WHY IT’S GOOD TO BE GRATEFUL

On February 23, 2018, The Wall Street Journal published an article, “How to Raise More Grateful Children.” The subtitle for the article stated: “A sense of entitlement is a big problem among young people today, but it’s possible to teach gratitude.” This last idea is what I hope to do with my clients.

WHY IT’S GOOD TO BE GRATEFUL

On February 23, 2018, The Wall Street Journal published an article, “How to Raise More Grateful Children.” The subtitle for the article stated: “A sense of entitlement is a big problem among young people today, but it’s possible to teach gratitude.” This last idea is what I hope to do with my clients.

Much of what I’ve learned about Gratitude has come from personal experience. When I look back, every personal crisis I’ve had has ultimately led me to Gratitude. Whether it’s a serious, life threatening illness for me, my wife, or loved ones; a major setback in business; or a natural disaster like Hurricane Sandy, I now see the positives in those events and feel more grateful for what I‘ve learned from them. I’ve learned that adversity can be a great teacher, if you pay attention to the lessons, but, it wasn’t always that way.

Like most people, I grew up complaining about the way things were and resenting those who I viewed as “lucky” because they were born into families with monetary wealth. Now, I view it as a blessing that I had to work hard for everything I now have. I’ve learned to be grateful that I chose the career that I have and that I can help so many people with the knowledge and experience I’ve gained. I’ve learned to appreciate the material wealth that I have, modest as it is, and to be content making an honest living and serving others.

I’ve also learned a lot about Gratitude from my coach, Lee Brower, at Strategic Coach. Like myself, he and members of his family have had health issues, but we have all learned to appreciate and not take good health for granted. Through Lee’s teachings on Gratitude, I have learned the value of having family members who get along and care about each other; as well as, the value of friendship and being part of a community where I feel like I belong. Most of all, Lee and members of his firm, Empowered Wealth, have emphasized that Gratitude is a lifestyle. A practice that starts with self-respect and respect for others, grows into appreciation for the many blessings we all have, and inspires the spirit of generosity that gives fulfillment and meaning to the way we live our lives.

Charles Sarowitz, CPA/PFS

Acknowledging the good that you already have in your life is the foundation for all abundance.

                                                                               Eckhart Tolle

TAXES AND GRATITUDE?

You probably never thought you would see these two words paired together.  Let me share my perspective on how this unique combination arises.

TAXES AND GRATITUDE?

You probably never thought you would see these two words paired together.  Let me share my perspective on how this unique combination arises.

During this time of year, many clients come into my office upset about taxes and expressing concerns about how the upcoming changes in the tax code will impact them, their interests, their finances, and their legacies.  Many people are willing to go to extraordinary lengths to avoid taxes and let their fear of the unchartered waters of the new tax polices keep them from leaving port.  And while my professional career largely incorporates minimizing the amount of taxes my clients owe, in an effort to maximize the amount of money they can have, now and in the future, I have learned to recognize that there are more important things to focus on than simply tax minimization.

I advise them to consider “What's more important to you than money?”  I wonder, would they:

• Sacrifice their health for more money?  Health is vital to one’s happiness and well-being, yet too many of us are allowing stress and overworking to ruin our health.
• Compromise their closest relationships for more money?  Too many people put their quest for more money above their connection to their family and friends.
• In order of importance, value having money higher than their moral, ethical, or spiritual beliefs? I've seen people of great wealth live empty lives and suffer at the end of life.

Wouldn't you rather have the satisfaction of living a good, honest life – a life of simple joys and pleasures, a life of health and well-being, a life of close relationships – than only having more money?

In the course of my career, I have come to realize and believe that there is much more to “true wealth” than just accumulating money and minimizing taxes.  In my experience, the key to “true wealth” is the practice of gratitude.  Gratitude leads us all to a happier, fulfilled, and more meaningful life.

Charles Sarowitz, CPA/PFS

Gratitude is a currency that we can mint for ourselves, and spend without fear of bankruptcy.

                                                                  Fred De Witt Van Amb

THE STORY OF THE GRATITUDE ROCK

How I started practicing Gratitude

My coach and mentor, Lee Brower, is well-known as a thought leader on Gratitude.  He’s been featured on television, in articles, and in the movie, “The Secret,” on the topic of Gratitude. But Lee, by his own admission, wasn’t always a grateful person.  In fact, one of the defining moments of his life started out as one of his most ungrateful moments.

