Figuring a Shareholder's Basis

The Calculation for figuring shareholder basis is as follows:
1) Beginning Stock Basis (cost or FMV of Stock)

Increases to Basis
2) Money or property contributed to the corporation
3) Your percentage of a corporation's  earnings (or a decrease if the corporation sustains loses)
4) Other increases, such as your share of excess deductions of a depleatible asset

Decreases to Basis
5) Distributions of money and FMV of property
6) Your share of the corporation's nondeductible expenses, if applicable, your share of corp loses under Reg section 1.1367-1(g), your share of the Sec 179 deduction, or any corporation charitable deductions
7) If Reg Section 1.1367-1(g) applies, add the amount of a corp's nondeductible expenses
8) The smaller of the excess, at 1/1/xx, of the amount you are owed for loans you made to the corp OR the sum of lines 1-7 above.  (This amount increases you loan basis)

9) Equals: Your stock basis in the corporation at the end of the year..

We would love to help with the computation!  Call me at my cell to talk more (813)309-0504.

Tax changes to Partnerships and Due Dates for 2016

A large number of important tax changes go into effect for partnerships this year, along with due dates for business tax returns.

Many were ushered in by the Protecting Americans from Tax Hikes (PATH) Act of 2015, although legislation enacted earlier in 2015 and in 2014 also contributed a fair share. Still other changes are the result of various administrative pronouncements by IRS.

This article reviews the important changes that apply to partnerships and those that apply to due dates for business returns. There are a number of other important business tax changes this year that I covered in a previous article (seeMajor Business Tax Changes for 2016).

Partnership ChangesThe recent legislation responsible for the lion's share of the changed rules for 2016 consists of the Protecting Americans from Tax Hikes (PATH) Act of 2015; the Fixing America's Surface Transportation (FAST) Act; the Bipartisan Budget Act of 2015; the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015; the Trade Preference Extension Act of 2015; and the Achieving a Better Life Experience Act of 2014 (ABLE Act), part of the Tax Increase Prevention Act of 2014

Taxpayers may elect new partnership rules: The Bipartisan Budget Act of 2015 repeals the TEFRA uniform partnership audit rules and similarly repeals the electing large partnerships rules. These rules are replaced with a streamlined single set of rules for auditing partnerships and their partners at the partnership level. Under the new streamlined audit approach, any adjustment to items of income, gain, loss, deduction or credit of a partnership for a partnership tax year (and any partner's distributive share of such adjustment) is determined at the partnership level. Similarly, any tax attributable to such an adjustment is assessed and collected, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to any such item or share is determined, at the partnership level.

The new rules generally apply to partnership tax years that begin after Dec. 31, 2017. However, except for certain small partnership election-out rules, partnerships may also elect (as directed by the IRS) for the changes to apply to any return of the partnership filed for partnership tax years beginning after Nov. 2, 2015 and before Jan. 1, 2018.

Family partnership rule clarified: A partnership generally is an unincorporated organization in which the parties (i.e., partners) have joined together to conduct an active trade or business. Under former Code Sec. 704(e)(1), a person can also be recognized as a partner if capital is a material income-producing factor, whether his partnership interest was obtained by purchase or by gift (the so-called "family partnership rule").

Some taxpayers have argued that this family partnership rule provides an alternative test for determining who is a partner without regard to how the term is generally defined in the partnership tax rules. Thus, they asserted that if a partner holds a capital interest in a partnership, the partnership must be respected regardless of whether the parties have demonstrated that they joined together to conduct an active trade or business.

For partnership tax years beginning after Dec. 31, 2015, the Bipartisan Budget Act of 2015 (1) amends the general definition of a partner to provide that, in the case of a capital interest in a partnership in which capital is a material income-producing factor, whether a person is a partner with respect to that interest is determined without regard to whether that interest was derived by gift from any other person (Code Sec. 761(b)) and (2) eliminates the pre-Act rule (at Code Sec. 704(e)) regarding the recognition of partners.

These changes clarify that family partnership rules were not intended to provide an alternative test for whether a person is a partner in a partnership. The determination of whether the owner of a capital interest is a partner is made under the generally applicable rules defining a partnership and a partner.

