Insights: Article

Miscellaneous Tax Provisions in the Bipartisan Budget Act of 2018

February 23, 2018

In almost every piece of new major tax legislation, there are provisions that don’t usually affect the general population of taxpayers. The Bipartisan Budget Act of 2018 was no exception. Contained in a section of the act, under the title Miscellaneous Provisions, is a gathering of items that are very meaningful to those affected. But to those that are not, these new provisions tend to be a little confusing; however, they do make for some interesting reading.

Summary of Miscellaneous Provisions

The following is a summary of the items detailed in the Miscellaneous Provisions section of the Bipartisan Budget Act. The items provided include, but are not limited to, the topics of installment agreements, levies, senior taxpayer tax reporting, private foundation excess business holdings, craft brewing, retirement plan hardship distributions and carbon dioxide sequestration credits.

  • The tax on Puerto Rico and Virgin Islands distilled spirits that is covered into the treasuries of Puerto Rico and the Virgin Islands is extended to include cases of distilled spirits brought into the United States after Dec.31, 2016, and before Jan. 1, 2022.
  • Effective Feb. 9, 2018, the waiver of limitations period (for filing a claim for credit or refund) with respect to exclusion from gross income of civil damages, restitution or other monetary awards received by wrongfully incarcerated individuals is increased from one year to three years.
  • A levy is used by the Internal Revenue Service for tax collection purposes. In certain cases, the levy is subject to release in whole or in part by the IRS. If a levy is released by the IRS, prompt notification to the person upon whom such levy was made is required. Effective for taxable years beginning after Dec. 31, 2017, if the Secretary of the Treasury determines that an amount of money or other benefit of an individual held in an eligible retirement plan has been levied and such money or property levied is subsequently returned to the individual, the individual may contribute the prior levied money or property received back into the eligible retirement plan, if allowed by the plan. The Secretary of the Treasury is required to notify the individual that such contribution may be made. Various other rules apply in the application of this new law.  Those other rules should be reviewed prior to initiating the contribution now allowed.
  • The Secretary of the Treasury is allowed to enter into an installment agreement with any taxpayer for the payment of tax if a determination has been made that full or partial collection of such tax will be facilitated. A user fee is imposed on a taxpayer for the ability to enter into an installment agreement. The act provides a waiver or reimbursement mechanism related to the user fee for taxpayers having an adjusted gross income which does not exceed 250 percent of the applicable poverty level. This new wavier or reimbursement possibility of the user fee applies to installment agreements entered into on or after April 10, 2018.
  • For taxable years beginning after Feb. 9, 2018, which in most cases will be 2019, the Secretary of the Treasury is required to make a new tax reporting form available to individuals who have attained the age of 65, determined as of the close of the taxable year being reported. The new form will be known as Form 1040SR and will be used to report income in a manner similar to Form 1040EZ. However, Form 1040SR will provide report capability for Social Security benefits, retirement plan distributions, interest, dividends and capital gains or losses. In addition, the ability to use Form 1040SR will not be limited based on the amount of taxable income reported on the return.
  • The Secretary of the Treasury is authorized to pay amounts deemed necessary to detect underpayments of tax or to detect and punish those persons who would willfully and knowingly violate internal revenue laws. Amounts paid to individuals providing information or assistance to the Secretary of the Treasury are termed Whistleblower Awards. The act provides a definition of “proceeds,” along with other administrative rules for application and clarification related to payment of Whistleblower Awards. The changes made to this area of interest will apply to information provided to the Secretary of the Treasury before, on, or after, Feb. 9, 2018, where no final determination has been made before such date.
  • Under prior law, attorney fees and court costs paid by or on behalf of a taxpayer in connection with a Whistleblower Award via the Secretary of the Treasury were deductible in arriving at adjusted gross income. The act expands the prior law to also include similar awards under the SEC whistleblower program, a state false claim act and the commodity exchange whistleblower program. The change is effective for taxable years beginning after Dec. 31, 2017.