THE STORY OF THE GRATITUDE ROCK

How I started practicing Gratitude

My coach and mentor, Lee Brower, is well-known as a thought leader on Gratitude.  He’s been featured on television, in articles, and in the movie, “The Secret,” on the topic of Gratitude. But Lee, by his own admission, wasn’t always a grateful person.  In fact, one of the defining moments of his life started out as one of his most ungrateful moments.

It happened more than two decades ago.  Lee was at the apex of his rise as a successful estate planner in Salt Lake City, Utah.  He was both a leader in his church and a respected member of his local business community. Yet, he had a personal challenge within his family: His teenage daughter developed a substance abuse problem.  Lee initially saw her problem as a personal and family embarrassment.  He wondered how something like this could happen to him and thought that other people must be judging him negatively.

But one day, while walking on the beach, he picked up a rock that, to his eye, had the image of a butterfly embedded in it.  Suddenly he felt differently because, coincidentally, his daughter’s nickname was “Mariposa,” meaning “butterfly” in Spanish.  He saw it as the hand of God speaking to him, reminding him of how precious his daughter is to him.  Ever since then, he carries that rock in his pocket as a daily reminder that he should be grateful for the blessings in his life.

Inspired by Lee’s story, I’ve done my best to do the same, to be grateful for the good fortune I have and to help others realize that we’re all so much better off than we perceive from moment to moment.  My wish for you is that it doesn’t take a personal crisis for you to experience the difference that Gratitude can make in your life.

ABOUT THIS LETTER

This is no ordinary letter to clients or newsletter briefing.  When I had a recent health scare, it was Gratitude for the many blessings in my life (and, really, all of our lives) that got me through the tough time I went through.  Now, I want to help you, and all of our clients, to live happier, more-fulfilled, and more meaningful lives. To me, there’s no better way to start than through practicing and living Gratitude daily.  Please enjoy and share this message if it inspires you as well.

Charles Sarowitz, CPA/PFS

President Trump signed into law the first two phases of the House’s coronavirus economic response package. Meanwhile, the Senate has been developing and negotiating "much bolder" phase three legislation.

President Trump signed into law the first two phases of the House’s coronavirus economic response package. Meanwhile, the Senate has been developing and negotiating "much bolder" phase three legislation.

Families First Coronavirus Response Act
The House had sent its Families First Coronavirus Response bill (HR 6201) and accompanying technical corrections resolution to the Senate on the evening of March 16. "I have decided we are going to vote…on the bill that came over from the House, and send it to the president for his signature," Senate Majority Leader Mitch McConnell, R-Ky., told reporters during a March 17 press briefing. "A number of my members think there are a number of shortcomings in the bill, and I counsel them to gag and vote for it anyway… and address those shortcomings in the next measure."

Senate Democrats were largely pleased with leadership’s decision to pass the House bill without amending it, while moving forward on additional legislation. "We will have other opportunities to legislate," Senate Minority Leader Chuck Schumer, R-N.Y., said from the Senate floor on the morning of March 17.

President Trump signed the Families First Coronavirus Response Act ( P.L. 116-127) into law on the evening of March 18.

Paid Leave Credits
The Families First Coronavirus Response Act increases funding for COVID-19 testing, and extends paid sick leave to employees all over the country affected by the pandemic. Under the new law, employers with fewer than 500 employees and government employers must provide paid sick leave to employees who are forced to stay home due to illness, quarantining, or caring for a family member because of COVID-19, or to care for a son or daughter if the school or place of care is closed due to COVID-19.

The new law compensates non-governmental employers for the required paid leave with refundable credits against the employer’s portion of the Old-Age, Survivors, and Disability Insurance (OASDI) payroll tax or the Railroad Retirement Tax Act (RRTA) Tier 1 payroll tax, as appropriate. It also provides similar credits for paid leave "equivalent amounts" to self-employed individuals affected by COVID-19.

Paid sick leave credit. For an employee who is unable to work because of a COVID-19 quarantine or self-quarantine, or who has COVID-19 symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in total, for a total of 10 days. For an employee who is caring for someone with COVID-19, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable, due to the COVID-19, eligible employers may claim a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in total, for up to 10 days.

Paid family care (child care) leave credit. For an employee who is unable to work because of a need to care for a child whose school or child care facility is closed, or whose child care provider is unavailable, due to the COVID-19, eligible employers may receive a refundable family care (child care) leave credit. This credit is equal to two-thirds of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.

