Release Notes for 6-in-1 Version 2019-081

6-in-1 Estate Administration Software, v2019-081, March 25, 2019

We’re delighted to announce third release of 6-in-1 Estate Administration Software for 2019.

03/25/2019

Version 2019-081 has been posted on our website and is available for immediate download.  It includes the following state approvals:

e-file:           MA, NJ, NY, OH   (CT and PA previously approved)
paper file:  DE, IL, IN, VA, WI (MA, NC, and PA previously approved)

CT, NJ, NY, OH paper file approval imminent.  You can now e-file returns for all of four of these states without waiting for the corresponding paper filing approval.  The K-1s contain no watermark, and the other pages currently display “Client Copy”.

Fourth Release This Season
2019-032 (2/01/19)
2019-038 (2/07/19)
2019-060 (3/01/19)
2019-081 (3/22/19)

Effects of the TCJA of 2017

The TCJA of 2017 is turning out to be “a riddle wrapped in a mystery inside an enigma.”

There have been some unexpected downstream consequences of the elimination of Line 15c (Miscellaneous Itemized Deductions).  We believe that they are now resolved in this update.

There is, however, still some uncertainty in some circles over the right of a beneficiary to deduct (on Schedule A of Form 1040) excess deductions received from a final-year estate or trust.  As we wrote on 3/4/2019, in consultation with the IRS Office of Chief Counsel and others, we have reached the conclusion that they are *not* deductible in 2018 – 2025.  Our reasoning is contained in an extensive e-mail that we posted to the ABA Estate Planner’s and Estate Administrator’s List on 3/4/2019.  That e-mail is reproduced in its entirety in a help screen that you can access from the Excess Deduction line on the Master K-1 and on the individual K-1s.

An RIA Checkpoint of 3/7/2019 reaches the opposite conclusion, that excess deductions *are* deductible by beneficiaries.  We have forwarded our research to RIA, and are waiting review by the Thomson Reuters editorial team.

Highlights of this 2019-081 update

Late news:  We rarely see a 1041 marked as a Qualified Disability Trust.  We learned this morning, however, that the 1041 software included in update 2019-081 does *not* reflect the 2018 increase in exemption from $4,050 to $4,150 (even though it *is* reflected in the 1041-ES).   If you have such a trust, please contact us and we can make the change with you over a GoToMeeting session.

1) e-file:  MA, NJ, NY, OH approved

2) Paper filing:  DE, IL, IN, VA, WI approved

3) K-1, Box 11, Code A, Excess Deductions:  Checkbox option to suppress from K-1.  See help screen for discussion.

4) K-1, Box 14, Code I, Section 199A:

(a) Message on Where to Find Supporting Statement:  Now appears in the gray area in bottom right of the K-1.

(b) Section 199A Supporting Statement:  Now transmitted with e-file:  No need to attach a PDF.

5) Adjustments/Corrections:

Checkbox for “Revert to 3/1/2019”.  In the bottom right of Page 2 of Form 1041, Form 8960, and Worksheets W30 (Allocation of Expenses to Net Investment Income) and W32 (Section 199A Deduction), we have added a checkbox for “Revert to 3/1/2019”.  Checking this box will cause the calculations to ignore Adjustments/Corrections (d) through (i) below.  Thus, if these Adjustments/Corrections are de minimis, and you want to synchronize the return in 6-in-1 with the version that you have already filed and/or provided to fiduciaries and/or beneficiaries, just check this box for each affected return.

(a) e-file:  Miscellaneous Itemized Deductions (old Line 15c) no longer being fed to e-file.  This was causing 1041 rejections.  We corrected this for a number of you over GoToMeeting sessions by omitting this field from Page 1 and Schedule I for 2018 and later.  If you have any pending returns with this error, you may resubmit them after you install this update.

(b) e-file:  Form 1116.  The program has been adjusted to incorporate the two new checkboxes at the top of Form 1116 (a and b) and new Lines 23, 24, and 27.  If you have any pending returns with an error relating to Form 1116, you may resubmit them after you install this update.

