IRS Corrects Lapses

IRS Corrects Lapses Caused by Missing Deduction

A final regulation is being released by the internal revenue service that would correct the lapses developed as a result of the brief removal of personal exemption deductions from federal income tax returns.

Previously, households could employ the personal exemption, deduction to limit their income tax bill by a specific amount for every member of the household.

Members of Congress attempted to explicate the income tax returns when the Tax Cuts and Jobs Act of 2017 was drafted. The size of the standard deduction was also increased by drafters where the personal exemption was set to zero from 2018 to 2025.

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Prior to the implementation of the TCJA, families who intend to apply for tax credit subsidies for federal health insurance are required to provide the number of personal exemption deductions that can be claimed based on the size of their household.

However, once the personal exemption, deduction has been eliminated by Congress, the main issue remains the official method for calculating the size of its household.

A temporary solution was provided by the IRS in the IRS Notice 2018-84.

In the notice, it is stated that a taxpayer would be taking a personal exemption, deduction if an income tax return is filed by the taxpayer for a tax year and does not qualify to depend on another taxpayer.

According to the IRS, a taxpayer would be considered to claim a personal exemption, deduction for other individuals like spouse and kids in a situation where a $0 deduction is approved for the taxpayer on behalf of those individuals where the names and taxpayer identification number of these individuals are provided by the taxpayer.

The IRS indicated that based on the 2018 notice released in May, a draft regulation that passed through a public comment ended up receiving no comment.

Currently, the IRS is awaiting the concluding version of the regulation to be released in the Federal Register. This regulation will be released on the official publication date of the Federal Register.

This application of the Federal Regulations would be taxable, by the end of the year, from Dec 31, 2020.

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Any information provided by the IRS on notice can be depended on by a taxpayer in any enforcement proceedings because any information in the notice is binding to the IRS, based on the U.S. Government Accountability Office evaluation of IRS regulatory guidance processes.

Any guideline provided by the IRS regulation might be easily discovered by a taxpayer. However, the GAO evaluation indicated that the major difference is that the guideline provided by the IRS in a regulation can be implemented in full force in any enforcement suit.

The Impact

Sixty votes are required to get most legislation to the U.S. Senate floor. However, unique guidelines implemented in 1974 permits senators to get a few prominent and critical budget bills with only 51 votes.

As a result of the difficult nature of getting other kinds of bills through Congress compared to getting a budget bill through Congress and the Senate, lawmakers usually include provisions to crucial budget bills in order to achieve their objective. Senators also find it easier to include modifications in numbers to budget bills that include any kind of provision in budget bills.

Budget discipline regulations are also encountered by Members of Congress. The regulations are more stringent on proposals for temporary tax cuts and temporary spending increases than for proposals for permanent tax cuts and permanent spending increases.

In the last couple of years, these constraints have led members of Congress to set several penalties, deductions, and taxes to zero temporarily instead of just revoking the penalties, deductions, and taxes.

The Affordable Care Act where individuals shared the responsibility penalty is an example. Individuals without a specific grade of health coverage are known by the government and are expected by the ACA to pay the penalty which would prevent specific individuals from depending on other individuals for the payment of their medical expenses.

The impact of being responsible for this penalty is blocked by Republicans by putting the punishable amount at zero.

A difference between the provision from TCJA that eliminates the personal exemption, deduction and several other provisions is that the following about eliminating the personal exemption, the deduction is stated by the Internal Revenue Code Section 151 (d)(5)(B).

In the interest of this tile, eliminating the amount to zero, according to subparagraph (A) would not be considered when determining if a deduction would be allowed or not, or if a taxpayer would qualify for a deduction or not, under this section.

Several other elimination provisions provided in the Internal Revenue Code don’t have the provisions that could impede the provisions for changing the impact of other tax regulations.


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Christophe Rude

Christophe Rude

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