[IMGCAP(1)]Many major tax changes go into effect this year for individual taxpayers.

Many of the changes were ushered in by the Protecting Americans from Tax Hikes (PATH) Act of 2015, although legislation enacted earlier in 2015 and in 2014 also contributed a fair share. Still other changes are the result of various administrative pronouncements by IRS.

This article reviews the important changes for individuals. You can read about some of the other major changes for businesses, partnerships, retirement and benefit plans and tax preparers in three of my earlier articles, Major Business Tax Changes for 2016, Important Tax Changes for Partnerships and Due Dates in 2016 and More Important Tax Changes Taking Effect This Year.

The recent legislation responsible for most of the changed rules for 2016 consists of the Protecting Americans from Tax Hikes (PATH) Act of 2015; the Fixing America's Surface Transportation (FAST) Act; the Bipartisan Budget Act of 2015; the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015; the Trade Preference Extension Act of 2015; and the Achieving a Better Life Experience Act of 2014 (ABLE Act), part of the Tax Increase Prevention Act of 2014.

April 18 will be 2016 tax deadline for most individual taxpayers. In Rev. Rul. 2015-13, 2015-22 IRB, the IRS announced that Monday, Apr. 18, 2016 will be the tax deadline for 2015 income tax returns for individual taxpayers in most states. Because Emancipation Day (a legal holiday in the District of Columbia) falls on Saturday, April 16, in 2016, it will be observed on Friday, April 15, which pushes the tax filing deadline to the next business day, Monday, April 18, 2016. However, because Patriot's Day will be observed this year on Monday, April 18, 2016 in Maine and Massachusetts, residents of those states will have until April 19, 2016 to file and pay their taxes.

New exclusion for payments from certain work-learning-service programs. For amounts received in tax years beginning after Dec. 18, 2015, a taxpayer may exclude from gross income any payments from certain work-learning-service programs that are operated by a work college (as defined in section 448(e) of the Higher Education Act of 1965). Under Sec. 448(e)(1) of the '65 Higher Education Act, work colleges are public or private nonprofit, four-year, degree-granting institutions committed to community service, which have operated a comprehensive work-learning-service program for at least two years, and which require that students participate in a comprehensive work-learning-service program.

Agricultural research organizations are 50 percent charities. Contributions by an individual to an organization that is a “50 percent charity” are deductible up to 50 percent of the donor’s contribution base, which is the donor’s adjusted gross income, computed without any net operating loss carryback deduction. A 30 percent limitation applies to an individual’s contributions to a 50 percent charity of appreciated capital gain property, i.e., a capital asset for which the sale at its fair market value at the time of the contribution would have resulted in long-term capital gain.

For contributions on or after Dec. 18, 2015, the PATH Act adds agricultural research organizations to the list of 50 percent charities. The organization must commit to use the contribution for agricultural research before January 1 of the fifth calendar year that begins after the date of the contribution.

Toughened rules for claiming the child tax credit. Under the PATH Act, the following toughened compliance rules apply to taxpayers claiming the CTC. They all apply for tax years beginning after Dec. 31, 2015, except as otherwise noted:

• Effective for returns, and any amendment or supplement to a return, filed after Dec. 18, 2015, an individual can't retroactively claim the child tax credit by amending a return (or filing an original return if he failed to file) for any prior year in which the individual or a qualifying child for whom the credit is claimed did not have a tax identification number, or TIN. But the provision won’t apply to any tax return (other than an amendment or supplement to a return) for any tax year that includes Dec. 18, 2015 if the return is filed on or before its due date.

• No CTC is allowed for any tax year in the “disallowance period,” which is: (a) two tax years after the most recent tax year for which there was a final determination that the taxpayer’s CTC claim was due to reckless or intentional disregard of rules and regs (but not due to fraud); (b) 10 tax years after the most recent tax year for which there was a final determination that the taxpayer's CTC claim was due to fraud.

• If a taxpayer is denied the CTC for any tax year as a result of the deficiency procedures, then no CTC is allowed for any later tax year unless the taxpayer provides the information that IRS requires to demonstrate eligibility for the CTC.