Phase Three
"That legislation [the Families First Coronavirus Response Act] was hardly perfect. It imposes new costs and uncertainty on small businesses at precisely the most challenging moment for small businesses in living memory," Senate Majority Leader McConnell said from the Senate floor on March 19. "So the Senate is even more determined that our legislation cannot leave small business behind."

The phase three measure under consideration includes several key components, such as:

• new federally-guaranteed loans for small businesses;
• direct financial help/emergency tax relief;
• targeted lending to industries of national importance; and
• health resources for those working on the front lines of combating COVID-19.

"The small business relief will help. And so will a number of additional tax relief measures, which will be designed to help employers maintain cash flow and keep making payroll," McConnell said. He also highlighted Republicans’ focus of putting "cash in the hands of the American people…from the middle class on down."

To that end, Treasury Secretary Steven Mnuchin reportedly said on March 19 that the forthcoming economic stimulus package would deliver $1,000 to every U.S. adult and $500 for every child. Further a second round of checks in the same amount would go out to individuals six weeks later, Mnuchin added.

"Americans need cash now and the president wants to get cash now. And I mean now, in the next two weeks," Mnuchin said at the White House.

Meanwhile, Senate Minority Leader Schumer has continued discussions with Senate Republicans and the Trump administration. As this Issue went to press, it still remained unclear how quickly Democrats and Republicans will reach consensus on the phase three measure.

"We don’t want bailouts unless they are used for workers, unless the industries keep all their employees, unless they don’t cut salaries of their employees, and unless they are not allowed to buy back their own stocks or raise corporate salaries," Schumer said in a March 19 tweet.

"At President Trump’s direction, we are moving Tax Day from April 15 to July 15," Treasury Secretary Steven Mnuchin said in a March 20 tweet. "All taxpayers and businesses will have this additional time to file and make payments without interest or penalties."

"At President Trump’s direction, we are moving Tax Day from April 15 to July 15," Treasury Secretary Steven Mnuchin said in a March 20 tweet. "All taxpayers and businesses will have this additional time to file and make payments without interest or penalties."

The Treasury and IRS officially announced the extension on March 21 (IR-2020-58; more details can be found in Notice 2020-18).

The move to extend this year’s tax filing deadline to July 15 follows the IRS’s formal announcement that certain 2019 tax year payments could be deferred without interest or penalties (see "Due Date for Federal Income Tax Payments Extended to July 15" in this Issue).

File as Usual if a Refund is Expected
"Working with our members, state societies, and tax professionals everywhere, AICPA scored a victory in the extension of the tax filing deadline to July 15, 2020," the American Institute of CPAs (AICPA) said in a March 20 tweet. However, the AICPA noted that it still encourages taxpayers to file their returns as soon as possible so that refunds can stimulate the economy.

"The AICPA understands the need for economic stimulus and, if possible, those who can file and get refunds should do so now," AICPA president and CEO Barry Melancon said in a statement.

Similarly, Mnuchin also encouraged taxpayers to file their returns, if possible. "While I still encourage taxpayers who expect to get a refund to file their taxes, this deadline extension will give everyone maximum flexibility to do what is best for them."

See Tax Filing and Tax Payment Relief for Coronavirus/COVID-19 Pandemic for a summary of filing and payment delays allowed by the federal and state governments.

The Treasury Department and IRS have extended the due date for the payment of federal income taxes otherwise due on April 15, 2020, until July 15, 2020, as a result of the ongoing coronavirus (COVID-19) emergency. The extension is available to all taxpayers, and is automatic. Taxpayers do not need to file any additional forms or contact the IRS to qualify for the extension. The relief only applies to the payment of federal income taxes. Penalties and interest on any remaining unpaid balance will begin to accrue on July 16, 2020.

The Treasury Department and IRS have extended the due date for the payment of federal income taxes otherwise due on April 15, 2020, until July 15, 2020, as a result of the ongoing coronavirus (COVID-19) emergency. The extension is available to all taxpayers, and is automatic. Taxpayers do not need to file any additional forms or contact the IRS to qualify for the extension. The relief only applies to the payment of federal income taxes. Penalties and interest on any remaining unpaid balance will begin to accrue on July 16, 2020.

Dollar Limits
The due date for making federal income tax payments otherwise due on April 15, 2020, for any taxpayer is automatically extended until July 15, 2020. The extension is limited to a maximum amount:

• up to $1 million for individuals, regardless of filing status, and other unincorporated entities such as trust and estates; and
• up to $10 million for each C corporation that does not join in filing a consolidated return or for each consolidated group.

