. 501(c)(3) and is exempt from taxation under Code Sec. 501(a);
• members of which share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the state in which a member resides or is employed;
• members of which retain membership even after they develop a medical condition;
• which (or a predecessor of which) has been in existence at all times since December 31, 1999, and medical expenses of its members have been shared continuously and without interruption since at least December 31, 1999; and
• that conducts an annual audit performed by an independent certified public accounting firm in accordance with generally accepted accounting principles and that is made available to the public upon request.

The proposed regulations provide that medical insurance under Code Sec. 213(d)(1)(D) includes health care sharing ministries that share expenses for medical care under Code Sec. 213(d)(1)(A). This proposal does not affect whether a health care sharing ministry is considered an insurance company, insurance service, or insurance organization (health insurance issuer) for other purposes of the Code, ERISA, the Public Health Service Act (PHS Act), or any other federal or state law.

Fees for HMO Membership and Government-Sponsored Programs
The proposed regulations incorporate the longstanding IRS position of treating amounts paid for membership in an HMO as medical insurance premiums. Amounts paid to an HMO or a provider to cover coinsurance, copayment, or deductible obligations under an HMO’s terms are payments for medical care. In either case, such payments are eligible for the medical expense deduction.

Amounts paid for coverage under certain government-sponsored health care programs are also treated as amounts paid for medical insurance. The proposed regulations:

• incorporate the guidance in Code Sec. 213(d)(1)(D) and Rev. Rul. 79-175 that Medicare Parts A and B are medical insurance;
• clarify that Medicare Parts C and D are medical insurance; and
• provide that Medicaid, the Children’s Health Insurance Program (CHIP), TRICARE, and certain veterans’ health care programs are medical insurance.

Thus, to extent individuals pay premiums or enrollment fees for coverage under these programs, those amounts would be eligible for deduction as a medical expense.

The IRS requests comments on whether amounts paid for other government-sponsored health care programs should be treated as amounts paid for medical insurance.

Proposed reliance regulations clarify the definitions of "real property" that qualifies for a like-kind exchange, including incidental personal property. Under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), like-kind exchanges occurring after 2017 are limited to real property used in a trade or business or for investment. Comments are requested.

Proposed reliance regulations clarify the definitions of "real property" that qualifies for a like-kind exchange, including incidental personal property. Under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), like-kind exchanges occurring after 2017 are limited to real property used in a trade or business or for investment. Comments are requested.

Real Property Defined for Like-Kind Exchanges
Under the proposed regulations, real property includes:

• land and improvements to land,
• unsevered crops and other natural products of land, and
• water and air space superjacent to land.

This real property definition language is very similar to the language in many other regulations, but it also includes necessary differences. As under pre-TCJA law, local law definitions are not controlling.

Real Property Includes Improvements and Inherently Permanent Structures
As mentioned above, real property includes improvements to land. Improvements include:

• inherently permanent structures, and
• the structural components of inherently permanent structures.

Each distinct asset must be analyzed separately to determine if it land, an inherently permanent structure, or a structural component of an inherently permanent structure. The regs identify several specific items, assets and systems as distinct assets, and provides factors for identifying other distinct assets.

Inherently Permanent Structures: Buildings and Machinery
Inherently permanent structures include any building or other structure that is permanently affixed to real property and that will ordinarily remain affixed for an indefinite period of time. A building is any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. Buildings also include several distinct assets if permanently affixed, such as houses, hotels, enclosed stadiums shopping malls, factory and office buildings, and warehouse.

The proposed regulations also identify other structures that qualify as inherently permanent structures, and provide factors that must be used to determine if other property is an inherently permanent structure.

Property that is in the nature of machinery or is essentially an item of machinery or equipment is generally not an inherently permanent structure unless it serves the inherently permanent structure and does not produce or contribute to the production of income other than for the use or occupancy of space.

