Trade Preferences Act Amends the Tax Code

The Trade Preferences Extension Act of 2015, P.L. 114-27, which was enacted on June 29, contains a few tax provisions in addition to the trade measures that were the focus of the bill.

The bill modifies the Sec. 35 health coverage tax credit and the Sec. 24 child tax credit, requires payee statements for the education credits, changes the time for payment of certain corporate estimated taxes, and increases information return and payee statement penalties.

Health Coverage Tax Credit

Sec. 35 provides a credit equal to 72.5% of the amount paid by a taxpayer who is an eligible trade adjustment assistance or Pension Benefit Guaranty Corp. (PBGC) pension recipient for qualified health insurance coverage of the taxpayer and qualifying family members for eligible coverage months. The provision expired at the end of 2013, but the act retroactively extends the credit through 2020.

The act also coordinates the Sec. 35 credit with the Sec. 36B premium tax credit. It does this by requiring taxpayers to elect to have Sec. 35 apply, and any month that the taxpayer elects to have Sec. 35 apply will not be treated as a coverage month for purposes of Sec. 36B. The election to have Sec. 35 apply to an eligible month will be effective for that month and for all subsequent months in the tax year and will be irrevocable.

Taxpayers who make the Sec. 35 election and also receive advance premium tax credit payments will have their tax liability increased by the amount their Sec. 35 credit exceeds the amount of their Sec. 36B credit.

The mechanism for providing advance payments of the Sec. 35 credit is also extended.

Taxpayers are allowed to make the Sec. 35 election for any year (beginning after 2013) that is still open.

Child Tax Credit

The act amends Sec. 24 to provide that taxpayers who exclude foreign earned income under Sec. 911 cannot claim the child tax credit. This provision is effective for tax years beginning after Dec. 31, 2014.

Education Tax Credits

The act creates a requirement that taxpayers receive a payee statement containing the information required in Sec. 6050S(d)(2) before they can claim an American opportunity, Hope, or lifetime learning credit or take the deduction for qualified tuition and related expenses under Sec. 222. These changes are effective for tax years beginning after the act’s date of enactment.

Corporate Estimated Taxes

As a revenue raiser, the act requires corporations with assets of $1 billion or more to make increased estimated tax payments in July, August, or September 2020. Any corporate estimated tax installment due in those months will be increased by 8%. The corporation’s next estimated tax payment will be decreased by the same amount.

Penalty for Failure to File Correct Information Returns

The act also increases the penalty under Sec. 6721 for failure to file correct information returns and to provide payee statements. The current penalty of $100 per return is increased to $250, and the maximum annual penalty is increased from $1.5 million to $3 million. For failures that are corrected within 30 days, the penalty is increased to $50 per return (from $30), and the maximum annual penalty is increased to $500,000 (from $250,000). Finally, for failures corrected after 30 days but before Aug. 1, the penalty is increased to $100 per return (from $60), and the maximum annual penalty is increased to $1.5 million (from $500,000).

The lower limitation on the maximum annual penalty for taxpayers with gross receipts under $5 million is increased to $1 million (from $500,000), to $175,000 (from $75,000) for failures corrected within 30 days, and to $1.5 million (from $500,000) for failures corrected before Aug. 1.

The penalty for intentional disregard is increased to $500 per return (from $250), and the maximum annual penalty is increased to $3 million (from $1.5 million).

These changes are effective for information returns and payee statements required to be filed after Dec. 31, 2015.