Federal Income Tax Payments Only
The relief is available for federal income tax payments, including payments of tax on self-employment income, otherwise due on April 15, 2020. Thus, it applies to the payment of federal income taxes for the 2019 tax year, as well estimated income tax payments for the 2020 tax year that are due on April 15, 2020. The extension is not available for the payment or deposit of any other type of federal tax.

Taxpayers are urged to check with their state tax agencies for details on any delays in filing and payment state taxes.

Penalties and Interest
Any interest, penalty, or addition to tax for failure to pay federal income taxes postponed will not begin to accrue until July 16, 2020. The period from April 15, 2020, to July 15, 2020, will be disregarded but only for interest, penalties, or additions to tax up to maximum dollar amounts ($1 million or $10 million as applicable).

Interest, penalties, and additions to tax will continue to accrue from April 15, 2020, on the amount of any federal income tax in excess of the maximum dollar amounts. Taxpayers subject to penalties or additions to tax that are not suspended may seek reasonable cause under Code Sec. 6651 for failure to pay tax.

Individuals and certain trusts and estates may also seek a waiver to a penalty under Code Sec. 6654 for failure to pay estimated income taxes. Similar relief is not available for estimated tax payments by corporations or tax-exempt organizations for the penalty under Code Sec. 6655.

The IRS has provided emergency relief for health savings accounts (HSAs) and COVID-19 health plans costs. Under this relief, health plans that otherwise qualify as high-deductible health plans (HDHPs) will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. In addition, any vaccination costs will count as preventive care and can be paid for by an HDHP.

The IRS has provided emergency relief for health savings accounts (HSAs) and COVID-19 health plans costs. Under this relief, health plans that otherwise qualify as high-deductible health plans (HDHPs) will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. In addition, any vaccination costs will count as preventive care and can be paid for by an HDHP.

HSAs and HDHPs
Eligible individuals can deduct contributions to HSAs. One requirement to qualify as an individual is to be covered under an HDHP and have no disqualifying health coverage. An HDHP is a health plan that satisfies certain requirements, including requirements with respect to minimum deductibles and maximum out-of-pocket expenses.

COVID-19 Relief
A health plan that otherwise satisfies the HDHP requirements will not fail to be an HDHP merely because it provides medical care services and items purchased related to testing for and treatment of COVID-19 prior to satisfaction of the applicable minimum deductible. As a result, the individuals covered by such a plan will not fail to be eligible individuals merely because of the provision of health benefits for testing and treatment of COVID-19.

This relief provides flexibility to HDHPs to provide health benefits for COVID-19 testing and treatment without application of a deductible or cost sharing. Individuals participating in HDHPs or any other type of health plan should consult their particular health plan regarding health benefits for COVID-19 testing and treatment provided by the plan, including the potential application of any deductible or cost sharing.

Caution. The IRS states that this relief applies only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan should contact their plan with specific questions about what their plan covers.

The American Institute of CPAs (AICPA) has requested additional guidance on tax reform’s Code Sec. 199A qualified business income (QBI) deduction.

The American Institute of CPAs (AICPA) has requested additional guidance on tax reform’s Code Sec. 199A qualified business income (QBI) deduction.

199A Deduction Guidance
The IRS issued final and proposed regulations in February 2019 on the Code Sec. 199A QBI deduction enacted in 2017 under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). Additionally, the IRS later issued Frequently Asked Questions (FAQs) on the computation of QBI and instructions to Form 8995, Qualified Business Income Deduction Simplified Computation, and Form 8995-A, Qualified Business Income Deduction.

However, taxpayers and practitioners need additional related guidance, according to the AICPA. "We urge that you provide additional certainty regarding which deductions are not reductions for QBI," the AICPA wrote in a March 4 letter addressed to David Kautter, Treasury’s assistant secretary for tax policy, and Michael J. Desmond, IRS chief counsel. The letter was released by AICPA on March 6.

In brief, the AICPA recommends that Treasury and the IRS confirm that the deductible portion of self-employment tax under Code Sec. 164(f), the deduction for self-employed health insurance under Code Sec. 162(l), and the deduction for contributions to qualified retirement plans under Code Sec. 404 are not automatically reductions of QBI. Additionally, it recommends that the IRS update form instructions to reflect the same treatment for a charitable deduction under Code Sec. 170.

199A Rules Under Review
Meanwhile, the White House’s Office of Information and Regulatory Affairs (OIRA) is currently reviewing Code Sec. 199A rules as related to guidance on computations for shareholders of real estate investment trusts (REIT). OIRA received the rules from Treasury on March 5, according to its website.

