This week Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Committee Chairman Paul Ryan, R-Wis., demanded that the IRS turn over White House communications to determine how taxpayer information is shared. A bicameral group of lawmakers introduce bills aimed at cutting middle class taxes and Charles E. Grassley, R-Iowa, and Rob Portman, R-Ohio, asked HHS Secretary Burwell to explain erroneous tax credit forms. It is expected that tax reform will take at least two years because of bitter partisanship, but Senate Budget Committee ranking member Bernie Sanders, I-Vt., asked President Obama to use his executive authority to immediately close the “worst corporate tax loopholes.” Treasury Secretary Jack Lew testified regarding the IRS’s underfunded budget and the IRS issued a variety of guidance.
Congress
Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Committee Chairman Paul Ryan, R-Wis., are demanding that the IRS turn over all communications between the IRS and the Executive Office of the President from January 1, 2010, to present. The March 4 letter to IRS Commissioner John Koskinen comes as the chairmen seek to determine how private taxpayer information is shared between the tax enforcement agency and the White House. Hatch and Ryan contend that, in February 2015, the White House Counsel refused a request from Senate Finance Committee Republicans, as well as one from Ryan, asking for the White House to turn over all communications with the IRS.
Also on March 4, a bicameral group of lawmakers introduced a series of bills aimed at cutting taxes for the middle class. Specifically, the Senate and House Democrats introduced legislation to extend beyond 2017 the Earned Income Tax Credit (EITC) and to expand the Child Tax Credit (CTC), the American Opportunity Tax Credit (AOTC) and the Child and Dependent Care Tax Credit, plus create a new worker tax cut. The Working Families Tax Relief Bill would expand and extend the EITC and the CTC. Another bill would take the AOTC one step further and let taxpayers offset the cost of college tuition by increasing the savings they can receive per student through the tax credit. A third bill, the Helping Working Families Afford Child Care Bill would change the Child and Dependent Care Tax credit so that it delivers a larger benefit. The 21st Century Worker Tax Cut Bill would introduce a new tax credit for parents when both work.
Senate
Charles E. Grassley, R-Iowa, and Rob Portman, R-Ohio, asked the Obama administration to account for the miscalculations that led to wrong information given to more than half of Americans who received health care subsidies. In a February 27 letter to Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell, the lawmakers described how the inaccurate subsidy information means a significant number of individuals received excessive subsidies and have to repay the government. Grassley and Portman noted in their letter that there are many reasons a person’s eligibility for subsidies could change throughout the year. They said that, currently, there is no simple way for people to report that information and there is no way for a health insurance provider to report the information for them. Instead, an individual must log on to HealthCare.gov and update their information every time there is a change in employment, income or a life event.
Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, believes it will take more than two years to complete tax reform, according to an interview published in the New York Times on March 1. In a wide-ranging interview, Hatch noted that the last major overhaul of the tax code in 1986 took three years. “It’s much more difficult today than it was then,” stated Hatch. “There’s much more bitterness and partisanship. We’ve got to overcome those things. I’m going to do everything I can to overcome them.” Regarding the administration’s corporate tax proposal for mandatory repatriation of overseas profits with the taxes being used for infrastructure, Hatch said he could not support it. Hatch was also critical of the president’s proposal to tax revenue that had already been taxed in foreign countries in order to bring it back to the U.S. “The corporate world’s not stupid. They’re not going to do that. And neither are we,” he said.
Senate Budget Committee ranking member Bernie Sanders, I-Vt., has asked President Obama to use his executive authority to close what he termed the “worst corporate tax loopholes.” In a February 27 letter to the president, Sanders wrote that administrative action could raise over $100 billion over a decade. In his letter, Sanders identified several actions that the White House could take to prevent corporations from using offshore tax havens and “other tax dodges to prevent wealthy individuals from avoiding income and estate taxes.” He said that the Republicans in Congress have made it clear that they will not address these problems. “Therefore, the administration should act on its own to close, at a minimum, six tax loopholes.” Sanders wrote that the first three were created through regulation or administrative ruling, rather than legislation, “leaving no doubt that they can be repealed by regulation.” He said the rest can be closed by the administration under specific tax provisions that give the Secretary of the Treasury the power to issue regulations to carry out the purposes of the tax laws.
Treasury Secretary Jack Lew on March 3 appeared before the Senate Appropriations Subcommittee for Financial Services and General Government, telling lawmakers that a resulting sustained deterioration in taxpayer services combined with reduced enforcement activity could create serious long-term risk for the U.S. tax system. Congress has reduced funding for the Treasury over the last five years by a total of $1.2 billion or 10 percent. The fiscal year 2016 Treasury budget includes a $1.3-billion increase within discretionary caps to begin restoring taxpayer services to acceptable levels, Lew said. He told lawmakers that the president has made clear that he will not accept a budget that reverses progress already made by locking in sequestration going forward.
