IRS Begins Launching 2015 Draft Forms and Instructions; What's New for 2015.

(Parker Tax Publishing October 16, 2015)

The IRS has begun releasing draft 2015 tax forms and related instructions. The Forms 1040 instructions note that the filing deadline for 2015 returns is April 18, 2016, due to the Emancipation Day holiday in the District of Columbia. Taxpayers who live in Maine and Massachusetts have until April 19, 2016, to file their returns because of the Patriot's Day holiday in those states. The following are some highlights of what's been released so far.

Forms 1040, 1040A, and 1040EZ: Direct Deposits to myRA Now Available

Forms 1040, 1040A, and 1040EZ contain a number of changes, most notably the ability to have a tax refund deposited directly into a new retirement savings program called "myRA." This is a starter retirement account offered by the Treasury Department. The program allows individuals to establish Roth individual retirement accounts (Roth IRAs) with a Treasury Department designated custodian. The purpose of these accounts is to allow savers to begin investing for retirement with no start-up costs and no fees. Participants in the program can continue to make periodic electronic contributions in any amount to their account and the amounts contributed will be invested exclusively in new retirement savings bonds. The designated custodian for the program will purchase and hold the bonds for the benefit of the participants. The new savings bond is only available to participants in myRA and will protect the principal contributed while earning interest at a rate previously available only to federal employees invested in the Government Securities Investment Fund (G Fund) of their Thrift Savings Plan. Individuals can continue to participate in the program until their account balance reaches $15,000 or until they have participated in the program for 30 years, whichever occurs first. At any time, participants can transfer their balance to a commercial financial services provider to take advantage of a broader array of retirement products available in the marketplace. Because the accounts offered through the program are Roth IRAs, they have the same tax treatment and follow the same rules as Roth IRAs. Participants can keep their account and can continue investing in the retirement savings bond even if they change jobs.

Forms 1040, 1040A, 1040EZ: Nonqualified Distributions from ABLE Savings Accounts Treated as Other Income

In December 2014, as part of the Tax Extenders legislation, President Obama signed into law the Achieving a Better Life Experience (ABLE) Act of 2014. ABLE enacted Code Sec. 529A to create tax-free savings accounts for individuals with disabilities. ABLE Plans are state-sponsored accounts that supplement benefits provided through private insurance, the Medicaid program, the supplemental security income program, the beneficiary's employment, and other sources. To qualify, the beneficiary must have become blind or disabled before reaching age 26. In contrast to qualified tuition plans, only one 529A plan is permitted per beneficiary. Additionally, the beneficiary must be a resident of the state that established the account.

Contributions are in after-tax dollars but earnings grow tax-free just like with 529 college savings accounts. Withdrawals must be for qualified expenses, or else the earnings portion are subject to regular income tax and a 10-percent penalty. State penalties may also apply. For 2015, contributions of up to $14,000 are allowed. Distributions are tax-free if used to pay the beneficiary's qualified disability expenses. Contributions are not deductible and withdrawals for nonqualified expenses or distributions which exceed the qualified disability expenses are reported on Form 1040 as Other Income.

Form 5329: Sections Revised and Added for Nonqualified Distributions and Excess Contributions Relating to ABLE Savings Accounts

Nonqualified distributions from 529 ABLE Plan accounts are subject to a 10-percent penalty tax. In addition, excess contributions to the account are subject to tax. As a result, Part II of Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, was revised for the penalty tax and a new Part VIII was added to reflect the tax on excess 529 ABLE Plan contributions

Forms 1040, 1040A, 1040EZ: IRS Now Reserving Lines for Possible Late Legislation

While drafts of the Forms 1040 have not yet been released, the instructions to those forms note that Congress has sometimes extended expired tax benefits after form instructions, and sometimes the forms themselves, have been printed. Thus, those lines are now shown as "Reserved" in the instructions in case Congress extends such tax benefits. Benefits that expired for 2015 but which may be resurrected at the last minute include the deduction for educator expenses and the tuition and fees deduction. It remains to be seen if the actual form itself, once released, will show those lines as "reserved" since Congress has been known to reinstate deductions retroactively to a prior year.

Form 3115: Automatic Change Codes Moved to IRS Website; Change in Filing Address

Form 3115, Application for Change in Accounting Method, is used by taxpayers to request a change in either an overall method of accounting or the accounting treatment of a particular item. There are two procedures for which a taxpayer may request a change in method of accounting: (1) automatic change request procedures, and (2) non-automatic change request procedures. In prior years, instructions to Form 3115 listed the automatic accounting method change numbers for each automatic change request being reported on Form 3115.

In the draft instructions to the 2015 Form 3115, the IRS states that it will no longer include these automatic change numbers in the instructions to Form 3115. Instead, to allow for more timely updates, the IRS has moved the codes to the IRS website at irs.gov/form3115.

OBSERVATION: The IRS's decision to move the automatic change numbers from the printed instructions to its website comes in the wake of an uproar over the IRS's failure to update the instructions for the 2014-15 tax season. The outdated instructions omitted more than two-dozen new codes required for changes relating to the final tangible property regulations (a.k.a., the "repair regs").

In previous years, there were several addresses from which a taxpayer had to choose for sending a Form 3115 to the IRS. The IRS has simplified the filing addresses for Form 3115 as follows:

For automatic change requests by mail and private delivery service the filing address is: Internal Revenue Service, 201 West Rivercenter Blvd., PIN Team Mail Stop 97, Covington, KY 41011-1424.

For non-automatic change requests by mail and private delivery service the filing address is: Internal Revenue Service, Attn: CC:PA:LPD:DRU, Room 5335, 1111 Constitution Ave., NW, Washington, DC 2004.

Form 8885: Health Coverage Tax Credit Reinstated

The Trade Preferences Extension Act of 2015, enacted June 29, 2015, extended and modified the expired Health Coverage Tax Credit (HCTC). Previously, those eligible for HCTC could claim the credit against the premiums they paid for certain health insurance coverage through 2013. The HCTC can now be claimed for coverage through 2019. As a result, the IRS has revived Form 8885, Health Coverage Tax Credit. A draft of the 2015 Form 8885 may be found at irs.gov/pub/irs-dft/f8885--dft.pdf

Taxpayers that want to claim the credit for 2014 must wait for IRS guidance. The credit cannot be claimed using an old or altered Form 8885 because, while the new law is similar to the version that expired in 2013, it includes modifications that affect how the credit is administered. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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