• The following are added to the mathematical or clerical errors for which the IRS can make a summary assessment (i.e., with respect to which the IRS can summarily assess the additional tax due without sending the taxpayer a deficiency notice): an entry on the return claiming the CTC for a tax year for which the CTCs are disallowed under Code Sec. 24(g)(1) because of an earlier CTC claim due to reckless or intentional disregard of rules and regs or fraud; and an omission of information that a taxpayer who has made an earlier CTC claim that was denied as a result of the deficiency procedures must provide under Code Sec. 24(g)(2) to demonstrate eligibility for the CTC.

New anti-abuse measures for American Opportunity Tax Credit. The following toughened compliance rules apply to taxpayers claiming the AOTC. They all apply for tax years beginning after Dec. 31, 2015, except as otherwise noted:

1. Effective for returns, and any amendment or supplement to a return, filed after Dec. 18, 2015, an individual is prohibited from retroactively claiming the AOTC by amending a return (or filing an original return if he failed to file) for any prior year in which the individual or a student for whom the credit is claimed did not have a TIN. However, the preceding change doesn’t apply to any tax return (other than an amendment or supplement to a return) for any tax year that includes Dec. 18, 2015, if the return is filed on or before its due date.

2. A taxpayer may not claim an AOTC for any tax year during the disallowance period, which is: the period of 10 tax years after the most recent tax year for which there was a final determination that a taxpayer’s claim of an AOTC was due to fraud; and the period of two tax years after the most recent tax year for which there was a final determination that a taxpayer's claim of an AOTC was due to reckless or intentional disregard of rules and regs (but not fraud). Additionally, for a taxpayer who is denied an AOTC for any tax year as a result of the Code's deficiency procedures, no AOTC is allowed for any later tax year unless the taxpayer provides the information IRS may require to demonstrate eligibility for the credit. 

3. If a taxpayer doesn’t provide the eligibility information required by IRS, or makes an entry on a return claiming the AOTC for a tax year for which the credit is barred due to an earlier claim based on fraud or the reckless or intentional disregard of rules and regs, then the IRS can deny any AOTC claimed by the taxpayer, by summary assessment (i.e., without going through the normal deficiency procedures).

4. For tax years beginning after Dec. 31, 2015, and expenses paid after that date for education furnished in academic periods beginning after that date, a taxpayer claiming the AOTC must report the employer identification number (EIN) of the educational institution to which the taxpayer makes qualified payments under the credit.

5. For expenses paid after Dec. 31, 2015, an eligible educational institution to which qualified tuition and related expenses were paid must include its employer identification number (EIN) on the information return (Form 1098-T) that it provides to the IRS.

6. For expenses paid after Dec. 31, 2015 for education furnished in academic periods beginning after that date, higher education institutions must report (on Form 1098-T) only qualified tuition and related expenses actually paid (rather than choosing between amounts paid and amounts billed, as under prior law).

Additionally, under the 2015 Trade Preferences Extension Act of 2015, for tax years beginning after June 29, 2015, as a condition for claiming the higher education credit under Code Sec. 25A (or the Code Sec. 222 tuition and fees deduction), a taxpayer must receive, or be treated as having received, a payee statement (generally, Form 1098-T, Copy B) that contains all of the information required to be included on the Form 1098-T information return filed with IRS, including the TIN of the student for whom the qualified tuition and related expenses were paid, or billed, for the tax year.

In a related change, the 2015 Trade Preferences Extension Act of 2015 waives the otherwise applicable information reporting penalty on educational institutions that fail to file Forms 1098-T with accurate TINs of students attending the educational institution if the institution certifies, under penalty of perjury, that it properly requested TINs from the students as required under Treasury regs. This change is effective for returns required to be made, and statements required to be furnished, after Dec. 31, 2015.

Toughened Earned Income Tax Credit rules. Effective for returns, and any amendment or supplement to a return, filed after Dec. 18, 2015, an individual is prohibited from retroactively claiming the EITC by amending a return (or filing an original return if he failed to file) for any prior year in which the individual or a student for whom the credit is claimed did not have a valid social security number. However, the preceding change doesn’t apply to any tax return (other than an amendment or supplement to a return) for any tax year that includes Dec. 18, 2015 if the return is filed on or before its due date.

Robert Trinz is a senior analyst with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters.