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Wednesday December 13, 2017

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2016 Tax Table, Exemptions and Deductions

GiftLaw Note: In Rev. Proc. 2015-53, the IRS released 44 inflation-adjusted amounts for 2016. The increased amounts affect tax tables, exemptions, exclusions and benefit phase outs.

Rev. Proc. 2015-53; 2015-44 IRB 615

26 CFR 601.602: Tax forms and instructions.


(Also Part I, §§ 1, 23, 24, 25A, 32, 36B, 42, 45R, 55, 59, 62, 63, 68, 125, 132(f),135, 137, 146, 147, 148, 151, 213, 220, 221, 512, 513, 877, 877A, 911, 2010, 2032A, 2503, 2523, 4161, 4261, 6033, 6039F, 6323, 6334, 6601, 6651, 6652, 6695, 6698, 6699, 6721, 6722, 7430, 7702B; 1.148-5.)

Table of Contents

SECTION 1. PURPOSE

SECTION 2. CHANGES

SECTION 3. 2016 ADJUSTED ITEMS


SECTION 4. EFFECTIVE DATE

SECTION 5. DRAFTING INFORMATION

SECTION 1. PURPOSE


This revenue procedure sets forth inflation-adjusted items for 2016.

SECTION 2. CHANGES


.01 Section 202 of the Airport and Airways Extension Act of 2015, Pub. L. 114-55, amended § 4261(k)(1)(A)(ii) of the Internal Revenue Code (which governs the period of applicability of § 4261(b)(1), (c)(1), and (c)(3)). The effect of this amendment is to temporarily extend the passenger air transportation excise taxes of $3.00 for domestic travel, $12.00 for international travel, and $6.00 for departures beginning or ending in Alaska or Hawaii. These excise taxes apply to transportation taken through March 31, 2016. After this date, the taxes and rates will expire unless Congress renews them.

.02 Section 2102 of the Small Business Jobs Act of 2010, Pub. L. 111-240, 124 Stat. 2504, provides that for each fifth calendar year beginning after 2012, the penalty under § 6721, Failure to File Correct Information Returns, and the penalty under § 6722, Failure to Furnish Correct Payee Statements, will be adjusted for inflation. Section 208 of the Tax Increase Prevention Act of 2014, Achieving a Better Life Experience (ABLE) Act, Pub. L. 113-295, 128 Stat. 4010, provides for inflation adjustments for certain Civil Penalties under the Code (§§ 6651, 6652(c), 6695, 6698, 6699, 6721, and 6722) for returns and statements required to be filed after December 31, 2014. For returns and statements required to be filed after December 31, 2015, Section 806 of the Trade Preferences Extension Act of 2015, Pub. L. 114-27, 129 Stat. 362, increased the tax penalties for failure to file correct information returns and furnish correct payee statements under §§ 6721 and 6722, respectively.

SECTION 3. 2016 ADJUSTED ITEMS


.01 Tax Rate Tables. For taxable years beginning in 2016, the tax rate tables under § 1 are as follows:

TABLE 1 -- Section 1(a) -- Married Individuals
Filing Joint Returns and Surviving Spouses


TABLE 2 -- Section 1(b) -- Heads of Households


TABLE 3 -- Section 1(c) -- Unmarried Individuals
(other than Surviving Spouses and Heads of Households)


TABLE 4 -- Section 1(d) -- Married Individuals
Filing Separate Returns


TABLE 5 -- Section 1(e) -- Estates and Trusts


.02 Unearned Income of Minor Children Taxed as if Parent's Income (the "Kiddie Tax"). For taxable years beginning in 2016, the amount in § 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,050. This $1,050 amount is the same as the amount provided in § 63(c)(5)(A), as adjusted for inflation. The same $1,050 amount is used for purposes of § 1(g)(7) (that is, to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax"). For example, one of the requirements for the parental election is that a child's gross income is more than the amount referenced in § 1(g)(4)(A)(ii)(I) but less than 10 times that amount; thus, a child's gross income for 2016 must be more than $1,050 but less than $10,500.

.03 Adoption Credit. For taxable years beginning in 2016, under § 23(a)(3) the credit allowed for an adoption of a child with special needs is $13,460. For taxable years beginning in 2016, under § 23(b)(1) the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,460. The available adoption credit begins to phase out under § 23(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $201,920 and is completely phased out for taxpayers with modified adjusted gross income of $241,920 or more. (See section 3.19 of this revenue procedure for the adjusted items relating to adoption assistance programs.)

.04 Child Tax Credit. For taxable years beginning in 2016, the value used in § 24(d)(1)(B)(i) to determine the amount of credit under § 24 that may be refundable is $3,000.

.05 Hope Scholarship, American Opportunity, and Lifetime Learning Credits.

(1) For taxable years beginning in 2016, the Hope Scholarship Credit under § 25A(b)(1), as increased under § 25A(i) (the American Opportunity Tax Credit), is an amount equal to 100 percent of qualified tuition and related expenses not in excess of $2,000 plus 25 percent of those expenses in excess of $2,000, but not in excess of $4,000. Accordingly, the maximum Hope Scholarship Credit allowable under § 25A(b)(1) for taxable years beginning in 2016 is $2,500.

(2) For taxable years beginning in 2016, a taxpayer's modified adjusted gross income in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction under § 25A(d)(2) in the amount of the Hope Scholarship Credit otherwise allowable under § 25A(a)(1). For taxable years beginning in 2016, a taxpayer's modified adjusted gross income in excess of $55,000 ($111,000 for a joint return) is used to determine the reduction under § 25A(d)(2) in the amount of the Lifetime Learning Credit otherwise allowable under § 25A(a)(2).

.06 Earned Income Credit.

(1) In general. For taxable years beginning in 2016, the following amounts are used to determine the earned income credit under § 32(b). The "earned income amount" is the amount of earned income at or above which the maximum amount of the earned income credit is allowed. The "threshold phaseout amount" is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The "completed phaseout amount" is the amount of adjusted gross income (or, if greater, earned income) at or above which no credit is allowed. The threshold phaseout amounts and the completed phaseout amounts shown in the table below for married taxpayers filing a joint return include the increase provided in § 32(b)(3)(B)(i), as adjusted for inflation for taxable years beginning in 2016.


The instructions for the Form 1040 series provide tables showing the amount of the earned income credit for each type of taxpayer.

(2) Excessive Investment Income. For taxable years beginning in 2016, the earned income tax credit is not allowed under § 32(i)(1) if the aggregate amount of certain investment income exceeds $3,400.

.07 Refundable Credit for Coverage Under a Qualified Health Plan. For taxable years beginning in 2016, the limitation on tax imposed under § 36B(f)(2)(B) for excess advance credit payments is determined using the following table:


.08 Rehabilitation Expenditures Treated as Separate New Building. For calendar year 2016, the per low-income unit qualified basis amount under § 42(e)(3)(A)(ii)(II) is $6,700.

.09 Low-Income Housing Credit. For calendar year 2016, the amount used under § 42(h)(3)(C)(ii) to calculate the State housing credit ceiling for the low-income housing credit is the greater of (1) $2.35 multiplied by the State population, or (2) $2,690,000.

.10 Employee Health Insurance Expense of Small Employers. For taxable years beginning in 2016, the dollar amount in effect under § 45R(d)(3)(B) is $25,900. This amount is used under § 45R(c) for limiting the small employer health insurance credit and under § 45R(d)(1)(B) for determining who is an eligible small employer for purposes of the credit.

.11 Exemption Amounts for Alternative Minimum Tax. For taxable years beginning in 2016, the exemption amounts under § 55(d)(1) are:


For taxable years beginning in 2016, under § 55(b)(1), the excess taxable income above which the 28 percent tax rate applies is:


For taxable years beginning in 2016, the amounts used under § 55(d)(3) to determine the phaseout of the exemption amounts are:


.12 Alternative Minimum Tax Exemption for a Child Subject to the "Kiddie Tax." For taxable years beginning in 2016, for a child to whom the § 1(g) "kiddie tax" applies, the exemption amount under §§ 55 and 59(j) for purposes of the alternative minimum tax under § 55 may not exceed the sum of (1) the child's earned income for the taxable year, plus (2) $7,400.

.13 Transportation Mainline Pipeline Construction Industry Optional Expense Substantiation Rules for Payments to Employees under Accountable Plans. For calendar year 2016, an eligible employer may pay certain welders and heavy equipment mechanics an amount of up to $17 per hour for rig-related expenses that are deemed substantiated under an accountable plan if paid in accordance with Rev. Proc. 2002-41, 2002-1 C.B. 1098. If the employer provides fuel or otherwise reimburses fuel expenses, up to $11 per hour is deemed substantiated if paid under Rev. Proc. 2002-41.

