The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.

The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.

Qualified Personal Vehicle Loan Interest

For tax years beginning in 2025 through 2028, a noncorporate taxpayer may claim a deduction of up to $10,000 for qualified personal vehicle loan interest (QPVLI) paid or accrued during the tax year on a specified passenger vehicle loan (SPVL) incurred by the taxpayer for the purchase of an applicable personal vehicle (APV) for personal use. Generally, interest includes an amount paid, received, or accrued as compensation for the use or forbearance of money under the debt instrument.

The final regulations clarify that QPVLI also includes prepaid interest in the form of points and deferred or capitalized interest. In addition, it may include origination-related or financing-related charges, prepayment penalties, late-payment charges, default-related charges, and similar fees, if characterized as an interest expense for federal income tax purposes.

Secured by First Lien

Interest is QPVLI only if it is paid or accrued on debt for the purchase of an APV for personal use that is secured by a first lien. The final regulations clarify that an SPVL is secured by a first lien with the first voluntary security interest recorded against the vehicle. Any involuntary liens are disregarded even if given temporary higher priority at a later date.

A vehicle also may be considered secured by a first lien even if the lien has not yet been perfected or recorded due to short-term delays arising under State or local law. It may also be considered secured by a first lien where the lien is removed in connection with the taxpayer no longer owning the vehicle, but the taxpayer continues to be liable for the loan (repossession or insurance payout).

Purchase of Applicable Passenger Vehicle

An SPVL is qualified only to the extent the debt is incurred for the purchase of a new vehicle and any other items or amounts customarily financed in the same purchase transaction (for example, vehicle service plans, extended warranties, sales taxes, and vehicle-related fees). Any portion of a loan for items or amounts not customarily financed in the purchase are not qualified.

The taxpayer must allocate the debt on a pro rata basis. Whether items are customarily financed and directly related to the purchase of the vehicle is determined on an industry-wide basis and not on the particular financing terms. The final rules, however, expand the list of examples of items customarily financed in an APV purchase. The final regulations also maintain that debt incurred for negative equity in a prior purchased vehicle is not incurred for the purchase of an APV.

The requirement that an APV must be a new vehicle under the loan documentation refers to the lender’s classification of the vehicle for purposes of its financing programs. The original use of the vehicle must commence with the taxpayer. However, original use does not commence with a dealer if the vehicle is held primarily for sale to customers in the ordinary course of its trade or business. Original does not commence with a lessee if the lessee purchases the vehicle during or at the end of the lease term.

Information Reporting

Any lender or other person who, in the course of that trade or business, receives from any individual interest aggregating $600 or more for any calendar year on an SPVL, must report the receipt of interest on Form 1098-VLI to the IRS and the payee. The final regulations affirm that lenders are required to include only interest received on an SPVL for the purchase of an APV, the first use of which begins with the payee. This is required by statute and may require the lender to collect information it currently does not collect. The lender must file Form 1098-VLI for each SPVL.

T.D. 10054

The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.

The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.

Racial Nondiscrimination

The proposed regulations would treat all race-based consideration in private education as contrary to a fundamental public policy, regardless of its purpose, including remedial or diversity-related objectives. This restriction does not inclulde policies or actions designed to eliminate prejudice or other forms of discrimination. The rules would cover private primary and secondary schools, colleges, professional or trade schools, and universities. The rules specifically do not include governmental units, any agency or instrumentality of a governmental unit, or any organization owned or operated by such an agency or instrumentality.

Application to Private Schools

To qualify for tax exemption, a private school could not consider race, color, or national or ethnic origin in:

• (1) Educational or admissions policies
• (2) Scholarship or loan programs
• (3) Athletic or other school-supported programs

The proposal would not prevent religious schools from maintaining religious missions or selecting students based solely on religious affiliation. If finalized, Rev. Proc. 75-50 would also be modified to remove provisions permitting certain race-based preferences for minority groups.

The proposed regulations would add §1.501(c)(3)-2 and apply to taxable years beginning after May 31, 2027.

Proposed Regulations, NPRM REG-119986-25

IR 2026-103

A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.

A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.

The partnership, which was subject to the centralized partnership audit (CPA) regime, challenged an FPA disallowing a charitable contribution deduction. The partnership argued that the FPA was issued outside the applicable limitations period because the 330-day period following the notice of proposed partnership adjustment had expired. However, the parties had previously executed an agreement extending the limitations period for partnership adjustments under Code Sec. 6235(b).