The IRS has issued guidance that:

• exempts certain U.S. citizens and residents from Code Sec. 6048 information reporting requirements for their transactions with, and ownership of, certain tax-favored foreign retirement trusts and foreign nonretirement savings trusts; and
• establishes procedures for these individuals to request abatement or refund of penalties assessed or paid under Code Sec. 6677 for failing to comply with the information reporting requirements.

The IRS has issued guidance that:

• exempts certain U.S. citizens and residents from Code Sec. 6048 information reporting requirements for their transactions with, and ownership of, certain tax-favored foreign retirement trusts and foreign nonretirement savings trusts; and
• establishes procedures for these individuals to request abatement or refund of penalties assessed or paid under Code Sec. 6677 for failing to comply with the information reporting requirements.

The guidance is effective as of the date the revenue procedure is published in the Internal Revenue Bulletin, and applies to all prior open tax years, subject to the limitations under Code Sec. 6511.

Reporting on Foreign Trusts
Code Sec. 6048 generally requires annual information reporting of a U.S. person’s transfers of money or other property to, ownership of, and distributions from, foreign trusts. Reporting is not required, however, for transactions with foreign compensatory trusts described in Code Secs. 402(b), 404(a)(4), or 404A. Further, the IRS is authorized to suspend or modify any Code Sec. 6048 reporting requirement if the United States has no significant tax interest in obtaining the required information.

Reporting Relief
The Treasury and IRS have determined that U.S. individuals should be exempt from the Code Sec. 6048 reporting requirement for certain tax-favored foreign trusts because:

• the trusts are generally subject to written restrictions (e.g., contribution limitations, conditions for withdrawal, and information reporting) by the laws of the country where the trust is established; and
• U.S. individuals with an interest in these trusts may be required by Code Sec. 6038D to separately report information about their interests in accounts held by or through the trusts.

A foreign trust covered by this guidance is a trust established under a foreign jurisdiction’s law to operate exclusively or almost exclusively to provide, or earn income for the provision of, either pension or retirement benefits and ancillary or incidental benefits, or medical, disability, or educational benefits. To be eligible for coverage, the foreign trust must meet other requirements listed in the guidance that have been established by the laws of the trust’s jurisdiction.

An eligible individual:

• must be compliant with all requirements for filing a U.S. federal income tax return for the period he or she was a U.S. citizen or resident; and
• to the extent required by U.S. tax law, must have reported as income any contributions to, earnings of, or distributions from, an applicable tax-favored foreign trust on the return or an amended return.

Penalty Relief
Eligible individuals who have been assessed a penalty for failing to comply with Code Sec. 6048 for an applicable tax-favored foreign trust and want relief must complete Form 843, Claim for Refund and Request for Abatement. The individual must write "Relief pursuant to Revenue Procedure 2020-17" on Line 7 of the form, and explain how the individual and the foreign trust meet the requirements in the guidance. The form should be mailed to Internal Revenue Service, Ogden, UT 84201-0027.

Scope
This guidance does not affect:

• any reporting obligations under Code Sec. 6038D or any other provision of U.S. law, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR);
• the exception from reporting for distributions from certain foreign compensatory trusts (Section V of Notice 97-34, 1997-1 C.B. 422); or
• the exception from information reporting requirements for certain Canadian retirement plans ( Rev. Proc. 2014-55, I.R.B. 2014-44, 753).

Proposed Regs
The Treasury and IRS intend to issue proposed regulations that would modify the information reporting requirements to exclude eligible individuals’ transactions with, or ownership of, applicable tax-favored foreign trusts. The Treasury and IRS request comments about these and other similar types of foreign trusts that should be considered for an exemption from Code Sec. 6048 reporting.

The Treasury and IRS have adopted as final the 2016 proposed regulations on covered assets acquisitions (CAAs) under Code Sec. 901(m) and Code Sec. 704. Proposed regulations issued under Code Sec. 901(m) are adopted with revisions, and the Code Sec. 704 proposed regulations are adopted without revisions. The Code Sec. 901(m) rules were also issued as temporary regulations. The CAA rules impact taxpayers claiming either direct or deemed-paid foreign tax credits.

The Treasury and IRS have adopted as final the 2016 proposed regulations on covered assets acquisitions (CAAs) under Code Sec. 901(m) and Code Sec. 704. Proposed regulations issued under Code Sec. 901(m) are adopted with revisions, and the Code Sec. 704 proposed regulations are adopted without revisions. The Code Sec. 901(m) rules were also issued as temporary regulations. The CAA rules impact taxpayers claiming either direct or deemed-paid foreign tax credits.

