The health care legislation contains several tax provisions unrelated to health care. These include:
Information reporting. The Patient Protection Act requires businesses to file an information return (for example, a Form 1099) for all payments aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation). The provision is effective for payments made after Dec. 31, 2011.
Expansion of adoption credit, adoption-assistance programs. For 2010, the maximum adoption credit is increased to $13,170 per eligible child (a $1,000 increase). This increase applies to both non-special-needs adoptions and special-needs adoptions. Also, the adoption credit is made refundable. The new dollar limit and phase-out of the adoption credit are adjusted for inflation in tax years beginning after Dec. 31, 2010. The scheduled sunset of Economic Growth and Tax Relief Reconciliation Act (EGTRRA) provisions relating to the adoption credit is delayed for one year (that is, the sunset becomes effective for tax years beginning after Dec. 31, 2011).
For adoption-assistance programs, the maximum exclusion is increased to $13,170 per eligible child (a $1,000 increase). The new dollar limit and income limitations of the employer-provided adoption-assistance exclusion are adjusted for inflation in tax years beginning after Dec. 31, 2010. The EGTRRA sunset of provisions relating to adoption-assistance programs is also delayed for one year (that is, the sunset becomes effective for tax years beginning after Dec. 31, 2011). Under the sunset, after 2011, the adoption credit will revert to its pre-EGTRRA provisions (that is, a $6,000 credit for special-needs children only), and the income exclusion will disappear.
Economic substance doctrine. The Reconciliation Act codifies the economic substance doctrine in new IRC 7701(o). The provision says that a transaction will be treated as having economic substance only if the transaction changes the taxpayer's position in a meaningful way (apart from the tax benefits) and the taxpayer has a substantial purpose (apart from the tax benefits) for entering into the transaction.
The economic substance doctrine was created by the courts, and while they agree about the general definition and purpose, they have applied various tests in determining whether a transaction has economic substance. The act codifies a two-part test and requires transactions to meet both prongs of the test.
The Reconciliation Act puts failure to meet the economic substance test within the list of transactions that are subject to penalty under IRC 6662 and imposes an increased penalty amount for non-disclosed transactions that lack economic substance. The act also removes transactions that lack economic substance from the reasonable cause exception in IRC 6664.
Tax on indoor tanning services. The Patient Protection Act imposes a 10% tax on amounts paid for indoor tanning services (new IRC 5000B). Like a sales tax, the tax will be collected from the person tanning when payment for the tanning services is made. The provision applies to services performed on or after July 1, 2010.
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