Joseph F. Ford Professor
Of Accounting and Tax
Drexel University http://home.comcast.net/~acuratola
© 2015 A.P.Curatola
MACE 1

© 2015 A.P.Curatola
MACE 2


Increase income tax rates for individuals
 from 10, 15, 25, 28, 33 & 35% for 2012

 to 10, 15, 25, 28, 33, 35, and
39.6% for excess taxable income in 2014 & 2015

$457,600 for MJ, $432,200 for HofH & $406,750 for S

$464,850 for MJ, $439,000 for HofH & $413,200 for S

The tax rate bracket are doubled for only MJ filing at 10% & 15%

Marriage penalty returns

What is the impact of the DOMA ruling?
© 2015 A.P.Curatola
MACE 3


Standard Deduction


$6,200 ($6,300) for single and
$12,400 ($12,600) for MJ filing

No marriage penalty (theoretically)
© 2015 A.P.Curatola
MACE 4


Standard Deduction

$6,200 ($6,300) for single & $12,400 ($12,600) for MJ filing

Itemized Deductions

3% phase-out provision returns to those with excess AGI

MJ - $305,050 ($309,900),


HofH - $279,650 ($284,050), &
S - $254,200 ($258,250)
© 2015 A.P.Curatola
MACE 5


Personal & Dependent Exemption – $3,950 ($4,000)

Phased-out ratably for AGI in excess of

MJ - $305,050 ($309,900),


HofH - $279,650 ($284,050), &
S - $254,200 ($258,250)

Note: Phase-outs are the same for itemized deductions and personal & dependent exemptions.
© 2015 A.P.Curatola
MACE 6


Senate Bill:

Expiring Provisions Improvement Reform and Efficiency
(EXPIRE) Act

Tabled until November

House Bill:

Passed Without Revenue Offsets

Bills withdrawn after November elections
© 2015 A.P.Curatola
MACE 7


Passage and signing of H.R. 5771:

Act: To amend the Internal Revenue Code of 1986 to extend certain expiring provisions and make technical corrections, to amend the Internal Revenue Code of 1986 to provide for the tax treatment of ABLE accounts established under State programs for the care of family members with disabilities, and for other purposes.

Division A: Tax Increase Prevention Act of 2014 (TIPA)

Division B: Achieving a Better Life Experience Act of 2014
(ABLE)
© 2015 A.P.Curatola
MACE 8


State & Local General Taxes

Deduct in lieu of State income taxes

Teacher’s Classroom Deductions

Above the line deduction of up to $250 extended through 2013

Mortgage Insurance Premiums

Deductible as mortgage interest extended through 2013

Discharged of indebtedness


General (includible)
Principal residence (excludable through 2013)
© 2015 A.P.Curatola
MACE 9


The new Act contains approximately:

8 extensions for individuals,

31 extensions for business,

11 extensions for energy,

2 extenders for multiemployer DB plans, and of course

Some technical corrections
© 2015 A.P.Curatola
MACE 10


Employee Education Assistance

Exclude up to $5,250 of qualified employer sponsored assistance, including graduate courses leading to professional degrees;

Include amounts received from an employer of nonqualified education plans. But may be eligible for lifetime learning credit.

Note: This provision is made permanent by ATRA of 2012
© 2015 A.P.Curatola
MACE 11


Student Loan Interest (made permanent by TRA of 2012)

Up to $2,500 of student loan interest deductible (not prepaid interest) above the line

Phased out for 2014 & 2015 begins when MAGI exceeds

$65k-$80k for singles and $130k-$160k for MJ .

