The House Ways and Means Committee passed a number of bills containing provisions normally included in the end-of-the-year tax extenders; however, the none of the measures are paid for. President Obama, meanwhile, called on Congress to end the carried interest tax loophole. The IRS, meanwhile, released guidance addressing the normal retirement age, dividend equivalents and health care coverage reporting.
White House
With Congress in the midst of budget negotiations, President Obama on September 16 called on lawmakers to end the carried interest tax loophole (TAXDAY, 2015/09/17, W.1). In a speech before the Business Roundtable in Washington, D.C., Obama acknowledged that many business leaders would resist the change. The carried interest loophole allows hedge-fund managers to treat their income as capital gains with a tax rate of 23.8 percent, as opposed to the individual tax rate, which can be as high as 39.6 percent. The Treasury Department has estimated that eliminating the loophole would raise $18 billion over 10 years. In its fiscal year (FY) 2016 budget proposal, the administration called for closing loopholes and lowering certain tax rates, as opposed to lowering rates across the board.
Congress
The House Ways and Means Committee on September 17 approved five tax provisions, at a cost of $411 billion, that are typically part of a package of 52 so-called tax extenders that Congress usually takes up at the end of the year (TAXDAY, 2015/09/18, C.1). The provisions were made permanent as part of Chairman Paul Ryan’s, R-Wis., effort to give more certainty to those who rely on the tax breaks. The committee has already approved and made permanent 11 other tax provisions during the first six months of 2015, all which were approved by the House and cost $610 billion over 10 years. Democrats on the committee argued that, while they were in favor of the provisions, they questioned the fact that none of them are paid for.
A group of Democratic senators have written to Treasury Secretary Jack Lew expressing concerns that IRS budget cuts may hamper the Service’s ability to meet customer needs (TAXDAY, 2015/09/15, C.1). In a letter dated September 14, the lawmakers asked for details of how taxpayer services could be improved should Congress fund the IRS at levels consistent with its FY 2016 budget request. The senators pointed out a Treasury Inspector General for Tax Administration (TIGTA) interim report on the 2015 filing season that found that only 38.5 percent of callers received assistance, compared to 74.7 percent in 2014.
The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) have completed a preliminary estimate of the net budgetary effect of eliminating the requirement that individuals purchase health insurance and associated penalties established by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) (TAXDAY, 2015/09/17, C.1). The CBO estimated that eliminating the individual mandate and the associated penalties would reduce the deficit by about $305 billion over the 2015-to-2025 period. That total consists of a $311-billion decrease in direct spending partially offset by a $6-billion decrease in revenues. The PPACA established a requirement that most individuals obtain health insurance or pay a penalty for not doing so. The CBO and JCT estimate that eliminating that requirement and the associated penalties would increase the number of people without health insurance coverage in 2025, relative to current-law projections, by about 14-million people, resulting in 41-million uninsured in that year.
Sens. Dean Heller, R-Nev., and Martin Heinrich, D-N.M., on September 17 introduced bipartisan legislation to fully repeal a provision in the PPACA known as the “Cadillac Tax,” which taxes high-cost health insurance plans (TAXDAY, 2015/09/18, C.2). The bill is a Senate companion to Rep. Joe Courtney’s, D-Conn., House legislation, the Middle Class Health Benefits Tax Repeal Bill of 2015 (HR 2050). Beginning in 2018, the “Cadillac Tax” would tax employers whose health insurance plans cost more than $10,200 a year for individuals and $27,450 a year for families at 40 percent of the cost above those limits.
Treasury
TIGTA Report. TIGTA issued a report on IRS compliance with the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) during fiscal year (FY) 2015 (Ref. No. 2015-30-067; TAXDAY, 2015/09/17, T.1). TIGTA found that the IRS has not reintroduced past Illegal Tax Protester codes or similar designations on taxpayer accounts; however, out of approximately 4.8-million records and cases, there were four instances in which the IRS referred to taxpayers as “Tax Protester,” “Constitutionally Challenged,” or other similar designations in case narratives in the Appeals Centralized Database System.