Due Dates for Business Returns
Revised due dates for partnership and C corporation returns: Domestic corporations (including S corporations) currently must file their returns by the 15th day of the third month after the end of their tax year. Thus, corporations using the calendar year must file their returns by March 15 of the following year. The partnership return is due on the 15th day of the fourth month after the end of the partnership's tax year. Thus, partnerships using a calendar year must file their returns by April 15 of the following year. Since the due date of the partnership return is the same as the due date for an individual tax return, individuals holding partnership interests often must file for an extension to file their returns because their Schedule K-1s may not arrive until the last minute.

Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, in a major restructuring of entity return due dates, effective generally for returns for tax years beginning after Dec. 31, 2015 (i.e., for 2016 tax year returns filed in 2017):

• Partnerships and S corporations will have to file their returns by the 15th day of the third month after the end of the tax year. Thus, entities using a calendar year will have to file by Mar. 15 of the following year. In other words, the filing deadline for partnerships will be accelerated by one month; the filing deadline for S corporations stays the same.

• C corporations will have to file by the 15th day of the fourth month after the end of the tax year. Thus, C corporations using a calendar year will have to file by Apr. 15 of the following year. In other words, the filing deadline for C corporations will be deferred for one month. (Under a special rule, for C corporations with fiscal years ending on June 30, the rule change won't apply until tax years beginning after Dec. 31, 2025.)

Revised automatic extension rules for corporations: Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, effective generally for returns for tax years beginning after Dec. 31, 2015, the three-month automatic extension of time for corporate returns in Code Sec. 6081(b) is changed to an automatic six-month extension (this change conforms the statutory rule with the six-month automatic extension for corporate returns in Reg. § 1.6081-3(a)).

However, for any return for a tax year of a C corporation which ends on Dec. 31 and which begins before Jan. 1, 2026, the automatic extension period is five months (not six months). And, for any return for a tax year of a C corporation which ends on June 30 and begins before Jan. 1, 2026, the automatic extension period is seven months (not six months).

Note that the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 also revised the extended due dates for various other returns.

Thanks to Thompson Reuter's Robert Trinz  for much of this research

Obama care required documents

• Since the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, became law 
• in 2010, each year has seen the introduction of new tax compliance requirements for 
• individuals, businesses, or both—and 2015 was no exception. This filing season, certain
•  employers, as well as providers of minimum essential coverage, will have to meet 
• significant information-reporting requirements to both the IRS as well as the insured.

The reporting requirements are considered the glue that holds together two of the largest pieces of PPACA: the individual and employer mandates. Since 2014, the individual mandate has required most Americans to purchase minimum essential coverage, qualify for an exemption from this requirement, or pay a penalty on their tax return. Beginning in 2015, the employer mandate places a requirement on applicable large employers (ALEs)—which are businesses with 50 or more full-time plus full-time equivalent (FTE) employees—to provide health insurance to 95% or more of their employees and dependents up to age 26.

Several new forms have been issued for both employers and insurance providers to file to comply with the new reporting rules. ALEs will file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. The type of information reported by an ALE on the forms is meant to help the IRS pinpoint those employers that are required to but do not offer minimum essential coverage to their employees and their employees’ spouses and dependents. If it fails to provide the appropriate insurance, the employer is subject to steep penalties. The information reported on the returns also lets the IRS know if an employee is eligible for the premium tax credit.

Providers of minimum essential coverage will file Form 1095-B, Health Coverage, and Form 1094-B, Transmittal of Health Coverage Information Returns, to report information to the IRS and enrollees about individual coverage. Recipients of Form 1095-B can show they have minimum essential coverage and will not owe a penalty on their tax return associated with the individual mandate.

Who is subject to the information-reporting requirements?

ALEs are subject to the information-reporting requirements of Sec. 6056.

Any provider, such as an insurance company that issues minimum essential coverage to an individual, is subject to the information-reporting requirements of Sec. 6055.

Which form to file?

What information is necessary to complete the forms?