Note: 60-month limitation is not reinstated .
© 2015 A.P.Curatola
MACE 12


Qualified Tuition and Related Expenses

Above the line deduction extended through 2015

Phase-out provision

$4,000 where AGI is < $65,000 ($130,000 for MJ filing)

$2,000 where AGI is between $65,000 and $80,000
($130,000 and $160,000 when filing married joint)

$0 for all others
© 2015 A.P.Curatola
MACE 13


American Opportunity Tax Credit (old Hope Credit)

For 2014-2017, maximum of $2,500 / year for first 4 years of post-secondary education, and is calculated as

100% on 1 st $2,000, and 25% on next $2,000

The credit is phased out where MAGI is

Between $160,000 and $180,000 for married filing jointly,

Between $80,000 and $90,000 for all other taxpayers

The credit is applicable to qualified tuition, fees, and course material (was tuition and fees) and may be partially refundable.
© 2015 A.P.Curatola
MACE 14


Tax Year



For 2013

For 2014

For 2015
MFJ &
SS
AMT Exemption Amount
Unmarried MFS
Estate &
Trusts
80,800 51,900 40,400 22,500
82,100 52,800 41,050 22,500
83,400 53,600 41,700 22,500
© 2015 A.P.Curatola
MACE 15


Gift tax exclusion

$14,000 ($14,000) per person per year

And

$145,000 ($147,000) for gifts to a non-US citizen spouse

Estate tax exclusion - $5,340,000 ($5,430,000)
© 2015 A.P.Curatola
MACE 16


Contribution to IRA and Roth IRAs - $5,500 / spouse

AGI limitations for deductible IRAs & nondeductible Roth IRAs

Limitation is avoidable by converting nondeductible IRA

Conversion of Traditional IRA to Roth IRA by including entire taxable convertible amount in gross income

Be careful: The 39.6% tax rates & 3.8% tax requires some tax planning

Small business owners - convert SEP & SIMPLE plans to Roth IRA
© 2015 A.P.Curatola
MACE 17


SEPs qualifying compensation limit increased to $600 ($550)

Sec 402(g) increased to $18,000 ($17,500)

IRAs: Catch up limit remains at $1,000

SIMPLE: Contribution increased to $12,500 ($12,000) & Catch up increased to $3,000 ($2,500)

Non-SIMPLE: Catch up increased to $6,000 (5,500)
© 2015 A.P.Curatola
MACE 18


See, Revenue Procedure 2014-61, October 30, 2014 for Estate, gift and income tax inflation adjustment figures for calendar year 2015

See Information Release 2014-99 for Retirement plan inflation adjustment figures for calendar year 2015
© 2015 A.P.Curatola
MACE 19

© 2015 A.P.Curatola
MACE 20


Maximum deductible contribution

$2,500 in 2014 ($2,550 In 2015)

Options for plan administrators

$500 carryover, or


75 day grace period, or
Do not adopt either option

$500 carryover limits will be indexed in $50 increments after 2013
© 2015 A.P.Curatola
MACE 21


Additional 0.9% Medicare Tax on wages, compensation and selfemployment income



Over $250,000 filing MJ;
Over $125,000 filing MS; or
Over $200,000 for all others

Notes:



Marriage penalty exists here & withholdings can be an issue
Underpayment penalty applies
Thresholds are not indexed for inflation
© 2015 A.P.Curatola
MACE 22

e

Additional 3.8% Medicare Tax on excess net investment income



Over $250,000 filing MJ;
Over $125,000 filing MS; or
Over $200,000 for all others

Notes:



Marriage penalty exists here and withholdings can be an issue
Underpayment penalty applies
Thresholds are not indexed
© 2015 A.P.Curatola
MACE 23


Example: Taxpayer A has wages $190,000 and self-employment income of $40,000.

Result: Taxpayer A has an additional tax of $270

Calculation: $270 = ($230,000 - $200,000) x 0.9%.

Note: The $270 Medicare tax is part of estimate tax payments.
© 2015 A.P.Curatola
MACE 24


Example: Taxpayer B has wages and self-employment income of
$240,000 and net investment income of $40,000.

Result: Taxpayer A has an additional tax of $1,880

Calculation: $1,880, which is the sum of

$360 = ($240,000 - $200,000) x 0.9% and

$1,520 = ($280,000 - $240,000) x 3.8%.
© 2015 A.P.Curatola
MACE 25

© 2015 A.P.Curatola
MACE 26


Treasury introduces voluntary certification program after RTRP mess

Effective for 2015 tax filing season

18 Hours of CE

Must consent to Circular 230 practice requirements & a valid PTIN

AICPA challenge to this program failed
© 2015 A.P.Curatola
MACE 27


Is RTRP Dead or in a Coma?

