2017 Tax Reform: Individual Tax Changes in the "Tax Cuts and Jobs Act"

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On December 22, President Trump signed into law the "Tax Cuts and Jobs Act" (P.L. 115-97). Herein we touch on the impact the changes will have on individuals, the impact of the new rates, brackets and the Affordable Care Act.

New Income Tax Rates & Brackets

The Code still provides for the 4 categories that we have become accustomed: single, married filing jointly/surviving spouse, married filing separately, and head of household. While the rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, starting after Dec. 31, 2017 and before Jan. 1, 2026, the another rate is added and the change is as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The Act also provides four tax rates for estates and trusts: 10%, 24%, 35%, and 37%. (Code Sec. 1(i), as amended by Act Sec. 11001) The specific application of these rates, and the income brackets at which they apply, is shown below.

FOR MARRIED INDIVIDUALS FILING JOINTLY/

SURVIVING SPOUSES:

If taxable income is: The tax is:

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Not over $19,050 starting at 10% of taxable income with it topping out at over $600,000 being tax at $161,379 plus 37% on the amount over $600,000.

FOR SINGLE INDIVIDUALS/NOT HoH

If taxable income is: The tax is:

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Not over $9,525 starting at 10% of taxable income with it topping out at over $500,000 being tax at $150,689.50 plus 37% on the amount over $500,000.

FOR HEADS OF HOUSEHOLDS:

If taxable income is: The tax is:

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Not over $13,600 starting at 10% of taxable income with it topping out at over $500,000 being tax at $149,298 plus 37% on the amount over $500,000.

FOR MARRIED FILING SEPARATELY:

If taxable income is: The tax is:

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Not over $9,525 starting at 10% of taxable income with it topping out at over $300,000 being tax at $80,689.50 plus 37% on the amount over $300,000.

FOR ESTATES AND TRUSTS:

If taxable income is: The tax is:

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Not over $2,550 starting at 10% of taxable income with it topping out at over $12,500 being taxed at $3,011.50 plus 37% of the excess over $12,500.

Standard Deduction Increased

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction is increased to $24,000 for joint filers, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. No changes are made to the current-law additional standard deduction for the elderly and blind. (Code Sec. 63(c)(7), as added by Act Sec. 11021(a))

Personal Exemptions Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for personal exemptions is effectively suspended. (Code Sec. 151(d), as modified by Act Sec. 11041(a)) Please check with your tax professional when looking to changes concerning IRC Sec. 642(b)(2)(C) (exemption deduction for qualified disability trusts), Code Sec. 3402 (wage withholding, subject to an exception below for 2018), and Code Sec. 6334(d) (property exempt from levy).

Please note: Withholding rules. It is specified that the IRS may administer the withholding rules under Code Sec. 3402 for tax years beginning before Jan. 1, 2019 without regard to the above amendments-i.e., wage withholding rules may remain the same as present law for 2018. (Act Sec. 11041(f)(2))

Kiddie Tax Modified

The kiddie tax continues to apply when: (1) the child had not reached the age of 19 by the close of the tax year, or the child was a full-time student under the age of 24, and either of the child's parents was alive at such time; (2) the child's unearned income exceeded $2,100 (for 2018); and (3) the child did not file a joint return. For tax years beginning after Dec. 31, 2017, the taxable income of a child's earned income is taxed under the rates for single individuals, and net unearned income is taxed according to the brackets applicable to trusts and estates (see above). This rule applies to the child's ordinary income and his or her income taxed at preferential rates. (Code Sec. 1(j)(4), as amended by Act Sec. 11001(a))

Capital Gains Provisions Conform

Adjusted net capital gain of a noncorporate taxpayer (e.g., an individual) is taxed at maximum rates of 0%, 15%, or 20%.

New law. The Act generally retains present-law maximum rates on net capital gains and qualified dividends. It retains the breakpoints that exist under pre-Act law, but indexes them for inflation using C-CPI-U in tax years after Dec. 31, 2017. (Code Sec. 1(j)(5)(A), as amended by Act Sec. 11001(a))

For 2018, the 15% breakpoint is: $77,200 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $51,700 for heads of household, $2,600 for trusts and estates, and $38,600 for other unmarried individuals. The 20% breakpoint is $479,000 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $452,400 for heads of household, $12,700 for estates and trusts, and $425,800 for other unmarried individuals. (Code Sec. 1(h)(1), as amended by Act Sec. 11001(a)(5))

