Prepare For 2016: A Look at Next Year's Inflation Adjustments

The IRS recently released the 2016 inflation adjustments for several tax provisions in Rev. Proc. 2015-53, 2015-44 I.R.B. 615. For the first time, the revenue procedure provides the inflation-adjusted amounts for several failure-to-file penalties. There appear to be no surprises here, as the revenue procedure confirmed the projections made by Bloomberg BNA in its annual special report. The adjustments apply to tax years beginning in 2016 and transactions or events occurring during the 2016 calendar year.   

For the estate planner, here are some 2016 amounts to keep in mind:

Income Tax of Trusts and Estates

The taxable income thresholds on trusts and estates under §1(e) are: 

If Taxable Income is: The Tax is:
Not over $  2,550 15% of the taxable income
Over      $  2,550 but not over $ 5,950    $   382.50  plus 25% of excess over    $ 2,550
Over      $  5,950 but not over $ 9,050    $1,232.50  plus 28% of excess over    $ 5,950
Over      $  9,050 but not over $12,400 $2,100.50  plus 33% of excess over    $ 9,050
Over      $12,400 $3,206.00  plus 39.6% of excess over $12,400


The alternative minimum tax exemption amount for estates and trusts under (§55(d)(1)(D)) is:

Filing Status Exemption Amount
Estates and Trusts ((§55(d)(1)(D))    $23,900


The phaseout amounts of alternative minimum tax for estates and trusts under (§55(d)(3)(C)) are:

Filing Status Threshold Phaseout   Completed Phaseout
Estates and Trusts ((§55(d)(3)(C))   $79,850 $175,450


Estate and Gift Tax

For decedents dying and gifts and generation-skipping transfers made in 2016, the basic exclusion amount, for purposes of determining the §2010 credit against estate tax, is $5,450,000.

The §2503(b) annual gift tax exclusion for gifts of current interest in property made in 2016 remains at $14,000 per donee.

For gifts of current interest in property made to a non-citizen spouse in 2016, the annual gift tax exclusion under §2523(i)(2) is $148,000.

Additionally, donees of gifts from certain foreign persons may be required to report these gifts under §6039F if the aggregate value of the gifts received in 2016 exceeds $15,671.

For estates of decedents dying in 2016 that elect to use the §2032A special valuation method for qualified property, the aggregate decrease in value must not exceed $1,110,000.

For estates of decedents dying in 2016 that elect to extend the payment of estate tax under §6166, the 2% portion for determining the interest rate under §6601(j) is $1,480,000.


For individuals losing U.S. citizenship in 2016, an average annual net income tax of more than $161,000 for the five previous tax years is a covered expatriate for purposes of §877A(g)(1).

For 2016, the amount that would be includible in the gross income of a covered expatriate under §877A(a)(1) is reduced (but not below zero) by $693,000.

For exempt organizations, here are some 2016 amounts to keep in mind:

For the §6033(e)(3) reporting exception for certain exempt organizations with nondeductible lobbying expenditures, the annual per person, family, or entity dues threshold is $112 or less.

For §501(c)(5) agricultural and horticultural organizations, the §512(d)(1) limitation for exemption of annual dues required to be paid by a member is $161.

The unrelated business income of certain exempt organizations under §513(h)(2) does not include a low cost article of $10.60 or less.

For organizations receiving fully deductible charitable contributions under §170 where the donor received insubstantial benefits in return, the inflation-adjusted guidelines of Rev. Proc. 90-12, 1990-1 C.B. 471, §3 are $10.60,$53 and $106.

Here are some of the 2016 penalty amounts to keep in mind:

In the case of failure to file a return, the addition to tax under §6651(a)(1) is not less than the lesser of $135 or 100% of the amount required to be shown on the return.

The penalties under §6652(c) for certain exempt organizations and trusts failing to file returns, disclosures, etc., which are required to be filed in calendar year 2016, are: 

Scenario Penalty Per Failure Per Day Maximum Penalty Per Return
Penalty on Organization (§6652(c)(1)(A))           $20 Lesser of (i) $10,000 or (ii) 5% of gross receipts for year

Penalty on Organization with Gross Receipts Greater than $1,020,000 (§6652(c)(1)(A))


 $100 $51,000

Penalty on Managers (§6652(c)(1)(B)(ii))


 $10 $5,000

Public Inspection of Annual Returns and Reports (§6652(c)(1)(C))


 $20 $10,000
Public Inspection of Applications for Exemption and Notice of Status (§6652(c)(1)(D))  $20 No limit


Scenario Penalty Per Failure Per Day Maximum Penalty Per Return
Penalty on Organization or Trust (§6652(c)(1)(A)) $10 $5,000
Penalty on Managers (§6652(c)(2)(B)) $10 $5,000
Penalty on Split Interest Trust (§6652(c)(2)(C)) $20 $10,000
Split Interest Trust with Gross Income Greater than $255,000 (§6652(c)(2)(C)(ii)) $100 $51,000



Penalty Per Failure Per Day      

Maximum Penalty Per Return

Penalty on Tax-Exempt Entity (§6652(c)(3)(A))   

$100 $51,000

Failure to Comply with Demand (6652(c)(3)(B)(ii))   

$100 $10,000



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