Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., announced the creation of five bipartisan working groups composed of members of the committee to delve into critical areas of the tax code with their ideas being used as discussion points when the panel begins work on revamping the code. A number of bills were introduced that would tweak various provisions of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), as well as addressing the wage gap and offshore tax havens. National Taxpayer Advocate Nina E. Olson issued her 2014 Annual Report to Congress, identifying the negative effects that the cut to the IRS’s fiscal year (FY) 2015 budget will have on taxpayer services. Those concerns were echoed by IRS Commissioner John Koskinen, who warned taxpayers to seek IRS assistance by telephone as a last resort because of expected long wait times.
Congress
Rep. Chris Van Hollen, D-Md., on January 12 unveiled a new middle-class tax plan that he said addresses the wage gap by increasing take-home pay (TAXDAY, 2015/01/13, C.2). Speaking at an event sponsored by the Center for American Progress, Van Hollen said his proposals include a paycheck bonus credit that would take $2,000 a year off the tax bills of couples earning less than $200,000, and $1000 for individuals. Other proposals would nearly triple the tax credit for child care and reward people who save at least $500 a year. Details of the proposals will be released in the coming weeks, he said. Other tax incentives proposed include: modernizing the child and dependent care tax credit by raising the amount of eligible expenses, indexing the caps for inflation and making the credit refundable; tax benefits to businesses that invest in apprenticeship or other training programs that result in higher skills and better pay; and a 20-percent tax deduction for second earners with dependents on up to $60,000 of their income.
Newly minted House Way and Means Committee Chairman Paul Ryan, R-Wis., convened his first hearing on January 13 to review the state of the U.S. economy, taking the opportunity to announce that tax reform was a top priority (TAXDAY, 2015/01/14, C.1). Ranking member Sander Levin, D-Mich., also called tax reform a top priority. Calling the current tax code “broken,” Ryan ticked off some of the areas he plans to address: the high rate of corporate tax; taxing offshore profits when returned to U.S. shores; and the complexity of the code. Former Congressional Budget Office Director Douglas Holtz-Eakin told lawmakers he believed that there are three policy areas in particular where much progress can be made to promote a stronger economy: aggressively pursue new trade agreements and pass trade promotion authority legislation to facilitate trade negotiations; reform the U.S. income tax code, thereby enhancing the nation’s competitiveness abroad and improving incentives to work and save at home; and improve the condition of the U.S. health care system by trimming away the most cumbersome pieces of the PPACA .
The House on January 12 passed legislation introduced by Rep. Lou Barletta, R-Pa., that would clarify the PPACA (TAXDAY, 2015/01/13, C.1). The Protecting Volunteer Firefighters and Emergency Responders Bill (HR 33 ) would prevent volunteer firefighters and emergency responders from being counted as full-time employees by the IRS under the employer mandate of the PPACA . Under the employer mandate provision, employers with 50 or more employees must provide health insurance or pay penalties. If volunteers were considered employees, fire companies could exceed the 50-employee threshold in several different ways: a volunteer department by itself based on size; by being part of a combined, paid-volunteer firefighter department; or by being part of a municipality that has 50 or more public employees in total.
Sen. Sheldon Whitehouse D-R.I., and Rep. Lloyd Doggett, D-Tex, a senior member of the House Ways and Means Committee, on January 13 introduced the Stop Tax Haven Abuse Bill (TAXDAY, 2015/01/14, C.3). The bill closes a number of offshore tax loopholes, eliminates tax incentives for U.S. companies to move jobs and operations offshore, and modifies rules on corporate inversions for businesses dodging U.S. taxes. Whitehouse, along with Rep. David Cicilline, D-R.I., also re-introduced the Offshoring Prevention Bill in both the Senate and House, respectively. The bill would eliminate a tax break for companies that shift jobs overseas. Whitehouse also joined with Sen. Tammy Baldwin, D-Wis., in introducing the Paying a Fair Share Bill, which would help ensure that multimillion-dollar earners pay at least a 30-percent effective federal tax rate, and would generate over $70 billion in revenue over 10 years. The measure, which is often referred to as the “Buffet Rule,” would apply only to taxpayers with income over $1 million, including capital gains and dividends.
