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The IRS has issued proposed and temporary regulations under Code Sec. 530A, regarding general requirements for Trump accounts, the establishment of an initial account, including automatic enrollment by the Secretary of the Treasury, and qualified general contributions. Proposed regulations issued in March 2026 (NPRM REG-117270-25) that provided guidance on establishing Trump accounts, but did not establish automatic enrollment due to time constraints in resolving legal and administrative issues, are withdrawn. The temporary regulations apply to tax years beginning on or after January 1, 2026, and expire on September 30, 2029.

General Requirements and Establishment of an Account

A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A(b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.

The Secretary may make an election to establish an auto account for a qualifying individual. Another person may elect to establish a Trump account for an eligible individual by filing Form 4547 or via the electronic application or webpage made available by the Secretary. A person may claim an auto account pursuant to Temp. Reg. §1.530A-1T(d)(1)(iv) by establishing a claimed initial Trump account and having the funds in the auto account transferred to the claimed initial Trump account. On or about October 1, 2026, the Secretary shall establish an auto account for each person whom the Secretary has determined to meet the requirements of Temp. Reg. §1.530-A-1T(b)(2) to be an eligible individual, and from whom no prior election has been made. Periodic elections to establish accounts for eligible individuals will be made after that date.

Administration of an auto account is the Secretary's responsibility. During the growth period, an account may only accept qualified general contributions under Code Sec. 530A(f) and a $1,000 pilot program contribution. An auto account's only investment must be its equitable interest in the master group trust, which is a trust established for the exclusive benefit of account beneficiaries of auto accounts for purposes of holding investments of those auto accounts and meets the applicable requirements of Rev. Rul. 81-100, as modified, and is exempt from tax under Code Sec. 408(e).

Qualified General Contributions and Qualified Stock Contributions

Temp. Reg. §1.530A-7T establishes the framework for qualified general contributions to Trump accounts. A qualified general contribution must originate from an eligible donor, be accepted by the Secretary through a Treasury acceptance agreement, be made to beneficiaries within an approved class, and be allocated equally among all beneficiaries in that class. An approved class must include at least 5,000 account beneficiaries and include all account beneficiaries who are still in their growth period, reside in the specified geographic location, and born in one or more years identified in the Treasury acceptance agreement.

The regulations also create rules for qualified stock contributions, allowing eligible donors to contribute certain publicly traded stock issued by domestic corporations directly to Trump accounts. Such stock is generally subject to a minimum holding period ending on the earlier of five years after contribution or the beneficiary’s growth period ending.

Contributions made to qualifying Code Sec. 501(c)(3) organizations to fund general funding contributions are deductible under applicable charitable deduction rules, and gifts to eligible donor organizations are treated as qualifying charitable transfers. A Code Sec. 501(c)(3) organization furthers its exempt purposes by making a qualifying general funding contribution, whether directly or through a donor-advised fund. In addition, such contributions are treated as expenditures for charitable purposes and generally are not considered grants or distributions to individuals for purposes of the private foundation and donor-advised fund expenditure responsibility rules.

T.D. 10056

CC-00226466-26

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The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates,
2. the rate for the incidental expenses only deduction,
3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates,
2. the rate for the incidental expenses only deduction,
3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates

The special M&IE rates for taxpayers in the transportation industry are:

$80 for any locality of travel in the continental United States (CONUS), and
$86 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate

The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the 2026-2027 special per diem rates are:

$329 for travel to any high-cost locality, and
$230 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

$86 for travel to any high-cost locality, and
$74 for travel to any other locality within CONUS

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

$86 for travel to any high-cost locality, and
$74 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

Notice 2025-54, I.R.B. 2025-41, 479 is superseded.