(c) 1041 No Longer Defaults to pre-2018 Version of Form 1041, Page 1 (after e-filing a state return).  We had one report of this behavior, and were able to reproduce it.  The navigation quickly corrected itself once you clicked on any page button on the right panel, but have now been able to prevent that initial navigation to the pre-2018 version of Page 1 of Form 1041.

(d) Worksheet W02 (2% Floor on Miscellaneous Itemized Deductions):  Because the 2% Floor is not applicable to tax years 2018 – 2025, we had suppressed the display (and calculation) of the entire Line 15c.  Because Line 15c is still relevant to the calculation of Accounting Income Available for Distribution, however, we again display (and calculate) that value in the first three columns.  We continue to suppress it in the DNI and Adjusted Gross Income columns because it is not relevant to those columns.

Also, we again display the L15c “Other/2%” amounts on the Numbers screen for information purposes, but show a gray background and a message that these amounts are not deductible in 2018 – 2025.

This change could have the following implications:

(i) Simple Trusts:  The Accounting Income “required to be distributed currently” on Schedule B, Line 9, could change.  This could change your Income Distribution Deduction, and therefore your tax result.

(ii) Form 8960:  This may or may not have any effect on your Form 8960 Net Investment Income Tax.

(iii) Form 1116:  If you had entered an amount on Form 1116, Line 20, for the tax on Form 1041, Schedule G, Line 1a, you may need to change it to reflect the change in tax on the 1041.  We now understand that Form 1116, Line 20, could default to the tax from Form 1041, Schedule G, Line 1a, and have made this change for the next update.

(e) Deduction for Taxes (Line 11, and Schedule I, Line 3):

(i)  Line 11:  SALT taxes + Foreign Income Taxes + GST Tax

(ii) Schedule I, Line 3 (“AMT L3”):  SALT taxes + Foreign Income Taxes (but not GST Tax)

Because you may have reduced your Line 11 tax deduction by the $10,000 limit on SALT deductions, we now display on AMT L3 the same amount that appears on Line 11.  But if your Line 11 tax deduction also includes GST Tax (not reportable on AMT L3), we provide you with the option to override the amount on AMT L3.

(f) Schedule I, Page1, Line 4 (Page “3” on our right-hand panel):  Although this line reads “Reserved for future use”, we were displaying (and calculating) a value for Miscellaneous Itemized Deductions (old Line 15c).  This value has been removed.  This would make an AMT tax difference only in situations where the AMT tax (after the AMT exemption) is greater than the regular tax.

(g) Form 8960, Line 9c (and W30 Allocations):  Line 9c (and corresponding lines on the W30 Allocations worksheet) have been modified to suppress old L15c (Miscellaneous Itemized Deductions).

(h) W32 §199A Worksheet (bright blue button on Page 1):

(i) Line 9 Total Income:  Label for “1 Total Income” changed to “9 Total Income”.  Displayed value changed from L1 to L9.

(ii) Allocation of DNI to fiduciary:  Changed from (B7 – B15) to (B7 – B12 – B15).  Thus, the portion of DNI deemed allocated to beneficiaries (for purposes of 199A) now includes tax-exempt income (Line B-12).

(iii) If DNI = 0, 100% Now Allocated to Fiduciary:  Previously, 100% was being allocated to Beneficiary(ies).

(iv) Changed line displays to reflect inclusion of B12 (tax-exempt income) in the allocation of DNI between fiduciary and beneficiaries.

(v)  W32 Section 199A Worksheet: Now appears in the Worksheets dropdown menu.

(i) Grantor Advice Letter:  Now suppresses display of Line 15c for 2018 – 2025.

6) 1041 Print Options:  The Print Required button now checks the K-1 box if there are any K-1s to be printed.

7) PA File Number:  If you have not yet received the file number from the Register of Wills, and have therefore not entered it, the file number field no longer displays “0000”.

8) e-file CT and OH:  Revised logic for scenarios where certain data must be transmitted even if its value is 0.

9) CT Accounting:  Added option to display header as A1 if you run B6 (“On Hand for Distributions to Beneficiaries”) for the period up until the day before the start of the current accounting.

