During the fourth quarter of 2013, there were many important federal tax developments. This article highlights some of the more significant developments for you. As always, contact us if you have any questions.
2014 Filing Season
The IRS announced they will begin accepting 2013 business tax returns on January 13, 2014. This start date applies to both electronically-filed and paper-filed returns. However, this start date does not apply to Form 1041, the return filed by estates and trusts, and unincorporated small businesses that report their income on Form 1040. For these entities, the IRS will begin accepting their returns on January 31, 2014.
The 10-day delay is due to the government shutdown in October. The IRS needed more time to reprogram its return processing systems. The risk of an IRS shutdown during the 2014 filing season has been removed by passage of the Bipartisan Budget Act of 2013. Our office will keep you posted of developments as the filing season unfolds.
More than 50 popular but temporary tax incentives expired after December 31, 2013. These incentives, known as tax extenders, include the enhanced Sec. 179 deduction, 100% bonus depreciation, research tax credit, and the Work Opportunity tax credit. In December, some lawmakers tried to move bills to extend incentives through 2014 or 2015 but Congress recessed for the holidays without taking any action. Congress may take up the extenders in 2014, either as part of comprehensive tax reform or as stand-alone legislation. If you have any questions about a particular extender, please contact us.
In November, one of the chief proponents of tax reform unveiled a number of proposals in Congress. Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee, proposed among other things: simplifying tax administration, reducing the number of depreciation rates, repealing the last-in, first-out (LIFO) method of accounting, and overhauling the international taxation rules. However, the fate of his proposals in 2014 is uncertain as Baucus is retiring from Congress and has been nominated by President Obama to serve as U.S. ambassador to China.
For 2014, the optional business mileage rate is 56 cents-per-mile, the IRS announced. The optional business mileage rate for 2013 was 56.5 cents-per-mile. The 2014 rate for qualified medical/moving expenses is 23.5 cents-per-mile. The 2014 rate for charitable miles driven is 14 cents-per-mile. Additionally, the depreciation component of the business standard mileage rate for 2014 is 22 cents-per mile, which reflects a decrease of one cent from the depreciation component for the 2013 business standard mileage rate.
Affordable Care Act
The Obama administration announced in December a delay in health insurance Marketplaces for small businesses until November 2014. The Small Business Health Options Program (SHOP) was created to give employers with fewer than 50 full-time equivalent employees a new way to shop for coverage. Small businesses that want to buy Marketplace plans for their workers now will need to go through an agent, broker or insurance company to buy coverage for 2014. Employers would be able to determine their eligibility for tax credits.
In November, the IRS announced relief from the “use-or-lose” rule for health flexible spending arrangements (health FSAs) by allowing a new up-to-$500 carryover option for year-end balances. Effective for plan years starting in 2013, employers may amend their cafeteria plan documents to provide for this new option. Any unused amount above $500 will be forfeited.
Sec. 199 Deduction
In October, the Tax Court denied the domestic production activities deduction (DPAD) under Code Sec. 199 to a direct mail advertising company that contracted with third-party printers to produce its print ad material. According to the Tax Court, the taxpayer was not entitled to the deduction because it did not have the benefits and burdens of ownership of the printed material. Instead, the printers would have been entitled to the DPAD.
In October, the U.S. Supreme Court announced that it will resolve a split among the circuit courts of appeal on the FICA tax treatment of severance pay. The Supreme Court will review a decision by the Sixth Circuit, which held that supplemental unemployment benefits (SUB) payments are not wages for purposes of FICA taxation. The government, which asked the Supreme Court to review the case, predicted that there are thousands of refund cases potentially reaching $1 billion.
In December, the IRS issued proposed regulations to clarify the rules on a partner’s share of recourse liabilities. The proposed regulations would determine the amount of a partnership liability allocated to multiple partners who bear the economic risk of loss for the same liability (overlapping economic risk of loss). The proposed regulations also address the treatment of nonrecourse partnership liabilities when related partners are involved.
Despite requests by financial institutions and others, the IRS indicated in December that it will not change the July 1, 2014, effective date for reporting and withholding under the Foreign Account Tax Compliance Act (FATCA). The IRS had previously delayed the effective date (which had been January 1, 2014). Withholding agents generally will be required to begin withholding on withholdable payments made after June 30, 2014.
If you have any questions about these or other federal tax developments that may impact you or your business, please feel free to contact us and we would be happy to discuss them with you.