Further, it was concluded that the periods specified in Code Sec. 6235(a) were not sequential deadlines. The statutory phrase “later of” required use of the latest applicable period, and an agreed extension under Code Sec. 6235(b) extended the limitations period for making adjustments, including issuance of the FPA. Because the FPA was mailed before expiration of the agreed extended period, the FPA was timely.

Katanga Properties, LLC, 167 TC No. 10, Dec. 62,899

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.

The law (H.R. 5366) allows victims of federally declared disasters to deduct qualified losses above $500 per disaster without itemizing and removes the 10 percent adjusted gross income threshold for those losses. A fact sheet on the bill can be found here.

Under the law, this treatment of personal casualty loss is available until Jan. 1, 2027.

It also excludes wildfire relief payments from taxable income regardless of when they are received, so long as the wildfire disaster declaration occurs after Dec. 31, 2014, and before Jan. 1, 2027.

President Trump signed the bill into law on Sept. 11, 2026.

The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).

The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).

For research expenditures, the procedure modifies accounting method changes under Code Secs. 174 and 174A. Code Sec. 174 continues to require capitalization and 15-year amortization for foreign research expenditures. Code Sec. 174A generally allows a current deduction for domestic research expenditures paid or incurred in tax years beginning after December 31, 2024.

The procedure also revises rules governing adjustments associated with accounting method changes. It coordinates certain Code Sec. 481 adjustments with the OBBBA transition method for recovering unamortized domestic research expenditures. It also extends through tax years beginning before 2028 waivers of certain eligibility restrictions for specified automatic changes.

Further, the IRS provides automatic accounting method changes for residential construction contracts affected by the OBBBA amendments to Code Sec. 460. Taxpayers may change from the percentage-of-completion method to an exempt contract method for qualifying contracts entered into in tax years beginning after July 4, 2025. Certain taxpayers may also change their treatment of costs under Code Sec. 263A.

The modified procedures generally apply to Form 3115, Application for Change in Accounting Method, filed after September 4, 2026. Special transition rules apply to certain previously filed Forms 3115.

Rev. Proc. 2026-32

The IRS closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling tax avoidance schemes. These schemes are primarily targeted at high income individuals seeking to reduce or eliminate their tax obligation. The IRS advice taxpayers to seek services from an independent, trusted tax professional and to avoid promotres focused on aggressively marketing and pushing questionable transactions.

The IRS closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling tax avoidance schemes. These schemes are primarily targeted at high income individuals seeking to reduce or eliminate their tax obligation. The IRS advice taxpayers to seek services from an independent, trusted tax professional and to avoid promotres focused on aggressively marketing and pushing questionable transactions.

The IRS has compiled a list of 12 scams and schemes that put taxpayers and tax professionals at risk. Some of them are:

• micro-captive insurance arrangements: is an insurance company whose owners elect to be taxed on the captive's investment income only;
• syndicated conservation easements: are arrangements wherein they attempt to game the system with grossly inflated tax deductions;
• offshore accounts & digital assets: unscrupulous promoters lure taxpayers into placing their asssets in offshore accounts under the pretense of being untraceable by the IRS;
• maltese individual retirement arrangements misusing treaty: are arrangements wherein the taxpayers attempt to avoid tax by contributing to foreign individual retirement arrangements in Malta; and
• puerto rican and other foreign captive insurance: are transactions wherein the business owners of closely held entities participate in a purported insurance arrangement with a Puerto Rican or other foreign corporation in which they have a financial interest.

Taxpayers are adviced to to rely on reputable tax professionals they know and trust to avoid such schemes. The IRS has also created the Office of Fraud Enforcement (OFE) and Office of Promoter Investigations (OPE) to coordinate service-wide enforcement activities against taxpayers committing tax fraud and promoters marketing and selling abusive tax avoidance transactions and schemes to effectuate tax evasion.

As part of the Dirty Dozen awareness effort, the IRS encourages people to report taxpayers who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns. To report an abusive tax scheme or a tax return preparer, taxpayers should mail or fax a completed and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. The postal address is: Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, California 92677-3405 Fax: 877-477-9135.

As part of the annual Dirty Dozen tax scams effort, the IRS and the Security Summit partners have urged taxpayers to be on the lookout for spearphishing emails. Through these emails, scammers try to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resource departments asking for sensitive Form W-2 information.