The type and sheer volume of data that an employer has to gather to file Forms 1095-C and 1094-C is overwhelming, especially since certain information must be tracked by month. Employers have found themselves in the difficult position of having to implement new systems to track reportable data such as the following:

• Whether the employer offered minimum essential coverage each month to the employee and the employee’s spouse and dependents;
• Whether the employee and the employee’s spouse and dependents were enrolled in the coverage;
• Whether the employee’s share of the lowest-cost monthly premium for self-only minimum essential coverage provides minimum value;
• Which affordability safe harbor was used for each employee;
• Whether the employee was full-time or part-time, on a monthly basis;
• The total number of employees, by month, and the total number of full-time employees, by month;
• Whether the employee was a new hire eligible for the coverage waiting period;
• Whether the employee was a new variable-hour, seasonal, or part-time employee in the initial measurement period; and
• Whether the employer was a member of a controlled group or affiliated service group.

An insurer will have to report the following information on Forms 1095-B and 1094-B:

• Enrollee’s name, address, and Social Security number;
• Employer’s name, address, and federal employer identification number;
• Insurance provider’s name, address, and federal employer identification number; and
• Covered individual’s name, Social Security number, and months of coverage.

What are the penalties for noncompliance?

The information-reporting rules are a serious business. ALEs as well as providers of minimum essential coverage can be hit with penalties of $250 for each information return not filed and another $250 for not providing each employee/enrollee with an accurate return. The total amount of penalties is capped at $3 million annually—a staggering amount! As you can see, the penalties provide employers and insurers a significant incentive to file the forms correctly and on time.

Thanks for the compilation of this info to Kristin Esposito, CPA, MST, is the senior technical manager–tax advocacy at the AICPA.

Biodiesel mixture and Alternative Fuel taxes

Notice 2016-05 provides rules for claimants to make one-time claims for the 2015 biodiesel mixture and alternative fuel excise tax credits that were retroactively extended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), Pub. L. 114-113 Div. Q.  It also provides guidance for claimants to claim the other retroactively extended credits for 2015, including the alternative fuel mixture excise tax credit.

Notice 2016-05 will be published in Internal Revenue Bulletin 2016-06 on Feb. 8, 2016.

Obamacare and your tax return!

The Individual Shared Responsibility Provision and Your 2015 Income Tax Return

The Affordable Care Act requires you, your spouse and your dependents to have qualifying health care coverage for each month of the year, qualify for a health coverage exemption, or make an Individual Shared Responsibility Payment when filing your federal income tax return.   If you had coverage for all of 2015, you will simply check a box on your tax return to report that coverage.

However, if you don’t have qualifying health care coverage and you meet certain criteria, you might be eligible for an exemption from coverage. Most exemptions are can be claimed when you file your tax return, but some must be claimed through the Marketplace.

If you or any of your dependents are exempt from the requirement to have health coverage, you will complete IRS Form 8965, Health Coverage Exemptions and submit it with your tax return. If, however, you are not required to file a tax return, you do not need to file a return solely to report your coverage or to claim an exemption.

For any months you or anyone on your return do not have coverage or qualify for a coverage exemption, you must make a payment called the individual shared responsibility payment. If you could have afforded coverage for yourself or any of your dependents, but chose not to get it and you do not qualify for an exemption, you must make a payment. You calculate the shared responsibility payment using a worksheet included in the instructions for Form 8965 and enter your payment amount on your tax return.

Whether you are simply checking the box on your tax return to indicate that you had coverage in 2015, claiming a health coverage exemption, or making an individual shared responsibility payment, you or your tax professional can prepare and file your tax return electronically.  Using tax preparation software is the best and simplest way to file a complete and accurate tax return as it guides individuals and tax preparers through the process and does all the math. Electronic filing options include IRS Free File for taxpayers who qualify, freevolunteer assistance, commercial software, and professional assistance.

More Information

Determine if you are eligible for a coverage exemption or responsible for the Individual Shared Responsibility Payment by using our Interactive Tax Assistanton IRS.gov.

For more information about the Affordable Care Act and filing your 2015 income tax return, call us!  (813)309-0504 DIRECT LINE or (813)657-4137 OFFICE