Covered Asset Acquisitions
The CAA rules are designed to address transactions that result in a basis difference for U.S. and foreign income tax purposes. In a CAA, the disqualified portion of any foreign income tax determined with respect to income or gain attributable to relevant foreign assets (RFAs) is not taken into account in determining direct or indirect foreign tax credits. Foreign taxes that are disqualified for foreign tax credit purposes remain eligible to be deducted.

Under Code Sec. 901(m), a CAA includes the following categories of transactions:

• a qualified stock purchase (defined in Code Sec. 338(d)(3) to which Code Sec. 338(a) applies (Code Sec. 338 CAA);
• a transaction treated as the acquisition of assets for U.S. income tax purposes and as an acquisition of stock for foreign income tax purposes;
• any acquisition of an interest in a partnership that has an election in effect under Code Sec. 754 ( Code Sec. 743(b) CAA); and
• any similar transaction determined by the Secretary of the Treasury.

An RFA is any asset, if income, deduction, gain or loss, attributable to the asset is taken into account in determining the foreign income tax.

The disqualified portion of the foreign income tax for the tax year is the ratio of:

• the aggregate base differences (i.e., excess of U.S. basis of RFA after CAA over U.S. basis before CAA) allocable to the tax year with respect to all RFAS, and
• the income on which the foreign income tax is determined.

Exemptions, Other Changes
The proposed regulations added the following three CAA transaction categories which are retained in the final regulations:

• transactions treated as an acquisition of assets for U.S. tax purposes, and as an interest in a fiscally transparent entity for purposes of foreign income tax purposes;
• transactions treated as a partnership distribution of one or more assets, the U.S. basis of which is determined under Code Sec. 732(b), Code Sec. 732(d), or which causes the U.S. basis of the partnership’s remaining assets to be adjusted under Code Sec. 734(b), provided the transaction results in an increase in the U.S. basis of one or more of the assets distributed by the partnership or retained by the partnership without a corresponding increase in the foreign basis of such assets; and
• transactions treated as an acquisition of assets for purposes of both U.S. income tax and a foreign income tax, provided the transaction results in an increase in the U.S. basis without a corresponding increase in the foreign basis of one or more assets.

The final regulations provide an exemption for CAAs if a domestic Code Sec. 901 payor or members of its consolidated group recognized the gains or losses or took into account its distributive share of the gains and losses recognized by a partnership for U.S. tax purposes as part of the original CAA. The term "aggregate base difference" is modified to take into account adjustments based on gain or loss recognized with respect to an RFA as a result of a CAA.

Under the foreign basis election in the proposed regulations, a taxpayer can elect to determine base difference as the U.S. basis in the RFA immediately after the CAA less the foreign basis in the RFA immediately after the CAA. Taxpayers may apply the election retroactively to CAAs that occurred on or after January 1, 2011, provided the remaining rules in the proposed regulations were applied retroactively. The final regulations modify the consistency requirement so that it applies only for tax years that remain open. Under a new requirement, deficiencies must be taken into account that would have resulted from the consistent application of the final regulations for a closed tax year.

The final regulations also extend the scope of the de minimis rule, under which a basis difference is not taken into account if:

• the sum of the basis differences for all RFAs is less than the greater of $10 million or 10 percent of the total U.S. basis or all RFAs after the CAA; or
• the RFA is part of a class of RFAs for which the sum of the basis differences of all RFAs in the class is less than the greater of $2 million or 10 percent of the total U.S. basis of all RFAs in the class immediately after the CAA.

An additional exclusion is added for an individual RFA with a base difference of less than $20,000.

The final regulations add a priority rule to address transactions to which both Code Sec. 901(m) and Code Sec. 909 apply. Under the rule, Code Sec. 901(m) calculations are taken into account before applying Code Sec. 909.

Tax Cut and Jobs Act changes, including the repeal of Code Sec. 902, are also reflected.

Applicability Date
The final regulations apply to CAAs occurring on or after the date the final regulations are published in the Federal Register. A taxpayer may choose to apply the regulations before they would otherwise apply, provided consistency requirements are met, for tax years open for assessment. Returns for tax years ending before the date the final regulations are published must be filed no later than one year after the publication date. For tax years not open for assessment, appropriate adjustments must be made to account for deficiencies that would have resulted from a consistent application of the rules.