As part of the annual Dirty Dozen tax scams effort, the IRS and the Security Summit partners have urged taxpayers to be on the lookout for spearphishing emails. Through these emails, scammers try to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resource departments asking for sensitive Form W-2 information.

Cyber Security Tips to Prevent Spearphishing

Spearphishing is a tailored phishing attempt to a specific organization or business and usually begins with a suspicious email that may appear as a tax preparation application or another e-service or platform. Some scammers will even use the IRS logo and claim something like "Action Required: Your account has now been put on hold." Often these emails stress urgency and will ask tax pros or businesses to click on links to input or verify information.

How to prevent spearphishing:

• Never click suspicious links.
• Double check the requests with the original sender.
• Be vigilant year-round, not just during filing season.

The IRS and its Security Summit partners continue to see spearphishing attempts that impersonate a new potential client, known as the New Client scam. Lastly, taxpayers should never respond to tax-related phishing or spearfishing or click on the URL link. Instead, the scams should be reported by sending the email or a copy of the text/SMS as an attachment to phishing@irs.gov.

The American Institute of CPAs is recommending the Internal Revenue Service place a greater emphasis on service as the agency works on its strategic plan for the $80 billion in additional appropriations provided to the IRS in the Inflation Reduction Act.

The American Institute of CPAs is recommending the Internal Revenue Service place a greater emphasis on service as the agency works on its strategic plan for the $80 billion in additional appropriations provided to the IRS in the Inflation Reduction Act.

"Given the historic low levels of IRS taxpayer services, we are concerned that there was an insufficient allocation of funding to improve taxpayer services to appropriate levels" the AICPA March 28, 2023, letter to the IRS and the Department of the Treasury states, noting that the COVID-19 pandemic "made it painfully clear that the IRS was not funded to accomplish all its responsibilities."

AICPA argued that the agency’s service deficiencies "prevent taxpayers from complying with their tax obligations and hamper our members’ ability to as professional advisors to do their jobs, which is to help these taxpayers comply."

And despite funds being targeted toward enforcement and a stated goal of ensuring that wealthy individuals and corporations are paying their fair share of taxes, AICPA states that "enforcement actions must be in balance with the services the IRS provides to taxpayers."

The Inflation Reduction Act allocates $45.6 billion to enforcement activities and only $3.1 billion to service, and the AICPA suggested that more money be focused on service-related issues, including allocating sufficient funds for employee training to help replace the institutional knowledge that is expected to be lost in the coming years as the aging workforce retires.

AICPA is also calling on the IRS to develop a comprehensive customer service strategy, including creating more empowered employees; better access to timely information; and access to tailored resources, including resources designed specifically for tax professionals.

Additionally, the organization recommended that the agency develop a comprehensive plan to redesign the agency, including adopting a more customer-focused culture; integrating its technical infrastructure so the disparate legacy systems can communicate with each other; and creating a practitioner services division "that would centralize and modernize its approach to all practitioners."

Finally, AICPA recommended that IRS continue with its business systems modernizations initiatives.

"Currently, the IRS has two of the oldest information systems in the federal government making the information technology functions one of the biggest constraints overall for the IRS" the letter states. "Without modern infrastructure, the IRS is unable to timely and efficiently meet the needs of taxpayers and practitioners. … We recommend that the IRS more fully explore options to allocate IRA enforcement funding to BSM issues."

Automated Collection Notices To Resume

Another area that the organization recommends the funds be used for is the ongoing effort by the agency to reduce the backlog of unprocessed paper tax returns and other paper correspondence.

AICPA acknowledged the work done to reduce levels after the backlog spiked during the pandemic, but stated that "more needs to be done to ensure that taxpayers and practitioners are not faced at any time in 2023 with yet another year with significant levels of unprocessed returns, leading to additional delays in processing and incorrect notices and penalties."

And while this is going on, the organization recommends that the IRS "continue the suspension of certain automated collection notices until it is prepared to devote the necessary resources for a proper and timely resolution of matters. Until the IRS can respond to taxpayer replies to notices in a timely manner, these collection notices should not be restarted."

According to the letter, the agency is planning on restarting automated collection notices in June 2023, even though "this June date has not been widely publicized. The IRS should communicate the stat date of automated collection action to the public, specifically identifying what actions will be part of this process and providing resources for taxpayers on dealing with these actions."