Hatch and 10 other senators, on January 13 introduced the Medical Device Access and Innovation Protection Bill (Sen 149), a bill to repeal the medical device tax that was implemented as a part of the PPACA (TAXDAY, 2015/01/14, C.2). Repealing the tax has been a high priority for Hatch since the law took effect. Under the PPACA, manufacturers of medical devices are required to pay a 2.3-percent excise tax on products ranging from surgical tools to bed pans. The tax, which took effect in January 2013, is said to be hurting innovation, job creation and the overall delivery of quality patient care.
Hatch and ranking member Ron Wyden, D-Ore., have formed five bipartisan working groups composed of members of the committee to delve into critical areas of the tax code with their ideas being used as discussion points when the panel begins work on revamping the code (TAXDAY, 2015/01/16, C.1). The committee hopes to complete tax reform before the end of the 114th Congress, according to lawmakers involved in the process. The five working groups, Individual Income Tax, Business Income Tax, Savings & Investment, International Tax and Community Development & Infrastructure, will analyze current tax law and examine policy trade-offs and available reform options within the group’s designated topic areas. Each group will be co-chaired by one Republican and one Democrat. The two lawmakers said that each of the bipartisan groups will work directly with the nonpartisan Joint Committee on Taxation (JCT) to produce an in-depth analysis of options and potential legislative solutions within its assigned area, with the goal of having one final comprehensive report featuring recommendations from each of the five categories completed by the end of May.
Sen. Bill Cassidy, R-La., on January 14 introduced the No Obamacare Mandate Bill and the Employee Health Care Protection Bill to start moving forward on repealing the PPACA and replacing it with what he termed “patient-centered solutions for Americans” (TAXDAY, 2015/01/15, C.1) The No Obamacare Mandate Bill would repeal the medical device tax, the employer mandate and the individual mandate. The Employee Health Care Protection Bill addresses “if you like your health plan, you can keep it,” as it would allow health care plans currently available on the group market to continue being offered through 2018. Small businesses and their workers would have the option to choose plans that are not in the PPACA exchanges, according to Cassidy.
Wyden, in a January 14 memo, criticized the severe budget cuts to the IRS, saying the Service will face serious difficulties operating effectively due to budget shortfalls (TAXDAY, 2015/01/16, C.2). Wyden’s remarks follow on the heels of an internal memo from IRS Commissioner John Koskinen outlining the expected fallout from the budget cuts (TAXDAY, 2015/01/14, I.3) and a report from National Taxpayer Advocate Nina E. Olson that also addressed the negative impact of the cuts (TAXDAY, 2015/01/15, I.1). “Everyone is in collective denial about what inadequate funding for the IRS means to taxpayers,” Olson said in her report. Wyden noted that, beyond a lack of resources to handle the large volumes of phone calls and letters the Service receives each year, every dollar cut from enforcement is $7 in taxpayer money lost, which means “budget cuts benefit tax cheats” at the expense of people who pay their taxes.
IRS
Treasury Security Rate. For pension plan years beginning in January 2015, the IRS has released the 30-year Treasury bond weighted average interest rate, the unadjusted segment rates, Highway and Transportation Funding Act of 2015 (HATFA) (P.L. 113-159) adjusted rates, the Moving Ahead for Progress in the 21st Century (MAP-21) Act (P.L. 112-141) adjusted rates, and the minimum present value segment rates (Notice 2015-5; TAXDAY, 2015/01/16, I.1).
Koskinen on Telephone Service. Koskinen said on January 15 that taxpayers should use online tools to get answers and seek help from the Service’s telephone assistors only as a last resort during filing season because budget cuts will result in lengthy wait times (TAXDAY, 2015/01/16, I.2).
Filing Season Begins. The IRS will begin accepting and processing all tax returns beginning on Tuesday, January 20 (IR-2015-3; TAXDAY, 2015/01/16, I.3). The IRS’s Free File program begins on January 16, and it offers brand-name software to individuals and families with income less than $60,000, or online fill-in forms available to taxpayers at all income levels.
National Taxpayer Advocate’s Annual Report. The National Taxpayer Advocate’s 2014 Annual Report to Congress was released and identified the negative effects that the cut to the IRS’s FY 2015 budget will have on taxpayer services, the need for comprehensive tax reform and the importance of Congress enacting a Taxpayer Bill of Rights that protects taxpayers’ right to receive quality service (IR-2015-2; TAXDAY, 2015/01/15, I.1).