Notice 2026-60

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For 2027, the Social Security wage cap will be $192,300, and Social Security and Supplemental Security Income (SSI) benefits will increase by 3.6 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

a 12.4 percent OASDI tax; and
a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2027, the wage base is $192,300. Thus, OASDI tax applies only to the taxpayer’s first $192,300 in wages or net earnings from self-employment. Taxpayers do not pay OASDI tax on earnings that exceed $192,300.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2027

For workers who earn $192,300 or more in 2027:

an employee will pay a total of $11,922.60 in social security tax ($192,300 x 6.2 percent);
the employer will pay the same amount; and
a self-employed worker will pay a total of $23,845.20 in social security tax ($192,300 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

$250,000 for married taxpayers who file a joint return;
$125,000 for married taxpayers who file separate returns; and
$200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2027

Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2027 by 3.6 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

Social Security Fact Sheet: 2027 Social Security Changes

SSA Press Release: Social Security Announces 3.6 Percent Benefit Increase for 2027

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The IRS established the IRA Compliance Resolution System (ICRS) to permit IRA owners and custodians to correct failures related to individual retirement arrangements by submitting a request to the IRS. Failures eligible for ICRS include required minimum distribution failures and nonspouse beneficiary rollover failures. The revenue procedure will also govern requests for waivers from the 60-day rollover requirement from IRAs as well as qualified employer-sponsored plans. The revenue procedure is effective May 1, 2027.

Self-Correction Not Available

The new system implements provisions of the SECURE 2.0 Act of 2022, P.L. 117-328, requiring expansion of the Employee Plans Compliance Resolution System (EPCRS) for qualified retirement plans to allow IRA custodians to address eligible inadvertent failures involving IRAs. The new ICRS consists of the IRA Voluntary Correction Program (IVCP), although additional correction programs may be introduced later. Self-correction of IRA failures is not currently available under ICRS. Instead, the IRA custodian or owner must make a submission to the IRS using the provided procedures and pay a fee on the Pay.gov website.

60-Day Rollover Waiver Requests

The procedure also establishes a process for requesting waivers of the 60-day rollover requirement under Code Secs. 402 and 408 through ICRS. During 2027, eligible applicants may request waivers through either ICRS or the existing private letter ruling process. Beginning in 2028, the IRS anticipates that such requests will be permitted only under ICRS.

Waiver requests may involve eligible rollover distributions from IRAs, qualified retirement plans, annuity plans, tax-sheltered annuities and governmental deferred compensation plans. Automatic waivers and waiver relief under previous guidance remains available.

Rev. Proc. 2026-33

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The IRS updated the Employee Plans Compliance Resolution System (EPCRS), its comprehensive system of corrections programs for employer-sponsored qualified retirement plans. The updates reflect significant changes to EPCRS made by the SECURE 2.0 Act (P.L. 117-328) and subsequent guidance. Former procedures under Rev. Proc. 2021-30 are modified and superseded. The revised procedures are effective October 22, 2026.

The bulk of the changes in the revised procedures reflect the SECURE 2.0 Act’s expansion of EPCRS’s Self Correction Program component to permit self-correction of eligible inadvertent failures, including plan loan failures. Other changes made by SECURE 2.0 and incorporated into the revised EPCRS include safe harbor corrections under Code Sec. 414(cc) and the recovery of retirement plan overpayments under Code Sec. 414(aa).

Other changes made in the revised revenue procedure include:

References to the availability of a separate compliance resolution system for IRA failures.
Updates reflecting changes to the determination letter and opinion letter programs.
Revisions to correction methods for SEPs and SIMPLE IRA plans.
Revisions to procedures for locating lost participants.
Revisions to the correction principle for failure to obtain spousal consent.
Changes to the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP), such as revised procedures for a group submission under VCP.

Rev. Proc. 2026-34

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The IRS has issued final regulations under Code Sec. 6311 implementing changes made by the Taxpayer First Act. The regulations permit the IRS to pay fees under contracts for processing tax payments by credit or debit card, provided the fees are fully recouped from taxpayers making those payments. The regulations remove restrictions on the IRS’s payment of fees under such contracts and on the imposition of reimbursement fees on persons paying taxes by credit or debit card.

