Wesley M. Measamer, CPA, P.A.

House Republican tax writers have advanced a "Tax Reform 2.0" legislative package. The measure is expected to reach the House floor for a full chamber vote by the end of September.

The House Ways and Means Committee debated the GOP Tax Reform 2.0 three-bill package in a September 13 markup that ran almost seven hours. The package focuses on making permanent individual and small business tax cuts, and creating incentives for retirement savings and business innovation. The following three bills were approved along party lines:

Protecting Family and Small Business Tax Cuts Act of 2018 ( HR 6760);
Family Savings Act of 2018 ( HR 6757); and
American Innovation Act of 2018 ( HR 6756).

Individual, Small Business Tax Cuts

HR 6757 would make permanent the individual and small business tax cuts that were enacted temporarily through 2025 under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). These provisions were made temporary to comply with certain Senate budget rules applicable to the reconciliation process Republicans used to pass tax reform with only a simple GOP majority. Notable TCJA provisions that would be made permanent under HR 6750 include, among others:

lowered individual income tax rates;
20-percent deduction of income for qualifying passthrough entities;
$12,000 (individual) and $24,000 (married filing jointly) standard deduction; and
$10,000 annual cap on the state and local tax (SALT) deduction.

Family Savings and Business Innovation

HR 6757 aims to simplify certain rules for employer retirement plans, and eliminates the age limit on IRA contributions, among other things. Additionally, it would create a Universal Savings Account (USA), while also allowing tax-advantaged 529 Plans to be used for expenses related to trade schools, home schooling, and up to $10,000 in total distributions for repayment of student loans.

HR 6756 would improve the tax treatment of certain start-up businesses. The bill would allow new businesses to write off up to $20,000 of start-up and organization expenditures. Additionally, HR 6756 would allow for a change in start-up ownership without triggering limits on certain tax benefits.

JCT

The Joint Committee on Taxation (JCT), a nonpartisan congressional scorekeeper, has estimated that all three bills will cost the federal government revenue. As noted in JCX-71-18, the JCT estimates that making permanent the individual and small business tax cuts under the TCJA, as proposed by HR 6750, would cost the federal government $631 billion in lost revenue over the next 10 years. Additionally, the JCT has estimated that HR 6756 and HR 6757, collectively, would cost approximately $26 billion in lost federal revenue over the next 10 years ( JCX-75-18, JCX-78-18).

Tax Reform 2.0’s Fate Uncertain

Tax Reform 2.0’s fate remains largely uncertain as it makes its way through the legislative process. While the measure is expected to garner enough Republican support in the House, despite certain GOP criticisms of the SALT deduction cap, it is not expected as a whole to fare well in the Senate. There is talk on Capitol Hill that Democrats could potentially support the retirement savings and business innovation bills in some form. However, it is considered unlikely that Democrats will support making permanent certain provisions of a law (the TCJA) for which not a single Democrat voted.

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Charles P. "Chuck" Rettig was confirmed as the new IRS Commissioner on September 12. The Senate confirmed the nomination by a 64-to-33 vote. Rettig received both Democratic and Republican support.

Senate Finance Committee (SFC) Chairman Orrin G. Hatch, R-Utah, praised Rettig, saying that he is both "qualified and ready" to lead the IRS. Although SFC ranking member Ron Wyden, D-Ore., previously said that Rettig is a "qualified nominee," he urged colleagues to oppose Rettig’s nomination. Wyden previously said he would only support Rettig’s nomination if he promised to reverse recent IRS guidance which limits Schedule B donor reporting for certain tax-exempt organizations ( Rev. Proc. 2018-38).

Rettig will oversee implementation of tax reform enacted last December under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). His term as IRS Commissioner will expire on November 12, 2022.

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New IRS guidance aiming to curb certain state and local tax (SALT) deduction cap "workarounds" is the latest "hot topic" tax debate on Capitol Hill. The IRS released proposed amendments to regulations, REG-112176-18, on August 23. The proposed rules would prevent taxpayers, effective August 27, 2018, from using certain charitable contributions to work around the new cap on SALT deductions.

SALT Deduction

The SALT deduction limit is one of the most controversial temporarily enacted provisions of the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) signed into law last December. Under the TCJA, beginning in 2018 and running through 2025, taxpayers may not claim more than $10,000 ($5,000 if married filing separately) for all state and local sales, income and property taxes.

After the tax code overhaul, New York, New Jersey, and Connecticut (considered high-tax states) passed legislation that essentially allows taxpayers to circumvent the SALT deduction cap by making charitable contributions to state-run charitable organizations. Indeed, similar workarounds for private-school tuition already exists in other states.

"Congress limited the deduction for state and local taxes that predominantly benefited high-income earners to help pay for major tax cuts for American families,"Treasury Secretary Steven Mnuchin said in a statement. "The proposed rule will uphold that limitation by preventing attempts to convert tax payments into charitable contributions."

Congressional Republicans and Democrats, as with the TCJA, are mostly divided on the topic. House Ways and Means Committee Chair Kevin Brady, R-Tex., praised the IRS proposal for aiming to prevent tax evasion. "These Treasury regulations rightly close the door on improper tax evasion schemes conjured up by state and local politicians who insist on brutally taxing local families and businesses," Brady said in a statement.

Meanwhile, Democratic lawmakers are criticizing the regulations. "The Trump administration doubled down on its attack on the middle class," Ways and Means ranking member Richard Neal, D-Mass., said in a statement. "The administration’s new regulations block affected states’ attempts to cope with this significant change and protect residents."

Tax Policy Experts Weigh-In

Several tax policy experts have criticized states’ efforts to circumvent the SALT deduction cap. Carl Davis, research director at the Democratic-leaning Institute on Taxation and Economic Policy, has called the workarounds an "abuse" of the charitable giving deduction. "Anyone who wants a fair and transparent tax system should be cautiously optimistic that these rules will put an end…to the workaround provisions enacted by states more recently," Davis wrote in a recent op-ed about the proposed IRS guidance.

Jared Walczak, senior policy analyst at the conservative-leaning Tax Foundation, has said that states’ strategies to re-characterize SALT payments were pursued to primarily help high-income taxpayers. Additionally, the top one percent of the wealthiest households would reap more than half of the benefit if the SALT cap were eliminated, according to an estimate from the Democratic-leaning Tax Policy Center.

