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Issue 39941

1040 Schedule C

Project Statement: Evaluate Schedule C (Form 1040) Profit or Loss From Business and Instructions. Determine if the form and Schedules clearly communicates the appropriate guidance to public.

Goal Statement: The goal of this project is to review and make recommendations to the IRS that will enhance customer service and improve the taxpayers’ experience.

TAP RECOMMENDATION

ID 1571 Depreciation and Section 179 Expense Deductions.

As a result of the Tax Cuts and Jobs Act (TCJA), passed in December 2017, the maximum Section 179 deduction has been increased to $1 million, which allows a taxpayer to deduct the entire cost of eligible property in the first year it is placed into service. In addition, bonus depreciation has been increased to 100% of the purchase price for both new and used tangible personal property. New farm equipment can be depreciated over five years instead of seven years (subject to certain exclusions). See page C-7 for instructions for Line 13, Depreciation deductions and section 179 expense deductions.

Fringe Benefits. The TCJA eliminated the deduction for commuting transportation expenses for an employee unless necessary for an employee’s safety. In addition, the deduction for Qualified Employee Transportation Fringe Benefits (such as mass transit
passes, parking) has been eliminated, but this is still a tax-free fringe benefit to the employee. See also Pub. 15-B, Employer’s Tax Guide to Fringe Benefits.

Both depreciation and fringe benefits are new changes under TCJA and affect Schedule C. Schedule C Instructions, Other Schedules and Forms You May Have to File, page C- 2

IRS Action:Not adopted

ID 1571 We will not adopt this suggestion.

We have deleted this paragraph from the 2019 instructions because it was part of the “What’s New” section. This section is revised annually and only includes changes relevant to the current year. Schedule C Instructions, Other Schedules and Forms You May
Have to File, page C- 2

TAP RECOMMENDATION

ID 1572 Add after Form 6198:

Form 6252, to report income from an installment sale where at least one payment is received after the end of the tax year in which the disposition occurs. The current list of forms includes Form 4797 to report gain or loss from sale of business property and Form 8824 to report like kind exchanges. Since installment sales are another form of selling property, which are often used, reference to this form used to report installment sales would be helpful. Schedule C Instructions, After Capital Construction Fund, page C-3

IRS Action:Adopted

ID 1572 We will adopt this suggestion.

The new bullet will state: “Form 6252 to report income from an installment sale.” Schedule C Instructions, After Capital Construction Fund, page C-3

TAP RECOMMENDATION

ID 1573 Add a new section:

International Operations.

If your business operates outside the U.S. or owns an interest in a non-U.S. entity, then you may have to file some of the following forms:

(This is not a required form but only if the taxpayer elects to take the credit)

Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations;

Form 8992, U.S. Shareholder Calculation of Global Low-Taxed Intangible Income, which is a new form for 2018 that was adopted to address recent tax law changes;

Form 8621, Passive Foreign Investment Companies;

Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities;

Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships; and

Form 8938, Statement of Specified Foreign Financial Assets. The General Instructions offer helpful advice on forms to file and certain topics of interest to the business taxpayer. Given the ever-increasing global economy, more businesses are operating outside the U.S. and it would be helpful to guide them to some of the more commonly encountered forms, none of which are referred to in the earlier list of forms that do not address international operations. Instructions, Page C-3, Column 1, 2nd Paragraph

IRS Action:Considered

ID 1573 We will not adopt this suggestion; however, we will consider adding this information to Publication 334. Instructions, Page C-3, Column 1, 2nd Paragraph

TAP RECOMMENDATION

ID 1574 Add text in red below:

Employer Identification number (EIN). You and your spouse do not need to obtain an EIN to make the election. But you may need an EIN to file other returns, such as employment or excise tax returns. To apply for an EIN, see the Instructions for Form SS-4 or apply for an EIN online at IRS.gov (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online).

Add online link to allow for a tax payer to obtain an EIN online instead of just offering them the option of paper filing. Schedule C Instructions, Line 13, first column, page C-7

IRS Action:Adopted

ID 1574 We will adopt this suggestion.

The new text will state: “…or visit IRS.gov/EIN.” Schedule C Instructions, Line 13, first column, page C-7

TAP RECOMMENDATION

ID 1576 You can also elect under section 179 to expense part or all of the cost of certain property you bought in 2018 for use in your business.

See IRS Publication 946, How to Depreciate Property, for more information. Add the new tax law change that modifies bonus depreciation. Schedule C Instructions, Line 26, first column, page C- 10

IRS Action:Not adopted

ID 1576 We will not adopt this suggestion.

The “current text” has a reference to Pub. 946 in the sentence following it. Also, the TF&P style guide discourages the use of full publication, form, or instruction titles in our instructions. Schedule C Instructions, Line 26, first column, page C- 10

TAP RECOMMENDATION

ID 1577 Do not deduct salaries or wages deducted elsewhere on your return or amounts paid to yourself. However, you can deduct
compensation paid to others that is reasonable. See IRS Publication 535, Business Expenses, for more information

Add some more information to salary deduction section to help the taxpayer.

IRS Action:Not adopted

ID 1577 We will not adopt this suggestion.

Payments made to non-employees is covered in the instructions for Line 11. At the end of the Line 26 instructions, we will add a general reference to chapter 2 of Pub. 535 to direct taxpayers to more information concerning employee pay.

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2020 TAP Annual Report

The 2020 TAP Annual Report highlights our key recommendations to improve IRS customer service and summarizes our key accomplishments and activities, including the 237 recommendations submitted to the IRS in 2020.

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