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Internal Revenue Service Department of the Treasury

2018 Department of the Treasury Internal Revenue Service Instructions for Form 8960. Net Investment Income Tax Individuals, Estates, and Trusts Section references are to the Internal Revenue clarification of the effect of section 67(g) Excluded income. Excluded income Code unless otherwise noted. on the deductibility of certain expenses means: described in section 67(b) and (e) and Income excluded from gross income in Future Developments section of the regulations that are chapter 1 of the Internal Revenue Code;. incurred by estates and nongrantor trusts. Income not included in net investment For the latest information about These regulations will clarify that estates income; and developments related to Form 8960 and and nongrantor trusts may continue to Gross income and net gain specifically its instructions, such as legislation deduct each expense that is described in excluded by section 1411, related enacted after they were published, go to section 67(e)(1) or is allowable under regulations, or other guidance published in section 642(b), 651, or 661, including the the Internal Revenue Bulletin.

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Transcription of Internal Revenue Service Department of the Treasury

1 2018 Department of the Treasury Internal Revenue Service Instructions for Form 8960. Net Investment Income Tax Individuals, Estates, and Trusts Section references are to the Internal Revenue clarification of the effect of section 67(g) Excluded income. Excluded income Code unless otherwise noted. on the deductibility of certain expenses means: described in section 67(b) and (e) and Income excluded from gross income in Future Developments section of the regulations that are chapter 1 of the Internal Revenue Code;. incurred by estates and nongrantor trusts. Income not included in net investment For the latest information about These regulations will clarify that estates income; and developments related to Form 8960 and and nongrantor trusts may continue to Gross income and net gain specifically its instructions, such as legislation deduct each expense that is described in excluded by section 1411, related enacted after they were published, go to section 67(e)(1) or is allowable under regulations, or other guidance published in section 642(b), 651, or 661, including the the Internal Revenue Bulletin.

2 Appropriate portion of a bundled fee, in Examples of excluded items are: What's New determining the estate's or nongrantor Wages, trust's adjusted gross income for all tax Global intangible low-taxed income years, even while the application of Unemployment compensation, (GILTI). Public Law 115-97 enacted new section 67(a) is suspended under section Alaska Permanent Fund Dividends, section 951A, which requires 67(g). Additionally, the regulations will Alimony, shareholders of controlled foreign clarify that deductions enumerated in Social security benefits, corporations to determine and include section 67(b) and (e) continue to remain Tax-exempt interest income, their GILTI in gross income every year. outside the definition of miscellaneous Income from certain qualified retirement Section 951A is effective for tax years of itemized deductions and thus are plan distributions, and foreign corporations beginning after 2017 unaffected by section 67(g).

3 Income subject to self-employment and to tax years of shareholders in taxes. which or with which such tax years of foreign corporations end. See Form 8992 General Instructions Net investment income. Generally, net investment income includes gross income and section 951A for more information. from interest, dividends, annuities, Treatment of deferred foreign income Reminder royalties, and rents, unless they're derived upon transition to participation ex- These instructions are based mostly on from the ordinary course of a trade or emption system of taxation. Public Law Regulations sections through business that isn't (a) a passive activity, or 115-97 amended section 965, which (b) a trade or business of trading in requires shareholders to include the financial instruments or commodities. In untaxed foreign earnings of certain Who Must File addition, net investment income includes specified foreign corporations in taxable Attach Form 8960 to your return if your other gross income derived from a trade or income as if those earnings had been modified adjusted gross income (MAGI) is business that's (a) a passive activity, or (b).

4 Repatriated to the United States. See Form greater than the applicable threshold a trade or business of trading in financial 965 and section 965 for more information. amount. instruments or commodities. Additionally, net investment income includes net gain Miscellaneous itemized deductions suspended for tax years 2018 through Purpose of Form (to the extent taken into account in Use Form 8960 to figure the amount of computing taxable income) attributable to 2025. Miscellaneous itemized deductions the disposition of property other than under section 67 are not allowed for tax your Net Investment Income Tax (NIIT). property held in a trade or business that's years beginning after 2017 and before 2026. See section 67(g). Definitions not (a) a passive activity, or (b) a trade or business of trading in financial instruments Overall limitation on itemized deduc- Controlled foreign corporation (CFC). or commodities.

