Tax Roundup, 3/31/16: IRS says S corps can still reimbuse 2% owner health premiums. And: partner basis!

March 31st, 2016 by Joe Kristan

S-SidewalkS corporation owner reimbursement still good. When the ugly alliance of government agencies overseeing Obamacare blew up small employer health reimbursement arrangements, they spared some S corporation plans.

Because 2% shareholders of S corporations have to deduct their health insurance on line 29 of the 1040s, rather than getting them as a tax-free fringe benefit, many S corporations reimburse their employee shareholders for their health insurance costs. While “The Departments” impose a $100 per employee, per day penalty for anybody else doing that, Notice 2015-17 said such arrangements for S corporation 2% shareholder-employees were OK until further notice.

Yesterday the IRS, in an information letter to Rep. Justin Amash, affirmed that there has been no further notice:

To date, the IRS has not issued any other guidance, so, as stated in Question and Answer 5, taxpayers may continue to rely on Notice 2008-1, 2008-2 IRB 1, for the tax treatment of the health coverage provided to a 2-percent shareholder-employee.

I thought that was still the case, but when you’re talking $100 per-day, per-employee, it’s always nice to get confirmation.

Related: IF IT’S NOT ON THE W-2, S CORP SHAREHOLDERS CAN’T DEDUCT HEALTH INSURANCE

 

How partnership basis is different. As with S corporation shareholders, partners don’t have a shot at deducting their partnership K-1 losses if they don’t have basis in their partnership interests. They still might not be able to deduct the losses because of the at-risk and passive loss rules, but without basis, they don’t have any chance at all.

It’s much easier for partners to get basis than it is for shareholders. While S corporation shareholders can only get basis based on their stock ownership and loans they make themselves to their S corporation, partners get basis from debt inside the partnership. 

Example. Joe and Bob set up a 50-50 partnership to buy a food truck. They each invest $5,000, and the partnership borrows $20,000 to buy the food truck.

Not only do Joe and Bob get basis for their $5,000 investment, they also get $10,000 in basis for their share of partnership debt.

The exact workings of the debt allocations can get unbelievably complex, and they have spawned most of the world’s tax shelters, but your partnership K-1 should tell you what your share of partnership debt is that you can use for your 1040. It’s right there in Part II, item K:

20160331-1

In our upcoming “at-risk” installment, we will talk about what those three categories of liabilities mean.

Other than the use of partnership debt, partnership basis is pretty much determined the same as S corporation basis. You start with your investment, increase it for income and further investments, and reduce it for losses and distributions.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

 

Lower than Minnesota, much higher than Missouri. How High Are Cigarette Taxes in Your State? (Scott Drenkard, Tax Policy Blog):

20160331-2

 

Robert Wood, IRS Allows Some Personal Items Deducted As ‘Business Expenses’ On Your Taxes. “Not everything must be 100% business to be tax deductible, but be careful what you claim and how you claim it.”

TaxGrrrl, Taxes From A To Z (2016): P Is For Paying Your Taxes In Pennies (and Dollars)

Kay Bell, Tax help in finding new work, or what to do differently from Jimmy McGill if you don’t like your job

Hank Stern, O’Care at 6: Fewer, Sicker, Costlier. (Insureblog). “That’s right, not only are the newly-insured sicker, there are even fewer less-sickly folks signing up at all.”

Peter Reilly, IRS Turns To Crowdsourcing To Improve Systems. That seems logical, considering that the hacking is crowdsourced.

Leslie Book, Series of Errors With Installment Agreement and Collection Actions Leads to Taxpayer Victory on Collection Statute of Limitation (Procedurally Taxing).

Paul Neiffer, Where’s Roger. ” Many of you know my now (since we have posted on it already) that Roger McEowen has joined CLA as a half-time tax director for our firm.”

Jim Maule, Tax Fears. Well, they tax everything else… Oh, that’s not what he’s talking about. “If a one in two hundred chance of being audited explains an audit fear rate of 11 percent, then why do 8.5 percent of Americans fear zombies?”

 

20160309-1

 

David Brunori, Tampons, Viagra, and Other Important Tax Issues (Tax Analysts Blog) “Nothing should be exempt from sales tax. Good tax policy dictates a broad tax base — tax everything — and low rates.”

TaxProf, The IRS Scandal, Day 1057

 

News from the Profession. Survey: Accountants Far Less Deserving of a Knuckle Sandwich Than Donald Trump (Caleb Newquist, Going Concern).

 

Share

Tags: , , , , , , , , , , , ,