10) OH IT-1041, Line 63:  Now defaults to Line 3 less Line 57 less Line 60.

11) VA-770, Schedule 3, Line 2:  Now defaults to the “Add-back for state return” on Line 11 of the Numbers screen for the 1041.

03/04/2019

Section 199A, 20% Qualified Business Income Deduction
[repeated from 2/11/2019 e-mail]
From late October 2018 through early February 2019 we spent significant time (approximately 250 hours) working through new Internal Revenue Code Section 199A that was introduced by the Tax Cuts and Jobs Act of 2017 (“TCJA”), which some pundits are calling the “Tax Jobs and Cuts Act of 2017″.  This section provides individual taxpayers (including estates and trusts) with a deduction of up to 20% of “qualified business income” received from one or more “passthrough businesses” (S corporations, partnerships, LLCs that do not elect to be taxed as corporations, and sole proprietorships reporting income on Form 1040, Schedules C, E, or F).

This section has an indirect impact on estates and trusts that may own interests in such businesses, with various elements of the calculation passed through to beneficiaries in proportion to their shares of DNI.

Final Regulations for Section 199A (all 247 pages of them) were released by the IRS on January 18, 2019.  The IRS projects that this calculation will affect 10M taxpayers and consume 25M hours, every year, for the next seven years, until the individual tax portion of the TCJA expires at midnight on 12/31/2025.  Based on a combination of choices that one can make when running these calculations, it is possible to come up with over 648,000 scenarios that must be handled.

Seven new modules for Section 199A have been added to NumberCruncher 2019.00, released on February 11, 2019:

http://support.lacknergroup.com/msi/nc/

In addition, we have developed a first-of-its-kind visual, interactive, animated solution to these calculations that we believe will cut the learning curve from 30-40 hours to two or three hours.  You will hear more about this in the future.

[new in this e-mail]
In two of the three tax “zones”, these calculations can be extraordinarily complicated.  We call modified taxable income Zone 2 the “Twilight Zone” and Zone 3 the “No Zone”.  For 2018, Zone 2 kicks in at $315K married/joint ($157,500 all others), and Zone 3 at $415K married/joint ($207,500 all others).  The “all other” category includes estates and trusts.

Our 250-hour effort put us a bit behind schedule on the rest of the 2018 software, but did allow us to build an essential Section 199A worksheet that supports the deduction that must be claimed on Line 15a.  That worksheet is included in this update.  See below for details.

Highlights of 6-in-1 Update

General

1) Third Release This Season:

2019-032 (2/1/19)
2019-038 (2/7/19)
2019-060 (3/1/19)

Corrections made in 3/1/19 version
(a) 1041, Labels for Lines 18-21:  This year, for the first time since 1961, the IRS shifted the top 2/3 of Page 1 (from the Decedent’s estate checkbox down through Line 23) up a row in order to make space for new L24 and L25f.  As a result, we inadvertently positioned the label for “Income distribution deduction (L18) next to L21, and shifted the labels for L19-21 up to L18-20.  These labels have now been repositioned.  No change was necessary for the corresponding values, which were appearing in the correct locations at all times.

(b) Maximum Capital Gains Rates (0%, 15%, and 20%):  In our 2/11/2019 e-mail, we noted a new wrinkle caused by the TCJA and affecting Form 1041-ES.  Specifically, this related to the thresholds where the maximum capital gains rate changes from 0% to 15% to 20% which were now disconnected from the breaks in the Tax Rate Schedule.

This wrinkle also affected Schedule D (Lines 28 and 33), the Schedule D Worksheet (Lines 15 and 23), and the Qualified Dividends Worksheet (Lines 6 and 11).  Our calculations had a placeholder for this change (9999999), but the change was not fully implemented.  Therefore, under circumstances where the thresholds should have applied, they were not applied, and the resulting tax was 0.  You should check any returns that you have prepared where the maximum capital gains rate should apply.