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The IRS has proposed to remove the Code Sec. 385 documentation regulations provided in Reg. §1.385-2. Although the proposed removal of the documentation rules will apply as of the date the proposed regulations are published as final in the Federal Register, taxpayers can rely on the proposed regulations until the final regulations are published.

The documentation regulations provide minimum documentation requirements that must be satisfied in order for certain related-party instruments to be treated as debt for federal tax purposes. They are part of final and temporary Section 385 regulations adopted with T.D. 9790, I.R.B. 2016-45, 540. In addition to the documentation requirements, the Section 385 regulations also include rules that recharacterize as equity certain debt issued in connection with distributions and acquisitions that do not result in new investment in the operations of the issuer. The Section 385 regulations apply generally to debt instruments issued by a domestic corporations (or its disregarded entity) and held by members of the domestic corporation’s expanded group.

Documentation Regulations

The documentation rules generally require large corporations to document related-party loans just as all businesses do when they borrow from unrelated lenders. Reg. §1.385-2 prescribes the nature of the documentation necessary to substantiate the tax treatment of related-party instruments as debt. Taxpayers must be able to provide written evidence of four indebtedness factors analogous to those found in third-party loans.

Compliance with the documentation rules does not establish that an interest is debt. Instead, it serves only to satisfy the minimum documentation for making the determination under general federal tax principles. If a debt instrument is reclassified as stock due to a failure to meet the documentation requirements, it is treated as stock for all federal tax purposes.

Corporations must document relevant transactions under these rules if they are part of expanded affiliated groups and:

stock of any member of the group is publicly traded;
one or more members have total assets that exceed $100 million on any applicable financial statement or combination of statements; or
one or more members have annual total revenue that exceeds $50 million on any applicable financial statement or combination of statements.

The documentation regulations apply to relevant intercompany debt issued beginning in 2019, and require that the taxpayer’s documentation for a given tax year be prepared by the time the borrower’s return is filed.

Executive Order 13789

Executive Order 13789, issued on April 21, 2017 (E.O. 13789), instructs the Treasury Secretary to identify significant tax regulations issued on or after January 1, 2016, that impose an undue financial burden on U.S. taxpayers, add undue complexity to the federal tax laws, or exceed the statutory authority of the IRS. The Treasury Secretary is instructed to take concrete actions to alleviate these burdens.

Based on E.O. 13789, the Treasury Department identified, among others, the Section 385 regulations adopted with T.D. 9790 as significant tax regulations that impose an undue financial burden on U.S. taxpayers and/or add undue complexity to the federal tax laws ( Notice 2017-38, I.R.B. 2017-30, 147).

In light of further actions in connection with the required review of the Section 385 regulations, and in response to continued taxpayer concern, the IRS has delayed the applicability date of the documentation regulations for 12 months. As a result, the documentation requirements apply to interests issued or deemed issued on or after January 1, 2019. As originally adopted, the final regulations applied to interests issued or deemed issued on or after January 1, 2018 ( Notice 2017-36, I.R.B. 2017-33, 208).

In a later report, the Treasury has proposed to revoke the current documentation rules and replace them with substantially simplified and streamlined documentation rules ( TDNR SM-0172, October 4, 2017; U.S. Department of the Treasury, Second Report to the President on Executive Order 13789, October 2, 2017).

Proposed Removal of Documentation Rules

The IRS has proposed to remove the documentation regulations after considering the comments received in connection with E.O. 13789, including with respect to Notice 2017-36 and Notice 2017-38. However, the IRS will continue to study the issues addressed by the documentation regulations, When the study is complete, the IRS may propose a modified version of the documentation regulations. The revised documentation rules:

would be substantially simplified and streamlined to reduce the burden on U.S. corporations;
would still require sufficient documentation and other information for tax administration purposes; and
would be proposed with a prospective effective date to allow sufficient lead time for taxpayers to design and implement systems to comply with the revised requirements.

Comments

Written or electronic comments and requests for a public hearing must be received by December 23, 2018. Send submissions to: CC:PA:LPD:PR (REG-130244-17), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-130244-17), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224 or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-130244-17).

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Last year’s Tax Reform created a new 20-percent deduction of qualified business income for passthrough entities, subject to certain limitations. The Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) created the new Code Sec. 199A passthrough deduction for noncorporate taxpayers, effective for tax years beginning after December 31, 2017. However, the provision was enacted only temporarily through 2025. The controversial deduction has remained a buzzing topic of debate among lawmakers, tax policy experts, and stakeholders. In addition to its impermanence, the new passthrough deduction’s ambiguous statutory language has created many questions for taxpayers and practitioners.

The IRS released the much-anticipated proposed regulations on the new passthrough deduction, REG-107892-18, on August 8. The guidance has generated a mixed reaction on Capitol Hill, and while significant questions may have been answered, it appears that many remain. Indeed, an IRS spokesperson told Wolters Kluwer Tax & Accounting before the regulations were released that the IRS’s goal was to issue complete regulations but that the guidance "would not cover every question that taxpayers have."

Wolters Kluwer recently spoke with Joshua Wu, member, Clark Hill PLC, about the tax implications of the new passthrough deduction and proposed regulations. That exchange included a discussion of the impact that the new law and IRS guidance, both present and future, may have on taxpayers and tax practitioners.

I. Qualified Business Income and Activities

Wolters Kluwer: What is the effect of the proposed regulations requiring that qualified business activities meet the Code Sec. 162 trade or business standard? And for what industries might this be problematic?

Joshua Wu: The positive aspect of incorporating the Section 162 trade or business standard is that there is an established body of case law and administrative guidance with respect to what activities qualify as a trade or business. However, the test under Section 162 is factually-specific and requires an analysis of each situation. Sometimes courts reach different results with respect to activities constituting a trade or business. For example, gamblers have been denied trade or business status in numerous cases. In Groetzinger, 87-1 ustc ¶9191, 480 U.S. 23 (1987), the Court held that whether professional gambling is a trade or business depends on whether the taxpayer can show he pursued gambling full-time, in good faith, regularly and continuously, and possessed a sincere profit motive. Some courts have held that the gambling activity must be full-time, from 60 to 80 hours per week, while others have questioned whether the full-time inquiry is a mandatory prerequisite or permissive factor to determine whether the taxpayer’s gambling activity is a trade or business. See e.g., Tschetschot , 93 TCM 914, Dec. 56,840(M)(2007). Although Section 162 provides a built-in body of law, plenty of questions remain.