Inherently Permanent Structures: Structural Components
Structural components of inherently permanent structures are improvements to land and, thus, are real property. A structural component is any distinct asset that is a constituent part of, and integrated into, an inherently permanent structure. If interconnected assets work together to serve an inherently permanent structure (for example, systems that provide a building with electricity, heat, or water), the assets are analyzed together as one distinct asset that may qualify as a structural component.

However, a structural component may qualify as real property only if the taxpayer holds its interest in the component together with a real property interest within the physical space of the inherently permanent structure. Customization of a distinct asset in connection with the rental of space does not affect whether the asset is a structural component.

The proposed regulations list properties that are structural components, and provide factors for determining whether other components are structural components. The proposed regs also address tenant improvements to a building, and property produced for sale that is not real property in the hands of the producing taxpayer.

Unsevered Natural Products are Real Property
The proposed regulations provide that unsevered natural products of land are generally real property. These include growing crops, plants, and timber, as well as mines, wells and other natural deposits. Natural products and deposits, such as crops, timber, water, ores, and minerals, cease to be real property when they are severed, extracted, or removed from the land.

Intangible Assets as Real Property
An intangible asset is real property or an interest in real property to the extent that the asset:

• derives its value from real property or an interest in real property,
• is inseparable from that real property or interest in real property, and
• does not produce or contribute to the production of income other than consideration for the use or occupancy of space.

For instance, a license, permit, or other similar right generally is an interest in real property if (1) it is solely for the use, enjoyment, or occupation of land or an inherently permanent structure, and (2) it is in the nature of a leasehold, easement, or fee ownership. In contrast, a license or permit is not an interest in real property if it produces or contributes to the production of income other than consideration for the use and occupancy of space.

Incidental Personal Property and Qualified Intermediaries
The proposed regs provide that personal property that is incidental to replacement real property is disregarded in determining whether a taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or other property held by a qualified intermediary are expressly limited as provided in Reg. §1.1031(k)-1(g)(6).

Personal property is incidental to real property acquired in an exchange if:

• in standard commercial transactions, the personal property is typically transferred together with the real property; and
• its aggregate fair market value does not exceed 15 percent of the aggregate fair market value of the replacement real property.

This incidental property rule in the proposed regulations is based on the existing rule in Reg. §1.1031(k)-1(c)(5), which provides that certain incidental property is ignored in determining whether a taxpayer has properly identified replacement property.

Effective Dates
The regulations are proposed to apply to like-kind exchanges that begin on or after the date they are published as final regs. However, taxpayers may rely on them for exchanges of real property beginning after December 31, 2017, if the proposed regs are followed consistently and in their entirety.

The upcoming filing season is expected to be challenging for taxpayers and the IRS as new requirements under the Patient Protection and Affordable Care Act kick-in. Taxpayers, for the first time, must make a shared responsibility payment if they fail to carry minimum essential health care coverage or qualify for an exemption. At the same time, there is growing uncertainty over one of the key elements of the Affordable Care Act: the Code Sec. 36B premium assistance tax credit as litigation makes its way to the U.S. Supreme Court.

The upcoming filing season is expected to be challenging for taxpayers and the IRS as new requirements under the Patient Protection and Affordable Care Act kick-in. Taxpayers, for the first time, must make a shared responsibility payment if they fail to carry minimum essential health care coverage or qualify for an exemption. At the same time, there is growing uncertainty over one of the key elements of the Affordable Care Act: the Code Sec. 36B premium assistance tax credit as litigation makes its way to the U.S. Supreme Court.

Individual shared responsibility payment

Individuals who are not exempt from the individual mandate and who do not carry minimum essential coverage in 2014 must make a shared responsibility payment. The payment is due when the individual files his or her 2014 tax return in 2015. In November, the IRS’s national ACA coordinator said that the agency will work with individuals who owe a shared responsibility payment and may not have the resources to make the payment when they file their return. Keep in mind that the IRS will apply any refund to a taxpayer’s unpaid shared responsibility payment. The IRS cannot, however, use its lien and levy power to collect an unpaid shared responsibility payment.

Note. For 2014, the shared responsibility payment amount generally is the greater of: One percent of the person's household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment, however, does not stay at this level after 2014. By 2016, the payment grows significantly.

