Interview with Team Who Wrote Net Investment Income Tax

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Bob Keebler interviews David Kirk and Adrienne Mikolshek, part of the team who wrote the Net Investment Income Tax regulations, to help members understand the new IRS Form 8960, Net Investment Income Tax for Individuals, Estates and Trusts and the draft instructions.

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Interview with Team Who Wrote Net Investment Income Tax

  1. 1. AICPA Podcast: Interview with David H. Kirk, CFP, CPA, JD, LLM and Adrienne M. Mikolashek, JD, LLM Presented by: Robert S. Keebler, CPA, MST, AEP Keebler & Associates LLP © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved
  2. 2. Introduction About the PFP Section & PFS Credential • The AICPA PFP Section provides information, resources, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and their closely held entities (learn more at aicpa.org/PFP) • The CPA/Personal Financial Specialist (PFS) credential distinguishes CPAs as subject-matter experts who have demonstrated their financial planning knowledge through experience, education and testing (learn more at aicpa.org/PFS) American Institute of CPAs® Personal Financial Planning Section 2
  3. 3. Introduction Presented by: Robert S. Keebler, CPA, MST, AEP Robert.Keebler@KeeblerandAssociates.com 920-593-1700 Disclaimer: The views and opinions expressed in this recording are solely those of the presenters and other contributors. These views and opinions do not necessarily represent those of the Internal Revenue Service or the U.S. Department of the Treasury. American Institute of CPAs® Personal Financial Planning Section 3
  4. 4. Introductory Questions 1) Who do you believe needs to know the rules under Section 1411 and the regulations thereunder – CPAs, lawyers, financial planners, only tax preparers, etc.? 2) What are some of the highlights from the Form 8960 instructions? American Institute of CPAs® Personal Financial Planning Section 4
  5. 5. Self-Rental Question Is it safe to say that self-rentals are not subject to the NIIT, provided the rental is to a trade or business in which the taxpayer materially participates? How do you report self-rentals on Form 8960? American Institute of CPAs® Personal Financial Planning Section 5
  6. 6. Regrouping Question The election to regroup your activities under the “fresh start” must be made in the first year you are subject to the NIIT. The instructions state that the determination of whether you met the NIIT applicable income threshold and have net investment income is made without regard to the effect of the regrouping. Therefore, if after the regrouping you are no longer subject to the NIIT – i.e., before the regrouping you had NII but because of the regrouping you no longer have NII – the regrouping will still stand, correct? It will not be voided, correct? American Institute of CPAs® Personal Financial Planning Section 6
  7. 7. Regrouping Question (continued) Example: Prior to regrouping you have only $1M in passive income from 10 different passive activities and therefore would be subject to the NIIT. If, however, you regroup under the “fresh start” provision (assuming the grouping is allowed under the regulations) and now have $1M from non-passive activities and therefore would no longer be subject to the NIIT, will the regrouping stand and not be voided because you are no longer subject to the NIIT (i.e., you no longer have NII)? How do you make a regrouping election on Form 8960? American Institute of CPAs® Personal Financial Planning Section 7
  8. 8. Real Estate Professional Safe Harbor Question Could you please explain how the real estate professional safe harbor works under the NIIT? How do you report income or loss from real estate activities that fall under the real estate professional safe harbor? American Institute of CPAs® Personal Financial Planning Section 8
  9. 9. Deduction Recoveries Question What is a deduction recovery? Could you please explain on deduction recoveries work under the NIIT? How do you report deduction recoveries on Form 8960? American Institute of CPAs® Personal Financial Planning Section 9
  10. 10. Sections 67 & 68 Limitation on Deductions Question Could you please explain how the section 67 & 68 limitations work on properly allocable deductions for NIIT? - First the deductions subject to section 67 (2% Floor) - Second the deductions subject to section 68 (3% Pease) How do you account for the section 67 & 68 limitations on Form 8960? American Institute of CPAs® Personal Financial Planning Section 10
  11. 11. Loss Deductions Question Could you please explain how loss deductions work under the NIIT? How do you report loss deductions on Form 8960? American Institute of CPAs® Personal Financial Planning Section 11
  12. 12. Question on Workpapers and File Retention Some of the lines on Form 8960 require multiple calculations and “netting” of many different unrelated amounts; i.e., the instructions for line 4b and line 7 describe the possibility of many different unrelated amounts that could be netted together and summarily put on line 4b and line 7 of Form 8960. Any suggested methods to keep track of these amounts in case of an IRS audit? What will the IRS possibly be looking for in case of an audit? American Institute of CPAs® Personal Financial Planning Section 12
  13. 13. Conclusion When do you anticipate the release of the Final 8960 Form? Do you anticipate that it will be substantially similar to the draft 8960 Form? American Institute of CPAs® Personal Financial Planning Section 13
  14. 14. Required Disclosure Under Circular 230 Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors. American Institute of CPAs® Personal Financial Planning Section 14
  15. 15. Resources for Post-ATRA & NIIT Planning Planning After ATRA and the Net Investment Income Tax Toolkit • • • aicpa.org/pfp/proactiveplanning Complimentary PFP Section member/PFS credential holder benefit Includes Bronze Edition of Tax Evaluator, infographic on tax brackets, planning ideas to use in client meetings, client communication templates, webcast/podcast archives, and more! Other Resources for Purchase from Bob Keebler (www.cpa2biz.com) • • Tax Planning After the Healthcare Surtax: Tools, Tips, and Tactics* The Rebirth of Roth: A CPA's Ultimate Guide for Client Care* Now Available! More Resources for Purchase from Bob Keebler* (www.cpa2biz.com) • • Planning Opportunities After ATRA: Tools, Tips, and Tactics (PTX1307M) Tax Rate Evaluator: A Graphical Calculator for Tax Planning After ATRA (PTX1306M) Visit aicpa.org/pfp/join to become a member *discounts available for PFP/PFS members American Institute of CPAs® Personal Financial Planning Section 15

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