Aside from the gambling industry, the real estate industry will continue to face some uncertainty over what constitutes a trade or business under Code Secs. 162 and 199A. The proposed regulations provide a helpful rule, where the rental or licensing of tangible or intangible property to a related trade or business is treated as a trade or business if the rental or licensing and the other trade or business are commonly controlled. But, that rule does not help taxpayers in the rental industry with no ties to another trade or business. The question remains whether a taxpayer renting out a single-family home or a small group of apartments is engaged in a trade or business for purposes of Code Secs. 162 and 199A. Some case law indicates that just receiving rent with nothing more may not constitute a trade or business. On the other hand, numerous cases have found that managing property and collecting rent can constitute a trade or business. Given the potential tax savings at issue, I suspect there will be additional cases in the real estate industry regarding the level of activity required for the leasing of property to be considered a trade or business.

Qualified Business Income

Wolters Kluwer: How does the IRS define qualified business income (QBI)?

Joshua Wu: QBI is the net amount of effectively connected qualified items of income, gain, deduction, and loss from any qualified trade or business. Certain items are excluded from QBI, such as capital gains/losses, certain dividends, and interest income. Proposed Reg. §1.199A-3(b) provides further clarity on QBI. Most importantly, they provide that a passthrough with multiple trades or businesses must allocate items of QBI to such trades or businesses based on a reasonable and consistent method that clearly reflects income and expenses. The passthrough may use a different reasonable method for different items of income, gain, deduction, and loss, but the overall combination of methods must also be reasonable based on all facts and circumstances. Further, the books and records must be consistent with allocations under the method chosen. The proposed regulations provide no specific guidance or examples of what a reasonable allocation looks like. Thus, taxpayers are left to determine what constitutes a reasonable allocation.

Unadjusted Basis Immediately after Acquisition

Wolters Kluwer: What effect does the unadjusted basis immediately after acquisition (UBIA) of qualified property attributable to a trade or business have on determining QBI?

Joshua Wu: For taxpayers above the taxable income threshold amounts, $157,500 (single or married filing separate) or $315,000 (married filing jointly), the Code limits the taxpayer’s 199A deduction based on (i) the amount of W-2 wages paid with respect to the trade or business, and/or (ii) the unadjusted basis immediately after acquisition (UBIA) of qualified property held for use in the trade or business.

Where a business pays little or no wages, and the taxpayer is above the income thresholds, the best way to maximize the deduction is to look to the UBIA of qualified property. Rather than the 50 percent of W-2 wages limitation, Section 199A provides an alternative limit based on 25 percent of W-2 wages and 2.5 percent of UBIA qualified property. The Code and proposed regulations define UBIA qualified property as tangible, depreciable property which is held by and available for use in the qualified trade or business at the close of the tax year, which is used at any point during the tax year in the production of qualified business income, and the depreciable period for which has not ended before the close of the tax year. The proposed regulations helpfully clarify that UBIA is not reduced for taxpayers who take advantage of the expanded bonus depreciation allowance or any Section 179expensing.

De Minimis Exception

Wolters Kluwer: How is the specified service trade or business (SSTB) limitation clarified under the proposed regulations? And how does the de minimis exception apply?

Joshua Wu: The proposed regulations provide helpful guidance on the definition of a SSTB and avoid what some practitioners feared would be an expansive and amorphous area of section 199A. Under the statute, if a trade or business is an SSTB, its items are not taken into account for the 199A computation. Thus, the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial and brokerage services, investment management, trading, dealing in securities, and any trade or business where the principal asset of such is the reputation or skill of one or more of its employees or owners, do not result in a 199A deduction.

There is a de minimis exception to the general rule for taxpayers with taxable income of less than $157,500 (single or married filing separate) or $315,000 (married filing jointly). Once those thresholds are hit, the 199A deduction phases-out until it is fully eliminated at $207,500 (single) or $415,000 (joint).

The proposed regulations provide guidance for each of the SSTB fields. Importantly, they also limit the "reputation or skill" category. The proposed regulations state that the "reputation or skill" clause was intended to describe a "narrow set of trades or businesses, not otherwise covered by the enumerated specified services." Thus, the proposed regulations limit this definition to cases where the business receives income from endorsing products or services, licensing or receiving income for use of an individual’s image, likeness, name, signature, voice, trademark, etc., or receiving appearance fees. This narrow definition is unlikely to impact most taxpayers.

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Wolters Kluwer recently spoke with Joshua Wu, member, Clark Hill PLC, about the tax implications of the new Code Sec. 199A passthrough deduction and its recently-released proposed regulations, REG-107892-18. That exchange included a discussion of the impact that the new law and IRS guidance, both present and future, may have on taxpayers and tax practitioners.

II. Aggregation, Winners & Losers

Wolters Kluwer: How do the proposed regulations provide both limitations and flexibility regarding the available election to aggregate trades or businesses?

Joshua Wu: Treasury agreed with various comments that some level of aggregation should be permitted to account for the legal, economic and other non-tax reasons that taxpayers operate a single business across multiple entities. Permissive aggregation allows taxpayers the benefit of combining trades or businesses for applying the W-2 wage limitation, potentially resulting in a higher limit. Under Proposed Reg. §1.199A-4, aggregation is allowed but not required. To use this method, the business must (1) qualify as a trade or business, (2) have common ownership, (3) not be a SSTB, and (4) demonstrate that the businesses are part of a larger, integrated trade or business (for individuals and trusts). The proposed regulations give businesses the benefits of electing aggregation without having to restructure the businesses from a legal standpoint. Businesses failing to qualify under the above test will have to consider whether a legal restructuring would be possible.

Wolters Kluwer: How does Notice 2018-64 Methods for Calculating W-2 Wages for Purposes of Section 199A, which accompanied the release of the proposed regulations, coordinate with aggregation?

