The last month’s tax agreements — the Protecting Americans from the Hikes Act (PATH 2015) and the
Bipartisan Budget Act of 2015 — are permanently going to impact the taxation procedure.
The PATH Act gives the employers the payroll tax provisions that will benefit them whereas the BBA Act states that family members who receive capital gifts are partners. The new laws also impact REITs, partnerships, non-compliance penalties, tax filing etc.
New Partnership Audit Rules (The Budget Act)
The Budget Act has changed the partnership audit rules, which will impact almost all the partners in a partnership. For taxations, LLCs with more than own owner are treated like partnerships. It is necessary for every LLC, big or small, to file the Form 1099-MISC to report payments of $600 or more to partnerships.
The Budget Act of 2015 has replaced the rules of 1982’s TEFRA legislation with rules that require the tax item assessment at the entity level. It has extended the government’s debt ceiling through March 15, 2017. Experts suggest that these new entity level assessment rules will help partnerships in determining which partner(s) will be required to pay any such taxes.
The partnerships with fewer or 100 partners are given an irrevocable option to elect out of this new practice. The changes will be effective after December 31, 2017, partnerships can opt into this new regime for any tax year beginning after the Budget Act on November 2, 2015.
The Extenders (The PATH Act)
Real estate investment trusts or REITs allowed small investors to have access to large income-producing real estate assets. The REITs gave a special tax designation, which cut their corporate taxes on the builtin capital gains.
The shareholders would receive the Form 1099-DIV. Form 1099 broke the dividend distribution into three categories: ordinary income, capital gains, and the return of capital and each distribution are taxed at a different rate.
On December 7, 2015, the new Tax Act has specifically restricted the ability of non-REIT corporations to show their real estate assets as an REIT in the transactions that were treated as tax-free under Section 355. The new act states that if a corporation was involved in a Section 355 transaction, it can’t make an REIT election for 10 years. The law also modifies the dividend designation and preferential dividend exclusion of the previous law.
Excluding Gain on Qualified Small Business Stock
The 100% exclusions on the Qualified Small Business Stock are filed on Form 1099-DIV under the section 1223 of the new Tax Act. The Tax Act has permanently removed 100% of an individual’s gain on the Qualified small business stock. It has also removed these gains from an individual’s Alternative Minimum Tax calculation.
A qualified small business stock is stock acquired upon its issue from a corporation, conditioned:
- It is not an S corporation.
- It has all-time gross assets not exceeding $50,000,000.
- It uses more than 80% of its assets in the active conduct of a trade or business.
The Tax Act has provided another provision that is related to the penalties concerning the Form 1099. This new law provides a penalty shield against de minimis errors like failing to furnish correct information returns and payee statements in Forms 1099.
The party issuing the information return will not be subjected to a penalty, if the error is $100 or less or $25 or less if the error involves tax withholding. The issuers are not required to file a corrected return too.
However, a taxpayer can request a corrected payee statement but the new rules do not apply to the errors on the correct payee statement.
The new law has mandated that employers now have to file information return Forms W-2, W-3, and the Form 1099-MISC on or before January 31 of the year following the calendar year.
Under the Tax Act’s provisions, these forms are no longer eligible for the “Section 6071(b) – Extended filing date” for electronic returns. The filing deadline is now the deadline for furnishing employee or payee statements.
The Section 6051(a)(2) has also been amended to require that an “identifying number”, other than the Social Security Number, should be included on each Form 1099 and Form W-2. It will allow the Treasury to circulate the regulations that permit or requires a shortened Social Security Number on either of the forms.
(Use our TIN matching API for Form 1099 verification.)