(c) Excess Deductions:  Change to notes included in the 2/11/2019 e-mail.  No change to software.  Despite the 2018 Instructions for Schedule K-1 (Form 1041), Box 11, Code A, we now believe that beneficiaries may not claim excess deductions on Form 1040, Schedule A, Line 16 in 2018-2025.  This was based on a conversation with the IRS Office of Chief Counsel on 2/25/2019 and a closer analysis of Notice 2018-61.  To make a long story short, the issue depends on the definitions of “itemized deduction” and “miscellaneous itemized deduction”, which in turn depend on where such deductions are used (“above the line” to arrive at adjusted total/gross income on Form 1041 but “below the line” to arrive at taxable income on Form 1040).

Currently, the following instructions and publication confirm that excess deductions are not deductible by beneficiaries:

a) 2018 Instructions for Form 1040, Schedule A, Line 16

b) 2018 Publication 529, Page 4 (published on 1/31/2019, with no prior draft)

Apparently this could change with a change in the regulations.  Notice 2018-61 did invite comments on the issue, and the IRS is still accepting such comments.

We are still reporting excess deductions on Schedule K-1 for final-year returns (where applicable), in literal compliance with the 1041 instructions, but it would appear that beneficiaries should simply ignore this line.

Federal

2) Schedule K-1, Beneficiary SSN/EIN, Last Four Digits:  We have added an option for you to display only the last four digits of the beneficiary’s SSN or EIN, as permitted by the instructions.  Important:  the full SSN or EIN must still be displayed on the Schedules K-1 that are filed with the IRS.  1041 e-file will transmit the full SSN/EIN in all cases, whether or not the box is checked.

3) Print Options:  “Print Required” buttons have been added to the Print Options screen.

4) Fiduciary Income tax:

     e-file:              approved

5) Section 199A Deduction on Line 15a:  We have added an unavoidably intricate Worksheet W32 to support the Section 199A deduction that must be claimed on Line 15a.  Several comments:

   (a) Section 199A Button (Bright Blue):   appears on Page 1, right below Line 15a.

   (b) Numbers:  the following attributes of businesses owned by the estate or trust must be entered in the Relevant Passthrough Entity (“RPE”) section (bottom half):

Qualified Business Income (QBI)
Qualified REIT Dividends
Qualified PTP Income (Regular)
Qualified PTP Income (SSTB) *
W-2 Wages paid by the RPE ***
UBIA** owned by the RPE ***

* SSTB:  Specified Service Trade or Business (health, law, etc.)

** UBIA:  Unadjusted basis immediately after acquisition

** If the estate/trust’s modified taxable income is $157,500 or less, then W-2 Wages and UBIA are not needed in the calculation of the estate/trust’s QBI Deduction.  But the beneficiary shares of these amounts must still be reported on the K-1 to beneficiaries, whose personal modified taxable income might reach a level (>$315K married/joint or >$157,500 all others) where these numbers become relevant.

   (c) Allocation Between Fiduciary and Beneficiaries:  Based on relative shares of DNI, the above Section 199A amounts are allocated between the fiduciary and the beneficiaries.

 (i) Fiduciary’s Section 199A Deduction:  The worksheet computes this deduction, and adds it to L15a.  You should not enter a transaction for this deduction.  Your attachment schedule will not include this deduction in its subtotal.  For e-filing purposes, even though an attachment for L15a is transmitted to the IRS, there is currently no cross-check being done to compare the total of the attachment against the value reported on L15a.

(ii) Beneficiaries’ Section 199A Information:  The beneficiary shares of the elements of Section 199A are reported on Schedule K-1, Box 14, Code I.  There is an attachment schedule that can be printed with details for each beneficiary.  Just click on the right arrow in the lower right of Schedule K-1 to display (and print) that attachment.