Additionally, the organization is calling for "a streamlined reasonable cause penalty waiver without requiring a written request, similar to the procedures of the FTA administrative waiver, based solely on the pandemic’s effects on both the taxpayer and the practitioner."

By Gregory Twachtman, Washington News Editor

Taxpayers will receive some modest relief for the 2015 tax year, thanks to the mandatory annual inflation-adjustments provided under the Tax Code. When there is inflation, indexing of brackets lowers tax bills by including more of people’s incomes in lower brackets—for example by placing taxpayers’ income in the existing 15-percent bracket, rather than the existing 25-percent bracket.

Taxpayers will receive some modest relief for the 2015 tax year, thanks to the mandatory annual inflation-adjustments provided under the Tax Code. When there is inflation, indexing of brackets lowers tax bills by including more of people’s incomes in lower brackets—for example by placing taxpayers’ income in the existing 15-percent bracket, rather than the existing 25-percent bracket.

Wolters Kluwer, CCH has used the formulas specified in the Tax Code and the Department of Labor’s newly-released Consumer Price Index (all urban) for August 2014 to project the inflation-adjusted figures for 2015. (The list provided below is not exhaustive.) The IRS is expected to issue the official figures by December 2014.

2015 tax schedules

Married Filing Jointly (and Surviving Spouses)

Head of Household

Single (Other than Heads of Household and Surviving Spouses)

Married Filing Separate

Estates and Trusts

2015 personal exemption

For 2015, personal exemptions will increase to $4,000, up from $3,950 in 2014. The phase out of the personal exemption for higher income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions, detailed below.

The personal exemption will completely phase out when income surpasses the following levels: $432,400 (married joint filers); $406,550 (Heads of household); $380,750 (unmarried taxpayers); and $216,200 (married filing separate).

2015 standard deduction

For 2015, the standard deduction will be as follows: $6,300 for unmarried taxpayers and married separate filers (up from $6,200 in 2014). For married joint filers, the standard deduction will rise to $12,600, up from $12,400 in 2014. For heads of household, the standard deduction will be $9,250, up from $9,100 in 2014.

The 2015 standard deduction for an individual claimed as a dependent on another taxpayer’s return is either $1,050 or $350 plus the dependent’s earned income, whichever is greater.

The additional standard deduction for the blind and aged increases for married taxpayers to $1,250, up from $1,200 in 2014. For unmarried, aged, or blind taxpayers, the amount of the additional standard deduction remains $1,550.

Limitation on itemized deductions

For higher income taxpayers who itemize their deductions, the limitation on itemized deductions for 2015 will be imposed at the following income levels:

• For married couples filing joint returns or surviving spouses, the income threshold will be $309,900, up from $305,050 for 2014.
• For heads of household, the threshold will be $284,050, up from $279,650 in 2014.
• For single taxpayers, the threshold will be $258,250, up from $254,200 in 2014.
• For married taxpayers filing separate returns, the 2015 threshold will be $154,950, up from $152,525 for 2014.

AMT exemptions

Wolters Kluwer, CCH projects that, for 2015, the AMT exemption for married joint filers and surviving spouses will be $83,400 (up from $82,100 in 2014). For heads of household and unmarried single filers, the exemption will be $53,600 (up from $52,800 in 2014). For married separate filers, the exemption will be $41,700, up from ($41,050 in 2014). For estates and trusts, the exemption will be $23,800 (up from $23,500 in 2014.)

For a child to whom the so-called “kiddie tax” under Code Sec. 1(g) applies, the exemption amount for AMT purposes may not exceed the sum of the child’s earned income for the tax year, plus $7,400 (up from $7,250 for 2014).

Other adjusted amounts

IRA Contributions. The maximum amount of deductible contributions that can be made to an IRA will remain the same for 2015, at $5,500 (or $6,500 for taxpayers eligible to make catch-up contributions). The income phase out ranges increase, however. For 2015, the allowable amount of deductible IRA contributions will phase out for married joint filers whose income is between $98,000 and $118,000 (if both spouses are covered by a retirement plan at work). If only one spouse is covered by a retirement plan at work, the phase out range is from $183,000 to $193,000.

For heads of household and unmarried filers who are covered by a retirement plan at work, the 2015 income phase out range for deductible IRA contributions is $61,000 to $71,000, up from $60,000 to $70,000 for 2014.

