THE 2018 BIPARTISAN BUDGET ACT’S RETROACTIVE PROVISIONS AND THE CURRENT FILING SEASON
The Bipartisan Budget Act of 2018 (BBA), which was enacted after IRS issued final versions of 2017 tax forms, made retroactive tax law changes that affect 2017 returns. This article discusses how IRS is progressing in making it possible for taxpayers to file 2017 returns that reflect those retroactive changes.
Background—the Bipartisan Budget Act’s retroactive provisions. On Feb. 9, 2018, Congress passed, and the President signed into law, the BBA (P.L. 115-123). In addition to providing a continuing resolution to fund the federal government, BBA contained a host of tax law changes. Among those changes were retroactive extensions through 2017 of over 30 so-called “extender” provisions, 2017 tax relief to victims of the California wildfires, and small revisions to previously-provided relief for victims of Hurricanes Harvey, Irma, and Maria.
IRS issued final versions of 2017 tax forms during January of 2018; those January 2018 versions did not reflect the changes made by the BBA.
IRS’s actions to date regarding the retroactive provisions. Not surprisingly, IRS anticipated the possibility of a retroactive extenders law; it therefore had certain lines on forms with “Reserved for future use” as the caption for those lines, and it put notes in the form instructions about the fact that the law provisions for which those lines had applied had expired but might retroactively be extended. For example, Line 34 on the version of final 2017 Form 1040 that was issued in late January of 2018 was captioned “Reserved for future use”, while, in prior years, it was used for the tuition and fees deduction.
On Feb. 22, 2018, IRS announced, in IR 2018-33, that it has reprogrammed its processing systems to handle the three BBA retroactive benefits that it considers likely to be claimed on returns filed early in the tax season, i.e.,
- The exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982;
- Mortgage insurance premiums treated as qualified residence interest, generally claimed by low- and middle-income filers on Form 1040, Schedule A; and
- The deduction for qualified tuition and related expenses claimed on Form 8917.
And, as of February 22, IRS has published updated versions of Form 1040, Schedule A, Form 1017, and Form 1040 (but not yet Form 982) to reflect the above announcement.
Other 2017 forms/instructions needing updating. Here is a list of some other 2017 forms/instructions that still need to be updated:
- Form 4684, Casualties and Thefts;
- Form 5695, Residential Energy Property Credit;
- Form 6478, Biodiesel Producers Credit;
- Form 8844, Empowerment Zone Credit;
- Form 8845, Indian Employment Credit;
- Form 8864, Biodiesel and Renewable Diesel Fuels Credit;
- Form 8900, Qualified Railroad Track Maintenance Credit;
- Form 8908, Energy Efficient Homes Credit;
- Form 8911, Alternative Fuel Vehicle Refueling Credit.
Tax preparation software. IRS has published new Modernized eFile specifications and business rules for the tax preparation software industry. But IRS requires the software companies to run tests before going live with their software, and, as of February 20, IRS was not prepared for those tests.
Advantage of holding off filing a return until IRS issues all forms needed for that return. Taxpayers who have filed 2017 federal tax returns and then wish to claim one of BBA’s retroactive tax benefits can do so by filing an amended return on Form 1040X. However, amended returns cannot be filed electronically and can take up to 16 weeks to process.
RIA recommendation: Thus, in almost all cases, it will be wiser to hold off filing any 2017 return for a taxpayer for which a retroactive BBA provision applies, until all of the needed forms can be prepared.
RIA observation: The BBA provisions that provide California wildfire victims with 2017 tax return relief, are, in most cases, identical to provisions contained in P.L. 115-63, the Disaster Tax Relief and Airport and Airway Extension Act of 2017—legislation that provides relief to victims of 2017 Hurricanes Harvey, Irma and Maria (Hurricanes)—except with respect to the dates that define the disasters. Thus, practitioners who don’t wish to postpone filing returns for wildfire victims while they wait for updated form instructions with respect to wildfire victim relief should consider applying various instructions for Form 1040 and supporting forms that are specific to Hurricane victims—but substituting dates that are contained in the BBA with respect to wildfire victim relief—to the returns of wildfire victims.
For example, the instructions to Form 4684, Casualties and Thefts, reflect special instructions for victims of the Hurricanes but have not been updated to reflect the fact that the wildfire victims are entitled to the same relief.