Updates to the U.S. Master Tax Guide 2012

Chapter 2. Corporations

227. Time and Amount of Installment Payments

For corporations with assets of $1 billion or more, a shift in corporate estimated taxes was to apply for 2012, 2014, 2015, 2016, and 2019. For such corporations, the amount of estimated tax due in July, August, or September of those tax years was increased, with a corresponding reduction to the next payment of estimated tax the corporation would have been required to make. This shift in corporate estimated taxes has been repealed. Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96).

Chapter 4. Partnerships

406. Return Used by Partnership

The IRS has provided the requirements for furnishing substitute Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., in an electronic format. Effective on and after February 13, 2012, to provide Schedule K-1 to partners in an electronic format, a partnership must obtain their consent. IRS approval to use a substitute K-1 is not required if the electronic copy furnished is an exact copy of the official Schedule K-1. Rev. Proc. 2012-17, 2012-10 IRB __.

Chapter 7. Income

713. Compensation for Personal Service

The cents-per-mile valuation for personal use of an employer-provided vehicle in 2012 is determined by using the standard business mileage rate of 55.5 cents per mile. Notice 2012-1.

For the cents-per-mile valuation method to be used for vehicle first made available to an employee in 2012, the fair market value cannot exceed $15,900 for a passenger vehicle or $16,700 for a truck or van. Rev. Proc. 2012-13.

Chapter 9. Business Expenses

903. Capital Expenditures

The IRS has released temporary and proposed regulations that provide guidance on the deduction and capitalization of amounts paid to acquire, produce, or improve tangible property. The temporary regulations clarify and expand the standards in the current regulations provide certain bright-line tests, for example, a de minimis rule for certain acquisitions and production of property and the safe harbor for routine maintenance. T.D. 9564; NPRM REG-168745-03.

The IRS has issued procedures that a taxpayer can use to obtain the IRS's automatic consent to change to the methods of accounting provided in the new temporary regulations. Procs. 2012-19 and 2012-20.

923. Social Security Tax

In 2012, the deduction from gross income for an individual’s self-employment tax equals 59.6 percent of the applicable social security taxes imposed on self-employment plus 50 percent of the applicable Medicare taxes. Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96).

947. Substantiation of Car Expense

The standard mileage rate for 2012 is 55.5 cents per mile, which remains unchanged from the mid-year adjustment on July 1, 2011. Depreciation is considered to be allowed at a rate of 23 cents per mile. Notice 2012-1.

960. Foreign Conventions

The IRS updated the list of areas considered to be within the “North American area.” Panama is now included. Rev. Rul. 2011-26, superseding Rev. Rul. 2007-28.

Chapter 10. Nonbusiness Expenses

1016. Medical Expenses Defined

The expense of operating a car for transportation for qualified medical purposes is deductible in 2012 using the standard mileage rate of 23 cents per mile. Notice 2012-1.

1073. Moving Expense Deduction

Deductible automobile moving expenses for 2012 may be determined using the standard mileage rate of 23 cents per mile. Notice 2012-1.

Chapter 11. Losses

1125. Theft Losses

The IRS has broadened the safe harbor for investors claiming a theft loss from a Ponzi scheme to apply to schemes in which a civil complaint is brought against the lead figure by a state or federal authority that has not been withdrawn, and to schemes in which the indictments or complaints are withdrawn due to the lead figure’s death. Rev. Proc. 2009-20 is modified applicable for losses for which the discovery year is a tax year beginning after December 31, 2007. Rev. Proc. 2011-58.

Chapter 12. Depreciation, Amortization and Depletion

1208. Election to Expense Certain Depreciable Business Assets

The IRS has withdrawn the existing proposed regulations and replaced them with temporary regulations effective January 1, 2012. The temporary regulations contain the de minimis expensing policy provided in the proposed regulations. Temp. Reg. Sec. 1.263(a)-2T, issued with T.D. 9564.