Joshua Wu: Notice 2018-64 contains a proposed revenue procedure with guidance on three methods for calculating W-2 wages for purposes of section 199A. The Unmodified Box method uses the lesser of totals in Box 1 of Forms W-2 or Box 5 (Medicare wages). The Modified Box 1 method takes the total amounts in Box 1 of Forms W-2 minus amounts not wages for income withholding purposes, and adding total amounts in Box 12 (deferrals). The Tracking wages method is the most complex and tracks total wages subject to income tax withholding. The calculation method is dependent on the group of Forms W-2 included in the computation and, thus, will vary depending upon whether businesses are aggregated under §1.199A-4 or not. Taxpayers with businesses generating little or no Medicare wages may consider aggregating with businesses that report significant wages in Box 1 that are still subject to income tax withholding. Under the Modified Box 1 method, that may result in a higher wage limitation.

Crack & Pack

Wolters Kluwer: What noteworthy anti-abuse safeguards did the proposed regulations seek to establish? How do the rules address "cracking" or "crack and pack" strategies?

Joshua Wu: Treasury included some anti-abuse provisions in the proposed regulations. One area that Treasury noted was the use of multiple non-grantor trusts to avoid the income threshold limitations on the 199A deduction. Taxpayers could theoretically use multiple non-grantor trusts to increase the 199A deduction by taking advantage of each trust’s separate threshold amount. The proposed regulations, under the authority of 643(f), provide that two or more trusts will be aggregated and treated as a single trust if such trusts have substantially the same grantor(s) and substantially the same primary beneficiary or beneficiaries, and if a principal purpose is to avoid tax. The proposed regulations have a presumption of a principal purpose of avoiding tax if the structure results in a significant tax benefit, unless there is a significant non-tax purpose that could not have been achieved without the creation of the trusts.

Another anti-abuse issue relates to the "crack and pack" strategies. These strategies involve a business that is limited in its 199A deduction because it is an SSTB spinning off some of its business or assets to an entity that is not an SSTB and could claim the 199A deduction. For example, a law firm that owns its building could transfer the building to a separate entity and lease it back. The law firm is an SSTB and, thus, is subject to the 199A limitations. However, the real estate entity is not an SSTB and can generate a 199A deduction (based on the rental income) for the law partners. The proposed regulations provide that a SSTB includes any business with 50 percent common ownership (direct or indirect) that provides 80 percent or more of its property or services to an excluded trade or business. Also, if a trade or business shares 50 percent or more common ownership with an SSTB, to the extent that trade or business provides property or services to the commonly-owned SSTB, the portion of the property or services provided to the SSTB will be treated as an SSTB. The proposed regulations provide an example of a dentist who owns a dental practice and also owns an office building. The dentist rents half the building to the dental practice and half to unrelated persons. Under [Proposed Reg.] §1.199A-5(c)(2), the renting of half of the building to the dental practice will be treated as an SSTB.

Winners & Losers

Wolters Kluwer: Generally, what industries can be seen as "winners" and "losers" in light of the proposed regulations?

Joshua Wu: The most obvious "losers" in the proposed regulations are the specified services businesses (e.g., lawyers, accountants, doctors, etc.) who are further limited by the anti-abuse provisions in arranging their affairs to try and benefit from 199A. On the other hand, certain specific service providers benefit from the proposed regulations. For example, health clubs or spas are exempt from the SSTB limitation. Additionally, broadcasters of performing arts, real estate agents, real estate brokers, loan officers, ticket brokers, and art brokers are all exempt from the SSTB limitation.

Wolters Kluwer: What areas of the Code Sec. 199A provision stand out as most complex when calculating the deduction, and how does this complexity vary among taxpayers?

Joshua Wu: With respect to calculating the deduction, one complex area is planning to maximize the W-2 wages limitation. Because compensation as W-2 wages can reduce QBI, and potentially the 199A deduction, determining the efficient equilibrium point between having enough W-2 wages to limit the impact of the wage limitation, while preserving QBI, will be a fact-driven complex planning issue that must be determined by each taxpayer. Another area of complexity will be how taxpayers track losses which may reduce future QBI and, thus, the 199A deduction. The proposed regulations provide that losses disallowed for taxable years beginning before January 1, 2018, are not taken into account for purposes of computing QBI in a later taxable year. Taxpayers will be left to track pre-2018 and post-2018 losses and determine if a loss in a particular tax year reduces QBI or not.

III. Looking Ahead

Questions Remain

Wolters Kluwer: An IRS spokesperson told Wolters Kluwer that the IRS did not expect the proposed regulations to answer all questions surrounding the deduction. Indeed, Acting IRS Commissioner David Kautter has said that stakeholder feedback would help finalize the regulations. What significant questions remain unanswered for taxpayers and tax practitioners, and has additional uncertainty been created with the release of the IRS guidance?

Joshua Wu: On the whole, the proposed regulations did a good job addressing the most important areas of Section 199A. However, there are many areas where additional guidance would be helpful. Such guidance may be in the form of additional regulations or other administrative pathways. For example, the proposed regulations did not address the differing treatment between a taxpayer operating as a sole proprietor versus an S corporation. Wages paid to an S corporation shareholder boosts the W-2 limitation but are not considered QBI. Thus, with the same underlying facts, the 199Adeduction may vary between taxpayers operating as a sole proprietor versus those operating as an S corporation.

Possible Changes to Proposed Regulations

Wolters Kluwer: In what ways do you see the passthrough deduction rules changing when the final regulations are released?

Joshua Wu: I suspect that the core components of the proposed regulations will not change significantly. However, I would not be surprised if Treasury were to include more specific examples with respect to real estate and whether certain types of activity constitute a trade or business. Additionally, the proposed regulations will likely generate comments and questions from various industry groups related to the SSTB definitions and specific types of services (e.g., do trustees and executors fall under the legal services definition). Treasury may change the definitions of SSTBs in response to comments and clarify definitions for industry groups.

Tax Reform 2.0

Wolters Kluwer: The White House and congressional Republicans are currently moving forward on legislative efforts known as "Tax Reform 2.0." The legislative package proposes making permanent the passthrough deduction. How does the impermanence of this deduction currently impact taxpayers? (Note: On September 13, the House Ways and Means Committee marked up a three-bill Tax Reform 2.0 package. The measure is expected to reach the House floor for a full chamber vote by the end of September.)

