House Republicans released the GOP budget for fiscal year 2013, which calls for reforming the tax code and eliminating special interest loopholes, while simultaneously lowering tax rates and extending the Bush-era tax cuts. Legislation was also introduced to grant small businesses a 20-percent tax cut and eliminate subsidies for big oil companies. In addition, a Senate Finance subcommittee held a hearing on tax fraud through identity theft. The IRS, meanwhile, announced it will enter into voluntary closing agreements (VCAs) with issuers of qualified student loan bonds that were unable to establish which bond issues the student loans were properly allocable to as purpose investments and that, as a result, could not establish that the bond issues involved were not issues of arbitrage bonds.
Legislation that would grant a 20-percent tax cut to small businesses with under 500 employees was introduced on March 21 by House Majority Leader Eric Cantor, R-Va. (TAXDAY, 2012/03/22, C.1). The $45.9-billion measure, set for House consideration by April 15, would be paid for by reduced federal spending included in the recently proposed fiscal year 2013 GOP budget proposal (TAXDAY, 2012/03/21, C.1). Owners could deduct 20 percent of their Form W-2 wages, regardless of how their business is organized. House Democrats said the measure is too broad because it would also aid financial services firms, such as those that were responsible for the housing and financial bubble that led to the great recession in 2008.
House Budget Committee Chairman Paul Ryan, R-Wis., released the GOP budget for fiscal year (FY) 2013, the “Path to Prosperity. A Blueprint for American Renewal,” on March 20. The GOP budget is intended to be in contrast to Democratic spending and tax proposals that were outlined in President Obama’s budget proposal in February (TAXDAY, 2012/02/14, W.1). The GOP budget would reform the tax code and eliminate special interest loopholes, while simultaneously lowering tax rates and extending the Bush-era tax cuts. The GOP budget calls for consolidating the tax code into just two income tax rate brackets of 10 percent and 25 percent, lowering the corporate tax rate to 25 percent and shifting international taxation to a so-called territorial tax system.
Tax fraud through identity theft has become an “ordinary street crime,” Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth Chairman Bill Nelson, D-Fla., told a panel of witnesses during a March 20 hearing on the IRS’s response to the problem (TAXDAY, 2012/03/21, C.3). The amount of identity theft cases the IRS received between 2009 and 2011 nearly tripled. The Congressional Research Service says the Service saw a five-fold increase in tax-related identity theft incidents from 51,702 in 2008 to 248,357 in 2010. According to the most recent data available from the IRS, the Service is tracking nearly 300,000 identity theft cases as of March 7, 2012. Nelson has introduced legislation, the Identity Theft and Tax Fraud Prevention Bill (Sen 1534), which would give the IRS and identity-theft victims the means to better detect and prevent tax fraud through identity theft.
The Senate on March 19 began the legislative process for the Repeal Big Oil Tax Subsidies Bill (Sen 2204), offered by Sen. Robert Menendez, D-N.J., which would repeal five tax subsidies for the five largest integrated oil and gas companies and use the revenue to extend expired and expiring renewable energy tax incentives (TAXDAY, 2012/03/21, C.2). The revenue raised from repeal of the oil and gas provisions would fully offset the extension of 16 energy-related tax incentives, including the wind production tax credit set to expire at the end of 2012, the plug-in electric vehicle tax credit and a credit for producers of cellulosic biofuels that expired at the end of 2011. A procedural vote to take up the bill is slated for the evening of March 26.
The Treasury Inspector General for Tax Administration (TIGTA) issued reports finding:
The IRS is not fully compliant with a federal law that requires it to eliminate and report improper payments made to taxpayers (TAXDAY, 2012/03/23, T.1). TIGTA found that the only program the IRS has identified for improper payment reporting is the Earned Income Tax Credit (EITC) Program, which issued improper payments in FY 2011 amounting to approximately $13.7 billion to $16.7 billion.
The IRS failed to maintain documentation to verify that it completed all pre-screening steps before new hires reported for duty (TAXDAY, 2012/03/20, T.2). The TIGTA report on four IRS employment operations branch offices found that nearly 77 percent of the new hire cases reviewed lacked some documentation needed to readily determine that all of the pre-screening steps had been completed.
FinCEN/Multiple Transactions. The Financial Crimes Enforcement Network (FinCEN) has issued guidance on common ownership aggregation beyond the limited set of circumstances discussed in FinCEN Ruling 2001-2 (TAXDAY, 2012/03/20, T.3). The guidance states, among other things, that there is a rebuttable presumption that currency transactions of separately incorporated businesses should not automatically be aggregated as being on behalf of any one person simply because those businesses are owned by the same person.
FinCEN also requested written comments on:
The proposed renewal, without change, of information-collection rules found in existing regulations requiring money services businesses, mutual funds, operators of credit card systems, dealers in precious metals, stones, or jewels, and certain insurance companies to develop and implement written anti-money laundering programs reasonably designed to prevent those entities and persons from being used to facilitate money laundering and the financing of terrorist activities (TAXDAY, 2012/03/20, T.1). Comments are due May 19, 2012.
The proposed renewal without change of FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments (CMIR). Form 105 is used to report certain cash transactions of $10,000 or more (TAXDAY, 2012/03/19, T.1). Comments are due May 18, 2012.
IRS Data Book. The IRS has released its 2011 IRS Data Book, which describes the Service’s activities for FY 2011 (IR-2012-36; TAXDAY, 2012/03/23, I.1). The 2011 Data Book shows that taxpayers e-filed more than 133-million business and individual income tax returns; the IRS issued almost $338 billion in refunds. It also examined 1.1 percent of all individual income tax returns and 1.5 percent of corporation income tax returns (excluding S corporation returns).
Tax-Exempt Status. An IRS official speaking before an Arlington, Virginia, tax conference stated that more than 400,000 organizations have lost their tax-exempt status under automatic revocation rules (TAXDAY, 2012/03/23, I.3). Approximately 14,000 of these organizations have applied for retroactive reinstatement.
March 2012 AFRs Amended. The IRS issued Rev. Rul. 2012-12, which updated two of the prescribed applicable federal rates (AFRs) previously published for March 2012 (TAXDAY, 2012/03/21, I.1). The ruling changes the annual long-term adjusted applicable federal rate reported in Table 2 for March 2012 from 3.47 percent to be 2.97 percent. The rate published in Table 3 as the long-term tax-exempt rate for ownership changes during March 2012 (3.55 percent) is corrected to be 3.47 percent.
Qualified Student Loan Bonds. The IRS announced it will enter into voluntary closing agreements (VCAs) with issuers of qualified student loan bonds that were unable to establish to which bond issues the student loans were properly allocable as purpose investments and that, as a result, could not establish that the bond issues involved were not issues of arbitrage bonds (Announcement 2012-14; TAXDAY, 2012/03/21, I.3). The guidance sets forth the terms under which the IRS will enter into VCAs with such issuers that are not the subject of an examination.
TN and WV Disaster Victim Relief. The IRS has extended return-filing and payment deadlines for storm victims in the Tennessee counties of Bradley, Claiborne, Cumberland, DeKalb, Hamilton, Jackson, McMinn, Monroe, Overton and Polk (TN-2012-14; TAXDAY, 2012/03/20, I.2). The IRS also extended tax filing deadlines for disaster victims in the West Virginia counties of Lincoln, Marion, and Wayne (WVA-2012-01; TAXDAY, 2012/03/20, I.3).
Charitable Trust Procedures. The IRS has made obsolete its guidance (Announcement 2010-19, I.R.B. 2010-14, 529) on procedures for how certain charitable trusts that classified themselves as private foundations could be reclassified as Type III supporting organizations (Announcement 2012-12; TAXDAY, 2012/03/19, I.1). The IRS previously updated the procedures for an organization to obtain a determination regarding its foundation status in Rev. Proc. 2012-10, I.R.B. 2012-2, 273 (TAXDAY, 2012/01/09, I.3).
April 2012 AFRs. The IRS has published its various prescribed rates for federal income tax purposes for April 2012 (Rev. Rul. 2012-11; TAXDAY, 2012/03/19, I.4).
Comments on Debt Instrument Regulations. Witnesses at a March 16 IRS hearing asked the IRS to delay the application of proposed regulations that would require basis reporting on sales of debt instruments (TAXDAY, 2012/03/19, I.5). Witnesses recommended that the regulations’ effective date be delayed until at least January 1, 2014, or later.
Preventative Health Services. The Departments of Health and Human Services, Labor, and the Treasury intend to propose amendments to regulations regarding certain preventive health services under provisions of the Patient Protection and Affordable Care Act (P.L. 111-148) (ANPRM RIN-1210-AB44; TAXDAY, 2012/03/19, I.6). In the meantime, comments are specifically requested on the prevalence and number of participants and beneficiaries of health plans sponsored by religious organizations without a third-party administrator.
By Jeff Carlson, Stephen K. Cooper and Jennifer J. Rodibaugh, CCH News Staff