FATCA Agreements. The United States has reached an intergovernmental agreement (IGA) with Saint Kitts and Nevis to implement the provisions of the Foreign Account Tax Compliance Act (FATCA) (P.L. 111-147) (TAXDAY, 2015/09/17, T.2). The agreement is a Model 1 IGA.
Normal Retirement Age Guidance. The Treasury Department is working to develop regulations that affect government retirement plans, specifically with reference to what constitutes a normal retirement age, a Treasury spokesman told attendees at a September 11 conference (TAXDAY, 2015/09/14, T.1). The spokesman noted that the Treasury hopes to provide rules that will give certainty and provide a safe harbor and examples.
IRS
Dividend Equivalents. The Treasury and the IRS have adopted, with changes, 2013 proposed regulations on the payment of dividend equivalent amounts to nonresident alien individuals and foreign corporations (T.D. 9734, NPRM REG-127895-14; TAXDAY, 2015/09/18, T.1). Temporary regulations are also issued that provide new rules for determining whether certain complex derivatives are subject to Code Sec. 871(m) and for payments made to dealers.
Health Care Coverage Reporting. The IRS and the Treasury intend to propose regulations under Code Sec. 6055 (Notice 2015-68; TAXDAY, 2015/09/18, I.2). The regulations will (1) provide that health insurance issuers must report coverage in catastrophic health insurance plans described in §1302(e) of the Patient Protection and Affordable Care Act (P.L. 111-148) enrolled in through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace); (2) allow electronic delivery of statements reporting coverage under expatriate health plans unless the recipient explicitly refuses consent or requests a paper statement; (3) allow filers reporting on insured group health plans to use a truncated taxpayer identification number (TTIN) to identify the employer on the statement furnished to a taxpayer; and (4) specify when a provider of minimum essential coverage is not required to report coverage of an individual who has other minimum essential coverage.
AFRS for October 2015. The IRS has provided various prescribed rates for federal income tax purposes for October 2015 (Rev. Rul. 2015-21; TAXDAY, 2015/09/18, I.3).
Disaster Relief Updated. The disaster relief announced on August 13, 2015 notice granting relief to victims of severe storms, tornadoes, straight-line winds, flooding, landslides and mudslides that took place beginning on July 11, 2015 in parts of Kentucky was updated by the IRS on September 16 to include Leslie County (KY-2015-13; TAXDAY, 2015/09/18, I.4).
SIFL Mileage Rates. The IRS has released the applicable terminal charge and the Standard Industry Fare Level (SIFL) mileage rates for the second half of 2015 for use in determining the value of noncommercial flights on employer-provided aircraft for taxation of fringe benefits (Rev. Rul. 2015-20; TAXDAY, 2015/09/18, I.5).
Charitable Donation Substantiation. The IRS has issued proposed regulations on the exception to the contemporaneous written acknowledgment requirement in substantiating charitable contributions deductions of $250 or more (NPRM REG-138344-13; TAXDAY, 2015/09/17, I.1). Code Sec. 170(f)(8)(D) provides that a contemporaneous written acknowledgment is not required if the donee charitable organization files a return in accordance with IRS regulations that includes certain information.
Per Diem Rates. The IRS has provided the 2015-2016 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home (Notice 2015-63; TAXDAY, 2015/09/17, I.2).
Private Foundation Investments. The IRS has provided guidance clarifying that excise taxes under Code Sec. 4944 will not be imposed as a result of investments made by a private foundation that (1) are not program-related investments (PRIs), as defined in Code Sec. 4944(c), but (2) are made at least partially for charitable purposes as defined in Code Sec. 170(c)(2)(B) (Notice 2015-62; TAXDAY, 2015/09/16, I.1).
Retroactive Extension of Code Sec. 179 Limits. An IRS revenue procedure provides guidance for 2013/2014 fiscal-year filers relating to issues caused by the retroactive extensions of bonus depreciation, the $250,000 expensing election under Code Sec. 179(f) for qualified real property, and the Code Sec. 168(k)(4) election by a corporation to forgo bonus depreciation in exchange for unused alternative minimum tax credits (Rev. Proc. 2015-48; TAXDAY, 2015/09/16, I.2). The guidance explains how taxpayers with a 2013/2014 fiscal year that filed returns without claiming bonus depreciation on property placed in service in 2014 may claim the bonus deduction.