CARRIED INTEREST

New Holding Period Requirement

For tax years beginning after Dec. 31, 2017, the Act effectively imposes a 3-year holding period requirement for certain partnership interests received in connection with the performance of services to be taxed as long-term capital gain. (Code Sec. 1061, "Partnership Interests Held in Connection with Performance of Services," added by Act Sec. 13309(a)) If the 3-year holding period is not met with respect to an applicable partnership interest held by the taxpayer, the taxpayer's gain will be treated as short-term gain and taxed at ordinary income rates. (Code Sec. 1061(a))

LOSS PROVISIONS

New Limitations on "Excess Business Loss"

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, excess business losses are not allowed for the tax year but are instead carried forward and treated as part of the taxpayer's net operating loss (NOL) carryforward in subsequent tax years. This limitation applies after the application of the passive loss rules described above. (Code Sec. 461(l), as added by Act Sec. 11012).

An excess business loss for the tax year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer's trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. The threshold amount for a tax year is $500,000 for married individuals filing jointly, and $250,000 for other individuals, with both amounts indexed for inflation. (Code Sec. 461(l)(3), as added by Act Sec. 11012)

In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner's or S corporation shareholder's share of items of income, gain, deduction, or loss of the partnership or S corporation is taken into account in applying the above limitation for the tax year of the partner or S corporation shareholder; and regulatory authority is provided to apply the new provision to any other passthrough entity to the extent necessary, as well as to require any additional reporting as IRS determines is appropriate to carry out the purposes of the provision. (Code Sec. 461(l)(4), as added by Act Sec. 11012(a))

Deduction for Personal Casualty & Theft Losses Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the personal casualty and theft loss deduction is only available for those losses incurred in a Federally-declared disaster. (Code Sec. 165(h)(5), as amended by Act Sec. 11044) However, where a taxpayer has personal casualty gains, the loss suspension doesn't apply to the extent that such loss doesn't exceed the gain.

Gambling Loss Limitation Modified

In general, taxpayers can claim a deduction for wagering losses to the extent of wagering winnings. (Code Sec. 165(d)) For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the limitation on wagering losses under Code Sec. 165(d) is modified to provide that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings. (Code Sec. 165(d), as amended by Act Sec. 11050)

CHANGES TO TAX CREDITS

Child Tax Credit Increased

Under pre-Act law, a taxpayer could claim a child tax credit of up to $1,000 per qualifying child under the age of 17. The aggregate amount of the credit that could be claimed phased out by $50 for each $1,000 of AGI over $75,000 for single filers, $110,000 for married filers, and $55,000 for married individuals filing separately. To the extent that the credit exceeded a taxpayer's liability, a taxpayer was eligible for a refundable credit (i.e., the additional child tax credit) equal to 15% of earned income in excess of $3,000 (the "earned income threshold"). A taxpayer claiming the credit had to include a valid Taxpayer Identification Number (TIN) for each qualifying child on their return. In most cases, the TIN is the child's Social Security Number (SSN), although Individual Taxpayer Identification Numbers (ITINs) were also accepted.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the child tax credit is increased from $1,700 to $2,000 with changes being made to phase-outs and refundability during this same period, as outlined below. (Code Sec. 24(h)(2), as added by Act Sec. 11022(a)). Phase-out. The credit phases out at income levels of $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation). (Code Sec. 24(h)(3), as added by Act Sec. 11022(a)). A $500 nonrefundable credit is provided for certain non-child dependents. (Code Sec. 24(h)(4), as added by Act Sec. 11022(a)) with the amount of the credit being refundable increases to $1,400 per qualifying child indexed for inflation and up to the $2,000 credit base amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500. ((Code Sec. 24(h)(6), as added by Act Sec. 11022(a))). Please note that no credit will be allowed to a taxpayer with respect to any qualifying child unless the taxpayer provides the child's SSN. (Code Sec. 24(h)(7), as added by Act Sec. 11022(a))

MODIFIED DEDUCTIONS & EXCLUSIONS

State and Local Tax Deduction Limited

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, Taxpayers may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of (i) State and local property taxes not paid or accrued in carrying on a trade or business or activity described in Code Sec. 212; and (ii) State and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year. Foreign real property taxes may not be deducted. (Code Sec. 164(b)(6), as amended by Act Sec. 11042). Otherwise they are deductible only when paid or accrued in carrying on a trade or business or an activity described in Code Sec. 212 (generally, for the production of income). State and local income, war profits, and excess profits are not allowable as a deduction.