Payment Processing Fees

The regulations authorize the IRS to enter into contracts for receiving tax payments by credit or debit card if the contracts are cost beneficial to the government. Under certain contracts, the IRS may pay fees, charges, or other monetary consideration to payment processors. If the IRS pays fees under these contracts, it must recoup the full amount from taxpayers making payments by credit or debit card. The reimbursement fees are payable at the time of, and in addition to, the tax payment and are limited to the amounts paid by the IRS under the contracts. The IRS must seek to minimize the fees paid under these arrangements.

Under other contracts, the IRS may elect not to pay fees to payment processors. Such arrangements do not prohibit card issuers, financial institutions, or other persons participating in the transactions from imposing their own fees or charges. The IRS may not receive any portion of those fees.

Error Resolution Procedures

Payments of taxes by credit or debit card, including reimbursement fees paid under the regulations, are subject to applicable error-resolution procedures under the Truth in Lending Act, the Electronic Fund Transfer Act, or similar state or local laws. These procedures apply to errors relating to the credit or debit card account but do not apply to disputes, errors, or adjustments concerning the underlying tax liability. Reimbursement fees paid under the regulations are not taxes imposed by the Internal Revenue Code and are not eligible for refund or credit under Code Sec. 6402.

Applicability

The final regulations amend existing regulations under Code Sec. 6311 to implement changes made by the Taxpayer First Act. The rules apply to tax payments and reimbursement fees made on or after the date of publication in the Federal Register.

T.D. 10060

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The IRS has issued proposed and temporary regulations providing guidance on the new federal scholarship tax credit under Code Sec. 25F. Beginning after 2026, an individual may claim a nonrefundable federal income tax credit for contributions to certified scholarship granting organizations (SGOs) issuing scholarships to students in K-12 schools. The regulations clarify how the credit is calculated, including the treatment of state tax credits, credit carryforwards, and substantiation requirements. They also establish immediate administrative rules for SGOs and states that opt into the program and identify SGOs.

Credit Eligibility and Calculation

An individual may claim a credit for qualified cash contributions made directly to eligible SGOs. The annual credit is generally limited to $1,700 per taxpayer or $3,400 for married individuals filing jointly. Contributions made through pass-through entities, including partnerships and S corporations, are not eligible for the credit. The taxpayer must reduce the federal tax credit by the amount of any state tax credit attributable to the same contribution before applying the federal limitation. Unused credit amounts may be carried forward for up to five years.

A taxpayer claiming the credit may not claim a charitable contribution deduction for the same contribution and must satisfy specified substantiation and reporting requirements. This includes use of a unique donor identification number on new Form 8525. The taxpayer donor must designate contributions as eligible for the credit at the time they are made. Once made, the designation is irrevocable.

A taxpayer may contribute to an eligible SGO regardless of their state of residence, allowing them to support qualifying SGOs across participating states.

Scholarship Granting Organizations

To qualify as an SGO, an organization must be recognized as a tax-exempt public charity, maintain separate accounts for qualified contributions and scholarship funds, and devote at least 90 percent of required expenditures to scholarships. SGOs must verify student eligibility, ensure scholarship funds are used solely for qualified elementary and secondary education expenses, and adopt procedures to prevent scholarships from benefiting disqualified persons. The regulations also require SGOs to register with the IRS, furnish acknowledgments to contributors, file annual reports, and maintain records demonstrating compliance with federal requirements.

State Participation

A state may elect to participate the federal scholarship tax program either through an advanced election or through the submission of a state SGO list. A state seeking to participate must annually certify eligible SGOs and provide the IRS with information demonstrating that the organizations satisfy federal requirements. The IRS will maintain and publish a nationwide list of eligible SGOs upon which taxpayers may generally rely when making contributions and claiming credits.