States 

6) Pennsylvania (Montgomery County):  We are now displaying the Probate/Orphans’ Court file number as follows:

          2019-X1234

7) Fiduciary Income tax (e-file):  

CT:   approved
DE:  pending
MA:  pending
NJ:   pending
NY:   pending
OH:  pending
PA:   approved
VA:   pending

8) Fiduciary Income tax (paper filing):

CT:   pending (K-1 restructured this year; “Do Not File” watermark) *
DE:  pending
IL:    pending
IN:    pending
MA:  approved
NC:  approved
NJ:   pending **
NY:   pending **
OH:  pending (K-1 restructured this year; “Do Not File” watermark) *
PA:   approved
VA:   pending
WI:   pending

Except as noted above and below, watermarks do not appear on any these state returns.  Nevertheless, for states other than NC and PA (which have been approved), you should wait for a future update with approved state versions before filing paper returns with the remaining 10 states.

* For CT and OH, the information on the current version of the K-1 is correct for beneficiaries, and may be provided.  The restructured format will be available for filing by estates and trusts once we have received approval from CT and OH for the overall fiduciary income tax returns.

** NJ and NY still have “Do Not Mail” on the pages with 2D barcodes.  You may provide these pages to clients, but should wait for final approval (and updated 2D barcodes) before actually paper filing these returns.  Of course, when e-filing is ready for these states, the 2D bar codes will not matter.

02/11/2019

Annual Changes to 100+ Tax Return Pages

Each year, there are a thousand or so items that have to be tested throughout the software to reflect changes required in many of the 100+ tax return pages that we support.  Thus, it’s a highly iterative process that lasts from September until all forms are released by the IRS and state departments of revenue in final form sometime in mid or even late January.

Other Changes to 6-in-1 Made During the Past Year
These changes will be documented in a future e-mail.

Section 199A, 20% Qualified Business Income Deduction

From late October 2018 through early February 2019 we spent significant time working through new Internal Revenue Code Section 199A that was introduced by the Tax Cuts and Jobs Act of 2017 (TCJA), which some pundits are calling the “Tax Jobs and Cuts Act of 2017″.  This section provides individual taxpayers (including estates and trusts) with a deduction of up to 20% of “qualified business income” received from one or more “passthrough businesses” (S corporations, partnerships, LLCs that do not elect to be taxed as corporations, and sole proprietorships reporting income on Form 1040, Schedules C, E, or F).

This section has an indirect impact on estates and trusts that may own interests in such businesses, with various elements of the calculation passed through to beneficiaries in proportion to their shares of DNI.

Final Regulations for Section 199A (all 247 pages of them) were released by the IRS on January 18, 2019.  The IRS projects that this calculation will affect 10M taxpayers and consume 25M hours, every year, for the next seven years, until the individual tax portion of the TCJA expires at midnight on 12/31/2025.  Based on a combination of choices that one can make when running these calculations, it is possible to come up with over 648,000 scenarios that must be handled.

Seven new modules for Section 199A have been added to NumberCruncher 2019.00, being released today.  In addition, we have developed a first-of-its-kind visual, interactive, animated solution to these calculations that we believe will cut the learning curve from 30-40 hours to two or three hours.  You will hear more about this in our next communication.

Highlights of 6-in-1 Update

As you can imagine, the above work on Section 199A has put us a bit behind with our e-file testing approvals and our state paper-filing approvals for states other than NC and PA (which have been approved).  See below for details.

General

1) Second Release this season.

2019-032 (2/1/19) *
2019-038 (2/7/19) **

*  For the first time since 1961, when “Type of Entity” checkboxes were added to the upper left corner of Form 1041, the date range for fiscal year returns was moved to the right of the first checkbox.  This required a shift of all these checkboxes up one row.  The 2/1/19 did not catch this shift, so that the checkboxes were appearing one row below the corresponding labels (Decedent checkbox next to label for Simple Trust, etc.).  The 2/7/19 update resolved this issue.

** Because of this year’s major restructuring of Form 1040 (the first such major restructuring since 1921), the line references to Form 1040 contained on the K-1 instructions were changed in numerous places.  A later version of the 2/7/19 update, posted on 2/8/19, corrects these line references.  If you installed either the 2/1/19 or 2/7/19 versions, you could simply print out a copy of the 1041 K-1 instructions (Page 2 of the K-1 form) from the IRS website.  Then wait to install the next update (with various state approvals, etc.) to obtain these corrected instructions.