Prepayment provision. For tax years beginning after Dec. 31, 2016, in the case of an amount paid in a tax year beginning before Jan. 1, 2018 with respect to a State or local income tax imposed for a tax year beginning after Dec. 31, 2017, the payment will be treated as paid on the last day of the tax year for which such tax is so imposed for purposes of applying the above limits. (Code Sec. 164(b)(6), as amended by Act Sec. 11042) In other words, a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can't claim an itemized deduction in 2017 for that prepaid income tax.

Mortgage & Home Equity Indebtedness Interest Deduction Limited

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for interest on home equity indebtedness is suspended, and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately). (Code Sec. 163(h)(3)(F), as amended by Act Sec. 11043(a)) For tax years after Dec. 31, 2025, the prior $1 million/$500,000 limitations are restored, and a taxpayer may treat up to these amounts as acquisition indebtedness regardless of when the indebtedness was incurred. The suspension for home equity indebtedness also ends for tax years beginning after Dec. 31, 2025.

The new lower limit doesn't apply to any acquisition indebtedness incurred before Dec. 15, 2017.

"Binding contract" exception. A taxpayer who has entered into a binding written contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases such residence before Apr. 1, 2018, shall be considered to incur acquisition indebtedness prior to Dec. 15, 2017.

Refinancing. The $1 million/$500,000 limitations continue to apply to taxpayers who refinance existing qualified residence indebtedness that was incurred before Dec. 15, 2017, so long as the indebtedness resulting from the refinancing doesn't exceed the amount of the refinanced indebtedness. (Code Sec. 163(h)(3)(F), as amended by Act Sec. 11043(a))

Medical Expense Deduction Threshold Temporarily Reduced

For tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, the threshhold on medical expense deductions is reduced to 7.5% for all taxpayers. (Code Sec. 213(f), as amended by Act Sec. 11027(a)). In addition, the rule limiting the medical expense deduction for AMT purposes to 10% of AGI doesn't apply to tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019. (Code Sec. 56(b)(1)(B), as amended by Act Sec. 11027(b))

Charitable Contribution Deduction Limitation Increased

New law. For contributions made in tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the 50% limitation under Code Sec. 170(b) for cash contributions to public charities and certain private foundations is increased to 60%. (Code Sec. 170(b)(1)(G), as added by Act Sec. 11023) Contributions exceeding the 60% limitation are generally allowed to be carried forward and deducted for up to five years, subject to the later year's ceiling.

And, for contributions made in tax years beginning after Dec. 31, 2016, the Code Sec. 170(f)(8)(D) provision-i.e., the donee-reporting exemption from the CWA requirement-is repealed. (Former Code Sec. 170(f)(8)(D), as stricken by Act Sec. 13705)

No Deduction For Amounts Paid For College Athletic Seating Rights

For contributions made in tax years beginning after Dec. 31, 2017, no charitable deduction is allowed for any payment to an institution of higher education in exchange for which the payor receives the right to purchase tickets or seating at an athletic event. (Code Sec. 170(l), as amended by Act Sec. 13704)

Alimony Deduction by Payor/Inclusion by Payee Suspended

New law. For any divorce or separation agreement executed after Dec. 31, 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse. Rather, income used for alimony is taxed at the rates applicable to the payor spouse. (Former Code Secs. 215, 61(a)(8), and 71, as stricken by Act Sec. 11051)

Miscellaneous Itemized Deductions Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended. (Code Sec. 67(g), as added by Act Sec. 11045)--This includes the deduction for tax preparation expenses.

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the "Pease limitation" on itemized deductions is suspended. (Code Sec. 68(f), as amended by Act Sec. 11046)

Qualified Bicycle Commuting Exclusion Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the exclusion from gross income and wages for qualified bicycle commuting reimbursements is suspended.

(Code Sec. 132(f)(8), as added by Act Sec. 11047)

Exclusion for Moving Expense Reimbursements Suspended & Moving Expenses Deduction Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the exclusion for qualified moving expense reimbursements is suspended, except for members of the Armed Forces on active duty (and their spouses and dependents) who move pursuant to a military order and incident to a permanent change of station. (Code Sec. 132(g), as amended by Act Sec. 11048). Additionally, the deduction for moving expenses is suspended, except for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station. (Code Sec. 217(k), as amended by Act Sec. 11049(a))

Deduction for Living Expenses of Members of Congress Eliminated for tax years beginning after Dec. 22, 2017, members of Congress cannot deduct living expenses when they are away from home. (Code Sec. 162(a), as amended by Act Sec. 13311)

Combat Zone Treatment Extended to Egypt's Sinai Peninsula

Services provided on or after June 9, 2015, combat zone tax benefits are, except as provided below, granted for the Sinai Peninsula of Egypt, if, as of Dec. 22, 2017, any member of the U.S. Armed Forces is entitled to special pay under section 310 of title 37, United States Code (relating to special pay; duty subject to hostile fire or imminent danger), for services performed in such location. This benefit lasts only during the period such entitlement is in effect.