Applicability

Taxpayers, SGOs, and states may rely on the proposed regulations for qualified contributions beginning on or after January 1, 2027. The temporary regulations apply on or after September 1, 2026, and expire on October 1, 2029.

T.D. 10057

Proposed Regulations, NPRM REG-117199-25

IR 2026-117

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The Treasury Department and IRS have issued proposed regulations under Code Sec. 1062 governing the election to pay tax attributable to gain from qualified sales or exchanges of qualified farmland property in four annual installments. The proposed regulations define qualified farmland property and qualified farmers, provide rules for making the election, and address pass-through entities and acceleration events.

Qualified Farmland Property

Qualified farmland property generally is U.S. real property that was used by the taxpayer as a farm for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years preceding the sale or exchange. The property also must be subject to a covenant prohibiting nonfarm use for 10 years following the sale or exchange. A copy of the covenant must be attached to the taxpayer's return for the taxable year of the sale or exchange.

The proposed regulations provide that certain periods of nonuse will be disregarded in applying the 10-year farming use requirement. These include periods during which property is removed from production under a government program, pursuant to recognized farming practices, or because of unforeseen events outside the taxpayer's control, provided the property continues to be maintained for farming purposes.

Election and Installment Payments

Taxpayers would make the election by filing Form 1062, Deferral of Tax on Gain from the Sale or Exchange of Qualified Farmland Property to Qualified Farmers, and Schedule A (Form 1062). Once made, the election generally may be revoked only by paying the remaining unpaid applicable net tax liability. Each installment payment equals 25 percent of the taxpayer's applicable net tax liability. The first installment generally must be paid by the return due date, determined without regard to the extensions, for the taxable year of the sale or exchange.

Pass-Through Entities and Acceleration Events

Under the proposed regulations, partners, S corporation shareholders, beneficiaries, and other owners generally may make the election with respect to applicable net tax liability arising from a qualified sale or exchange by a pass-through entity. Pass-through entities must furnish Schedule A information and the covenant to owners and beneficiaries and report each owner's allocable share of gain.

The proposed regulations also provide rules accelerating unpaid installment payments following certain events. Acceleration events include failure to timely pay an installment, the death of an individual taxpayer, and certain liquidations, dispositions of substantially all assets, and other specified events involving corporations, trusts, and estates. The proposed regulations also provide procedures under which an eligible transferee may assume the remaining installment obligations in certain transactions.

The proposed regulations would apply to qualified sales and exchanges occurring in taxable years ending after publication of final regulations in the Federal Register. Taxpayers may rely on the proposed regulations for qualified sales and exchanges occurring in taxable years beginning after July 4, 2025, provided they apply the rules consistently and in their entirety. Treasury and the IRS requested comments on the proposed regulations and requests for a public hearing within 60 days after publication in the Federal Register.

Proposed Regulations, NPRM REG-117095-25

IR 2026-115

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As the excitement of understanding what artificial intelligence can do for the tax profession starts to subside, the conversation is beginning to shift to risk management and risk assessment. To that end, the American Institute of CPAs has launched a new initiative – the Council on AI Risk in Tax (CART) – to help tax professionals manage risk.

CART was born out of a risk assessment framework recently developed by former IRS Commissioner Daniel Werfel that was published by AICPA after asking representatives of state tax authorities what he could do for them following his departure from the IRS.

“They said, ‘you know Danny, we are seeing so many interesting, exciting demos of AI products that really have paradigm-shifting productivity … but we don’t know what the risks are. We don’t know what questions we should ask ourselves to make sure that, as a tax authority, we are ready to deploy these powerful AI tools responsibly,” Werfel, senior fellow at Johns Hopkins University School of Government & Policy, said in an interview, adding that they also inquired about questions they should be asking vendors about safety features and other risks they should be looking out for.

“I did some immediate research and learned that there wasn’t an AI risk framework or risk register specific to tax,” he added, leading him develop version one of the recently published risk framework.”