Education Savings Bond Interest Exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer’s income is below a certain range. For 2015, the phase-out range for single filers will be from $77,200 to $92,200 (up from $76,000 to $91,000 for 2014). For joint filers the 2015 phase-out range will be $115,750 to $145,750 (up from $113,950 to $143,950 for 2014).

Phase-out of Student Loan Interest Deduction. For 2015, the $2,500 student loan interest deduction will phase out for married joint filers with income between $130,000 and $160,000, the same as for 2014. The 2015 deduction will phase out for single taxpayers with income between $65,000 to $80,000.

Medical Savings Accounts. The minimum–maximum range for premiums used to determine whether a medical savings account (MSA) is tied to a high deductible health plan for 2015 will be $2,200–$3,300 for self-only coverage (up from $2,200 to $3,250 for 2014) and $4,450 to $6,650 for family coverage (up from $4,350 to $6,550 for 2014).

Self-only coverage plans are subject to a $4,450 maximum amount for annual out-of-pocket costs (up from $4,350 for 2014). Family coverage plans have a $8,150 annual limit (up $8,000 for 2014).

Limitation on Flexible Spending Arrangements (FSAs). The limitation on the amount of salary reductions an employee may elect to contribute to a cafeteria plan under an FSA increases to $2,550 for 2015, up $50 from the limit for 2014 and 2013.

Qualified Transportation Fringe Benefits. For 2015, the monthly cap on the exclusion for transit passes and for commuter highway vehicles will be $130, the same as it was for 2014 (parity between transit and parking benefits expired at the end of 2013). The monthly cap on qualified parking benefits will be $250, the same as for 2014.

Estate and Gift Tax. The gift tax annual exemption will remain the same for 2015, at $14,000. However, the estate and gift tax applicable exclusion will increase from $5,340,000 in 2014 to $5,430,000 for 2015.

Gifts to Noncitizen Spouses. The first $147,000 of gifts made in 2015 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $2,000 from $145,000 in 2014.

Foreign Earned Income/Housing. The amount of the 2015 foreign earned income exclusion under Code Sec. 911 will be $100,800, up from $99,200 for 2014. The maximum foreign earned income housing deduction for 2015 will be $30,240, up from $29,760 for 2014.

The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").

The IRS continues to ramp-up its work to fight identity theft/refund fraud and recently announced new rules allowing the use of abbreviated (truncated) personal identification numbers and employer identification numbers. Instead of showing a taxpayer's full Social Security number (SSN) or other identification number on certain forms, asterisks or Xs replace the first five digits and only the last four digits appear. The final rules, however, do impose some important limits on the use of truncated taxpayer identification numbers (known as "TTINs").

Note. A TTIN typically appears as XXX-XX-1234 or ***-**-1234.

Identity theft/refund fraud

The IRS has more than 3,000 employees working identity-theft related issues. They are investigating refund fraud and assisting taxpayers - both individuals and businesses - that have been victims of identity theft. The IRS has also upgraded its filters that screen tax returns for indications of refund fraud. Between 2011 and 2014, the IRS reported that it prevented more than $50 billion in fraudulent refunds.

Protecting personal information from disclosure is one important tool in the IRS's toolshed to fight identity theft. IRS data systems contain personal information, such as SSNs, EINs, individual taxpayer identification numbers (ITINs) and adoption taxpayer identification numbers (ATINs) on millions of taxpayers. To thwart potential identity thieves, the agency launched a pilot program in 2009 to allow the use of TTINs. The goal of the pilot program was to reduce the risk of identity theft that could result from the inclusion of a taxpayer's entire identifying number on a payee statement or other document.

Proposed regulations

The IRS viewed the pilot program as a success and issued proposed regulations in 2013. Under the proposed regulations, TTINs would be available as an alternative to using a taxpayer's SSN, ITIN, or ATIN. The proposed regulations also permitted the use of TTINs to electronic payee statements as well as paper payee statements.

Expanded use

In July, the IRS announced that it was finalizing the proposed TTIN rules. The final rules also expand the use of TTINs to:

• Employer identification numbers. The final rules allow the use of abbreviated employer identification numbers (EINs) in certain cases.
• More documents. The final regulations permit the use of TTINs on any federal tax-related payee statement or other document required to be furnished to another person unless specifically prohibited.

