Federal Tax News – December

By Team HRH | December 27, 2016

Standard mileage rates decrease for 2017. The IRS announced that the optional mileage allowance for owned or leased autos, vans, pickups and panel trucks will go down by 0.5¢ to 53.5¢ a mile for business travel after 2016. The rate can also be used by employers to provide tax-free reimbursements to employees who drive their own autos under an accountable plan and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with the moving expense deduction will decrease by 2¢ to 17¢ a mile. The charitable use mileage rate (14¢ per mile) is a statutory rate that’s not adjusted for inflation so it will remain the same for 2017.

New law creates a new type of HRA. The 21st Century Cures Act was recently signed into law. It contains several medical innovations and also creates a new type of health reimbursement arrangement (HRA) called a “qualified small employer HRA,” which isn’t considered a group health plan for most tax law purposes. Therefore, it now allows small employers (those with fewer than 50 employees) to provide HRAs without facing penalties for failing to satisfy certain Affordable Care Act requirements. The law is effective for plan years beginning after Dec. 31, 2016.

Gamblers couldn’t deduct losses. “Professional” gamblers can deduct losses equal to their winnings, but the burden of proving the deduction is on them. To be considered a professional, a taxpayer must be engaged in gambling with the intent to make a profit. In one case, the U.S. Tax Court denied “house players” (a married couple) the right to deduct losses against $16,800 of winnings because they didn’t keep the required records of amounts spent. That left the court with no basis for estimating the taxpayers’ gambling losses under the “Cohan rule.” (TC Summary Opinion 2016-73)

Taxpayers denied child tax breaks. For part of a year, a married couple lived with a child from the wife’s previous marriage. The couple claimed a dependency exemption deduction and a child tax credit on their joint tax return. The child’s father apparently also claimed the child as a dependent on his return. The IRS disallowed the couple’s tax breaks. The U.S. Tax Court agreed. The taxpayers couldn’t prove they met the requirements, including that the child lived in the same residence with them for more than one-half of the tax year. (TC Memo 2016-206)

Get ready to file your tax return in 2017. The IRS announced that the 2017 tax filing season will begin Jan. 23, 2017. Additionally, due to the Emancipation Day holiday, the filing deadline to submit 2016 returns will be April 18, 2017. The IRS also reminded taxpayers claiming the earned income tax credit or the additional child tax credit to expect a longer wait for refunds. A law passed in 2015 (Protecting Americans from Tax Hikes) requires the IRS to hold refunds claiming these credits until at least Feb. 15. The entire refund must be held, even the portion not associated with the two tax credits.

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