Senators Wyden (D-OR) and Cardin (D-MD) introduced legislation on
January 7 th providing Treasury & IRS explicit authority to regulate paid tax preparers
© 2015 A.P.Curatola
MACE 28


Purpose:

To encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life.

To provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the
Medicaid program under title XIX of the Social Security Act, the supplemental security income program under title XVI of such Act, the beneficiary's employment, and other sources.
© 2015 A.P.Curatola
MACE 29


New IRC Section 529A

Limited to annual gift tax amount (i.e., $14,000 in 2015)

Account accumulates on a tax free basis

Qualified distribution amounts are excluded in gross income

Non-qualified distribution amounts are included in gross income

As determined by IRC Section 72, and

10% excise tax applies unless made after the death of the beneficiary
© 2015 A.P.Curatola
MACE 30


Example from Committee Report

Assume a qualified ABLE account with a balance of $100,000 (of which $50,000 consists of contributions) distributes $10,000 to a beneficiary who has incurred $6,000 of qualified disability expenses.
Under section 72, one-half of the distribution ($5,000) is includible in gross income. Under the bill, the $5,000 amount otherwise includible in gross income is reduced by $3,000 ($6,000/$10,000 multiplied by
$5,000) to $2,000. An additional tax of $200 (10% of $2,000) is imposed on the distribution.

Problem: When is the balance determined?
© 2015 A.P.Curatola
MACE 31


Business Tax Overhaul Proposal

Drop tax rates to 25% for ALL businesses

No change in individual tax rates
© 2015 A.P.Curatola
MACE 32


Due Diligence (see Reg. Sec. 1.6695-2):




Completion & submission of Form 8867 (checklist);
EIC worksheet (or other such form);
Preparer must not know, or have reason to know, that any information is incorrect; and
Retain copy of Form 8867, EIC worksheet

Penalty: $500 per incident

The IRS is currently sending due diligence warning letters to preparers “who appear not to be complying”
© 2015 A.P.Curatola
MACE 33


Hom, DC-Calif, 2014-1 USTC, Para. 50,307

Online poker companies outside the US (even if they have branches in the US) are treated as “banks, securities, or other financial accounts” located in a foreign country

Hence, taxpayer’s accounts are reportable on FBAR

See Hom, USDC, N.D. Calif, 20141 USTC ¶ 50,307

Humor: Internal Rev Manual is not a citable source (Really!)
© 2015 A.P.Curatola
MACE 34


Rev. Proc. 2013-13 provides a safe harbor rule


Deduct $5 per sq. ft. of the home office up to 300 sq. ft.
No carryover for any unused expense

More than one business operating at home

Each spouse may elect the safe harbor rule

Home office space must be unique to each spouse; no double counting

Each spouse is limited to the 300 sq. ft. rule.

Taxpayer can switch between cost and safe harbor methods.
Carryover permitted under cost method only
© 2015 A.P.Curatola
MACE 35


Chambers & Curatola (2012) show less underpayment penalties incurred when taxpayers pay monthly instead of quarterly

How do you pay monthly? Really!
© 2015 A.P.Curatola
MACE 36


TD 9696 (09/30/2014), Reg. § 1.262-1

1.
2.
3.
4.
Tax free working condition fringe benefit if all facts & circumstances tests are passed:
Lodging is necessary to participate fully in or be available for a bona fide business meeting, training, conference, etc.
Lodging is for a period not to exceed 5 days in any given quarter,
Employer requires employee to remain at the activity or function overnight,
Lodging is not lavish or extravagant & doesn’t provide any significant element of personal pleasure, recreation, or benefit.
© 2015 A.P.Curatola
MACE 37


Miller (TC Summary Opinion 2014-74)

Taxpayer has a studio apartment (NY) that is split into 3 pieces:

Personal (entryway, bathroom & kitchen area),


Office space (desk, shelving units, bookcase and sofa), and
Bedroom area

Taxpayer meets with clients & performs work for company (CA) in the office space

Office space is occasionally used for personal use.
© 2015 A.P.Curatola
MACE 38


Court Decision states, in part that this evidence persuaded it that the
Taxpayer's apartment was her principal place of business, that she was obliged to use the space as an office for the convenience and benefit of her employer, and that the employer (BIW) was not able or willing to reimburse her for any of her apartment-related expenses.
Although the Taxpayer admitted that she used portions of the office space for nonbusiness purposes, the Court found that her personal use of the space was de minimis and wholly attributable to the practicalities of living in a studio apartment of modest dimensions. It therefore allowed her to deduct one-third of her rent and cleaning service charges for the year.