1214. Limitations on Passenger Automobiles, Including Trucks, SUVs, and Vans

The IRS has issued the tables indicating the depreciation deductions for owners of passenger automobiles, trucks and vans first placed in service during calendar year 2012. For passenger automobiles, the deduction limitations for the first three tax years are: $3,160 ($11,160 if bonus depreciation applies), $5,100, and $3,050, respectively, and $1,875 for each succeeding year. For trucks and vans first placed in service in 2012, the depreciation limitations for the first three years are $3,360 ($11,360 if bonus depreciation applies), $5,300, and $3,150, respectively, and $1,875 for each succeeding year. Rev. Proc. 2012-23.

1215. Leased Listed Property Inclusion Amounts

The IRS has issued the lease inclusion tables for vehicles with least terms beginning in 2012. Rev. Proc. 2012-23.

Chapter 13. Tax Credits

1331. Health Insurance Premium Assistance Refundable Credit

The definition of modified adjusted gross income (AGI) in determining eligibility for the health care premium assistance credit is revised to include an individual’s entire Social Security benefit, rather than just the taxable portion. In addition, for tax years ending after 2013, if advance premium assistance payments exceed the allowable health insurance premium assistance credit, the maximum repayment is between $600 and $2,500 for joint filers (or half those amounts for single taxpayers) with household incomes of less than 400 percent of the poverty line for the tax year. For taxpayers with income at 400 percent of the poverty line or above, any excess of advance payments over the allowable premium credit is an addition to their tax (Code Sec. 36B(d)(2)(B), as amended by P.L. 112-56).

1365G. Work Opportunity Tax Credit

The work opportunity credit for hiring qualified veterans has been extended through December 31, 2012. The credit has been modified to allow a credit for hiring unemployed veterans, double the credit for hiring qualified veterans with service-connected disabilities who have been unemployed, and continue the credit for all veterans with a service-connected disability. In additions, a tax-exempt organization will also be allowed a tax credit against its FICA tax obligations for hiring a qualified veteran (Code Sec. 51, as amended by the VOW to Hire Heroes Act of 2011 (P.L. 112-56)).

Chapter 21. Retirement and Benefits

2109A. Accident and Health Insurance

The IRS has expanded and modified the interim guidance that employers may rely upon to report the cost of employer-sponsored health plan coverage on Form W-2. Until further guidance is issued, employers may rely upon the guidance for voluntary 2011 Form W-2 reporting, mandatory 2012 Form W-2 reporting for large employers and mandatory 2013 Form W-2 reporting for certain small employers. Notice 2012-4, superseding Notice 2011-28.

Chapter 24. Foreign Income and Transactions

2403. Foreign Housing Exclusion or Deduction.

The IRS has released the adjusted limits of foreign housing expenses that can be excluded or deducted from gross income for tax years beginning in 2012 for specific geographic locations that have higher housing costs relative to the United States. If the 2012 limits are higher than the adjusted limits for the 2011 year provided in Notice 2011-8, a taxpayer may elect to apply the 2012 limits for the 2011 tax year. Notice 2012-19, 2012-10 IRB __.

Chapter 25. Returns – Payments of Tax

2518. Return Preparer Penalties

Beginning January 1, 2012, paid tax return preparers are required to file Form 8867, Paid Preparer's Earned Income Credit Checklist, with any federal return claiming the earned income tax credit (EITC). In past years, tax preparers were merely required to keep copies of Form 8867, or comparable documentation, which is subject to review by the IRS. Reg. Sec. 1.6692-2, issued with T.D. 9570; IR-2011-122.

2529. Time of Payment.

The IRS has increased the maximum tax liability balance due to enter into an installment agreement without financial disclosure from $25,000 to $50,000, effective immediately. IRS News Release IR-2012-21.

