October 2018
Taxpayers Forced to Repay Advance Premium Tax Credit, Despite Sympathetic Circumstances
A recent summary opinion from the tax court illustrates a real danger of the advance premium tax credit for taxpayers who may end the year with more income than they expected. The result in this case was especially harsh since the unexpected income flowed from assets the couple liquidated to pay living expenses and their son’s college tuition while the husband battled terminal cancer.
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Nebraska Farmers Plead Guilty to Fraudulently Marketing Organic Grain
Tom Brennan, his son James Brennan, and Michael Potter recently pleaded guilty in the Northern District of Iowa to charges of wire fraud in connection with their organic farm operation. They admitted to marketing grain as organic despite knowing the crops came from non-certified organic fields or certified organic fields where pesticides and nitrogen had been applied or knowing that the organically grown grains had been commingled with non-organic grains.
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What's in the New Trade Deal with Mexico and Canada for Agriculture?
After months of uncertainty, the United States reached a trade deal with Mexico and Canada on September 30, 2018. The news of this $1.2 trillion deal is met with generally favorable reaction from both commodity groups and farmers.
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Best Laid Plans Don't Always Prevent Family Fights
In a recent case from the Iowa Court of Appeals, a couple with six children had established revocable living trusts. The trusts were intended to provide their on-farm heir with the ability to farm the family ground for at least three years after both of their deaths. They also gave the farming son the "first opportunity to purchase" the ground when it was offered for sale by the trustee. Despite the seemingly routine language in the trust agreements, the siblings could not agree on the meaning. In the end, the Court of Appeals reversed the district court and found that the trusts gave the son the right to purchase the property at a value established by three appraisers even after the three-year period for farming the ground had ended. The case is In the Matter of Taylor, No.17-1581 (Oct. 24, 2018).
Iowa Department of Revenue Issues Key Guidance on DPAD, Like-Kind Exchange, and 2019 Income Tax Brackets
For tax year 2018, Iowa has coupled only with selected federal changes. With those exceptions, Iowa tax law looks to the Internal Revenue Code as it existed on January 1, 2015. This non-conformity has presented some challenges. Recently, the Iowa Department of Revenue issued guidance on several provisions that have created the greatest number of questions. Yesterday, the Department also issued its 2019 tables for income tax brackets, interest rates, and standard deductions. This article summarizes these notices.
DPAD – Alive and Well in Iowa in 2018
The Tax Cuts and Jobs Act repealed federal DPAD (IRC § 199) for tax years beginning on or after January 1, 2018. Iowa, however, has not coupled with this repeal for tax years beginning on or after January 1, 2018, but before January 1, 2019. Consequently, DPAD is available to Iowa taxpayers for tax year 2018. This has created many questions given the fact that Iowa has never had its own Form 8903. The federal DPAD has always just modified Iowa income.
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Sound Advice Can Help Prevent Costly Traps When Facing Financial Distress
As tough times continue in the farm sector, more farmers are calling it quits. In particular, many operators who do not own ground and are dependent upon renting the land of others are struggling to hold on. Many are selling farm assets and securing full-time off-farm employment to make ends meet. It’s a quiet exodus, but it comes with hidden danger.
Liquidating assets without a careful plan can generate tax consequences that will impair any hope for a fresh start down the road. As farmers weigh these tough decisions, it is imperative that they seek good counsel regarding their options. Although cash flow is tight, good advice is worth the investment.
It is important to remember that depreciated assets, when sold, generate ordinary income tax liability. Depreciation is intended to allow farmers to write off the cost of a business asset over its useful life. Especially in light of bonus depreciation and Section 179 expensing, these costs are often written off long before the life of the asset ends. If the owner sells the
asset while it still has value, IRC § 1245 steps in to “recapture” ordinary income tax on the difference between the current basis of the asset and the sales price. Continue reading here.
Proposed Regulations Would Allow HRAs Integrated with Individual Health Insurance in 2020
Newly published proposed regulations from the U.S. Departments of Treasury, Health and Human Services, and Labor, if implemented, would significantly change the landscape in the healthcare market, reinstating (in new form) some health care reimbursement options that existed prior to the Affordable Care Act.
Not intended to be effective until final regulations are issued and not before 2020, the proposed rules seek to implement President Trump’s October 12, 2017, Executive Order 13813, which directed the agencies to propose guidance to expand employers’ ability to offer health reimbursement arrangements (HRAs) to their employees. The proposed rules would seek to restore some plan options to employers that ACA regulations subjected to a potential $100 per day per employee penalty.
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As you know, our work at the Center is dependent on the fees generated by seminar registrations and gifts. If you would like to donate to further the Center's efforts, please contact our Program Administrator, Tiffany Kayser at tlkayser@iastate.edu or (515) 294-5217. You can also give online with a credit card. We thank you for your generous support.
We're Coming to a Town Near You!
Our 45th Annual Federal Income Tax Schools begin tomorrow in Maquoketa! We hope to see you throughout the state as we teach a comprehensive, two-day update for the 2019 filing season. With the new tax law, this year is packed full of important information. It's our favorite time since we get to see so many of you only once a year. There's still time to enroll, but some locations are nearing capacity (i.e. Waterloo), so register now if you'd like to lock in a seat. We are at capacity and unable to accept any more registrations for Maquoketa. Remaining options include:
November 5-6, 2018 – Le Mars, Iowa – Le Mars Convention Center
November 7-8, 2018 – Atlantic, Iowa – Cass County Community Center
November 8-9, 2018 – Mason City, Iowa – North Iowa Area Community College
November 15-16, 2018 – Fairfield, Iowa – Fairfield Arts & Convention Center
November 19-20, 2018 – Waterloo, Iowa – Hawkeye Community College
December 10-11, 2018 – Ames, Iowa and Live Webinar – Quality Inn and Suites
Each session includes an optional hour of early-bird ethics. For more information or to register, click here. See you soon!
IRS Clarifies that Most Business Meals Still 50 Percent Deductible
On October 3, 2018, IRS issued Notice 2018-76, which was welcome news for many business owners. The Notice provides transitional guidance on the deductibility of business meal expenses in light of the Tax Cuts & Jobs Act's disallowance of deductions for entertainment expenses.
Many were concerned that the disallowance would extend to many client (or potential client) business meals, but the Notice, which may be relied upon until proposed regulations are published, clarifies that most business meal expenses will continue to be 50 percent deductible, as long as a separate invoice is issued for the food.
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What's New on TaxPlace?
TaxPlace is our subscription service where all of our recorded educational seminars (including the Ames tax school) are available for replay. The following premium updates were added to TaxPlace in October:
Webinar Replay: Prepare Yourself for the New Partnership Audit Regime