Section 1411 — Net Investment Income Tax (Portfolio 511)

Description

Bloomberg Tax Portfolio, 511 T.M., Section 1411 — Net Investment Income Tax, analyzes the net investment income tax (NIIT) applicable to individuals, estates, and trusts. The NIIT is imposed by §1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. Section 1402(a)(1) of the Health Care and Education Reconciliation Act of 2010 added §1411 to a new Chapter 2A of Subtitle A (Income Taxes) of the Code effective for tax years beginning after December 31, 2012.

In the case of an individual, §1411(a)(1) imposes a tax (in addition to any other tax imposed by subtitle A, such as AMT or self-employment tax) for each tax year equal to 3.8% of the lesser of: (A) the individual’s net investment income for such tax year, or (B) the excess (if any) of: (i) the individual’s modified adjusted gross income for such tax year, over (ii) the threshold amount. In the case of an estate or trust, §1411(a)(2) imposes a tax for each tax year equal to 3.8% of the lesser of: (A) the estate’s or trust’s undistributed net investment income, or (B) the excess (if any) of: (i) the estate’s or trust’s adjusted gross income (as defined in §67(e)) for such tax year, over (ii) the dollar amount at which the highest tax bracket in §1(e) begins for such tax year.

This Portfolio discusses the general applicability of the NIIT. The Portfolio analyzes the computation of net investment income; the computation of NIIT liability (including special computational provisions for estates and trusts); the interaction of the NIIT with the passive activity rules and the self-employment tax system; the special rules unique to the NIIT for taxpayers with investments in controlled foreign corporations and passive foreign investment companies; special rules unique to the NIIT for dispositions of interests in partnerships and S corporations; and collateral tax issues that arise due to the interaction with the regular federal income tax system.

This Portfolio may be cited as Kirk, 511 T.M., Section 1411 — Net Investment Income Tax.

Table of Contents

I. Introduction
II. General Operating Principles
III. “Gross” Net Investment Income — §1411(c)(1)(A)
IV. Excluded Income
V. Properly Allocable Deductions — §1411(c)(1)(B)
VI. Dispositions of Interests in Partnerships and S Corporations
VII. Income from Controlled Foreign Corporations and Passive Foreign Investment Companies
VIII. Application to Individuals
IX. Application to Estates and Trusts
X. Application of §1411 Outside of Chapter 2A