.14 Standard Deduction.

(1) In general. For taxable years beginning in 2016, the standard deduction amounts under § 63(c)(2) are as follows:


(2) Dependent. For taxable years beginning in 2016, the standard deduction amount under § 63(c)(5) for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,050, or (2) the sum of $350 and the individual's earned income.

(3) Aged or blind. For taxable years beginning in 2016, the additional standard deduction amount under § 63(f) for the aged or the blind is $1,250. The additional standard deduction amount is increased to $1,550 if the individual is also unmarried and not a surviving spouse.

.15 Overall Limitation on Itemized Deductions. For taxable years beginning in 2016, the applicable amounts under § 68(b) are $311,300 in the case of a joint return or a surviving spouse, $285,350 in the case of a head of household, $259,400 in the case of an individual who is not married and who is not a surviving spouse or head of household, $155,650 in the case of a married individual filing a separate return.

.16 Cafeteria Plans. For the taxable years beginning in 2016, the dollar limitation under § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,550.

.17 Qualified Transportation Fringe Benefit. For taxable years beginning in 2016, the monthly limitation under § 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $130. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $255.

.18 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses. For taxable years beginning in 2016, the exclusion under § 135, regarding income from United States savings bonds for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $116,300 for joint returns and $77,550 for all other returns. The exclusion is completely phased out for modified adjusted gross income of $146,300 or more for joint returns and $92,550 or more for all other returns.

.19 Adoption Assistance Programs. For taxable years beginning in 2016, under § 137(a)(2), the amount that can be excluded from an employee's gross income for the adoption of a child with special needs is $13,460. For taxable years beginning in 2016, under § 137(b)(1) the maximum amount that can be excluded from an employee's gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $13,460. The amount excludable from an employee's gross income begins to phase out under § 137(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $201,920 and is completely phased out for taxpayers with modified adjusted gross income of $241,920 or more. (See section 3.03 of this revenue procedure for the adjusted items relating to the adoption credit.)

.20 Private Activity Bonds Volume Cap. For calendar year 2016, the amounts used under § 146(d) to calculate the State ceiling for the volume cap for private activity bonds is the greater of (1) $100 multiplied by the State population, or (2) $302,875,000.

.21 Loan Limits on Agricultural Bonds. For calendar year 2016, the loan limit amount on agricultural bonds under § 147(c)(2)(A) for first-time farmers is $520,000.

.22 General Arbitrage Rebate Rules. For bond years ending in 2016, the amount of the computation credit determined under the permission to rely on § 1.148-3(d)(4) of the proposed Income Tax Regulations is $1,650.

.23 Safe Harbor Rules for Broker Commissions on Guaranteed Investment Contracts or Investments Purchased for a Yield Restricted Defeasance Escrow. For calendar year 2016, under § 1.148-5(e)(2)(iii)(B)(1), a broker's commission or similar fee for the acquisition of a guaranteed investment contract or investments purchased for a yield restricted defeasance escrow is reasonable if (1) the amount of the fee that the issuer treats as a qualified administrative cost does not exceed the lesser of (A) $39,000, and (B) 0.2 percent of the computational base (as defined in § 1.148-5(e)(2)(iii)(B)(2)) or, if more, $4,000; and (2) the issuer does not treat more than $110,000 in brokers' commissions or similar fees as qualified administrative costs for all guaranteed investment contracts and investments for yield restricted defeasance escrows purchased with gross proceeds of the issue.

.24 Personal Exemption.

(1) For taxable years beginning in 2016, the personal exemption amount under § 151(d) is $4,050.

(2) Phaseout. For taxable years beginning in 2016, the personal exemption phases out for taxpayers with the following adjusted gross income amounts:


.25 Eligible Long-Term Care Premiums. For taxable years beginning in 2016, the limitations under § 213(d)(10), regarding eligible long-term care premiums includible in the term "medical care," are as follows:


.26 Medical Savings Accounts.

(1) Self-only coverage. For taxable years beginning in 2016, the term "high deductible health plan" as defined in § 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 and not more than $3,350, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,450.

(2) Family coverage. For taxable years beginning in 2016, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,450 and not more than $6,700, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,150.