Voluntary

The IRS encourages the use of TTINs but did not make use of TTINs mandatory. The IRS also explained that use of a TTIN will not result in any penalty for failure to include a correct taxpayer identifying number on any payee statement or other document.

Limitations

The final regulations (officially known as TD 9765) place some limits on TTINs. A TTIN may not be used on a return filed with the IRS. This includes Form 1040, U.S. Individual Income Tax Return. A TTIN also may not be used if a statute or regulation specifically requires use of an SSN, ITIN, ATIN, or EIN. Additionally, employers cannot use a TTIN on an employee's Form W-2, Wage and Tax Statement.

If you have any questions about TTINs or identity theft/refund fraud, please contact our office.

The U.S. Supreme Court's decision in June to strike down Section 3 of the Defense of Marriage Act (DOMA) (E.S. Windsor, 2013-2 ustc ¶50,400) generated many questions about federal taxes and same-sex couples. The IRS has responded with a general rule recognizing same-sex marriages nationwide. The agency also promised that more guidance will be released before the start of the 2014 filing season.

The U.S. Supreme Court's decision in June to strike down Section 3 of the Defense of Marriage Act (DOMA) (E.S. Windsor, 2013-2 ustc ¶50,400) generated many questions about federal taxes and same-sex couples. The IRS has responded with a general rule recognizing same-sex marriages nationwide. The agency also promised that more guidance will be released before the start of the 2014 filing season.

Place of celebration approach

Section 3 of DOMA prevented the IRS (and all federal agencies) from recognizing same-sex married couples as married. After the Supreme Court struck down Section 3 of DOMA, the IRS had an important decision to make. The IRS could recognize all same-sex marriages regardless of where the couple resided. Alternatively, the IRS could only recognize the marriages of couples who reside in states that recognize same-sex marriage.

The IRS chose the first approach, which is known as "place of celebration" approach. All legally married same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes, regardless of whether a couple resides in a jurisdiction that recognizes same-sex marriage or in a jurisdiction that does not recognize same-sex marriage. This means that a couple who marry in a state (or other jurisdiction) that recognizes same-sex marriage and subsequently move to a state that does not recognize same-sex marriage will continue to be treated as married for all federal tax purposes.

The IRS had an important historical precedent that lead to its choosing place of celebration over place of residence. The IRS has taken a place of celebration approach to common law marriages for over 50 years.

Tax returns

For 2013 returns filed in 2014, legally married same-sex couples must file as married filing jointly or married filing separately. The rules for 2012 and prior years are not as simple.

The IRS imposed a deadline of September 16, 2013 for married same-sex couples, who had yet to file an original return for 2012, to file as single or as married. For 2011 and earlier, same-sex spouses who filed their tax returns timely may choose (but are not required) to amend their federal tax return filing status. They may amend their prior-year returns using either married filing separately or jointly filing status, provided the period of limitations for amending the return has not expired. If you have any questions about filing an amended return, please contact our office.

Employee benefits

Because of DOMA, taxpayers may have paid taxes on the fair market value of employer-provided health care coverage for their same-sex spouse. The IRS will allow the employee to file an amended return for open tax years reflecting his or her status as a married individual to recover federal income tax paid on the value of health coverage of the employee's spouse. The IRS also instructed certain sponsors of some employee benefit plans to treat same-sex spouses as spouses.

Employment taxes

The IRS has provided two optional alternative special administrative procedures for employers to use to correct overpayments of employment taxes. Under the first alternative, employers may use the fourth quarter 2013 Form 941, Employer's Quarterly Federal Tax Return, to correct these overpayments of employment taxes for the first three quarters of 2013. Under the second alternative, employers may file one Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct these overpayments of FICA taxes for all quarters of 2013. Please contact our office for more details about these optional procedures.

Domestic partners

There is one very important distinction that the IRS has made in its guidance for same-sex couples. The IRS is not recognizing registered domestic partners, individuals in a civil union, or similar relationships as married. Registered domestic partners may not file as married filing jointly or married filing separately because the individuals are not married or spouses for federal tax purposes

Looking ahead

The IRS will likely begin accepting 2013 returns for processing in mid- to late January 2014. Some same-sex couples may find their filing more complicated despite the demise of DOMA. States that do not recognize same-sex marriage will presumably not allow these couples to file their state returns (if required) as married. The IRS is also expected to issue more guidance on particular areas of the tax law, such as estate and gift taxes, retirement plans and more. Our office will keep you posted of developments.