Possible IRS Furloughs. Koskinen has told employees that the Service may need two furlough days in fiscal year (FY) 2015 because of budget shortfalls (TAXDAY, 2015/01/14, I.3). Koskinen indicated that any furloughs would be late in FY 2015.
Upcoming PPACA Guidance. More guidance on the PPACA is in the works, said IRS officials during a January 15 program hosted by the D.C. Bar in Washington, D.C. (TAXDAY, 2015/01/16, I.4). Final Forms 1094-C and 1095-C and instructions are expected soon, and in the meantime, the IRS plans to turn its mind toward other guidance projects such as implementation of the Cadillac tax.
Third-Party Sick Pay Guidance. The IRS has provided guidance on reporting third-party sick pay paid on or after January 1, 2014 (Notice 2015-6; TAXDAY, 2015/01/15, I.2). Form 8922, Third-Party Sick Pay Recap, must be used by third parties and employers to report total payments of sick pay when the liability for the Federal Insurance Contributions Act (FICA) taxes on the sick pay is split between the employer and the third party under applicable regulations.
Small Wind Energy Property Guidance. The IRS has issued guidance on the performance and quality standards that small wind energy property must meet to qualify for the energy credit under Code Sec. 48 (Notice 2015-4; TAXDAY, 2015/01/14, I.1). The guidance is effective for small wind energy property acquired or placed in service after January 26, 2015.
Interest Rates for Insurance Companies. The IRS has provided the prevailing state assumed interest rates that are used by insurance companies to determine their reserves under Code Sec. 807 for contracts that are issued in 2014 and 2015 (Rev. Rul. 2015-2; TAXDAY, 2015/01/14, I.2).
IP PINs. The IRS will be issuing identity protection personal identification numbers (IP PINs) to 1.5-million individuals in 2015, Jodi Patterson, director, IRS Return Integrity and Compliance Services, said during a January 13 webcast of Tax Talk Today (TAXDAY, 2015/01/14, I.4). The numbers will also be available online after February 2, she indicated, noting that once a taxpayer opts in, he or she cannot opt out.
FUTA Credit Reduction States. The IRS has provided a list of the FUTA credit reduction states for 2014. Credit reduction states are states that did not repay money they borrowed from the federal government to pay unemployment benefits (TAXDAY, 2015/01/13, I.1). The reduction in the usual credit against the full FUTA tax rate means that employers located in credit reduction states paying wages subject to state unemployment tax will owe a greater amount of tax liability on their Form 940.
FATCA Data Exchange. The IRS has announced the opening of the International Data Exchange Service (IDES) for enrollment (IR-2015-1; TAXDAY, 2015/01/13, I.2). All IDES enrollees, including host country tax authorities, must obtain a proper digital certificate in order to enroll; there is a list of approved Certificate Authorities available on irs.gov.
FMV Limits For Employer-Provided Automobiles. The IRS has released the maximum allowable value of certain employer-provided automobiles, including trucks and vans that are first made available to employees for personal use during calendar year 2015 (Notice 2015-1; TAXDAY, 2015/01/12, I.1). The maximum value of vehicles for which the cents-per-mile valuation rule of Reg. §1.61-21(e) may apply is $16,000 for a passenger automobile and $17,500 for a truck or van.
EO/Private Foundation Determination Letters. The IRS has updated procedures regarding the request, issuance and appeal of determination letters and rulings on the exempt status of organizations under Code Secs. 501 and 521 (Rev. Proc. 2015-9; TAXDAY, 2015/01/12, I.2). The IRS also issued updated procedures for issuing rulings and determination letters on private foundation status under Code Sec. 509(a), operating foundation status under ¶4942(j)(3) and exempt operating foundation status under Code Sec. 4940(d)(2) of Code Sec. 501(c)(3) tax-exempt organizations (Rev. Proc. 2015-10; TAXDAY, 2015/01/12, I.3).
IRS Hearing on Hybrid Plan Regulations. Speakers at a January 9 IRS hearing on proposed regulations under Code Sec. 411(b)(5) urged the Service to either finalize the proposed regulations quickly or delay their effective date (NPRM REG-111839-13) (TAXDAY, 2015/01/12, I.5). The speakers estimated that plan sponsors would require possibly a year or more to evaluate the regulations and to decide upon and implement any plan design changes.
By Jeff Carlson and Jennifer Cordaro, Wolters Kluwer News Staff