Monday, December 28, 2020

Taxpayer Certainty and Disaster Tax Relief Act of 2020

 On December 27th, 2020, the President signed into law a spending bill that included the Taxpayer Certainty and Disaster Tax Relief Act of 2020. This new law includes several relevant tax extenders and technical corrections.

1. Section 102 of the act permanently extended the Code section 179D deduction for energy efficient commercial property. For property placed in service post-December 31, 2020, the deduction amounts will now be indexed for inflation. The Secretarys of Treasury and Energy will also be able to affirm new, updated energy savings standards. These standards will be no newer than two years prior to the beginning of construction of the building. 

2. Sections 146, 137, and 138 of the act provide a one-year extension of the Code section 45L, 3-year racehorses, and Indian reservation property. 

3. Section 115 of the act provides a five-year extension of 7-year recovery period for motorsports complexes. 

4. Section 2020 of the act provides a 30-year ADS recovery period for pre-2018 residential rental property with a section 163(j)(7)(B) election. This standardizes the recovery period for all residential rental property subject to the real property trade or business election for unlimited interest deductions. Without this change, pre-2018 residential rental property used a 4--yea recovery period. Since this is structured as a technical correction of the TCJA, I anticipate the Service will issue transitional guidance that allows taxpayers to treat this as a method change and file a Form 3115 OR allow an amended return.

5. Section 132  provides a two-year extension of various provisions of the section 48 energy credit. 

Friday, February 7, 2020

Random Tax Research Tips

Many tax practitioners use Google as their first or primary tax research resource. Even though I pay for the truly excellent Lexis Advance Tax research platform, when I look up a Code section or Treasury regulation,  I usually start by googling the citation and clicking on the Cornell website. But this isn't about me, it's a tax research tip. Here's how to do this:

  1. Google your citation. For example, if I want to look up Code section 472, I would search for <IRC 472> (without brockets). This will usually take you directly to a link to Cornell. 
  2. If you are searching for a Code section under 100 or so, you might get spurious results related to Internet Relay Chat or something else that uses the "IRC" acronym. As you train Google, these will go away at the top of your search results.
  3. When searching for Treasury regulations, you can use "Reg 1.472-1" or "26 CFR 1.472-1". You can even search for "1.472-1", but some browsers interpet this as math and only show that result, resulting in extra clicks to get where you need to go. 
  4. If the Reg cite has a letter in it, Google will usually interpret that appropriately. This search for the bonus depreciation regs is a good example. This does not always work. Google interprets (i) as an imaginary number. A search for the MACRS LKE regs yields a calculator as the top result.
  5. If you do not know how to find the Code section you need, try Googling your search term(s) and add either "IRC" or "Code section" (or even "Code §") to your search.
  6. If you click on the LMGTFY links in the last sentence, you can see that these lead to different results when searching for LIFO. 
  7. The first two lead you directly to where you need to be. The third one does not, at least not in the top results. 
  8. When searching for something, you might need to use different search terms, because writers cite the Code (or regs) in different ways. 
  9. Sometimes it helps to restrict your search to the IRS website. You can do this by adding <> (without brockets) to the search. For example, here is our earlier search for LIFO. This did not take you directly to the Cornell website, of course, but it does provide enough information to figure out the Code section. Eventually.
  10. When looking for a Code section, I do not find restricting the search to the IRS website to be very helpful. For more complicated searches where I am not looking for a Code section, it can be very useful.

Friday, January 17, 2020

Clarification on TCJA and the Cash Method

Last Friday, the Service released CCA 202002013, which clarifies the impact of the TCJA on cash basis taxpayers. The issue is fairly simple. In the TCJA, Congress modified certain rules in Code section 451. This Code section provides the general rules to determine when taxpayers must include an item in gross income. Congress made substantial modifications to the rules under this section for accrual basis taxpayers. The question the Service addressed was whether this also affected when cash basis taxpayers take into account income. The answer was "no".

While this may seem like a straightforward issue, many practitioners have been confused by these new provisions. This has been especially true when the taxpayer has an AFS and uses accrual for book and cash for tax.