Please contact our office if you have any questions about the IRS's guidance for same-sex couples.

Gain or loss is not recognized when property held for productive use in a trade or business or for investment is exchanged for like-kind property. Instead, the taxpayer's basis and holding period in the property transferred carries over to the property acquired in the exchange. Deferring taxable gain, always a good strategy, makes more sense than ever after the recent rise in tax rates for many taxpayers under the American Taxpayer Relief Act of 2012. In particular, Code Section 1031 like-kind exchanges deserve a close second look by many businesses and investors.

Gain or loss is not recognized when property held for productive use in a trade or business or for investment is exchanged for like-kind property. Instead, the taxpayer's basis and holding period in the property transferred carries over to the property acquired in the exchange. Deferring taxable gain, always a good strategy, makes more sense than ever after the recent rise in tax rates for many taxpayers under the American Taxpayer Relief Act of 2012.  In particular, Code Section 1031 like-kind exchanges deserve a close second look by many businesses and investors.

Flexibility

More than two properties can be exchanged and more than two parties can participate in a transaction that qualifies for non-recognition treatment. Intermediaries may be used to purchase other property before completing like-kind exchange. Taxpayers can participate in acquisition of other property and qualify for like-kind treatment if there is no actual or constructive receipt of cash proceeds from sale of their property.
It is not required that the properties be given up and received on the same day. However, if the exchange of properties is not simultaneous, the property to be received must be identified within 45 days after the date the relinquished property is transferred. In addition, the identified property must be received within 180 days after the date of transfer or the due date for the return for the tax year in which the transfer occurred, whichever date is earlier.

Certain limitations

Property not qualifying for this treatment includes inventory, securities, foreign real estate and foreign personal property. In an otherwise qualifying exchange, the receipt of boot, in the form of cash, relief from liability, or other non-qualifying property, results in the recognition of realized gain or loss to the extent of the boot received. However, gain so recognized can be postponed if the installment sale rules apply. Depreciation recapture may also result from a like-kind exchange. Losses are not recognized on the acquisition of like-kind property. To recognize a loss, the transaction must be arranged so that the non-recognition provision does not apply.

Literal conformity to the requirements of the non-recognition provisions may not be sufficient to prevent recognition of gain. The substance of the transaction must also satisfy the underlying purpose of the statute. Continuity of investment purpose continues to be emphasized as the primary rationale for non-recognition in a like-kind exchange.

Latest success story

IRS Chief Counsel just this past month approved a taxpayer's exchange of properties as tax-free under Code Sec. 1031 even though the taxpayer used proceeds from the sale of relinquished property to pay down its liabilities. In CCA 201325011, Chief Counsel determined that such use did not trigger constructive receipt. Although taking a look at this winning arrangement may get a bit technical, it is worthwhile if only to provide another example of how like-kind exchange transactions can help your business's tax expenses.

The arrangement. The taxpayer rents equipment to customers. The taxpayer has implemented a like-kind exchange (LKE) program to defer gain from the sales of its rental equipment. The taxpayer has engaged in multiple exchanges under a Master Exchange Agreement (MEA) with a qualified intermediary (QI). Under the MEA, the taxpayer transfers relinquished property to the QI. The QI transfers the relinquished property and acquires replacement property, which it transfers to the taxpayer.

The taxpayer maintains two lines of credit, which are used to purchase replacement property. The taxpayer also uses the lines of credit for general business operations. The lines of credit are secured by the taxpayer's rental properties, accounts receivable, and new equipment sold to customers. The full value of the rental property secures the entire balance on the lines of credit.

The QI must deposit sales proceeds from relinquished property into a joint taxpayer/QI account, and must use the proceeds to pay down the line-of-credit balances. The QI does not use proceeds from the account receivables or the new equipment sales to pay down the lines of credit. The taxpayer then uses borrowed funds to acquire replacement property and complete its exchange. The taxpayer finances the acquisition with new debt in an amount that equals or exceeds the debt that encumbered the relinquished property. Under the MEA, the taxpayer does not have the right to receive, pledge, borrow or otherwise use the money held by the QI.