Senate Finance Committee ranking member Ron Wyden, D-Ore., on March 3 released a report detailing a number of strategies sophisticated taxpayers use to substantially lower their tax burden. The report highlights six sophisticated tax planning strategies that allow taxpayers to pay effective rates lower than those who earn a regular paycheck, he said. The six major strategies identified include: using collars to avoid paying capital gains taxes; using wash sales to time the recognition of capital income; using derivatives to convert ordinary income to capital gains or convert capital losses to ordinary losses; using derivatives to avoid constructive ownership rules for partnership interests; using basket options to convert short-term gains into long-term gains; and avoiding income taxes by deferring compensation. The report also offers policy and regulatory recommendations by Wyden’s staff on what should be done to remedy the situation.
At a March 3 Senate Finance Committee hearing on fairness in taxation, Hatch said that if people do not believe a tax reform proposal is fair, “it’s hard to see, politically, how it could be enacted.” Senate Finance Committee ranking member Ron Wyden, D-Ore., said in his opening statement that “tax fairness is key to what we will be working on in tax reform.” Dr. Lawrence B. Lindsey, president and CEO, The Lindsey Group, made three points to the panel, telling lawmakers that rising income inequality probably cannot be successfully addressed through the tax code or through other intentional redistribution policies. Lindsey said the best way to increase the well-being of the typical taxpayer is to focus on productivity and economic growth, not on redistribution. Lindsey’s final point was to urge the committee to focus on the tax simplification.
Sens. Marco Rubio, R-Fla., and Mike Lee, R-Utah, on March 4 unveiled a tax reform plan that would cut business and individual income taxes and eliminate capital gains and dividend taxes. Corporate tax rates would be reduced to a 25-percent rate and the measure would allow immediate 100-percent expensing. The measure would also repeal estate taxes and eliminate the marriage penalty and the alternative minimum tax. Other breaks for business include the elimination of so-called special interest carve-outs benefiting large corporations and high-tax states, plus the adoption of a territorial tax system. On the individual side, Rubio and Lee propose cutting and simplifying tax rates at 15 percent up to $75,000 ($150,000 if married), and a 35-percent rate for higher income earners. In addition, the legislation calls for the creation of a new $2,500 child credit, applicable to income and payroll tax liability, elimination of other itemized deductions, except mortgage interest and charitable giving, which are now available to all filers.
House
Treasury Secretary Jack Lew made his case for the Treasury’s fiscal year 2016 budget request in a March 4 appearance before the House Appropriations Subcommittee on Financial Services and General Government, saying that, in a system based on voluntary compliance, it is a dangerous practice to underfund enforcement for a long period of time. “It is very corrosive, it loses money, it loses billions of dollars in revenue,” he said. Lew told lawmakers that the inconveniences to taxpayers are being mitigated because the IRS has been effective in using web-based systems to respond to questions and to reduce call volume. “I think, in the world of technology, we have old systems which, if we don’t continue to improve them, will become more and more difficult just to operate normally and we will also become more and more vulnerable to the kinds of threats that we face in cyberspace nowadays.” Lew called underfunding the IRS as “shortsighted and damaging.”
IRS
Proposed Regulations/Consolidated Groups. The IRS has issued proposed regulations that would revise the rules for reporting items of income and deduction arising from transactions that occur on the day a corporation joins or leaves a consolidated group (NPRM REG-100400-14; TAXDAY, 2015/03/09, I.1). The proposed changes would address uncertainties in the appropriate application of these rules under the current regulations.
Indian Tribal Trust Management Cases. The IRS has issued an updated the list of Indian tribes found in Notice 2013-1, that have settled trust management litigation cases against the United States (Notice 2015-20; TAXDAY, 2015/03/09, I.3). The new notice adds additional tribes that have settled tribal trust cases since the publication of Notice 2013-1, which is modified and superseded.
IRS Free File. The IRS has issued a reminder for the millions of taxpayers who have yet to file their taxes that Free File remains available (IRS News Release IR-2015-40; TAXDAY, 2015/03/09, I.4). Available only at IRS.gov/FreeFile, the Free File service makes brand-name tax software products and electronic filing available to most taxpayers for free.
IRS Quick Reference Publication/Health Insurance Provider Fee. The IRS has issued a one-page guide to the health insurance provider fee (IPF) that health insurers must pay in 2015 (IRS Publication 5213; TAXDAY, 2015/03/06, I.1). The guide provides the key dates for “covered entities” (insurance providers) to pay their share of the 2015 fee. The Patient Protection and Affordable Care Act set the aggregate fee at $11.3 billion for 2015.
IRS Issues Tax Time Tips. The IRS has announced Tax Time Guide, a series of 10 daily tips from the IRS, to help taxpayers get assistance they need as the April 15 deadline approaches (IRS News Release IR-2015-39; TAXDAY, 2015/03/06, I.2). In particular the Tax Time Guide encouraged taxpayers working on their 2014 returns to take advantage of the numerous online tools and resources available on IRS.gov.
