2017 Federal Tax Update.

• Author: Josephs, Stuart R.
• Position: TAX SEASON toolkit

21st Century Cures Act

The following arc highlights of some of the tax provisions in the Act (H.R.34), enacted Dec. 13, 2016, and generally effective for years beginning after 2016:

New Reporting and Notice Requirements for Small Employer Health Reimbursement Arrangements (HRAs)

A small employer funding a qualified HRA for any year must, not later than 90 days before the beginning of that year (or by March 13, 2017), provide a written notice to each eligible employee which includes:

1. The amount of the employee's permitted benefit under the HRA for that year;

2. A statement that the employee should provide this amount to any health insurance exchange to which the employee applies for advance payment of the IRC Sec. 36B premium assistance tax credit; and

3. A statement that, if the employee is not covered under minimum essential coverage for any month, the employee may be subject to tax under the Sec. 5000A individual mandate for such month and HRA reimbursements may be includible in gross income

   Employers also must report the total amount of permitted benefit under an HRA for the year on their employees' Forms W-2.

   Penalties

   An employer failing to provide the required notice will be subject to a $50 per employee, per incident-of-failure penalty, subject to a $2,500 calendar year maximum for all such failures--unless the failure is due to reasonable cause and not willful neglect.

   Note: IRS Notice 2017-67 issued Oct. 31, 2017, contains the following guidance:

   * Requirements for providing a qualified small employer HRA;

   * Tax consequences of the arrangement; and

   * Requirements for providing written notice of this arrangement to eligible employees.

   New Limitation on Gross Income Exclusions Under Secs. 105 and 106

   Under the new law, for purposes of Sec. 105 (amounts received under accident and health plans) and Sec. 106 (employer contributions to these plans), reimbursements from a qualified small-employer HRA to an individual for medical care will not be treated as reimbursed under employer-provided coverage for medical expenses under an accident or health plan if, for the month in which this medical care is provided, the individual does not have minimum essential coverage under Sec. 5000A(f).

   Coordination with the Premium Tax Credit

   For any month that an employee is provided a small employer HRA constituting affordable coverage, the employee is not eligible for the Sec. 36B credit.

   Other Changes

   * Small-employer HRAs are exempt from group health plan requirements.

   * Extension of relief under IRS Notice 2015-17:

   * Notice 2015-17 provided relief from the Sec. 4980D excise tax for 2014 and for Jan. 1 through June 30, 2015.

   * The new law treats Notice 2015-17 as applying to any plan year beginning before 2017

   Reminder: New, Centralized System for Partnership Audits for Partnership Tax Years Beginning After 2017

   For an overview of the statutory provisions, see the December 2016 California CPA, Pages 14-16. Proposed regulations, totaling 277 pages (including the preamble), were published June 14, 2017.

   Election to Adjust Basis of Partnership Property

   Under Sec. 754, if a partnership files an election, the basis of partnership property is adjusted:

   * For a distribution of property as provided in Sec. 734; and

   * For a transfer of a partnership interest as provided in Sec. 743.

   The time and method of making this election is prescribed in Regs. Sec. 1.754-l(b) which requires the election to be signed by a partner.

   The IRS has proposed that this signature requirement be eliminated, effective for tax years ending on or after the date that this proposed regulation is published as a final regulation in the Federal Register. However, taxpayers may rely on this proposal for periods before the final regulation is published.

   Penalty Relief

   IRS Notice 2017-47 (IRB 2017-38, Sept. 18, 2017) provides penalty relief to partnerships that filed certain untimely returns or untimely extension requests to file those returns for their first tax year beginning after 2015, by the fifteenth day of the fourth month following that tax year's close.

   Background

   Sec. 2006 of the 2015 Surface Transportation and Veterans Health Care Choice Improvement Act (the Act), enacted July 31, 2015, as P.L. 114-41, amended Sec. 6072 to change the date by which a partnership must file its annual return. The due date for filing this return changed from the fifteenth day of the fourth month following the tax year's close, April 15 for calendar-year partnerships, to the 15th day of the third month following the tax year's close, March 15 for calendar-year partnerships.

   This new due date applies to partnership returns for tax years beginning after 2015. (See the October 2015 California CPA, Page 23.)

   Partnerships filing the following types of returns are affected by the Act's amendment:

   * Form 1065, U.S. Return of Partnership Income; and

   * Form 1065-B, U.S. Return of Income for Electing Large Partnerships.

   The partnerships also may file:

   * Form 8804, Annual Return for Partnership Withholding Tax (Sec. 1446); and

   * Form 8805, Foreign Partner's Information Statement of Sec. 1446 Withholding Tax

   These...