Do These 7 New Tax Rules Impact You? 2017 Edition

3/9/2017 - By Claire Poirier, J.D.

A new year brings new changes from the IRS. Here is a short list of changes that may affect your 2016 tax return. Please feel free to contact your tax advisor with any questions or concerns you may have about these changes.

1. Updated Due Dates for Partnership and C Corporation Returns. Code Sec. 6072(b) states that partnerships with tax years beginning on January 1, 2016 or after, must file by the 15th day of the third month after the applicable tax year. S corporations maintain the requirement to file on the 15th day of the third month after the applicable tax year. That is, for partnerships and S corporations with calendar year end on December 31, 2016, the returns must be filed on or before March 15, 2017. C corporations, which were previously filed on the 15th day of the third month after year end, must now file on or before the 15th day of the fourth month after year end. See Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41). Sec. 2006 of the Act sets forth an exception to this new deadline if the C corporations with fiscal year end on June 30th. These C corporations with a June 30th year end must still file on the 15th day of the third month until tax years beginning on January 1, 2025. Short year returns which have a year end anytime in June will be treated as having a June 30 year end.

2. Updated Automatic Extension Period for Corporations. Corporations were previously granted three month automatic extensions to file. Now, under Code Sec. 6081(b) corporations with tax years beginning on January 1, 2016 or after are granted and automatic extension for six months. However, there is a catch. C corporations with year ends on December 31 and begining before January 1, 2026 are granted a five month automatic extension period. C corporations which end on June 30 but still begin before January 1, 2026 have a six month automatic extension period. After January 2, 2026 C corporations which have a June 30 year end will then move to a seven month extension period.

3. Increased Floor for Senior Medical Expenses. Starting in 2017, Code Sec. 213 allows taxpayers who are 65 years or older to deduct medical and dental expenses to the extent that the expenses exceed 10% of adjusted gross income. Compared to 2016, this is a 2.5% increase in the floor to deduct itemized deductions for medical and dental expenses.

4. ITIN Use and Renewal. Taxpayers who use an Individual Taxpayer Identification Number (ITIN) instead of a social security number may need to renew their ITIN in 2017. According to Code Sec. 6109(i)(3) if a taxpayer has been issued an ITIN, but has not used it to file a tax return for the past three years, as either a filer or a dependent, the ITIN will expire on the last day of the third year of not filing. The taxpayer will need to renew the ITIN in order to file for 2017. Taxpayers who were issued an ITIN before January 1, 2013 will be required to review the ITIN sometime between 2017 and 2020, based on a schedule set forth in Code Sec. 6109(i)(3)(C). According to this schedule, if the taxpayer received an ITIN before January 1, 2008, then they will need to renew in 2017.

5. Errors on Informational Returns and Payee Statements. When data that is required to be included on an information return or payee statement is omitted or reported incorrectly, a penalty is assessed under Code Se. 6722 and Code Sec. 6721. The Code sets forth new rules creating a de minimis safe harbor excluding penalties for failure to file informational and payee statements correctly when the error is $100 or less ($25 or less for withholding errors). There will be no requirement to correct the misstated return and no penalty will be assessed. If on the other hand, a recipient of an incorrect information return or payee statement requests a corrected return, then a penalty may be assessed regardless of the de minimis error threshold under Code Sec. 6722(c)(3)(B).

6. HRAs for the Qualified Small Employer. The 21st Century Cures Act (P.L. 114-255) states that qualified employer health reimbursement arrangements (QSEHRAs) are no longer treated as group health plans. This means that a QSEHRA will not be taxed under Code Sec. 4980D as a group plan that does not meet the Affordable Care Act “market reform requirements.” To be considered a QSEHRA there are several requirements that must be met under Code Section 9831(d). First, the employer must have fewer than 50 employees and cannot already have a group plan in place which offers health insurance to all of its employees. The plan must be offered with the same terms to all employees of the employer. There can be no contributions from the employee, or salary reductions from the employee (such as a cafeteria plan), but must be funded entirely by the employer. The plan must reimburse medical expenses for the employee and the employee’s eligible family members once they have provided proof of medical expense. Finally, the plan cannot reimburse more than $4,950 per individual or $10,000 per family, adjusted for inflation.

7. Updated Due Dates for ACA Informational Returns. Notice 2016-70, Internal Revenue Service, (Nov. 18, 2016) moves due dates for providing to individuals the 2016 Form 1095-B, Health Coverage and 2016 Form 1095-C, Employer Provided Health Insurance Offer and Coverage, from January 31, 2017 to March 2, 2017. The IRS through Code Sec. 6055 and Code Sec. 6056 requires health insurers, sponsors of self-insured health plans, and other entities which are required to provide “essential minimum coverage” to file an annual information report. This report is then provided to each individual covered. In addition, these informational returns must be provided to employees by any “large employer” of over 50 full time employees. The deadline for providing the returns to individuals has shifted to March 2, 2017, but the deadline for filing with the IRS has remained the same. Returns must be filed with the IRS on February 28, 2017, with an automatic electronic filing deadline of March 31, 2017. Other ACA informational returns such as 2016 Form 1094-B, Transmittal of Health Coverage Information Returns, and the 2016 Form 1094-C Transmittal of Employer- Provided Health Insurance Offer and Coverage Information Returns have maintained their February 28, 2017 due dates, with electronically filing due dates of March 31, 2017.

To find out whether any of these new rules could impact you or your business, contact a member of our Tax Consulting Team or call 1 (800) 477-7458.

If you would like more information, please see a more comprehensive article by Robert Trinz on 2017 updates to tax law at Accounting Today online.