New tax laws: preparer penalties, IRA rollovers & more.

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

The following are selected highlights of the tax provisions contained in the 2016 Consolidated Appropriations Act (Act), enacted Dec. 18, 2015, as P.L. 114-113.

Preparer Penalty for Understatement of Tax Due to Willful or Reckless Conduct

Old Law: Under IRC Sec. 6694(b), a tax return preparer who prepares any return or refund claim, with respect to which any part of an understatement of the tax liability is due to the preparer's willful or reckless conduct, must pay a penalty equal to the greater of:

* 15,000; or

* 50 percent of the income derived, or to be derived, by the preparer from the return or claim.

New Law: Effective for returns and claims prepared for tax years ending after Dec. 18, 2015, the Act increases the penalty to the greater of:

* 15,000; or

* 75 percent of the income derived, or to be derived, by the preparer from the return or claim.

IRA Qualified Charitable Distributions

Old Law: Under Sec. 408(d)(8), a taxpayer 70.5 or older can make tax-free distributions to a charity from an individual retirement account--up to 1100,000 a year. These distributions are not includible in the taxpayer's gross income and are not deductible as a charitable contribution. Therefore, they are not subject to the percentage limitations on charitable contributions in Sec. 170(b)(1).

However, this treatment did not apply to distributions made in tax years beginning after 2014.

New Law: Effective for tax years beginning after 2014, the Act permanently reinstates this treatment.

Exclusion for Discharged Home Mortgage Debt

Old Law: Discharge of indebtedness income arising from debt on a qualified principal residence, up to $2 million (8 1 million for married individual filing separately), is excluded from gross income under Sec. 108(a) (1)(E) and Sec. 108(h).

However, this exclusion only applied to discharges before 2015.

New Law: The Act extends this exclusion for two years so it applies to discharges before 2017. It also applies to discharges subject to an arrangement entered into, and evidenced in writing, before 2017.

Observation: This exclusion could apply to a discharge in 2017 if it is subject to a binding written agreement entered into in 2016.

Mortgage Insurance Premiums Deduction

Effective for amounts paid or accrued after 2014, the Act extends this limited deduction for two years, so it applies to premiums paid or accrued before 2017 and not property allocable to any period after 2016.

Election to Expense Certain Assets

The Act...