Tax Roundup, 1/8/2014: Instructions for the Net Investment Income Tax! And new foreign account reporting rules.

January 8th, 2014 by Joe Kristan

20140108-1Almost four years after the passage of the Patient Protection and Affordable Care Act, the IRS has issued draft instructions for the act’s “Net Investment Income Tax” form, Form 8960 — which itself has only been issued as a draft so far.  With work already underway on many returns subject to this tax, especially trust returns, the timing is lame.  But this is one aspect of Obamacare that isn’t going to get punted, so we will have to go to war with the forms we have.

The draft instructions provide worksheets for some of the more baroque computations that will be needed to complete the form, including the net loss computation and the allocation of itemized deductions to net investment income.  Still, much of the work will have to be done off-the-forms on preparer worksheets applying the regulations.  Tony Nitti says:

That is my big takeaway from the instructions – there’s no faking it. When we saw that this new, complex area of the law would ultimately be computed on a one-page form, we anticipated that the meat of the computation would be done off-form in worksheets provided by the instructions. And that’s exactly what happened. But that shifts the onus back to us as tax advisors to make sure our inputs are correct, which means we must understand the nuances of the final regulations.

Based on my review of the instructions, it will be virtually impossible for a tax advisor to accurately compute, for example, the Net Gains and Losses worksheet without a solid understanding of the types of gains and losses the final regulations contemplate being included in and excluded from net investment income.

As with the rest of the ACA, what could possibly go wrong?

 

Russ Fox, FBAR Changes for 2014

First, Form TD F 90-22.1 is no more. The FBAR has a new form number, Form 114.

Second, as of last July the FBAR must be electronically filed. The good news is that as of last October, your tax accountant can file the form for you as long as you complete Form 114a.

Also, notes Russ, the filing requirement now kicks in when the balance of all foreign accounts together exceeds $10,000.  It used to be account-by-account.

 

William Perez offers Resources for Preparing Form 1099-MISC for Small Businesses

Kay Bell says it’s Time to get organized for your 2014 tax filing tasks

Paul Neiffer advises us to Decant a Trust – Not Wine.

 

David Brunori on the unwisdom of subjecting business inputs to sales tax:

Indeed, virtually every state tax commission that has studied this issue has concluded that business inputs should be exempt from tax. Why? When you tax business purchases, the tax becomes part of the cost of doing business, and companies try very hard to pass those costs on to consumers. Two bad things then happen. First, consumers unwittingly pay the tax in the form of higher prices. It is a hidden tax and a most cynical way of financing government. Second, consumers often pay sales tax on the tax embedded in the retail price of the goods they purchase. So we are actually taxing a tax. This “cascading” amounts to awful tax policy.

But, as David points out, that doesn’t stop the demagogues:

Several years ago, I had the opportunity to talk to a group of legislators about sales tax policy. I was asked if I had any ideas for reform. I mentioned the common ideas of broadening the base by taxing services and remote sales, and lowering rates. I also said that states should exempt business purchases from the sales tax. One legislator looked at me like I had three heads and asked, “Do you mean letting corporations off the hook for sales taxes?” He asked where the justice was in a system that would make poor working families pay sales tax but let multinational companies go free.

Not all that different from the Iowa Senate’s approach to income taxes.

 

Andrew Lundeen, The Top 1 Percent Pays More in Taxes than the Bottom 90 Percent (Tax Policy Blog):

An interesting piece of information from the chart below is that after the 01/03 Bush tax cuts, often claimed to be a tax cut for the rich, the tax burden of the top 1 percent actually increased significantly.

Top 1 pays more than bottom 90

No matter how much you jack up taxes on the “top 1%,” the same people always will say “the rich” aren’t paying “their fair share” and need to indulge in some “shared sacrifice.”

 

Howard Gleckman, Taxing Bitcoin (TaxVox)

What if bitcoin is a currency for tax purposes, the same as, say a euro? In that case, profits from sales would be taxed as ordinary income, with a top rate of 39.6 percent, though all losses could offset other income.

Either way, the mere act of buying something [with Bitcoins] would likely be a taxable event.

Tax Justice Blog, GE Just Lost a Tax Break – and Congress Will Probably Fix That.  That’s what fixers do.

Jack Townsend, Prosecuting the Banks: Does the U.S. Prefer Foreign Banks to U.S. Banks?

 

TaxProf, The IRS Scandal, Day 244

Programming note: I will be doing a tax update program sponsored by the Institute for Management Accountants over the Iowa Cable Network tomorrow evening at 6:00 p.m.  It’s a chance to get your continuing education for 2014 off to a roaring start.  I figure on talking about an hour, with an emphasis on the new Net Investment Income regulations and other 2013 changes we will see this filing season.  I’ll also cover some of the more interesting cases and rulings of the last year.

In case you were wondering, our friends at Going Concern explain How To Tell if Your Accounting Firm is Really a Car Wash

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