Filing Season Update. The IRS estimated that three out of five taxpayers have yet to file their tax returns, according to recently released statistics (IRS News Release IR-2015-38; TAXDAY, 2015/03/05, I.1). Almost 59-million individual returns have been filed so far in 2015, with almost 48 million of those requesting refunds. About 55 million of the returns have been efiled and just over one-half of the efiled returns were prepared by a paid tax preparer.
Proposed Regulations/Gambling Winnings. The IRS has released proposed regulations regarding the filing of information returns to report winnings from bingo, keno, and slot machine play (NRPM REG-132253-11; TAXDAY, 2015/03/04, I.1). The regulations would affect payors of winnings of $1,200 or more from bingo and slot machine play, and $1,500 or more from keno, as well as the recipients of these payments.
Proposed Safe Harbor Method/Slot Machine Winnings. The IRS has proposed a revenue procedure that, if finalized, would provide an optional safe harbor method for individual taxpayers to determine a wagering gain or loss from electronically tracked slot machine play (Notice 2015-21; TAXDAY, 2015/03/04, I.2). Gross income from slot machine play is determined on a session basis.
Fact Sheet/Taxpayer Bill of Rights. The IRS has issued the sixth fact sheet in its series of notices reminding taxpayers of their rights (FS-2015-12; TAXDAY, 2015/03/04, I.4). This Fact Sheet focuses on Right No. 6 of the Taxpayer Bill of Rights, the right to finality.
Top Ten Identity Theft Prosecutions of 2014. As part of its effort to discourage refund fraud and identity theft, the IRS has issued summaries of its top 10 identity theft prosecutions for fiscal year (FY) 2014 (IRS News Release IR-2015-37; TAXDAY, 2015/03/04, I.5). The cases are highlighted from the 748 convictions obtained last year by the IRS Criminal Investigation Division.
Form 1095-A Relief for Farmers/Fishermen. The IRS has announced that it will provide relief from estimated tax penalties for farmers and fishermen who received an incorrect Form 1095-A, Health Insurance Marketplace Statement, reporting premium tax credit information ( IRS News Release IR-2015-36 ; Notice 2015-22; TAXDAY, 2015/03/03, I.1). Farmers and fishermen will have until April 15, 2015, to file their 2014 tax returns and pay any tax due.
FATCA IDES Gateway. The IRS Large Business & International (LB&I) Division has announced the opening of the International Data Exchange Service (IDES) Gateway (FATCA 2015-8; 2015-9; TAXDAY, 2015/03/03, I.2). All IDES enrollees may use the gateway to securely send Foreign Account Tax Compliance Act (FATCA) information reports on financial accounts held by U.S. persons.
OPR Form Letter. The IRS Office of Professional Responsibility (OPR) has created a form letter for practitioners and their representatives to use to request tax information maintained in OPR case files and obtained during an inquiry into possible violations of Circular 230 (TAXDAY, 2015/03/03, I.3). The letter functions as a request under Code Sec. 6103 for access to tax returns and related tax information.
Business Audit Report. Audits of business taxpayers continue to decline, the IRS reported on March 2, with some of the most significant declines reflected in audits of large corporations (TAXDAY, 2015/03/03, I.4). However, audits of partnerships showed a small increase in fiscal year (FY) 2014 compared to FY 2013.
Winter 2015 Statistics of Income Bulletin. The Statistics of Income (SOI) Bulletin for Winter 2015 is now available ( IRS News Release IR-2015-35; TAXDAY, 2015/03/02, I.3). This particular issue includes articles on sole proprietorship returns from 2012, foreign recipients of U.S. income in 2011, individual tax returns filed by dependents for the 1987–2011 tax years and partnership returns from 2012.
New CREB Bonds. The IRS has released a revised version of Notice 2015-12 (TAXDAY, 2015/02/04, I.4), which solicits applications for allocations of the remaining available amount of the volume cap for new clean renewable energy bonds (New CREBs), provides guidance on the application requirements and forms for requests for volume cap allocations, and the method that the IRS will use to allocate the remaining volume cap (Notice 2015-12; TAXDAY, 2015/03/02, I.4). The revised version makes certain technical corrections to clarify the definition of “qualified renewable energy facility” under Code Sec. 54C .
Form 3115 Mailing Address. The IRS has announced that the mailing address for the Ogden, Utah, copy of Form 3115, Application for Change of Accounting Method, has changed (TAXDAY, 2015/03/02, I.5). Applicants, other than exempt organizations, and exempt organizations applying for advance consent, should send the Ogden, Utah, copy of Form 3115 to: Internal Revenue Service, 1973 Rulon White Blvd., Mail Stop 4917, Ogden, Utah, 84201-1000.