From there, he approached AICPA as the place to publish the framework and through those conversations, created CART as a place for tax professionals and state tax administrators to collaborate on AI risk and further refine the framework.

“With AI, it’s obviously new,” Melanie Lauridsen, AICPA vice president of tax policy and advocacy, added. It’s ever evolving. There’s a huge interest. There’s a lot of unknowns, and there’s nothing really out there right now beyond what I have seen what Danny put forward to help guide people in this area.”

The Framework

The published framework states that it is more than a simple list of “relevant risks. The formulation and activation of the list means the organization has learned to:

Define how risks show up in practice;
Assign controls;
Establish indicators; and
Make course corrections as the environment evolves.

In this way the register is part of a broader risk governance framework to help organizations chart a sensible path forward from strategy to implementation.”

The publication includes distinct frameworks for both tax authorities and tax preparers. For tax authorities, the publication highlights 20 risk areas across four categories:

Information integrity – The wrong information reaching taxpayers at scale.
Fairness and legitimacy – Disparate or unfair treatment across groups.
Security and data – Compromised systems, corrupted data, or the exploitation of sensitive taxpayer information at AI systems aggregate, surface, or make newly accessible to band actors.
Institutional capacity – Loss of the knowledge and capacity by the institution needed to govern AI responsibility over time.

For tax preparers, there are 15 risk areas across 5 categories:

Technical – Incorrect or unreliable AI outputs that establish the conditions for downstream errors.
Practice – Failures of professional judgement, documentation, or oversight.
Legal and regulatory – Increased exposure to legal liability (e.g., malpractice claims, regulatory sanctions).
Business – Erosion of client trust and firm relationships.
Workforce and Strategic – Loss of the expertise and institutional knowledge needed to practice responsibly.

The framework “establishes a notional risk register for tax authorities and presents that side-by-side with a distinct register for tax preparers,” the framework document states. “It also identifies important areas of overlap across the two.”

A Living Framework

Werfel noted that this is not intended to be a one-and-done framework, but rather a living document that he anticipates will be updated on a regular basis.

“I wanted to give myself six months of feedback and iteration,” he said. “I told CART at our kickoA meeting [that] once we issue version two after six months, then I think it’s an annual [update] from there. But in this form, version one to version two, I wanted to put a little bit more accelerated because that’s the highest risk point for it missing something big in the risk register itself.”

Lauridsen add that convening CART regularly and discussing risks and best practices associated with those risks and updating the framework “is the right approach” as opposed to trying to build a firm set of standards for risk assessment and risk management of AI.

“We don’t know what it’ll be in a month, two months, much less six months or a year,” Lauridsen said, noting the fast evolution AI is currently experiencing. “I think it would be a disservice to come forward with a standard right now.”

She continued: “Right now, it’s more best practices. Everybody’s trying to get their minds and arms around it and how to implement it.”

Werfel added that the feedback will be very important when the framework goes through future iterations, as the CART members will be able to report back when the framework works and more importantly, when it “missed the bullseye” by the cross section of accounting, law firms, government associations and AI vendors.

“My hope is that if it’s oA bullseye, we’ll hear about it and update it,” Werfel said.

He did not rule out seeing the framework converted into an industry standard somewhere down the line, but for now, the focus is to just keep this a framework that users can use as a best practices guide to assessing risks of AI tools that states and practitioners are considering for implementation.

In the near term, Werfel said that an idea was floated to CART to make a voluntary pledge to follow the framework that CART produces. It would be completely voluntary, but a pledge to follow it would be “hopefully helpful to rally attention to AI risk.”

By Gregory Twachtman, Washington News Editor

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The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) extended the 50-percent additional first-year bonus depreciation allowed under the Economic Stimulus Act of 2008, providing a generous boost for many businesses in 2009 in light of the economic downturn. Under the 2009 Recovery Act, all businesses, large or small, can immediately depreciate an additional 50-percent of the cost of certain qualifying property purchased and placed in service in 2009, from computer software to plants and equipment.