Exempt Organization Procedures Updated. The IRS has issued interim guidance updating the Internal Revenue Manual procedures for requesting information needed to make a determination on an Exempt Organizations (EO) determination application and closing such cases where an organization does not submit the requested information by the response due date (TEGE-07-0915-0022; TAXDAY, 2015/09/15, I.1). If an organization does not respond to an information request by the designated due date, it fails to establish (FTE) that it meets the applicable requirements. EO Determinations will close the case without making a determination and will not refund any user fee paid.
Controlled Group Rules/RIC Assets. The IRS has issued final rules with revisions to examples that illustrate the controlled group rules applicable to regulated investment companies (RICs) (Rev. Proc. 2015-45; T.D. 9737; TAXDAY, 2015/09/15, I.2). The revised examples illustrate how the controlled group rules affect the RIC asset diversification tests.
Arm’s-Length Standard. The Treasury and the IRS have issued temporary and proposed regulations that clarify the coordination of the arm’s-length standard and best method rule with other Code and regulatory provisions, including Code Sec. 367, in determining the proper treatment of controlled transactions (T.D. 9738, NPRM REG-139483-13; TAXDAY, 2015/09/15, I.4). A number of examples are added to illustrate these new rules.
Determination Letters/No-Rule Areas. The IRS has issued a notice and a revenue procedure supplementing previous guidance on areas in which the Service will not issue letter rulings or determination letters (Notice 2015-59, Rev. Proc. 2015-43; TAXDAY, 2015/09/15, I.5). Two new issues were added under section 4.01 of Rev. Proc. 2015-3. In addition, a new issue was added under section 5.01 of Rev. Proc. 2015-3.
Treasury Security Rate. For pension plan years beginning in September 2015, the IRS has released the 30-year Treasury bond weighted average interest rate, the unadjusted segment rates, adjusted rates and the minimum present value segment rates (Notice 2015-61; TAXDAY, 2015/09/15, I.6).
E-filing/Economic Hardship Waivers. The IRS has issued procedures for requesting an economic hardship waiver from the electronic filing requirement for Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, or Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan (Rev. Proc. 2015-47; TAXDAY, 2015/09/15, I.7). These electronic filing regulations provide that if a filer is required to file electronically a Form 8955-SSA registration statement or a Form 5500 series return and fails to do so, the filer is deemed to have failed to file the registration statement or the return.
Miscellaneous
Projected 2016 Inflation-Adjusted Tax Figures. As a service to our subscribers, Wolters Kluwer has prepared projected inflation-adjusted tax bracket numbers for the 2016 Tax Rate Schedules, the standard deduction, personal exemption and other tax amounts for use in year-end and 2016 tax planning (TAXDAY, 2015/09/17, M.2). Those adjustments use the average inflation index for the 12-month period ending on August 31, 2015, published in the Consumer Price Index for All Urban Consumers (CPI-U) by the U.S. Department of Labor.
The American Institute of Certified Public Accountants (AICPA) has expressed concern that a bill authored by Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and ranking member Ron Wyden, Ore., the Chairman’s Mark of a Bill to Prevent Identity Theft and Tax Refund Fraud, grants the Treasury Department and the IRS too broad an authority to regulate paid tax return preparers (TAXDAY, 2015/09/16, M.1). The committee had planned to mark up the legislation on September 16, but Hatch postponed the mark-up in order to address the concerns made by the AICPA. In a September 15 letter, the AICPA recommended that the lawmakers consider limiting the IRS’s authority to require a preparer tax identification number (PTIN) and to protect the public from marketplace confusion. The IRS currently requires all “preparers” to obtain a PTIN. The AICPA argued that the IRS has not initiated any compliance initiatives geared toward nonsigners nor shown any data regarding the benefits of requiring nonsigners to register for a PTIN.
By Jeff Carlson and Jennifer Cordaro, Wolters Kluwer News Staff