Joshua Wu: The 199A deduction has a significant impact on the choice of entity question for businesses. With the 21 percent corporate rate, we have seen many taxpayers considering restructuring away from passthrough entities to a C corporation structure. The 199A deduction is a large consideration in whether to restructure or not, but its limited effective time does raise questions about the cost effectiveness of planning to obtain the 199A deduction where the benefit will sunset in eight years.

Key Takeways

Wolters Kluwer: Aside from advice on specific taxpayer situations, what key takeaways should tax practitioners generally alert clients to ahead of the 2019 tax filing season?

Joshua Wu: Practitioners should remind clients who may benefit from the 199A deduction to keep detailed records of any losses for each line of business, as this may impact the calculation of QBI in the future. Practitioners should also help clients examine the whole of their activity to define their "trades or businesses." This will be essential to calculating the 199A deduction and planning to maximize any such deduction. Finally, practitioners should remember that some of the information that may be necessary to determine a 199A deduction may not be in their client’s possession. Practitioners need to plan in advance with their clients regarding how information about each trade or business will be obtained (e.g., how will a limited partner in a partnership obtain information regarding the partnership’s W-2 wages and/or UBIA of qualified property).

Wolters Kluwer: Any closing thoughts or comments?

Joshua Wu: Practitioners and taxpayers should remember that the regulations are only proposed and may change before they become final. Any planning undertaken this year should carefully weigh the economic costs and be rooted in the statutory language of 199A. It will be some time before case law helps clarify the nuances of Section 199A, and claiming the deduction allows the IRS to more easily impose the substantial understatement penalty if a taxpayer gets it wrong.

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Wolters Kluwer has projected annual inflation-adjusted amounts for tax year 2019. The projected amounts include 2019 tax brackets, the standard deduction, and alternative minimum tax amounts, among others. The projected amounts are based on Consumer Price Index figures released by the U.S. Department of Labor on September 12, 2018.

The Tax Cuts and Jobs Act of 2017 (TCJA) ( P.L. 115-97) mandated a change from the Consumer Price Index for All Urban Consumers (CPI-U) to the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Official amounts for 2019 should be released by the IRS later in 2018.

Individual Tax Brackets

The projected bracket ranges for individuals in 2019 are as follows.

For married taxpayers filing jointly:

The 10 percent bracket applies to taxable incomes up to $19,400
The 12 percent bracket applies to taxable incomes over $19,400 and up to $78,900
The 22 percent bracket applies to taxable incomes over $78,900 and up to $168,400
The 24 percent bracket applies to taxable incomes over $168,400 and up to $321,450
The 32 percent bracket applies to taxable incomes over $321,450 and up to $408,200
The 35 percent bracket applies to taxable incomes over $408,200 and up to $612,350
The 37 percent bracket applies to taxable incomes over $612,350

For heads of households:

The 10 percent bracket applies to taxable incomes up to $13,850
The 12 percent bracket applies to taxable incomes over $13,850 and up to $52,850
The 22 percent bracket applies to taxable incomes over $52,850 and up to $84,200
The 24 percent bracket applies to taxable incomes over $84,200 and up to $160,700
The 32 percent bracket applies to taxable incomes over $160,700 and up to $204,100
The 35 percent bracket applies to taxable incomes over $204,100 and up to $510,300
The 37 percent bracket applies to taxable incomes over $510,300

For unmarried taxpayers:

The 10 percent bracket applies to taxable incomes up to $9,700
The 12 percent bracket applies to taxable incomes over $9,700 and up to $39,450
The 22 percent bracket applies to taxable incomes over $39,450 and up to $84,200
The 24 percent bracket applies to taxable incomes over $84,200 and up to $160,700
The 32 percent bracket applies to taxable incomes over $160,700 and up to $204,100
The 35 percent bracket applies to taxable incomes over $204,100 and up to $510,300
The 37 percent bracket applies to taxable incomes over $510,300

For married taxpayers filing separately:

The 10 percent bracket applies to taxable incomes up to $9,700
The 12 percent bracket applies to taxable incomes over $9,700 and up to $39,450
The 22 percent bracket applies to taxable incomes over $39,450 and up to $84,200
The 24 percent bracket applies to taxable incomes over $84,200 and up to $160,725
The 32 percent bracket applies to taxable incomes over $160,725 and up to $204,100
The 35 percent bracket applies to taxable incomes over $204,100 and up to $306,175
The 37 percent bracket applies to taxable incomes over $306,175

For estates and trusts:

The 10 percent bracket applies to taxable incomes up to $2,600
The 24 percent bracket applies to taxable incomes over $2,600 and up to $9,300
The 35 percent bracket applies to taxable incomes over $9,300 and up to $12,750
The 37 percent bracket applies to taxable incomes over $12,750

Standard Deduction

TCJA also roughly doubled the amount of the standard deduction. For 2019, the following standard deduction amounts are projected:

For married taxpayers filing jointly, $24,400
For heads of households, $18,350
For unmarried taxpayers and well as married taxpayers filing separately, $12,200

AMT Exemptions

TCJA eliminated the AMT for corporations, and increased the exemption amounts, and the exemption phaseouts, for individuals. For 2019, the AMT exemption amounts are projected to be:

For married taxpayers filing jointly, $111,700
For unmarried individuals and heads of households, $71,700
For married taxpayers filing separately, $55,850

Estate and Gift Tax

The following amounts related to transfer taxes (estate, generation-skipping, and gift taxes) are projected for 2019:

The gift tax annual exemption is projected to be $15,000 in 2019

The estate and gift tax applicable exclusion (increased under TCJA) is projected to be $11,400,000 for decedents dying in 2019

The exclusion for gifts made in 2019 to a spouse who is not a U.S. citizen is projected to be $155,000 for 2019

Other Amounts

The following other amounts are also projected for 2019:

The adoption credit for 2019 is projected to be $14,080 for 2019.

For 2019, the allowed Roth IRA contribution amount is projected to phase out for married taxpayers filing jointly with income between $193,000 and $203,000 For heads of household and unmarried filers, the projected phaseout range is between $122,000 to $137,000.

The maximum amount of deductible contributions that can be made to an IRA is projected to be $6,000 for 2019. The increased contribution amount for taxpayers age 50 and over will, therefore, be $7,000.