.27 Interest on Education Loans. For taxable years beginning in 2016, the $2,500 maximum deduction for interest paid on qualified education loans under § 221 begins to phase out under § 221(b)(2)(B) for taxpayers with modified adjusted gross income in excess of $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $80,000 or more ($160,000 or more for joint returns).

.28 Treatment of Dues Paid to Agricultural or Horticultural Organizations. For taxable years beginning in 2016, the limitation under § 512(d)(1), regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $161.

.29 Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns.

(1) Low cost article. For taxable years beginning in 2016, for purposes of defining the term "unrelated trade or business" for certain exempt organizations under § 513(h)(2), "low cost articles" are articles costing $10.60 or less.

(2) Other insubstantial benefits. For taxable years beginning in 2016, under § 170, the $5, $25, and $50 guidelines in section 3 of Rev. Proc. 90-12, 1990-1 C.B. 471 (as amplified by Rev. Proc. 92-49, 1992-1 C.B. 987, and modified by Rev. Proc. 92-102, 1992-2 C.B. 579), for the value of insubstantial benefits that may be received by a donor in return for a contribution, without causing the contribution to fail to be fully deductible, are $10.60, $53, and $106, respectively.

.30 Expatriation to Avoid Tax. For calendar year 2016, under § 877A(g)(1)(A), unless an exception under § 877A(g)(1)(B) applies, an individual is a covered expatriate if the individual's "average annual net income tax" under § 877(a)(2)(A) for the five taxable years ending before the expatriation date is more than $161,000.

.31 Tax Responsibilities of Expatriation. For taxable years beginning in 2016, the amount that would be includible in the gross income of a covered expatriate by reason of § 877A(a)(1) is reduced (but not below zero) by $693,000.

.32 Foreign Earned Income Exclusion. For taxable years beginning in 2016, the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $101,300.

.33 Unified Credit Against Estate Tax. For an estate of any decedent dying in calendar year 2016, the basic exclusion amount is $5,450,000 for determining the amount of the unified credit against estate tax under § 2010.

.34 Valuation of Qualified Real Property in Decedent's Gross Estate. For an estate of a decedent dying in calendar year 2016, if the executor elects to use the special use valuation method under § 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use § 2032A for purposes of the estate tax cannot exceed $1,110,000.

.35 Annual Exclusion for Gifts.

(1) For calendar year 2016, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.

(2) For calendar year 2016, the first $148,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.

.36 Tax on Arrow Shafts. For calendar year 2016, the tax imposed under § 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows is $0.49 per shaft.

.37 Passenger Air Transportation Excise Tax. For calendar year 2016, the tax under § 4261(b)(1) on the amount paid for each domestic segment of taxable air transportation is $4. For calendar year 2016, the tax under § 4261(c)(1) on any amount paid (whether within or without the United States) for any international air transportation, if the transportation begins or ends in the United States, generally is $17.80. Under § 4261(c)(3), however, a lower amount applies under § 4261(c)(1) to a domestic segment beginning or ending in Alaska or Hawaii, and the tax applies only to departures. For calendar year 2016, the rate is $8.90.

.38 Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying Expenditures. For taxable years beginning in 2016, the annual per person, family, or entity dues limitation to qualify for the reporting exception under § 6033(e)(3) (and section 5.05 of Rev. Proc. 98-19, 1998-1 C.B. 547), regarding certain exempt organizations with nondeductible lobbying expenditures, is $112 or less.

.39 Notice of Large Gifts Received from Foreign Persons. For taxable years beginning in 2016, § 6039F authorizes the Treasury Department and the Internal Revenue Service to require recipients of gifts from certain foreign persons to report these gifts if the aggregate value of gifts received in the taxable year exceeds $15,671.

.40 Persons Against Whom a Federal Tax Lien Is Not Valid. For calendar year 2016, a federal tax lien is not valid against (1) certain purchasers under § 6323(b)(4) who purchased personal property in a casual sale for less than $1,530, or (2) a mechanic's lienor under § 6323(b)(7) who repaired or improved certain residential property if the contract price with the owner is not more than $7,630.

.41 Property Exempt from Levy. For calendar year 2016, the value of property exempt from levy under § 6334(a)(2) (fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) cannot exceed $9,120. The value of property exempt from levy under § 6334(a)(3) (books and tools necessary for the trade, business, or profession of the taxpayer) cannot exceed $4,560.

