The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, is the latest major legislation that provides economic relief and stimulus, both tax and non-tax, during the Covid-19 pandemic.
Below are brief summaries of the key aspects of the tax provisions in ARPA.
Provisions Affecting Individuals
Recovery rebate credits (stimulus checks). ARPA provides a third round of nontaxable stimulus checks directly payable to individuals. The payments are structured as refundable tax credits against 2021 taxes but will paid in 2021 (not 2022).
The maximum payments are $1,400 per eligible individual ($2,800 for married joint filers) and $1,400 for each dependent (which, unlike the first two stimulus payments,&nb
Carried Interest arrangements, which are mainly used in partnership and LLC settings for private equity and alternative asset funds (to wit; hedge, real estate, energy, infrastructure, and fund of funds), have historically provided, to a management/marketing person, the ability to share in the net revenues as a partner, or member of a limited liability company (a “Carried Interest” held by a “Carried Partner”), without the Carried Partner actually contributing capital or property to the partnership, as a normal partner would.
The word “partner” will be used in this discussion to include a member of a limited liability company and a partner in a partnership.
Carried Partners and their tax advisor
Business buildings generally have a 39-year depreciation period (27.5 years for residential rental properties). However, some items of nonresidential business real property that are, seemingly, “part of the building” can, nevertheless, be depreciated over a far shorter period.
Generally, the speedier depreciation is available for items that service the machinery and equipment used in a building, but are not available for items that are used for the overall operation and maintenance of the building; to wit, “Faster Depreciation Items”.
Thus, for example, instead of being depreciated over a 39-year period, the costs of the building’s electrical system, to the extent that the
Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).
Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers
Introduction: For U.S. citizens, who maintain bank or financial accounts in a foreign country, there is a reporting and disclosure responsibility, under U.S. law, to identify the account and the average amount in the account during a particular reporting year.
The form to be filed (FinCEN Form 114) is an easily completed form, and its filing addresses an issue which, if ignored, can lead to significant penalties.
Typical Application: Typically, the scenario applies, for example, to a U.S. citizen, living in Canada, who maintains all of his or her bank accounts in Canada. The U.S. citizen may be completely unaware (i) that there is a U.S. repo
The Secure Act (Setting Every Community Up for Retirement Plan Enhancement), passed by Congress in late 2019, made changes that can affect distributions and tax burdens that impact beneficiaries of retirement plan assets, such as 401(k) plans and IRAs.
Currently, an individual, who is named as a beneficiary of a tax-deferred retirement account, can withdraw the required minimum distribution (RMD) over the beneficiary’s lifetime. Since withdrawals from these accounts are often fully taxable as ordinary income, the ability to “stretch” the payments out over a lifetime minimizes the taxable income by distributing smaller taxable amounts each year.
The stretch may also prevent the beneficiary from being pushed into a higher tax bracket than if the dis
IRS has announced the 2020 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Many limits, which are adjusted by reference to Code Sec. 415(d), are changed for 2020 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged. [IRS Notice 2019-59]
The following plan limits are increased effective January 1, 2020:
Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) increases from $19,000 to $19,500 for 2020. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government's Thrift Savings Plan.
Defined benefit plans
Generally, a surviving spouse may make a tax-free spousal rollover from a deceased spouse’s IRA only if the survivor is designated as the IRA’s beneficiary. However, in a private letter ruling (PLR), IRS said this general rule didn’t apply – and a tax-free spousal rollover was OK – where the decedent failed to designate an IRS beneficiary, died without a will, and the surviving spouse was the administrator and sole heir to the decedent’s estate.
Background on surviving spouse’s IRA choices. A surviving spouse designated as the beneficiary of an IRA need not leave the IRA in the decedent’s name. The surviving spouse can either:
1. Roll over the decedent’s IRA into an IRA in the spouse’s n
In a private letter ruling, the Internal Revenue Service has concluded that a limited liability company (LLC)’s “S” corporation election was inadvertently terminated after its members adopted an amendment to the distribution provisions in the LLC’s operating agreement. [PLR 201930023 / issued July 26, 2019]
Internal Revenue Code (“Code”) section 1361 defines a small business corporation (“S” corporation) as an eligible domestic corporation, which does not have:
A corporation is treated as havin
The Michigan Department of Treasury updated its guidance on the sales and use tax bad debt deduction for periods after September 30, 2009. The revised release (Revenue Administrative Bulletin 2019-3) incorporates the Michigan Supreme Court’s 2018 decision in Ally Financial Inc. et. al. v. Department of Treasury.
In Ally Financial, the Court cla
2018 was a year of sweeping change. The enactment of the federal Tax Cuts & Jobs Act will dramatically affect many taxpayers, but time remains now to execute new strategies that will benefit you this tax year and in the future.
We examine a few actions you can still implement before the New Year to take advantage of the tax laws.