The deduction for traditional IRA contributions is projected to begin to phase out for married joint filers whose income is greater than $103,000 if both spouses are covered by a retirement plan at work. If only one spouse is covered by a retirement plan at work, the phaseout is projected to begin when modified adjusted gross income reaches $193,000. For heads of household and unmarried filers who are covered by a retirement plan at work, the 2019 income phaseout range for deductible IRA contributions is projected to begin at $64,000.

For 2019, the $2,500 student loan interest deduction is projected to begin to phase out for married joint filers with modified adjusted gross income (MAGI) above $140,000. For single taxpayers, the 2019 deduction is projected to begin to phase out at a MAGI level of over $70,000.

The amount of the 2019 foreign earned income exclusion under Code Sec. 911 is projected to be $105,900.

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Taxpayers must generally provide documentation to support (or to “substantiate”) a claim for any contributions made to charity that they are planning to deduct from their income. Assuming that the contribution was made to a qualified organization, that the taxpayer has received either no benefit from the contribution or a benefit that was less than the value of the contribution, and that the taxpayer otherwise met the requirements for a qualified contribution, then taxpayers should worry next whether they have the proper records to prove their claim.

Cash donations

The taxpayer must provide records to prove a donation of any amount of cash (including payments by cash, check, electronic funds transfer or debit, and credit card). Acceptable records for cash donations of less than $250 generally include:

An account statement or canceled check;
A written letter, e-mail or other properly issued receipt from the qualified organization bearing the name of the organization and the date and amount of the contribution; and/or
A pay stub, Form W–2, or other payroll document showing the amount of a contribution made from payroll.

Caution: A taxpayer cannot substantiate deductions through written records it has prepared on its own behalf, such as a checkbook or personal notes.

Cash donations of more than $250. If a taxpayer donated $250 or more in cash at any one time, the taxpayer must provide a contemporaneous written acknowledgment of the donation from the qualified organization. For each donation of $250 or more, the taxpayer must obtain a separate written acknowledgment. Furthermore, this written acknowledgement must:

State the amount of the contribution; and
State whether the qualified organization provided the taxpayer with any goods or services in exchange for the donation, and if so estimate their value; and
Be received by the taxpayer before the earlier of (1) the return’s filing date or (2) the due date of the return, plus any extensions.

Note: The written acknowledgment ideally would also show the date of the contribution. If it does not, the taxpayer must also provide a bank record that indicates the date.

The acknowledgment must contain a statement of whether or not a taxpayer received any goods or services as a result of the donation, even if no goods or services were received. Even if the donation was for tithes to a religious organization, such as a church, synagogue, or mosque, the acknowledgment should state that the only goods and services received were of intangible religious value. The Tax Court has upheld the disallowance of charitable contribution deductions where the written acknowledgment omitted such a statement regarding goods or services provided.

Noncash contributions

As with cash contributions, the requirements for substantiating noncash contributions increase with the value of the contribution. For example, to substantiate noncash contributions of less than $250, taxpayers must show a receipt or other written communication from the charitable organizations.

To substantiate a noncash contribution between $250 and $500, the taxpayer must obtain a written acknowledgment of the contribution from the qualified organization prior to the earlier of the filing date or due date of its return. The acknowledgment must also describe the type and value of the goods and services, if any, provided to the taxpayer as a result of the donation.

To substantiate noncash contributions totaling between $500 and $5,000 or donations of publically traded securities, a taxpayer must complete Section A of Form 8283, Noncash Charitable Contributions. To substantiate noncash contributions of $5,000 or more (for example, donations of art, jewelry, vehicles, qualified conservation contributions, or intellectual property) the taxpayer must complete Section B of Form 8283. Generally, this would also require the taxpayer to obtain a qualified appraisal of the property’s fair market value.

A word about valuation. A charity is not obligated to provide a value to any noncash contribution; its written receipt only needs to describe the item(s) and note the date of the contribution. The taxpayer, however, is not relieved from making a good-faith estimate of value, which of course the IRS may dispute on any audit. “Thrift-shop” value is often used to value donations of clothing and household goods.

Caution: Last year the Treasury Inspector General for Tax Administration (TIGTA) issued a report finding that the IRS was not accurately monitoring the reporting of noncash contributions requiring completion of Form 8283. The IRS responded that it agreed that it needed to initiate more correspondence audits with taxpayers claiming noncash contributions without the necessary Form 8283 and appraisal.

Vehicles. A taxpayer who donates a motor vehicle, boat, or airplane to charity must deduct either the gross proceeds from the qualified organization’s sale of the vehicle or, if the vehicle is used within the charity’s mission, the fair market value of the vehicle on the date of the contribution, whichever is smaller. The taxpayer must also obtain and attach Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to its return in addition to Form 8283.

The requirements for substantiating charitable contributions can be complicated. Please contact our office with questions.

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Many higher-income taxpayers will be in for a big surprise when they finally tally up their 2013 tax bill before April 15th. The higher amount of taxes that may be owed will be the result of the combination of several factors, the cumulative effect of which will be significant for many. These factors include a higher income tax rate, a higher capital gains rate, a new net investment income tax, and a new Medicare surcharge on earned income, as well as a significantly reduced benefit from personal exemptions and itemized deductions for those in the higher income tax brackets.

Higher top income tax rate

The American Taxpayer Relief Act of 2012 made permanent for 2013 and beyond the lower Bush-era income tax rates for all, except for taxpayers with taxable income above $400,000 ($450,000 for married taxpayers filing jointly, $425,000 for heads of households). Income above these levels has now been taxed at a 39.6 percent rate rather than at the top 35 percent rate since January 1, 2013. Those amounts are adjusted for inflation after 2013 (for 2014, those threshold levels are $432,200, $457,600, and $406,750, respectively. Taxpayers with $150,000 of income above the threshold amounts, for example, must pay an additional $6,900 in tax in 2013 because of the additional tax rate of 4.6 percent).

Capital gains and dividends

The American Taxpayer Relief Act also raised the top rate for long-term capital gains and dividends to 20 percent, up from the Bush-era maximum 15 percent rate—again, applicable to all net long-term capital gains from transactions made on or after January 1, 2013. That top rate will apply to the extent that a taxpayer's income exceeds the thresholds set for the 39.6 percent rate ($400,000 for single filers; $450,000 for joint filers and $425,000 for heads of households). Especially applicable to those investors who have been riding the recent stock market rally, a jump in the rate from 15 percent to 20 percent represents a 33.33 percent tax increase.