  • The Tax Cuts and Jobs Act, enacted Dec. 22, 2017, imposes an excise tax on applicable educational institutions equal to 1.4 percent of the net investment income of such institution reported in a taxable year. The new act clarifies that in defining “students,” whose number is used as a means to define an applicable educational institution, a student shall be limited to those paying tuition. The definitional clarification is applicable to taxable years beginning after Dec. 31, 2017.
  • The act provides a significant change to the rules related to excess business holdings by private foundations. Under the new law, a private foundation will not be subject to the 10 percent tax imposed on excess business holdings for holding 100 percent of the voting stock in a business enterprise, acquired other than by purchase, which is held at all times during the taxable year and is independently operated. This change is effective for tax years beginning after Dec. 31, 2017.
  • The act includes a technical rule of construction for an item of legislation contained in the Tax Cuts and Jobs Act related to craft beverage modernization. Made effective as if included in the Tax Cuts and Jobs Act, the new provision makes known that the change made is not meant to in any way “limit, or restrict, any state, local or tribal law that prohibits or regulates the production or sale of distilled spirits, wine, or malt beverages.”
  • A tax is imposed on all beer brewed or produced, and removed for consumption or sale within the United States, or imported into the United States. To compute the tax liability imposed, certain records, statements and returns are required in accordance with regulations the Secretary of the Treasury may prescribe. The act, effective for calendar quarters beginning after Feb. 9, 2018, makes a simplification to “permit a person to employ a unified system for the records, statements and returns required to be kept.”
  • Not later than Feb. 9, 2019, the Secretary of the Treasury shall make changes to Treasury regulations governing hardship distributions, to eliminate the current six-month prohibition period and make other modifications related to profit sharing or stock bonus plans. The revised regulations will apply to plan years beginning after Dec. 31, 2018.
  • Special rules related to a hardship withdrawal made from a cash or deferred arrangement, which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan are introduced in the act. The special rules apply to plan years beginning after Dec. 31, 2018.
  • Effective Dec. 22, 2017, each population census tract in Puerto Rico that is a low-income community shall be deemed to be certified and designated as a qualified opportunity zone.
  • The act modifies the definition of “tax home” for individuals serving in support of Armed Forces of the United States in a foreign area designated by the President of the United States by executive order as a combat zone. The modification, which should allow affected individuals to elect to exclude certain foreign income from gross income, applies to taxable years beginning after December 31, 2017.
  • Entities involved in the settlement of payment cards or third-party network transactions have a contractual obligation to make payment to “participating payees.” Prior to the act, a “participating payee” did not include any person with a foreign address. The act makes a distinction to the prior law description by adding the following: “a person with only a foreign address shall not be treated as a participating payee with respect to any payment settlement entity solely because such person receives payments from such payment settlement entity in dollars.” According to the act, this change applies to “returns for calendar years beginning after Dec. 31, 2017.”
  • The requirement created by The Trade Preferences Extension Act of 2015 wherein corporations having assets not less than $1 billion would pay an increased amount for certain estimated tax payments in the year 2020 has been repealed effective Feb. 9, 2018.
  • The carbon dioxide sequestration credit, provided under Internal Revenue Code section 45Q, has been re-written to be effective for taxable years beginning after Dec. 31, 2017. Prior IRC section 45Q has been enhanced by adding higher levels of credit opportunities over a 12-year period, eliminating the need to have a certain amount of carbon dioxide certified by the administration of the Environmental Protection Agency for newly added carbon capturing processes and giving the person that owns the qualified carbon dioxide capture equipment and who, physically or contractually, ensures the capture of carbon dioxide, the ability to move the credit to the person who disposes of the qualified carbon dioxide, utilizes the qualified carbon dioxide, or uses the qualified carbon dioxide as a tertiary injectant. Other technical aspects also apply to the change in IRC section 45Q.

For assistance with these, or other more universal tax provisions, contact an Eide Bailly tax professional.

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