The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) extended the 50-percent additional first-year bonus depreciation allowed under the Economic Stimulus Act of 2008, providing a generous boost for many businesses in 2009 in light of the economic downturn. Under the 2009 Recovery Act, all businesses, large or small, can immediately depreciate an additional 50-percent of the cost of certain qualifying property purchased and placed in service in 2009, from computer software to plants and equipment. Moreover, the 50-percent bonus depreciation allowance can be taken together with any Code Sec. 179 expensing, which was also extended through 2009.

Bonus basics

The 2009 Recovery Act (just as with the 2008 Stimulus Act) allows all businesses to take a bonus first-year depreciation deduction of 50-percent of the adjusted basis of qualified property purchased and placed in service for use in your trade or business after December 1, 2009, and generally before January 1, 2010. Bonus depreciation is allowed only for: (1) tangible property to which MACRS applies that has an applicable recovery period of 20 years or less, (2) water utility property, (3) certain computer software, and (4) qualified leasehold improvement property. It is not allowed for intangible property, with the exception of certain computer software.

Bonus depreciation can be claimed for both regular and alternative minimum tax (AMT) liability. It is also important to note that, since bonus depreciation is treated as a depreciation deduction, it is subject to recapture as ordinary income under certain provisions of the Internal Revenue Code. And if you have a tax year that is less than 12 months, the amount of the bonus depreciation allowance is not affected by a short tax year.

Computing your bonus depreciation

To figure your allowable 50-percent bonus depreciation deduction, you must multiple the unadjusted depreciable basis of the property by 50 percent. This is the amount of additional first-year depreciation you can deduct in 2009. For example, you purchase qualifying property for your business in 2009 that costs $150,000. You are allowed an additional first-year depreciation deduction of $75,000.

Note. The "unadjusted depreciable basis" is the property's cost (including amounts you paid in case, debt obligations, or other property or services, plus any amounts you paid for items such as sales tax, freight charges, installation, or testing fees).

Regular depreciation. After you have computed the 50-percent bonus depreciation allowance for the property, you can use the remaining cost to compute your regular MACRS depreciation for 2009 and subsequent years. Under MACRS, the cost or other basis of an asset is generally recovered over a specific recovery period. In this case, the property must have a recovery period of 20 years or less.

Example. Assume that in 2009 a taxpayer purchases new depreciable property and places it in service. The property's cost is $1,000 and it is 5-year property subject to the half-year convention. The amount of additional first-year depreciation allowed under the provision is $500. The remaining $500 of the cost of the property is deductible under the rules applicable to 5-year property. Thus, 20 percent, or $100, is apportioned to 2009, which computes to an additional $50 regular depreciation deduction in 2009 under the half-year convention. Accordingly, the total depreciation deduction with respect to the property for 2009 is $550. The remaining $450 cost of the property is recovered under otherwise applicable rules for computing depreciation in subsequent years.

Code Sec. 179 expensing. The 50-percent bonus depreciation allowance is taken after any Code Sec. 179 expense deduction and before you compute regular depreciation under MACRS rules. Therefore, the cost (basis) of the property must be reduced by the amount of any Code Sec. 179 expense allowance claimed on the property before computing the 50-percent bonus depreciation allowance (multiplying the property's basis by 50-percent). Regular depreciation under MACRS is then computed after you have reduced the basis by any Code Sec. 179 expensing allowance and the 50-percent bonus depreciation allowance.

Example. On April 14, 2009, Tom bought and placed in service in his business qualified tangible property that cost $1 million. He did not elect to claim the Code Sec. 179 expensing deduction and he claims no other credits or deductions related to the property. He may deduct 50-percent of the cost ($500,000) for purposes of the 2009 special bonus depreciation. He will use the remaining $500,000 of the property's cost to figure his regular MACRS depreciation deduction for 2009 and the years thereafter.