Many taxpayers feel that a Roth IRA offers several benefits over a traditional IRA. If you’re one of those people, and you meet the eligibility requirements, consider converting beaten-down stocks or mutual funds in a traditional IRA i
Noncorporate taxpayers take note. For tax years 2018 through 2025, the IRS allows you to claim an income tax deduction for “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship – as long as you meet certain requirements.
Sec. 199A of the Internal Revenue Code allows noncorporate taxpayers to deduct 20 percent of their QBI from the above pass-through entities, along with 20 percent of the
On August 1, 2018, the Michigan Department of Treasury issued a Revenue Administrative Bulletin describing the criteria for imposing sales and use tax on out-of-state and remote sellers. In light of the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, Michigan’s reach is now stronger than ever.
Under the Commerce Clause of the
Internal Revenue Service regulations provide that a taxpayer must capitalize an amount paid to facilitate an acquisition of a trade or business, which includes the process of investigating or otherwise pursuing the transaction. Other portions of the expense are currently deductible as ordinary and necessary business expenses. But what about an investment banker’s fee that is contingent upon the successful closing of the transaction?
According to the specific IRS provision, such a contingency fee is considered “an amount paid to facilitate the transaction except to the extent the taxp
For snowbirds who choose to head to warmer climes after enduring years of Michigan winters or for other Michigan business owners of companies that operate within the state but who reside in another state or country, the fact that you live elsewhere doesn’t protect you from the reach of Michigan taxes. How and where your business generates its income are critical considerations.
Michigan has enacted specific statutes that address the tax treatment of individuals who are equity holders of Michigan businesses or businesses that provide services in Michigan, but who live elsewhere other than Michigan.
According to the
According to a recent and closely-watched decision from the North Carolina Supreme Court, it is unconstitutional for the state to tax a trust whose only connection to North Carolina was the residence of the beneficiary.
At issue in Kaestner 1992 Family Trust vs. North Carolina Department of Revenue was a trust that was created in New York and governed by New York law. At the time the trust was created, none of the beneficiaries resided in North Carolina, but later, Kimberly Rice Kaestner, a daughter of the settlor and a primary beneficiary of the trust, became a North Carolina resident.
The trust documents, financial books and recor
The tax reforms pushed by the Trump Administration and enacted by Congress in 2017 impacted several deductions that U.S. taxpayers have routinely claimed on their returns each year. Despite confusion regarding the scope of the Tax Cuts & Jobs Act (TCJA), the IRS has confirmed that mortgage and home equity loan interest is still deductible – with some changes.
A “qualified residence” is your main home, the place you live most of the time. It can be a house, condo, or cooperative apartment – as well as a house trailer, mobile home, or houseboat – as long as the home has toilet, cooking, and sleeping facilities.
A second home (no mo
It’s a fact of life in everyday business that companies take on debt to finance their operations and growth, and bonds are one type of debt instrument corporations use. Market influences and other forces can impact bond interest rates, but when a change in the federal corporate tax rate automatically changes a bond’s interest rate, is that a taxable event?
This precise question recently arose with a client when the 2017 Tax Cuts & Jobs Act (TCJA) lowered the corporate tax rate.
Some bonds and other debt instruments are structured so that their interest rates can be adjusted when the federal corporate tax rate changes. In some instances, the rate goes up or down automaticall
Consistent with the Wayfair ruling, Michigan amended its nexus standards as described in the recent Revenue Administrative Bulletin.
Beginning September 30, 2018, a seller that has sales in Michigan (both taxable and non-taxable) in excess of $100,000, or a seller that has at least 200 separate sales transactions in Michigan (both taxable and non-taxable) in the previous calendar year, is deemed to have sufficient nexus and is therefore required to pay sales or use tax on all of its taxable sales in the state and to file all required returns.
The Bulletin requires remote and out-of-state sellers to review their 2017 calendar year sales to
This addresses, within the context of federal tax law, whether there is a "modification of a debt instrument" when the interest rate on a bond automatically changes due to a change in the federal corporate tax rate (as has recently occurred).
This question came up in actual tax practice due to the lowering of the corporate tax rate in the 2017 Tax Cuts and Jobs Act (the “Act”).
Some bonds, or other debt instruments, per their terms, adjust the bond's interest rate in the case of a change in the federal corporate tax rate. This occurs automatically in many cases and does not depend on the unilateral action of any pa
Taxpayers may deduct interest on mortgage debt that is "acquisition debt". Acquisition debt means debt that is: (i) secured by the taxpayer's principal home or a second home, and (ii) incurred in acquiring, constructing, or substantially improving the home. This basic rule has not been changed by Tax Cuts and Jobs Act (the "Act"). (Internal Revenue Code Section 163(h)(3)(F)].
Prior to the new Act, the maximum amount that could be treated as acquisition debt for purposes of deducting interest was $1 million (or $500,000 for married persons filing debt interest could also be deducted if the debt (2) was secured by the taxpayer's home, and (2) was not acquisition indebtedness (to wit; not incurred to acquire, construct, or substantially improve the home).