However, the combat zone benefit under Code Sec. 3401(a)(1) relating to the withholding exemption for combat pay applies to remuneration paid after Dec. 22, 2017. (Act Sec. 11026(d))

HEALTHCARE PROVISIONS

Repeal of Obamacare Individual Mandate

For months beginning after Dec. 31, 2018, the amount of the individual shared responsibility payment is reduced to zero. (Code Sec. 5000A(c), as amended by Act Sec. 11081) This repeal is permanent. The Act leaves intact the 3.8% net investment income tax and the 0.9% additional Medicare tax, both enacted by Obamacare.

ALTERNATIVE MINIMUM TAX (AMT)

AMT Retained, with Higher Exemption Amounts

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act increases the AMT exemption amounts at $109,400

joint returns and surviving spouses, $70,300 for single taxpayers and $54,700 for those filing separately. (Code Sec. 55(d)(4), as amended by Act Sec. 12003(a)). The above exemption amounts are reduced (not below zero) to an amount equal to 25% of the amount by which the AMTI of the taxpayer exceeds the phase-out amounts. This increases for joint returns and surviving spouses, $1 million and $500,00 for all other taxpayers, exclusive of estates and trusts. For trusts and estates, the pre-inflation adjustment exemption amount of $22,500 and phase-out amount of $75,000 are unchanged but will will be adjusted for inflation after 2018 under the new C-CPI-U inflation measure (see above). (Code Sec. 55(d)(4), as amended by Act Sec. 12003(a))

Expanded Use of 529 Account Funds

Under pre-Act law, funds in a Code Sec. 529 college savings account could only be used for qualified higher education expenses. If funds were withdrawn from the account for other purposes, each withdrawal was treated as containing a pro-rata portion of earnings and principal. The earnings portion of a nonqualified withdrawal was taxable as ordinary income and subject to a 10% additional tax unless an exception applied. For distributions after Dec. 31, 2017, "qualified higher education expenses" include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year. (Code Sec. 529(c)(7), as added by Act Sec. 11032(a))

Student Loan Discharged on Death Or Disability

For discharges of indebtedness after Dec. 31, 2017 and before Jan. 1, 2026, certain student loans that are discharged on account of death or total and permanent disability of the student are also excluded from gross income. (Code Sec. 108(f), as amended by Act Sec. 11031)

DEFERRED COMPENSATION

New Deferral Election for Qualified Equity Grants

Generally effective with respect to stock attributable to options exercised or restricted stock units (RSUs) settled after Dec. 31, 2017 (subject to a transition rule; see below), a qualified employee can elect to defer, for income tax purposes, recognition of the amount of income attributable to qualified stock transferred to the employee by the employer. (Code Sec. 83(i), as amended by Act Sec. 13603(a)) The election applies only for income tax purposes; the application of FICA and FUTA is not affected. The election must be made no later than 30 days after the first time the employee's right to the stock is substantially vested or is transferable, whichever occurs earlier. (Code Sec. 83(i)(4)(A), as added by Act Sec. 13603(a)).

The election is available for "qualified stock" (defined in Code Sec. 83(i)(2)(A), as amended by Act Sec. 13603(a)) attributable to a statutory option. The deferred income inclusion also applies for purposes of the employer's deduction of the amount of income attributable to the qualified stock. That is, if an employee makes the election, the employer's deduction is deferred until the employer's tax year in which or with which ends the tax year of the employee for which the amount is included in the employee's income per restrictions outlined in IRC 83(i) et. Seq. The new election applies for qualified stock of an eligible corporation. Detailed employer notice, withholding, and reporting requirements also apply with regard to the election. (Code Sec. 83(i)(6), as amended by Act Sec. 13603(a))

As noted above, the income deferral election generally applies with respect to stock attributable to options exercised or RSUs settled after Dec. 31, 2017. However, under a transition rule, until IRS issues regs or other guidance implementing the 80% and employer notice requirements under the provision, a corporation will be treated as complying with those requirements if it complies with a reasonable good faith interpretation of them. The penalty for a failure to provide the notice required under the provision applies to failures after Dec. 31, 2017. (Code Sec. 6652)(p), as amended by Act Sec. 13603(e))

DISASTER RELIEF PROVISIONS

2016 "Net Disaster Loss" Relief Available to Non-Itemizers & Taxpayers Subject to AMT

Because of the changes in allowable casualty/disaster losses per the new law, effective for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, if an individual has a net disaster loss (defined below) for any tax year beginning after Dec. 31, 2017, and before Jan. 1, 2026, the standard deduction is increased by the net disaster loss. (Act Sec. 11028(c)(1)(C))

The Act also provides that, if any individual has a net disaster loss for any tax year beginning after Dec. 31, 2017 and before Jan. 1, 2026, the AMT adjustment for the standard deduction doesn't apply to the increase in the standard deduction that is attributable to the net disaster loss. (Act Sec. 11028(c)(1)(D)).