5 To arrive at net tions suspended for tax years 2018 Generally, a CFC is any foreign investment income, the above items are through 2025. The overall limitation on corporation if more than 50% of its voting reduced by deductions allowed against itemized deductions under section 68 power or stock value is owned or the income tax which are properly does not apply for tax years beginning considered owned by shareholders allocable to those items of gross income after 2017 and before 2026. See section (as defined in section 951(b)) on any day or net gain. See section 1411(c) and 68(f). during the tax year. Certain foreign Regulations sections and insurance companies are considered (c). We continue to discuss CFCs if more than 25% of their voting ! miscellaneous itemized power or stock value is owned or Passive foreign investment company CAUTION deductions under section 67 (and considered owned by shareholders (PFIC).)

6 Generally, a PFIC is any foreign the 2% limitation) and the overall limitation (as defined in section 951(b)) on any day corporation if at least 75% of its gross on itemized deductions under section 68, during the tax year. See section 957(a) income is passive income or an average however, they are suspended for tax years and (b). Additionally, certain foreign of at least 50% of its assets produce 2018 through 2025. insurance companies with related person passive income or are held for the insurance income may be CFCs. See production of passive income. See section Note. Notice 2018-61 announces that the section 953(c). 1297(a). Department of Treasury and the IRS Qualified electing fund (QEF). intend to issue regulations providing Generally, a QEF is a PFIC for which the Jan 22, 2019 Cat. No. 53783S. taxpayer has made an election under You elect to be treated as a resident of You can make either election on an section 1295(b) and the PFIC complies the foreign country for purposes of amended return only if the tax year for with IRS requirements for determining computing your income tax liability; which you're making the election, and all ordinary earnings and net capital gain.

7 And tax years affected by the election, aren't See section 1295(a). You file Form 1040NR, closed by the period of limitations on Nonresident Alien Income Tax Return, assessment under section 6501. Section (g) election. An and Form 8833, Treaty-Based Return election made under Regulations section If you elect to apply a section 6013(g). Position Disclosure Under Section 6114 or (g) (section (g) election for NIIT purposes and later 7701(b), as provided in Regulations election). See Regulations Section determine that you didn't meet the criteria section (b)-7(b). (g) Election, later. for doing so in that tax year, your election Dual-status individual. If you were a for NIIT purposes will have no effect that Section 1411 trade or business. dual-status individual that is, an year and for all future years. However, if, Generally, a trade or business that's either individual who was a resident of the in a later year, you meet the criteria to a passive activity for the taxpayer or is a United States for part of the year and an elect to apply your section 6013(g).

8 Trade or business of trading in financial NRA for the other part of the year you're election for NIIT purposes, you'll be instruments or commodities. See section subject to the NIIT only for the portion of treated as though you did elect to apply 1411(c)(2) and Regulations section the year you were a resident. The your section 6013(g) election in that later (a). relevant threshold amount isn't reduced or year unless you file (or amend) your return prorated for a dual-status individual. for that later year to report your NIIT. Recordkeeping without the election for NIIT purposes. If you were a resident on the last For the NIIT, certain items of investment day of the tax year, file Form 1040 and income and investment expense receive different treatment than for the regular attach a statement showing your income Application to Estates and income tax. Therefore, you need to keep for the part of the year you were a Trusts nonresident.

9 You can use Form 1040NR. all records and worksheets for the items Domestic estates and trusts. The NIIT. as the statement. you need to include on Form 8960. Keep applies to estates and trusts that have all records for the entire life of the If you were a nonresident on the last day of the tax year, file Form 1040NR and undistributed net investment income and investment to show how you calculated adjusted gross income (AGI) in excess of basis. You'll need to know what you did in attach a statement showing your income for the part of the year you were a the threshold amount. The NIIT is of prior years if the investment was part of a the lesser of: carryback or carryforward. resident. You can use Form 1040 as the statement. The undistributed net investment income for the tax year; or Application to Individuals For more information, see the The excess, if any, of AGI (as defined in Instructions for Form 1040NR and Pub.)

10 Section 67(e)) over the applicable citizens and residents. Individuals 519, Tax Guide for Aliens. who have for the tax year (a) MAGI that's threshold amount. over an applicable threshold amount, and Election To File Jointly With The applicable threshold amount is the (b) net investment income, must pay Nonresident Spouse Section dollar amount at which the highest tax of the smaller of (a) or (b) as their NIIT. bracket in section 1(e) begins for the tax 6013(g) or 6013(h) year. See the instructions for Form 1041, The applicable threshold amount is If you and your spouse elect to file a joint Schedule G, line 1a, and the instructions based on your filing status. return under section: for Form 1041-QFT, line 12, for the dollar Married Filing Jointly or Qualifying 6013(g) (where an NRA is married to a Widow(er) is $250,000. amount at which the highest tax bracket citizen or resident at the end of the begins for the tax year.


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