Medicare Taxes

Set into motion on January 1, 2013 by the Affordable Care Act of 2010, higher-income taxpayers have been required to pay an additional 3.8 percent on net investment income as well as a 0.9 percent Additional Medicare Tax on earned income.

In both cases, the income threshold levels for being subject to these new taxes are considerably lower than the 39.6 percent bracket and 20 percent capital gain rates. The threshold amount is $200,000 in the case of a single individual, head of household (with qualifying person) and qualifying widow(er) with dependent child. The threshold amount is $250,000 in the case of a married couple filing jointly and $125,000 in the case of a married couple filing separately. For the 3.8 percent net investment income tax, the threshold is adjusted gross income (modified for certain foreign-based income). For the 0.9 percent Additional Medicare Tax, the threshold is measured against compensation earned for the year (including self-employment income):

Net investment income tax. The 3.8 percent tax not only covers capital gains and dividends, but also passive-type income flowing from real estate, investments in businesses, and the like. The rules are complex, and many taxpayers will struggle with the extent to which income on their 2013 tax returns will be subject to the new net investment income tax. For income subject to this tax, the effective rate will increase to 23.8 percent on net capital gain and dividends and 43.4 percent on short-term capital gain and all other passive-type income.

Additional Medicare Tax. For tax years beginning after December 31, 2012, the 0.9 percent Additional Medicare Tax applies to employee compensation and self-employment income above the threshold amounts noted above. Covered wages for purposes of the Additional Medicare Tax include not only regular salary or payments for services rendered to someone self-employed, but also tips, commissions that are part of compensation, bonuses, reimbursements under nonaccountable plans, back pay awards, gifts by employers to employees and more.

An employer's withholding obligation for the Additional Medicare Tax applies only to the extent the employee's wages are in excess of $200,000 in a calendar year. For some dual-income couples with combined earned income above the $250,000 threshold but with no one earning more than $200,000, they may find themselves under withheld and subject to an estimated tax penalty as a result. Couples should remember that to prevent a reoccurrence in the future, an employee may request additional income tax withholding, which will be applied against all taxes shown on the individual's return, including any liability for the Additional Medical Tax.

Itemized Deductions Limitation

The American Taxpayer Relief Act officially the “Pease” limitation on itemized deductions. The new thresholds, first applied in 2013, are $300,000 for married couples and surviving spouses; $275,000 for heads of households; $250,000 for unmarried taxpayers; and $150,000 for married taxpayers filing separately.

The Pease limitation reduces the total amount of a higher-income taxpayer's otherwise allowable itemized deductions by three percent of the amount by which the taxpayer's adjusted gross income exceeds this applicable threshold. The amount of itemized deductions may be reduced up to 80 percent under this formula. Certain items, such as medical expenses, investment interest, and casualty, theft or wagering losses, are excluded.

Personal Exemption Phaseout

The American Taxpayer Relief Act also revived the personal exemption phaseout rules, at the same levels of adjusted gross income revived for the Pease limitation. Under the phaseout, the total amount of exemptions that may be claimed by a taxpayer is reduced by two percent for each $2,500, or portion thereof (two percent for each $1,250 for married couples filing separate returns) by which the taxpayer's adjusted gross income exceeds the applicable threshold level. At the full phase out level, therefore, a family with four personal exemptions in 2013 will lose $15,600 in exemptions, creating $6,178 in additional tax at the 39.6 percent bracket.

Federal Estate and Gift Taxes

One bright spot for higher-income taxpayers is the change that took place starting in 2013 directly applicable to estate planning strategies. The American Taxpayer Relief Act permanently provided for a maximum federal estate tax rate of 40 percent with an annual inflation-adjusted $5 million exclusion for estates of decedents dying after December 31, 2012. Couples can combine exclusions and effectively exempt $10 million from estate tax (for 2013, the inflation-adjusted level is $10.5 million, rising to $10.68 million in 2014).

If you would like a further assessment of how the new, “higher-income taxes” will impact what you owe for 2013 this coming April 15, or if you would like to start now to implement a plan to minimize these taxes in 2014, please do not hesitate to contact this office.

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Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.

First, the law actually requires taxpayers to retain certain records for a specified number of years, for example tax returns or employment tax records (for employers).

Second, good recordkeeping is essential for taxpayers while preparing their tax returns. The Tax Code frequently requires taxpayers to substantiate their income and claims for deductions and credits by providing records of various profits, expenses and transactions.

Third, if a taxpayer is ever audited by the IRS, good recordkeeping can facilitate what could be a long and invasive process, and it can often mean the difference between a no change and a hefty adjustment.

Finally, business taxpayers should maintain good records that will enable them to track the trajectory of their success over the years.

Here you will find a sample list of various types of records it would be wise to retain for tax and other purposes (not an exhaustive list; see this office for further customization to your particular situation):

Individuals

Filing status:

Marriage licenses or divorce decrees – Among other things, such records are important for determining filing status.

Determining/Substantiating income:

State and federal income tax returns – Tax records should be retained for at least three years, the length of the statute of limitations for audits and amending returns. However, in cases where the IRS determines a substantial understatement of tax or fraud, the statute of limitations is longer or can remain open indefinitely.

Paystubs, Forms W-2 and 1099, Pension Statements, Social Security Statements – These statements are essential for taxpayers determining their earned income on their tax returns. Taxpayers should also cross reference their wage and income reports with their final pay stubs to verify that their employer has reported the correct amount of income to the IRS.

Tip diary or other daily tip record – Taxpayers that receive some of their income from tips should keep a daily record of their tip income. Under the best circumstances, taxpayers would have already accurately reported their tip income to their employers, who would then report that amount to the IRS. However, mistakes can occur, and good recordkeeping can eliminate confusion when tax season arrives.

Military records – Some members of the military are exempt from state and/or federal tax; combat pay is exempt from taxation, as are veteran’s benefits. (In many cases, a record of military service is necessary to obtain veteran’s benefits in the first place.)

Copies of real estate purchase documents – Up to $500,000 of gain from the sale of a personal residence may be excludable from income (generally up to $250,000 if you are single). But if you own a home that sold for an amount that produces a greater amount of gain, or if you own real estate that is not used as your personal residence, you will need these records to prove your tax basis in your home; the greater your basis, the lower the amount of gain that must be recognized.

