IRS Developments: Form W-4, Business Interest & Like-kind Exchanges.

• Author: Josephs, Stuart R.
• Position: Fed Tax

In August, the IRS released a second draft of Form W-4, Employee's Withholding Certificate, and announced that the new form does not change the withholding computation in the first draft issued May 31 (News Release IR-2019-98).

No further substantive changes are anticipated except for minor inflation adjustments in the final version.

Commissioner's Comments

Chuck Rettig, IRS commissioner and CalCPA member, has said that people will still be able to use the form's previous version after the new one is released if they wish.

The form uses a new five-step process that should make it easier to determine how much tax to withhold annually. It moves away from the allowance system currently used, which is largely based on personal exemptions eliminated by the 2017 Tax Cuts and Jobs Act (TCJA) (PL. 115-97, enacted Dec. 22, 2017).

The new four-page form requires a taxpayer to enter a name, address, Social Security Number and filing status and sign the form--which would set withholding with no additional adjustments. The new form relies on the same taxpayer information for the current form.

Business Interest Limitation

The August 2019 California CPA (Page 27), discussed an election to preclude the application of the business interest limitation under IRC Sec. 163(j) for:

* Real property trades or businesses; and

* Farming businesses or trades or businesses engaged in specified agricultural or horticultural cooperatives defined in Sec. 199A(g)(4)

Caution

An electing real property trade or business must use the Alternative Depreciation System (ADS) under Sec. 168(g) for any nonresidential real property, residential rental property and qualified improvement property [Sec. 168(g)(1)(F) and (8)].

The ADS also must be used by an electing farming business [defined in Sec. 163(j)(7)(C)] for any property with a recovery period of 10 years or more [Sec. 168(g)(1)(G)].

Observation: The General Explanation of Public Law 115-97, prepared by the Congressional Joint Committee on Taxation's staff, December 2018, the "Blue Book," at Page 138, Footnote 636, states that "a technical correction may be necessary to reflect that an electing real properly trade or business is also required to use ADS to depreciate its qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property ... "

Election Procedure

This election is made for each eligible trade or business of the taxpayer and applies only to the trade or business for...