Example. The facts are the same as above, except Tom uses the Code Sec. 179 expensing deduction. On April 14, 2009, Tom bought and placed in service in his business qualified tangible property that cost $750,000. He elects to deduct $250,000 of the property's cost as a Code Sec. 179 deduction. Tom will apply the 50-percent bonus depreciation allowance to $500,000 ($750,000 - $250,000), which is the cost of the property after subtracting the section 179 expensing deduction. Tom will then deduct 50-percent of the cost after section 179 expensing ($250,000) for purposes of the 2009 special bonus depreciation. He will use the remaining $250,000 of the property's cost to figure his regular MACRS depreciation deduction for 2009 and the years thereafter.

Computing bonus depreciation can be a complicated process, as many variables may come into play. Our tax professionals can help determine the best way for your business to utilize the new bonus depreciation allowance together with other tax incentives to achieve significant tax savings.

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On December 18, 2007, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 (Mortgage Debt Relief Act), providing some major assistance to certain homeowners struggling to make their mortgage payments. The centerpiece of the new law is a three-year exception to the long-standing rule under the Tax Code that mortgage debt forgiven by a lender constitutes taxable income to the borrower. However, the new law does not alleviate all the pain of all troubled homeowners but, in conjunction with a mortgage relief plan recently announced by the Treasury Department, the Act provides assistance to many subprime borrowers.

On December 18, 2007, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 (Mortgage Debt Relief Act), providing some major assistance to certain homeowners struggling to make their mortgage payments. The centerpiece of the new law is a three-year exception to the long-standing rule under the Tax Code that mortgage debt forgiven by a lender constitutes taxable income to the borrower. However, the new law does not alleviate all the pain of all troubled homeowners but, in conjunction with a mortgage relief plan recently announced by the Treasury Department, the Act provides assistance to many subprime borrowers.

Cancellation of debt income

When a lender forecloses on property, sells the home for less than the borrower's outstanding mortgage debt and forgives all, or part, of the unpaid debt, the Tax Code generally treats the forgiven portion of the mortgage debt as taxable income to the homeowner. This is regarded as "cancellation of debt income" (reported on a Form 1099) and taxed to the borrower at ordinary income tax rates.

Example. Mary's principal residence is subject to a $250,000 mortgage debt. Her lender forecloses on the property in 2008. Her home is sold for $200,000 due to declining real estate values. The lender forgives the $50,000 difference leaving Mary with $50,000 in discharge of indebtedness income. Without the new exclusion in the Mortgage Debt Relief Act, Mary would have to pay income taxes on the $50,000 cancelled debt income.

The Mortgage Debt Relief Act

The Mortgage Debt Relief Act excludes from taxation discharges of up to $2 million of indebtedness that is secured by a principal residence and was incurred to acquire, build or make substantial improvements to the taxpayer's principal residence. While the determination of a taxpayer's principal residence is to be based on consideration of "all the facts and circumstances," it is generally the one in which the taxpayer lives most of the time. Therefore, vacation homes and second homes are generally excluded.

Moreover, the debt must be secured by, and used for, the principal residence. Home equity indebtedness is not covered by the new law unless it was used to make improvements to the home. "Cash out" refinancing, popular during the recent real estate boom, in which the funds were not put back into the home but were instead used to pay off credit card debt, tuition, medical expenses, or make other expenditures, is not covered by the new law. Such debt is fully taxable income unless other exceptions apply, such as bankruptcy or insolvency. Additionally, "acquisition indebtedness" includes refinancing debt to the extent the amount of the refinancing does not exceed the amount of the refinanced debt.

The Mortgage Debt Relief Act is effective for debt that has been discharged on or after January 1, 2007, and before January 1, 2010.