.42 Interest on a Certain Portion of the Estate Tax Payable in Installments. For an estate of a decedent dying in calendar year 2016, the dollar amount used to determine the "2-percent portion" (for purposes of calculating interest under § 6601(j)) of the estate tax extended as provided in § 6166 is $1,480,000.

.43 Failure to File Tax Return. For tax years beginning in 2016, the amount of the additional tax under § 6651(a) for failure to file a tax return within 60 days of the due date of such return (determined with regard to any extensions of time for filing) shall not be less than the lesser of $135 or 100 percent of the amount required to shown as tax on such returns.

.44 Failure to File Certain Information Returns, Registration Statements, etc. For tax years beginning in 2016, the penalty amounts under § 6652(c) are:

(1) for failure to file a return required under § 6033(a)(1) (relating to returns by exempt organization) or § 6012(a)(6) (relating to returns by political organizations):


(2) for failure to file a return required under § 6034 (relating to returns by certain trust) or § 6043(b) (relating to terminations, etc., of exempt organizations):


(3) for failure to file a disclosure required under § 6033(a)(2):


.45 Other Assessable Penalties With Respect to the Preparation of Tax Returns for Other Persons. For tax years beginning in 2016, the penalty amounts under § 6695 are:


.46 Failure to File Partnership Return. For tax years beginning in 2016, the dollar amount used to determine amount of the penalty under § 6698(b)(1) is $195.

.47 Failure to File S Corporation Return. For tax years beginning in 2016, the dollar amount used to determine amount of the penalty under § 6699(b)(1) is $195.

.48 Failure to File Correct Information Returns. For tax years beginning in 2016, the penalty amounts under § 6721 are:

(1) for persons with average annual gross receipts for the most recent three taxable years of more than $5,000,000, for failure to file correct information returns are:


(2) for persons with average annual gross receipts for the most recent three taxable years of $5,000,000 or less, for failure to file correct information returns are:


(3) for failure to file correct information returns due to intentional disregard of the filing requirement (or the correct information reporting requirement) are:


.49 Failure to Furnish Correct Payee Statements. For tax years beginning in 2016, the penalty amounts under § 6722 are: (1) for persons with average annual gross receipts for the most recent three taxable years of more than $5,000,000, for failure to file correct information returns are:


(2) for persons with average annual gross receipts for the most recent 3 taxable years of $5,000,000 or less, for failure to file correct information returns are:


(3) for failure to file correct payee statements due to intentional disregard of the requirement to furnish a payee statement (or the correct information reporting requirement) are:


.50 Attorney Fee Awards. For fees incurred in calendar year 2016, the attorney fee award limitation under § 7430(c)(1)(B)(iii) is $200 per hour.

.51 Periodic Payments Received under Qualified Long-Term Care Insurance Contracts or under Certain Life Insurance Contracts. For calendar year 2016, the stated dollar amount of the per diem limitation under § 7702B(d)(4), regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $340.

SECTION 4. EFFECTIVE DATE


.01 General Rule. Except as provided in section 4.02, this revenue procedure applies to taxable years beginning in 2016.

.02 Calendar Year Rule. This revenue procedure applies to transactions or events occurring in calendar year 2016 for purposes of sections 3.08 (rehabilitation expenditures treated as separate new building), 3.09 (low-income housing credit), 3.13 (transportation mainline pipeline construction industry optional expense substantiation rules for payments to employees under accountable plans), 3.20 (private activity bonds volume cap), 3.21 (loan limits on agricultural bonds), 3.22 (general arbitrage rebate rules), 3.23 (safe harbor rules for broker commissions on guaranteed investment contracts or investments purchased for a yield restricted defeasance escrow), 3.30 (expatriation to avoid tax), 3.33 (unified credit against estate tax), 3.34 (valuation of qualified real property in decedent's gross estate), 3.35 (annual exclusion for gifts), 3.36 (tax on arrow shafts), 3.37 (passenger air transportation excise tax), 3.40 (persons against whom a federal tax lien is not valid), 3.41 (property exempt from levy), 3.42 (interest on a certain portion of the estate tax payable in installments), 3.50 (attorney fee awards), and 3.51 (periodic payments received under qualified long-term care insurance contracts or under certain life insurance contracts).

SECTION 5. DRAFTING INFORMATION


The principal author of this revenue procedure is William Ruane of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Mr. Ruane at (202) 317-4718 (not a toll-free call).


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