In November, the IRS clarified when Medicaid coverage qualifies as minimum essential coverage and when it may not. The IRS also clarified how employer contributions to a cafeteria plan impact minimum essential coverage. Final regulations exclude employer contributions to a cafeteria plan from an employee’s household income for purposes of determining minimum essential coverage,

Exemptions

The IRS reminded individuals in November that they may be exempt from the requirement to carry minimum essential coverage. There are nine main exemptions: religious conscience; health care sharing ministries; members of federally recognized Native American nations; individuals whose income is below the minimum return filing threshold; individuals with a short coverage gap; hardship cases; affordability cases; incarcerated individuals; and individuals not lawfully present in the U.S.

Some exemptions are obtained through the Marketplaces, some through the filing process, and some either way. The exemptions for members of federally recognized Native American nations, members of health care sharing ministries and individuals who are incarcerated are available either from the Marketplace or claiming the exemption as part of filing a federal income tax return. The exemptions for lack of affordable coverage, a short coverage gap, and household income below the filing threshold and individuals who are not lawfully present in the U.S. may be claimed only as part of filing a federal income tax return. In November, the IRS removed references to specific hardships and streamlined the process for obtaining an exemption because of a hardship.

Code Sec. 36B litigation

The Code Sec. 36B premium assistance tax credit helps offset the cost of health insurance obtained through the ACA Marketplace. According to the U.S. Department of Health and Human Services (HHS), more than two-thirds of enrollees in Marketplace coverage were eligible for the credit in 2014. IRS regulations for the credit, however, have come under fire for being contrary to the ACA. The regulations allow enrollees in state-run Marketplaces and federal-facilitated Marketplaces to claim the credit. 

In July, the U.S. Court of Appeals for the District of Columbia Circuit struck down the IRS regulations in Halbig, 2014-2 USTC ¶50,366. The D.C. Circuit found that the plain language of the Affordable Care Act limits the credit to enrollees in state-run Marketplaces. In contrast, the Court of Appeals for the Fourth Circuit upheld the regulations in King, 2014-2 USTC ¶50,367. The Fourth Circuit found that it could not say definitively that Congress intended to limit the Code Sec. 36B credit to individuals who obtain insurance through state-run Marketplaces.

The U.S. Supreme Court announced in November that it will hear an appeal of King. The Supreme Court is expected to hear oral arguments about the IRS regulations in early 2015. A decision will likely be announced in June 2015. Our office will keep you posted of developments.

Open enrollment

The ACA Marketplace opened for enrollment for 2015 coverage on November 15 and runs through February 15, 2015. HHS explained that it has streamlined application procedures for individuals who are renewing coverage and who are applying for coverage for the first time. The Small Business Health Option Program (SHOP) also opened on November 15. Small employers (employers with 50 or fewer full-time equivalent employees) may enroll qualified employees in health coverage through SHOP.

Please contact our office if you have any questions about the Affordable Care Act and the new requirements.

As most people know, a taxpayer can take a distribution from an IRA without being taxed if the taxpayer rolls over (contributes) the amount received into an IRA within 60 days. This tax-free treatment does not apply if the individual rolled over another distribution from an IRA within the one-year period ending on the day of the second distribution.

As most people know, a taxpayer can take a distribution from an IRA without being taxed if the taxpayer rolls over (contributes) the amount received into an IRA within 60 days. This tax-free treatment does not apply if the individual rolled over another distribution from an IRA within the one-year period ending on the day of the second distribution.

Taxpayers and the IRS both believed that this one-rollover-per-year limit was applied separately to each IRA owned by the individual. If an individual owned two IRAs, for example, the taxpayer could do two rollovers in the appropriate period - one from each IRA. The IRS applied this interpretation in proposed regulations and in Publication 590, IRAs.