2) “Zoom” renamed to “Change Screen Resolution”.  A lot of users did not understand what “Zoom” meant, and would call in to change their screen resolution (larger or smaller).  As as result, we’ve renamed the button in the upper left corner of the 6-in-1 Main Menu from “Zoom” to “Change Screen Resolution”.  We hope that this makes that function more self evident.

6-in-1 zooms to 200% by default.  To change this, click on “Change Screen Resolution”, then choose the appropriate zoom level (top center):  100, 150, 200, or 300%.  This setting will stick until the next update, and applies to all users in a multi-user setting.

If you want to change that setting just for yourself and for no other users, scroll to the far right of the 6-in-1 Main Menu (by using the scroll bar at the bottom). At the top, change “Force Screen Size” to the desired zoom level.  This setting will last until you close 6-in-1.

Federal

3) Estate Tax Exclusion

2018:  $11,180,000 (was $5,490,000 in 2017)
2019:  $11,400,000

4) Gift Tax

Lifetime Exclusion
2018:  $11,180,000 (was $5,490,000 in 2017)
    2019:  $11,400,000

    Annual Exclusion
2018:  $15,000 (was $14,000 in 2017)
    2019:  $15,000

5) Fiduciary Income tax

Paper Filing:  final
     e-file:              pending

6) Form 1041-ES for 2018 and 2019.  Note a new wrinkle caused by the December 2017 tax bill:

Long-term capitals gains have three brackets:  zero, 15%, and 20%

2017:  LT Capital Gain Brackets match the Tax Rate Schedule:

Zero:  Up to $2,550
15%:  $2,551 to $12,500
20%:  Above $12,500

2018:  LT Capital Gain Brackets no longer match the Tax Rate Schedule:

Zero:  Up to $2,600          (Tax Rate Schedule still breaks at $  2,550 for 2018)
15%:  $2,601 to $12,700  (Tax Rate Schedule still breaks at $12,500 for 2018)
20%:  Above $12,700

2019:  LT Capital Gain Brackets no longer match the Tax Rate Schedule:

Zero:  Up to $2,650          (Tax Rate Schedule breaks at $  2,600)
15%:  $2,651 to $12,950  (Tax Rate Schedule breaks at $12,750)
20%:  Above $12,950

States 

7) Fiduciary Income tax (e-file):  

CT:   pending
DE:  pending
MA:  pending
NJ:   pending
NY:   pending
OH:  pending
PA:   pending
VA:   pending

8) Fiduciary Income tax (paper filing):

CT:   pending (K-1 restructured this year; “Do Not File” watermark) *
DE:  pending
IL:    pending
IN:    pending
MA:  pending (2K-1: “Client Copy” watermark; may provide to beneficiaries)
NC:  approved
NJ:   pending **
NY:   pending **
OH:  pending (K-1 restructured this year; “Do Not File” watermark) *
PA:   approved
VA:   pending
WI:   pending

Except as noted above and below, watermarks do not appear on any these state returns.  Nevertheless, for states other than NC and PA (which have been approved), you should wait for a future update with approved state versions before filing paper returns with the remaining 10 states.

* For CT and OH, the information on the current version of the K-1 is correct for beneficiaries, and may be provided.  The restructured format will be available for filing by estates and trusts once we have received approval from CT and OH for the overall fiduciary income tax returns.

** NJ and NY still have “Do Not Mail” on the pages with 2D barcodes.  You may provide these pages to clients, but should wait for final approval (and updated 2D barcodes) before actually paper filing these returns.  Of course, when e-filing is ready for these states, the 2D bar codes will not matter.

DecoupleCruncher

9) Year 2019 Added to Dropdown Year Menu.

10) Exclusions for 2019 (changes in blue).

 CT:   $  3,600,000
DC:  $  5,681,670
HI:    $  5,490,000
IL:    $  1,000,000
MA:  $  1,000,000
MD:  $  5,000,000
ME:  $  5,700,000
MN:  $  2,700,000
NY:   $  5,740,000
OR:  $  1,000,000
RI:    $  1,561,719
VT:   $   2,750,000
WA:  $  2,193,000