Chief Counsel's analysis.  The IRS field attorney argued that the debt pay-down arrangement gives the taxpayer actual or constructive receipt of the proceeds from the relinquished property before the deadline for the taxpayer to obtain replacement property. IRS Chief Counsel's Office, however, disagreed. It concluded that the taxpayer was not in constructive receipt of the proceeds received for the relinquished property. This conclusion was not affected by the use of the debt to purchase replacement property and for general business operations, or the QI's use of the proceeds to pay down the lines of credit.
If a taxpayer receives, in part, non-like-kind property, the taxpayer must recognize gain (boot) for the amount of this property. The assumption of a liability, or the transfer of property subject to a liability, is treated as boot. If the relinquished property and the replacement property are both subject to a liability (such as a mortgage), the liabilities are netted and the difference is boot to the party being relieved of the larger mortgage.

Chief Counsel concluded that the taxpayer's transaction was permitted by the regulations where the taxpayer is relieved of debt on the transfer of relinquished property and incurs debt on the acquisition of the replacement property. Under the boot netting rules, there is no gain to the taxpayer.

If you would like further information on how like-kind exchanges might work within your business operations, please do not hesitate to contact our offices.

For many individuals, volunteering for a charitable organization is a very emotionally rewarding experience. In some cases, your volunteer activities may also qualify for certain federal tax breaks. Although individuals cannot deduct the value of their labor on behalf of a charitable organization, they may be eligible for other tax-related benefits.

For many individuals, volunteering for a charitable organization is a very emotionally rewarding experience. In some cases, your volunteer activities may also qualify for certain federal tax breaks. Although individuals cannot deduct the value of their labor on behalf of a charitable organization, they may be eligible for other tax-related benefits.

Before claiming any charity-related tax benefit, whether for a donation or volunteer activity, you must determine if the charity is a "qualified organization."  Under the tax rules, most charitable organizations, other than churches, must apply to the IRS to become a qualified organization. If you are uncertain about an organization's status as a qualified organization, you can ask the charity. The IRS has a toll-free number (1-877-829-5500) for questions from taxpayers about charities and also maintains an online tool at www.irs.gov/charities.

Time or services

An individual may spend 10, 20, 30 or more hours a week volunteering for a charitable organization. Precisely because the individual is a volunteer, he or she receives no remuneration for his or her time or services and cannot deduct the value of his or her time or services spent on activities for the charitable organization. Unpaid volunteer work is not tax deductible.

Vehicle expenses

Vehicle expenses associated with volunteer activity should not be overlooked.  For example, many individuals use their personal vehicles to transport others to medical treatment or to deliver food to shut-ins. Taxpayers can deduct as a charitable contribution qualified unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of their vehicle in giving services to a charitable organization. However, certain expenses, such as registration fees, or the costs of tires or insurance, are not deductible.  Alternatively, taxpayers can use a standard mileage rate of 14 cents per mile to calculate the amount of their contribution. Do not confuse the charitable mileage rate, which is set by statute, with business mileage rate (56.5 cents per mile for 2013), which generally changes from year to year. Parking fees and tolls are deductible whether the taxpayer uses the actual expense method or the standard mileage rate.

Uniforms

Some volunteers are required to wear a uniform, such as a jacket that identifies the wearer as a volunteer for the charitable organization, while engaged in activity for the charity. In this case, the tax rules generally allow taxpayers to deduct the cost and upkeep of uniforms that are not suitable for everyday use and that the taxpayer must wear while performing donated services for a charitable organization.

Hosting a foreign student

Qualifying expenses for a foreign student who lives in the taxpayer's home as part of a program of the organization to provide educational opportunities for the student may be deductible. The student must not be a relative, such as a child or stepchild, or dependent of the taxpayer and also must be a full-time student in secondary school or any lower grade at a school in the U.S. Among the expenses that may be deductible are the costs of food and certain transportation spent on behalf of the student. The cost of lodging is not deductible. If you are planning to host a foreign-exchange student, please contact our office and we can explore the possible tax benefits.

Travel

Volunteers may be asked to travel on behalf of the charitable organization, for example, to attend a convention or meeting. Generally, qualified unreimbursed expenses may be deductible subject to complicated rules. Very broadly speaking, there must not be a significant element of personal pleasure, recreation, or vacation in the travel. Special rules apply if the charitable organization pays a daily travel allowance to the volunteer. There are also special rules for attendance at a church meeting or convention and the capacity in which the volunteer attends the church meeting or convention. If you plan to travel as part of your volunteer activity for a charitable organization, please contact our office and we can review your plans in greater detail.

If you have any questions, please contact our office.