One rollover per taxpayer

In Bobrow, TC Memo. 2014-21, CCH Dec. 59,823(M), issued in January 2014, the Tax Court concluded that a taxpayer could make only one nontaxable rollover between IRAs within a one-year period, regardless of how many IRAs the taxpayer maintained. Thus, the one-per-year limit applied to the taxpayer, not to each separate IRA owned by the taxpayer.

In Notice 2014-15 and Announcement 2014-32, the IRS indicated that it would follow the Bobrow interpretation. It withdrew the proposed regulations, and will issue a new Publication 590-A, Contributions to IRAs, that applies the Bobrow interpretation.

Transition rule

In the notice and the announcement, the IRS provided a transition rule that it will not apply the new interpretation of the limit on permissible IRA rollovers until January 1, 2015. A distribution from an IRA in 2014 that is rolled over to another IRA will be disregarded in applying the new rule to 2015 distributions, provided that the 2015 distribution is from a different IRA that was included in the 2014 rollover.

Exceptions

The IRS noted that there are several types of rollovers that that are not subject to the Bobrow rule: a rollover from a traditional IRA to a Roth IRA; a rollover to or from a qualified plan; and trustee-to-trustee transfers. The IRS stated that trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly between IRAs, or by providing the IRA owner with a check made payable to the trustee of the receiving IRA.

However, a rollover between Roth IRAs would preclude a separate rollover within the one-year period between the individual's traditional IRAs; similarly, a rollover between traditional IRAs would preclude a rollover between Roth IRAs with the one-year period.

The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.

The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.

Individual mandate

Beginning January 1, 2014, the Affordable Care Act requires individuals (and their dependents) to have minimum essential health care coverage or make a shared responsibility payment, unless exempt. This is commonly called the "individual mandate."

Employer reporting

Nearly all employer-provided health coverage is treated as minimum essential coverage. This includes self-insured plans, COBRA coverage, and retiree coverage. Large employers will provide employees with new Form 1095-C, Employer-Provided Health Insurance Coverage and Offer, which will report the type of coverage provided. The IRS has encouraged employers to voluntarily report starting in 2015 for the 2014 plan year. Mandatory reporting begins in 2016 for the 2015 plan year.

Marketplace coverage

Coverage obtained through the Affordable Care Act Marketplace is also treated as minimum essential coverage. Marketplace enrollees should expect to receive new Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace. Individuals with Marketplace coverage will indicate on their returns that they have minimum essential coverage. Because so many individuals with Marketplace coverage also qualify for a special tax credit, they will also likely need to complete new Form 8962, Premium Tax Credit (discussed below).

Medicare, Medicaid and other government coverage

Medicare, TRICARE, CHIP, Medicaid, and other government health programs are treated as minimum essential coverage. There are some very narrow exceptions but overall, most government-sponsored coverage is minimum essential coverage.

Exemptions

Some individuals are expressly exempt under the Affordable Care Act from making a shared responsibility payment. There are multiple categories of exemptions. They include:

• Short coverage gap
• Religious conscience
• Federally-recognized Native American nation
• Income below income tax return filing requirement

The short coverage gap applies to individuals who lacked minimum essential coverage for less than three consecutive months during 2014. They will not be responsible for making a shared responsibility payment. Individuals who are members of a religious organization recognized as conscientiously opposed to accepting insurance benefits also are exempt from the individual mandate. Similarly, members of a federally-recognized Native American nation are exempt. If a taxpayer’s income is below the minimum threshold for filing a return, he or she is exempt from making a shared responsibility payment.

The IRS has developed new Form 8965, Health Coverage Exemptions. Taxpayers exempt from the individual mandate will file Form 8965 with their federal income tax return.

Shared responsibility payment

All other individuals - individuals without minimum essential coverage and who are not exempt - must make a shared responsibility payment when they file their 2014 return. For 2014, the payment amount is the greater of: One percent of the person’s household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. Taxpayers will report the amount of their individual shared responsibility payment on their 2014 Form 1040.

The IRS has cautioned that it will offset a taxpayer’s refund if he or she fails to make a shared responsibility payment if required. However, the Affordable Care Act prevents the IRS from using its lien and levy authority to collect an unpaid shared responsibility payment.