Court Decision: Non business use was de minimis
© 2015 A.P.Curatola
MACE 39


Notice 2012-8 – Equitable Relief under IRC Sec. 6015(f)


Satisfy 3 safe harbor factors

OR
Satisfy 8 factor balancing test

De novo standard and scope of review to the Tax Court granted

Wilson (9 th cir. , 111 AFTR 2d 2013-522) and Neal (11
AFTR 2d 2009-8) th cir., 103

The de novo scope of review provides the petitioner the ability to introduce new evidence.
© 2015 A.P.Curatola
MACE 40


Pre 2015 Rule


1 Rollover per IRA per 365 days
IRS Publication 590 (2013)

Bobrow Case (TC Memo 2014-21)

1 Rollover per Taxpayer per 365 days

Service did not appeal case

Post 2014

IRS will follow Bobrow ruling (Announcement 2014-15)
© 2015 A.P.Curatola
MACE 41


Impact of Rule

Applies to SEPs and SIMPLEs

IRA based plans

IRA rules are unique for RMD rules

Does not apply to other types of Retirement Plans

Generally, these are separate plans (see RMD rules)
© 2015 A.P.Curatola
MACE 42


Prop Reg (REG-105739-11) and Notice 2014-54

Allocation of after-tax amounts applicable to pre-January 1, 2015 distributions (or Sept 18, 2014 if chosen by taxpayer)

Pre 2015 distributions follow Sec. 72 allocation rule for pre & post contributions.

Direction of multiple destinations of distributions is discretion of taxpayer
© 2015 A.P.Curatola
MACE 43


Employee participates in a qualified plan with a $250,000 account balance ($200,000 pretax & $50,000 after-tax). Employee leaves company and requests a distribution of $100,000.

Under § 72(e)(8), the pretax amount of distribution is $80,000
($100,000 x $200,000 / $250,000).

Employee requests $70,000 to be directly rolled over to qualified plan of his new employer and $30,000 to be distributed to him.

Result:

The $70,000 is treated as consisting entirely of pretax.

The $30,000 is treated as $10,000 in pretax & $20,000 in after-tax.
© 2015 A.P.Curatola
MACE 44


Employee participates in a designated Roth IRA plan with a $250,000 account balance ($200,000 pretax & $50,000 after-tax). Employee leaves company and requests a distribution of $100,000.

Under § 72(e)(8), the pretax amount of distribution is $80,000
($100,000 x $200,000 / $250,000).

Employee requests $82,000 to be directly rolled over to qualified plan of his new employer and $18,000 to be distributed to him.

Result assuming new plan separately accounts for after-tax contrib.:

The $82,000 is treated as consisting of $80,000 in pretax & $2,000 in after-tax.

The $18,000 is treated as consisting of $18,000 in after-tax.
© 2015 A.P.Curatola
MACE 45


New Government Backed Retirement Plan

President Obama signs presidential memo (1/29/2014)

Treasury directed to create the myRA

Same properties of Roth IRA
© 2015 A.P.Curatola
MACE 46


Targeted for millions of low- & middle-income wageearners without access to an employer-sponsored plan
 myRA




Open for as little as $25, and
Contribute $5 or more every payday
Earn interest at G Fund variable rate (same as 30 year bond rate)
Backed by US Treasury
© 2015 A.P.Curatola
MACE 47


Income limits same as Roth IRA

Transfer to the private sector Roth IRA:


Anytime, but must be transferred
After 30 years or account reaches $15,000

Info available at

 www.treasury.gov
or www.treasurydirect.gov/readysavegrow
© 2015 A.P.Curatola
MACE 48


Modify RMD rules:

Purchase of deferred longevity annuity to start at age 80-85

Maximum Annuity Investment is the lesser of:

25% of retirement plan account balance, or

$125,000 (was $100,000 under proposed regs)

Issue Raised:

401(k) plan purchase: gender neutral tables used

IRA plan purchase: sex-based mortality tables used
© 2015 A.P.Curatola
MACE 49


$125,000 is inflation adjusted at $10,000 increments ($25,000 under proposed regs)

QLAC may contain a return of premium feature that is payable by
12/31 of following year of death.

QLAC cannot consist of variable contract, an equity-indexed contract, or a similar contract.

A failed QLAC due to excess premium limits may return excess premium to nonQLAC portion of employee’s plan by 12/31 of following year.
© 2015 A.P.Curatola
MACE 50



SEP Plan for 2014:


Establish by April 15, 2015 (including extensions)
Employer plan contributions due by April 15, 2015 (including extensions)
SIMPLE Plan for 2014:

Establish by October 1, 2014

Employer plan contributions due by April 15, 2015 (including extensions)

Employee plan contributions due by January 30, 2015

Note: Sole proprietor contribution on behalf of themselves as an employee is due by January 1 st .
© 2015 A.P.Curatola
MACE 51


DeBough (142 T.C. No. 17, May 19,2014)

Issue: Installment Sale, IRC Sec. 121 Exclusion & Repossession

Installment Sale Rules apply to Recognizable Gain

IRC Section 121 exclusion applies to principal residence only
© 2015 A.P.Curatola
MACE 52


Rub: Interplay of Sections 1038 & 121

Non-principal residence:

Recognized as long term capital gain any money or property received prior to reacquisition that was not taxed (i.e., return of property’s adjusted basis)

Principal residence:

Recognized as long term capital gain any money or property received prior to reacquisition that was not taxed (i.e., return of property’s adjusted basis AND any
121 exclusions)

Real Issue: Seller’s basis after reacquisition
© 2015 A.P.Curatola
MACE 53


Notice 2014-21: Treat virtual currency (VC) as property, not currency

TX CPA Society requesting IRS guidance because they content that not all VC transactions should be treated as property. Specifically,

Business owners accepting VC in their ordinary course of business should treat the transaction as a currency transaction

Investors should treat VC transactions as property transactions
© 2015 A.P.Curatola
MACE 54


Amounts in an ABLE account may be rolled over without income tax liability to
 another ABLE account for the same beneficiary (e.g., moving to another state), or
 another ABLE account for the designated beneficiary’s brother, sister, stepbrother or stepsister who is also an eligible individual.
© 2015 A.P.Curatola
MACE 55

.
© 2015 A.P.Curatola
MACE 56

Anthony “Tony” P. Curatola, Ph.D.
Joseph F. Ford Professor of Accounting
Drexel University

Tony Curatola is the Joseph F. Ford Professor of Accounting at Drexel
University. He holds an MA degree in accounting (1979) from the Wharton
Graduate School of the University of Pennsylvania and a Ph.D. degree in accounting (1981) from Texas A&M University. Tony joined the faculty of
Drexel University in 1989 by accepting the appointment to the Joseph F.
Ford Professor of Accounting Chair.
 Tony has been called on to provide information to the House Judiciary
Committee concerning the source tax law. He is a regular contributor to numerous journals, such as The Tax Adviser, TAXES, Oil and Gas Tax
Quarterly, National Public Accountant, Benefits Quarterly, Tax Executive,
Journal of Pension Planning and Compliance, Tax Notes , and State Tax
Notes . Tony’s findings have appeared in media such as Forbes,
Washington Post, Money Magazine, Wall Street Journal and The New
York Times to name a few. He is currently the Editor of the Tax Column for Strategic Finance, Journal of Legal Tax Research, and is an author of several MicroMash Interactive education courses in the employee benefit area and the Enrolled Agent’s Review Course of ExamMatrix.
© 2015 A.P.Curatola
MACE 57