Mortgage workouts

In addition to foreclosure situations, some taxpayers renegotiating the terms of their mortgage with their lender are also covered by the new law. A typical foreclosure nets a lender only about 60 cents on the dollar. When the lender determines that foreclosure is not in its best interests, it may offer a mortgage workout. Generally, in a mortgage workout the terms of the mortgage are modified to result in a lower monthly payment and thus make the loan more affordable.

More help

Recently, Treasury Department officials brokered a plan that brings together private sector mortgage lenders, banks, and the Bush Administration to help homeowners. The plan is called HOPE NOW.

Here's how it works: The HOPE NOW plan is aimed at helping borrowers who were able to afford the introductory "teaser" rates on their adjustable rate mortgage (ARM), but will not be able to afford the loan once the rate resets between 2008 and 2010 (approximately 1.3 million ARMs are expected to reset during this period). The plan will "freeze" these borrowers' interest rates for a period of five years. The plan, however, has some limitations that exclude many borrowers. Only borrowers who are current on their mortgage payments will benefit. Borrowers already in default or who have not remained current on their mortgage payments are excluded.

Under the HOPE NOW plan, borrowers may be able t

- Refinance to a new mortgage;

- Switch to a loan insured by the Federal Housing Authority (FHA);

- Freeze their "teaser" introductory rate for five years.

Without the Mortgage Debt Relief Act, a homeowner who modifies the terms of their mortgage loan, or has their interest rate frozen for a period of time, could be subject to debt forgiveness income under the Tax Code. This is why the provision of the Mortgage Debt Relief Act excluding debt forgiveness income from a borrower's income is a critical component necessary to make the HOPE NOW plan effective.

If you would like to know more about relief under the Mortgage Forgiveness Debt Relief Act of 2007 and the Treasury Department's plan, please call our office. We are happy to help you navigate these complicated issues.

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With the holidays quickly approaching, you as an employer may not only be wondering what type of gift to give your employees this season, but the tax consequences of the particular gift you choose. The form of gift that you give this holiday season not only has tax consequences for your employees, but for your business as well. If you plan on giving your employees a gift that can be basted or baked this holiday season, such as a traditional turkey or ham, you should understand how that gift will be treated by the IRS for tax purposes.

De minimis fringe benefit

Gifts of holiday turkeys and hams given to employees are considered non-taxable de minimis employee fringe benefits. They are excluded from employees' income and are fully deductible as a non-wage business expense by the employer. Moreover, the value of the turkey and ham is 100 percent deductible; that is, it is not subject to the 50 percent deductible limitation that generally applies to meals.

Generally, gifts provided to employees are treated as supplemental wages subject to income and payroll taxes unless the benefit is specifically excluded from tax by law. However, gifts considered to be a "de minimis" fringe benefit are not taxable to the employee. Code Sec. 132(a)(4) provides that gross income does not include a fringe benefit that qualifies as a "de minimis" fringe benefit. A de minimis fringe benefit is defined in Code Sec. 132(e)(1) as any property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable after taking into account the frequency with which similar fringe benefits are provided by the employer to the employer's employees.

Generally, de minimis fringe benefits must satisfy the following requirements:

The value of the gift must be nominal;
Accounting for the gift would be administratively impractical;
The gift is provided only occasionally; and
The gift is given to promote the good will or health of employees.

In Treasury Reg. Sec. 1.132-6(e)(1), the IRS has specifically included traditional holiday gifts (not cash) with a low fair market value as a de minimis fringe benefit excludable from tax. The gift to employees of a holiday turkey or ham has long been recognized as falling within the rules for de minimis employee fringe benefits, and is not taxable to employees.

Gift certificates are taxable

If you give your employees a gift certificate or gift card (or similar item that can readily be converted into cash) for a turkey or ham in lieu of the actual food item itself, the value of the gift certificate or gift card is considered to be additional salary or wages and subject to income and payroll taxes. Gift certificates and gift cards are "cash equivalents" and taxable to employees even though the turkey itself, if provided in kind directly to the employee, is excludable from tax as a de minimis fringe benefit.

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