Code Sec. 36B credit

Only individuals who obtain coverage through the Marketplace are eligible for the Code Sec. 36B premium assistance tax credit. The U.S. Department of Health and Human Services (HHS) has reported that more than two-thirds of Marketplace enrollees are eligible for the credit and many enrollees have received advance payment of the credit.

All advance payments of the credit must be reconciled on new Form 8962, which will be filed with the taxpayer’s income tax return. Taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a sliding scale of income-based repayment caps.

A change in circumstance, such as marriage or the birth/adoption of a child, could increase or decrease the amount of the credit. Individuals who are receiving an advance payment of the credit should notify the Marketplace of any life changes so the amount of the advance payment can be adjusted if necessary. Please contact our office if you have any questions about the Code Sec. 36B credit.

IRS officials have told Congress that the agency is ready for the new filings and reporting requirements. Our office will keep you posted of developments.

Businesses generally want to write off costs more quickly, to reduce their taxable income and their tax burden. One mechanism for accomplishing this is to deduct the costs of depreciable property rather than capitalizing them. Under Code Sec. 179, taxpayers can expense a prescribed amount of their costs for tangible depreciable property, even if the ordinary accounting treatment would be to capitalize the costs.

Businesses generally want to write off costs more quickly, to reduce their taxable income and their tax burden. One mechanism for accomplishing this is to deduct the costs of depreciable property rather than capitalizing them. Under Code Sec. 179, taxpayers can expense a prescribed amount of their costs for tangible depreciable property, even if the ordinary accounting treatment would be to capitalize the costs.

Code Sec. 179 applies primarily to personal property, but can apply to some real property. In recent years (through 2013), the expensing limit has been as high as $500,000 a year. However, for 2014, the expensing deduction limit is $25,000. (Congress could raise the limit for 2014 but has not done so.)

Because of the dramatic reduction in the Code Sec. 179 expensing limits, taxpayers may want to consider using the de minimis safe harbor in the final "repair" regulations as an alternative means of deducting costs that they would otherwise have to capitalize. The IRS issued final repair regulations in 2013 on the treatment of costs incurred with respect to depreciable property. The regulations are effective for tax years beginning on or after January 1, 2014 and provide guidance on whether to expense or capitalize relevant costs.

The safe harbor

The de minimis safe harbor applies to smaller priced items used in the business. The safe harbor can apply in the following situation: a taxpayer with a $500 per item expensing policy buys 1,000 calculators for $100 each. If the taxpayer elects the safe harbor, the taxpayer can deduct the entire cost of the calculators in the year paid or incurred. The total deduction is $100,000, much greater than the $25,000 limit under Code Sec. 179 for 2014.

The safe harbor is an election, not an accounting method. It can be applied for any year (or not) as determined by the taxpayer. The taxpayer can make an election for 2014, for example. The deadline is the extended due date of the taxpayer’s original income tax return. An election statement must be attached to the return. The election is irrevocable.

Two alternatives

There are two alternative de minimis safe harbors. The primary safe harbor, for use by any taxpayer but primarily for larger entities, allows taxpayers to deduct items that cost $5,000 or less (per item or invoice). The items must be deductible under the taxpayer’s financial accounting procedures and in accordance with the company’s applicable financial statement (AFS). An AFS is a financial statement filed with the Securities and Exchange Commission or another government agency, or a certified audited financial statement. The taxpayer must also have a written accounting policy, put into effect at the beginning of the year, to treat the cost of the items as an expense.

Similar requirements apply to smaller business taxpayers who do not have an AFS, with the following two differences: the accounting policy does not have to be in writing; and the amount paid for the property may not exceed $500 per invoice or per item. If the cost of the items exceeds $500 per item, the taxpayer must capitalize the cost. The taxpayer cannot avoid the $500 (or $5,000) threshold by breaking an item into components whose separate cost is below the limit. For example, the taxpayer could not split the cost of a truck into separate components such as the engine, cab, and chassis.