A Net disaster loss is the excess of (i) qualified disaster-related personal casualty losses, over (ii) personal casualty gains. "Qualified disaster-related personal casualty losses" are those described in Code Sec. 165(c)(3) that arise in a 2016 disaster area with respect to which a major disaster was declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. (Act Sec. 11028(a))

(below). Personal casualty gains are those described in Code Sec. 165(h)(3)(A).

Certain Self-Created Property Not Treated as Capital Asset

Under pre-Act law, property held by a taxpayer (whether or not connected with the taxpayer's trade or business) is generally considered a capital asset under Code Sec. 1221(a). However, certain assets are specifically excluded from the definition of a capital asset, including inventory property, depreciable property, and certain self-created intangibles (e.g., copyrights, musical compositions).

New law. Effective for dispositions after Dec. 31, 2017, the Act amends Code Sec. 1221(a)(3), resulting in the exclusion of patents, inventions, models or designs (whether or not patented), and secret formulas or processes, which are held either by the taxpayer who created the property or by a taxpayer with a substituted or transferred basis from the taxpayer who created the property (or for whom the property was created), from the definition of a "capital asset." (Code Sec. 1221(a)(3), amended by Act Sec. 13314)

ESTATE & GIFT TAX: Increased Exemption Amount

A gift tax is imposed on certain lifetime transfers (Code Sec. 2511), and an estate tax is imposed on certain transfers at death. (Code Sec. 2001). Under pre-Act law, the first $5 million (as adjusted for inflation in years after 2011) of transferred property was exempt from estate and gift tax. For estates of decedents dying and gifts made in 2018, this "basic exclusion amount" was $5.6 million ($11.2 million for a married couple). New law. For estates of decedents dying and gifts made after Dec. 31, 2017 and before Jan. 1, 2026, the Act doubles the base estate and gift tax exemption amount from $5 million to $10 million. (Code Sec. 2010(c)(3), as amended by Act Sec. 11061(a)) The $10 million amount is indexed for inflation occurring after 2011 and is expected to be approximately $11.2 million in 2018 ($22.4 million per married couple). It is notable that the Act does not specifically mention generation-skipping transfers. Because the generation-skipping transfer tax exemption amount is based on the basic exclusion amount, generation-skipping transfers will also see an increased exclusion amount.

****PLEASE TURN THIS INTO A SEPARATE ARTICLE*****

IRS PRACTICE & PROCEDURAL CHANGES

Time To Contest IRS Levy Extended

IRS is authorized to return property that has been wrongfully levied upon. Under pre-Act law, monetary proceeds from the sale of levied property could generally be returned within nine months of the date of the levy.

New law. For levies made after Dec. 22, 2017; and for levies made on or before Dec. 22, 2017, if the 9-month period has not expired as of Dec. 22, 2017, the 9-month period during which IRS may return the monetary proceeds from the sale of property that has been wrongfully levied upon is extended to two years. The period for bringing a civil action for wrongful levy is similarly extended from nine months to two years. (Code Sec. 6343(b), as amended by Act Sec. 11071)

Due Diligence Requirements for Claiming Head of Household

Any person who is a tax return preparer for any return or claim for refund, who fails to comply with certain regulatory due diligence requirements imposed by the Regs with regard to determining the eligibility for, or the amount of, an earned income credit, a child tax credit, a additional child tax credit, or an American opportunity tax credit, must pay a penalty. (Code Sec. 6695(g))

The base amount of the penalty is $500; for 2018, as adjusted for inflation under Code Sec. 6695(h), the penalty is $520.

New law. Effective for tax years beginning after Dec. 31, 2017, the Act expands the due diligence requirements for paid preparers to cover determining eligibility for a taxpayer to file as head of household. A penalty of $500 (adjusted for inflation) is imposed for each failure to meet these requirements. (Code Sec. 6695(g), as amended by Act Sec. 11001(b))

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