Slideshow Top 10 tax developments for 2017

Published
  • December 20 2016, 3:41pm EST
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Carrying forward

For tax practitioners, one year always bleeds into the next. For 2017, carryover from 2016 not only includes the usual reporting and compliance issues related to the tax year just ending, but also those tax changes and issues begun in 2016 that are by no means finished at year’s end.

With that in mind, Accounting Today contributing tax columnists George Jones and Mark Luscombe of Wolters Kluwer put together a Top 10 list of changes from 2016 that will carry over into 2017.

You can see their full article, with in-depth discussion of each issue, here.

No. 1: The Trump administration

The election of Donald Trump as president, and Republican control of both the House and Senate, create a political environment that makes the probability of individual and business tax cuts high for 2017.

The extent to which overall taxes are reduced depends upon a variety of variables, including a desire for comprehensive tax reform, concern over budget costs, and a willingness to include Democrats at the negotiating table. Prior work in Congress on tax reform in 2016 has formed a foundation of data that will be drawn upon as bill language is negotiated and drafted.

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No. 2: Debt vs. equity

Final debt-equity Code Section 385 regulations issued in October represent a counterpoint against the scope of the considerably more aggressive proposed version released last May. Although these final regs represent substantial modifications, they remain controversial in their broad potential for debt/equity reclassification. These final regulations may get another look under the new administration.

No. 3: Partnership strategies

Partnerships continued to increase, with more than 3.6 million partnership returns filed, representing more than 27 million partners, based on the latest data from the IRS. With greater use apparently also comes greater scrutiny, as the IRS issued guidance during 2016 that restricts certain strategies, including leveraged partnership, partners as employees, and partners as employees.

No. 4: New partnership audit regime

The IRS issued temporary and proposed regulations in August that provide the time, form and manner of election for a partnership to opt in to the new partnership audit regime under the Bipartisan Budget Act of 2015. The election is available for partnerships that want the new audit regime to apply to a return filed for a partnership tax year that begins before Jan. 1, 2018. Starting in 2018, the new audit regime is mandatory.

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No. 5: Section 355 spins

Practice under Code Sec. 355 changed starting in 2016 based on several developments from the IRS. In July, the IRS issued proposed regulations under Code Sec. 355 that tighten the requirements for corporations to spin off controlled corporations tax-free to their shareholders.

In the following month, some good news: After more than 13 years on the no-rule list, the IRS reinstated two areas relating to distributions of stock of controlled corporations under Code Section 355.

No. 6: BEPS

“If Washington continues to sit by idly in the face of these punitive policy changes, American workers will continue to be the victims of our irresponsible inaction,” House Ways and Means Committee Chair Kevin Brady, R-Texas (pictured), warned, in response to the Organization for Economic Cooperation and Development making final recommendations in early 2016 on its Base Erosion and Profit Shifting Project. The proposals would align tax laws in all 28 European Union countries to fight aggressive tax practices by multinational enterprises.

No. 7: Estate tax valuation/basis reporting

Proposed estate valuation regs under Sec. 2704 are causing some controversy, with concern growing about the timing of relief through final regulations.

At the same time, new regs on consistency in basis reporting had been put off and put off, and put off again – but no further. The due date for filing initial a Form 8971 will be within 30 days of filing Form 706.

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No. 8: The sharing economy

Earlier in the year, National Taxpayer Advocate Nina Olson (pictured) told lawmakers that more than 40 percent of service providers in the sharing economy were unaware of possible estimated tax requirements. As the sharing economy grows, the IRS has responded with new resources and closer scrutiny on taxpayers, including a Sharing Economy Tax Center on its Web site that highlights tax issues for individuals and companies performing services in the sharing economy.

No. 9: Passive activity losses

In August, the IRS gave some taxpayers some breathing room by announcing that it would not regroup a taxpayer’s interests in multiple activities as a single activity under the passive loss rules of Code Sec. 469, or otherwise challenge the taxpayer’s grouping of activities.

No. 10: Legislation and the lack thereof

2016 was not a banner year for tax legislation, but with the floodgates likely to be released in 2017, which will hopefully take care of the over 30 extenders provisions that expire at the end of 2016.

What did pass? The 21st Century Cures Act allows certain small businesses to offer health reimbursement accounts without running afoul of the ACA; the Olympians and Paralympians Act helps winners with their taxes (though maybe not Michael Phelps, pictured above, since it applies to those with less than $1 million in AGI); and the Trade Facilitation and Trade Enforcement Act increases the penalty for failure to file a return effective for returns required to be filed in calendar years after 2015.