Individual Retirement Account (IRA) records – Funds contributed to Roth IRAs and traditional IRAs and the earnings thereon receive different tax treatments upon distribution, depending in part on when the distribution was made, what amount of the contributions were tax deferred when made, and other factors that make good recordkeeping desirable.

Investment purchase confirmation records – Long-term capital gains receive more favorable tax treatment than short-term capital gains. In addition, basis (generally the cost of certain investments when purchased) can be subtracted from gain from any sale. For these reasons, taxpayers should keep records of their investment purchase confirmations.

Substantiating deductions:

Acknowledgments of charitable donations – Cash contributions to charity cannot be deducted without a bank record, receipt, or other means. Charitable contributions of $250 or more must be substantiated by a contemporaneous written acknowledgment from the qualified organization that also meets the IRS requirements.

Cash payments of alimony – Payments of alimony may be deductible from the gross income of the paying spouse . . . if the spouse can substantiate the payments and certain other criteria are met.

Medical records – Disabled taxpayers under the age of 65 should keep a written statement from a qualified physician certifying they were totally disabled on the date of retirement.

Records of medical expenses – Certain unreimbursed medical expenses in excess of 10 percent of adjusted gross income may be deductible. Caution: a pending tax-reform proposal may change the deductibility of these expenses.

Mortgage statements and mortgage insurance – Mortgage interest and real estate taxes have generally deductible for taxpayers who itemize rather than claim the standard deduction. Caution: a pending tax-reform proposal may change the deductibility of these expenses.

Receipts for any improvements to real estate – Part or all of the expense of certain energy efficient real estate improvements can qualify taxpayers for one or more tax credits.

Keeping so many records can be tedious, but come tax-filing season it can result in large tax savings. And in the case of an audit, evidence of good recordkeeping can get you off to a good start with the IRS examiner handling the case, can save time, and can also save money. For more information on recordkeeping for individuals, please contact our offices.

Businesses

Taxpayers are required by law to keep permanent books of account or records that sufficiently substantiate the amount of gross income, deductions, credits and other amounts reported and claimed on any their tax returns and information returns.

Although, neither the Tax Code nor its regulations specify exactly what kinds of records satisfy the record-keeping requirements, here are a few suggestions:

State and federal income tax returns – These and any supporting documents should be kept for at least the period of limitations for each return. As with individual taxpayers, the limitations period for business tax returns may be extended in the event of a substantial understatement or fraud.

Employment taxes – The Tax Code requires employers to keep all records of employment taxes for at least four years after filing for the 4th quarter for the year. Generally these records would include wage payments and other payroll-related records, the amount of employment taxes withheld, reported tip income, identification information for employees and other payees; employees’ dates of employment; income tax withholding allowance certificates (Forms W-4, for example), fringe benefit payments, and more.

Business income – These would go toward substantiating income, and could include cash register tapes, bank deposit slips, a cash receipts journal, annual financial statements, Forms 1099, and more.

Inventory costs – Businesses should keep records of inventory purchases. For example, if an electronics company purchases a certain number of widgets for resale or a manufacturer purchases a certain number of ball bearings for use in the production of industrial equipment that it manufactures and sells. The costs of these goods, parts, or other materials can be deducted from sales income to significantly reduce tax liability.

Business expenses – Ordinary and necessary expenses for carrying on business, such as the cost of rental office space, are also generally deductible from business income. Such expenses can be substantiated through bank statements, canceled checks, credit card receipts or other such records. The cost of making certain improvements to a business, such as through buying equipment or renovating property, can also be deductible.

Electronic back-up

Paper records can take up a great deal of storage space, and they are also vulnerable to destruction in fires, floods, earthquakes, or other natural phenomena. Because records are required to substantiate most income, deductions, property values and more—even when they no longer exist—taxpayers (and especially business taxpayers) should digitize their records on an electronic storage system and keep a back-up copy in a secure location.

Business taxation can be extremely complicated, and the requirements for recordkeeping vary greatly depending on the size of the business, the form of organization chosen, and the type of industry in which the business operates. For more details on your specific situation, please call our offices.

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Taxpayers who use their automobiles for business or the production of income can deduct their actual expenses for use of an automobile (including the use of vans, pickups, and panel trucks) that the taxpayer owns or leases. Deductible expenses include parking fees, tolls, taxes, depreciation, repairs and maintenance, tires, gas, oil, insurance and registration.

Standard rate for business

Employees and self-employed individuals can use the optional business standard mileage rate, instead of tracking actual costs for depreciation, repairs and maintenance, tires, gas, insurance, oil and registration. Vehicle costs based on the standard rate are determined by multiplying the number of business miles traveled during the year by the rate. In addition to taking the standard rate, a taxpayer can deduct certain other costs as separate items, including as parking, tolls, interest on the purchase of the automobile, and state and local personal property taxes.

For 2014, the standard mileage rate for business travel is 56 cents per mile, a slight drop from the 2013 rate of 56.5 cents per mile. This allowance includes depreciation of 22 cents per mile for 2014. A taxpayer using the standard mileage rate must reduce the basis of the vehicle by the depreciation expenses included in the mileage rate.

(While the use of actual expenses may result in a greater deduction than using the standard rate, this must be balanced against the added recordkeeping and substantiation burdens.)

Substantiation and limitations

A taxpayer using the standard mileage rate does not have to substantiate the expense amounts covered by the rate. However, the taxpayer must properly substantiate other travel elements, such as time, place and purpose of the trip. Travel expenses must be substantiated either by adequate records or by sufficient evidence corroborating the taxpayer's own statement. To meet the adequate records requirement, a taxpayer should maintain an account book, diary or similar statement and documentary evidence to establish each element of the expense.

A taxpayer cannot use the standard mileage rate if it operates five or more vehicles at the same time, if it claimed a Code Sec. 179 expensing deduction for the vehicle, or if it claimed depreciation other than straight-line depreciation.

Other standard mileage rates

The IRS also provides standard mileage rates for medical and moving expenses. For 2014, the rate is 23.5 cents per mile (down from 24 cents for 2013). The standard rate for charitable expenses is set by statute and remains at 14 cents per mile. The various standard mileage rates for 2014 apply to miles driven on or after January 1, 2014.

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