2537. Extension of Time for Payment of Tax.

The IRS is providing a six-month grace period on the failure-to-pay penalties to certain wage earners and self-employed individuals for 2011. The penalty relief is available for wage earners who have been unemployed for at least 30 consecutive days from January 1, 2011, through April 17, 2012, or for self-employed individuals with a 25 percent or more reduction in business income in 2011 due to the economy. Additional requirements are that income cannot exceed $100,000 ($200,000 for joint filers) and the tax liability due for calendar year 2011 must be less than $50,000. Taxpayers will use Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship, to request the penalty waiver. Interest on the unpaid balance and any other penalties, such as the failure-to-file penalty, remain in effect. IRS News Release IR-2012-21.

2565. Payments Made in Course of Trade or Business

The three-percent withholding requirement that was to apply to payments made to government contractors after December 31, 2011, has been repealed (Code Sec. 3402(t), stricken by the 3% Withholding Repeal and Job Creation Act (P.L. 112-56).

2566. Basis and Holding Period Reporting for Securities

The IRS has provided new transitional relief from the Code Sec. 6045B information reporting requirements that apply to issuers of stock with respect to organizational actions that affect the basis of the stock. Notice 2011-18, 2011-11 IRB 549, had set a filing deadline of January17, 2012. The new guidance provides that posting either Form 8937, Report of Organizational Actions Affecting Basis of Securities, or the required information in a readily accessible format to an issuer's primary public website will satisfy an issuer's requirement to file and furnish Form 8937 for organizational actions occurring in 2011. Further, penalties will not be imposed for reporting incorrect information against issuers related to filing and furnishing Form 8937, provided that they make good-faith efforts in timely posting the Form 8937 or the required information on the issuers' primary public websites or filing accurate Forms 8937 and furnishing the corresponding issuer. Notice 2012-11, 2012-5 IRB __.

The IRS has announced that it intends to delay the effective dates for cost basis reporting of debt instruments and options by brokers and others. Reporting will be required for debt instruments and certain options acquired on or after January 1, 2014, rather than January 1, 2013. Notice 2012-34.

2567. Health Care Coverage Reporting

2570. Interests in Foreign Financial Assets

The IRS has released a new information reporting form, Form 8938, Statement of Specified Foreign Financial Assets, that must be used in the 2012 tax filing season to report specified foreign financial assets for tax year 2011. The form is not required to be filed by individuals who do not have an income tax return filing requirement. The requirement to file Form 8938 does not replace or otherwise affect a taxpayer's obligation to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). Proposed regulations would also require certain specified domestic entities to file Form 8938. IR-2011-117; Reg. Sec. 1.6038D-2T, issued with T.D. 9567; Prop. Reg. Sec. 1.6038D-6, issued with NPRM REG-130302-10.

Chapter 26. Withholding – Estimated Tax

2641. Government Payments

2648. FICA Tax Rates

The two percent reduction in the employee portion of the payroll tax is extended through 2012. Thus, the social security component of the employee portion of FICA tax remains 4.2 percent for all wages received in 2012, resulting in a total FICA rate of 5.65 percent. Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96)

2664. Rate and Payment

The two percent reduction in the self-employment tax is extended for all self-employment income received in 2012. Thus, the tax rate remains 13.3 percent. Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96).

2670. Self-Employment Income

The two percent rate reduction for self-employed taxpayers in 2012 is not taken into account when determining the reduction in the worker’s net earnings from self-employment. Thus, the self-employment tax deduction for 2012 remains at 7.65 percent of self-employment income. Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96)

Chapter 29. Estate, Gift and Generation-Skipping Transfer Tax

2938. Filing Estate Tax Return and Liability for Payment

A six-month extension of time to file Form 706 for the purpose of making the portability election has been made available to qualifying estates in which the decedent died in the first six months of 2011. Estates of decedents who died during the first six months of 2011 with a gross estate of $5 million or less and a surviving spouse can apply for a special six-month extension of time to file Form 706 to make the portability election. Notice 2012-21.