By Wendy Shick, CPA, CFP® – Principal, Tax
Since the advent of the Tax Cuts and Jobs Act (TCJA) of 2017, there have been unanswered questions. The TCJA included some of the most significant changes in history, so it stands to reason that a few things fell through the cracks. The IRS released a second-quarter update to its 2017-2018 Priority Guidance Plan. The IRS issues these plans every year to identify tax issues that need to be addressed through regulations, revenue rulings or procedures, notices and other guidance.
Much of the TCJA are statements of fact. However, there are ̶ and will continue to be ̶ questions that will require interpretation, clarification and even corrective legislation. For example, as an itemized deduction, taxes are limited to $10,000. These types of changes are self-explanatory and can be generalized. The IRS has somewhat clarified the home equity interest issue and now say that this interest is deductible as long as it is “qualified interest,” meaning the qualified debt was used for the home and its improvements. This was not the original interpretation by professionals, but it is now clarified with examples.
There are other changes under the TCJA that need examples and clarification, mainly in the business arena, including but not limited to:
- The Kiddie Tax standard deduction needs thoroughly explained
- The Pass-through Entity Deduction – professionals have provided examples on their interpretation, but the IRS needs to provide their interpretation through examples. We need to know the definition of a non-service and a service business. Also needed are calculation examples for below the threshold, the phase-out level and above the threshold.
- Application of the business interest limitation and the impact on controlled groups
- The interaction between excess business losses and net operating losses need examples
- Applying the new inflation adjustment to items indexed for inflation changed amounts already set for 2018. Legislation was introduced that did not apply to the numbers that were computed using the former inflation adjustment amount
- Meals and entertainment deduction: clarification on what specifically qualifies for 50 or 100 percent deduction and what is 100 percent disallowed
- Income taxation of trusts and estates: clarification of how taxes and miscellaneous itemized deductions are impacted
- Issues related to the business credit under Section 45S, regarding wages paid to qualifying employees during FMLA leave
- Guidance under Sections 101, 1016 and 6050Y with respect to reportable policy sales of life insurance contracts
- Section 162(m) – application of the effective date provisions to the elimination of the exceptions for commissions and performance-based compensation from the definition of compensation subject to the deduction limit
- Computational, definitional and other guidance under Section 163(j), which contains the new interest expense limitation
- Section 168(k) provisions governing bonus depreciation
- Guidance adopting new small business accounting method changes under Sections 263A, 448, 460 and 471
- Computation of unrelated business taxable income for separate trades or businesses under new Section 512(a)(6)
- Changes to Section 529 for ABLE accounts
- Alternations to Section 1361 regarding electing small business trusts
- Direction about the computation of estate and gift taxes to reflect changes in the basic exclusion amount
- Guidance on certain issues relating to the excise tax on excess remuneration paid by “applicable tax-exempt organizations” under Section 4960
In addition, as high-taxing states think of workarounds for their residents, we should stay tuned on the IRS reaction to the workarounds.
For now, it is a waiting game. Hopefully, we will get reliable answers to questions we have had for the last few months. We know you have many questions, and we intend to provide the answers you’re looking for as soon as possible.
In the meantime, feel free to contact us with questions and check out our Tax Reform Research Center at www.reacpa.com/taxreform.