CCH Weekly Report from Washington, D.C.

During the week of May 14, President Obama urged passage of legislation that would jump-start small business investment, while Ways and Means Committee Chairman Dave Camp discussed the agenda for the committee for the rest of 2012 and two senators introduced a bill that would crack down on anyone who renounces their United States citizenship in order to avoid paying taxes. The IRS released final regulations on the Health Insurance Premium Tax Credit and the June AFRs.

 

White House

 

President Obama on May 16 urged lawmakers to enact legislation that would jump-start small business investment by passing legislation that allows a 10-percent income tax credit for firms that create new jobs or increase wages in 2012 and that extends 100-percent expensing in 2012 for all businesses (TAXDAY, 2012/05/17, W.1). Republican leaders had a polite, but cool, response to the plan and, instead, urged adoption of the Small Business Tax Cut Bill (HR 9), a GOP measure that provides a 20-percent small business tax cut. The White House has issued a veto threat on that bill.

 

At a White House luncheon meeting with congressional leadership, the president stressed the importance of acting on the economic agenda he laid out earlier as part of the “Congressional To-Do List” (TAXDAY, 2012/05/10, W.1). The list includes legislation that would give companies a new 20-percent tax credit for the cost of moving their operations back to the U.S. and pays for it by eliminating tax incentives that allow companies to deduct the costs of moving their business abroad. Another tax incentive in the list would extend the Production Tax Credit and expand the 30-percent credit to investments in clean energy manufacturing under Code Sec. 48C.

 

Congress

 

House. Tax reform, extension of the Bush-era tax cuts and passage of the expiring tax extenders head the agenda for the House Ways and Means Committee for the remainder of 2012, according to Chairman Dave Camp, R-Mich. (TAXDAY, 2012/05/18, C.1). He said the House GOP conference supports using the 2013 expiration of the Bush tax cuts to force action on tax reform. He echoed House Speaker John Boehner’s, R-Ohio, call for using a fast-track procedure for consideration of the tax cuts and tax reform. The Subcommittee on Select Revenue Measures will hold a hearing on the tax extenders in early June, Camp stated.

 

Tax-exempt industry officials testified at House Ways and Means Subcommittee on Oversight hearing that IRS Form 990 is too complicated, and requires too much information (TAXDAY, 2012/05/17, C.1). Many universities must hire outside counsel to oversee their information-reporting requirements, and those costs are detracting from the educational mission, witnesses said.

 

Senate. The Senate Finance Committee on May 15 heard from witnesses that the tax system for Native American Tribes and the United States five territories is a patchwork of complicated rules for Indian governments and each territory and they urged lawmakers to consider changes when they turn to tax reform (TAXDAY, 2012/05/16, C.1). Although Indian governments and the territories are in many ways similar to state governments, U.S. policies do not recognize tribal governments or territories as states or fully sovereign nations. Senate Finance Committee Chairman Max Baucus, D-Mont., noted that one area of concern for tribal governments is the application of the general welfare doctrine, which allows governments to provide benefits to citizens without those benefits counting as taxable income. But, it is often unclear which benefits are eligible for the exemption. Sarah Hall Ingram, IRS Commissioner, Tax Exempt and Government Entities, addressed problems surrounding the allocation process for tribal economic development bonds. Lindsay G. Robertson, Professor of Law, University of Oklahoma College of Law, called for elimination of the” essential government function” limitation on tribal tax-exempt bonds found in Code Sec. 7871.

 

Senate Finance Committee member Charles E. Schumer, D-N.Y., and Sen. Bob Casey, D-Pa., on May 17 unveiled legislation to crack down on anyone who renounces their United States citizenship in order to avoid paying taxes (TAXDAY, 2012/05/18, C.2). The move was prompted by the actions of Facebook co-founder Eduardo Saverin, who recently gave up his U.S. citizenship in order to avoid some $67 million in taxes on profits he is expected to collect when the social-networking company goes public. Under the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy (Ex-PATRIOT) Bill, any expatriate with either a net worth of at least $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax-avoidance purposes. If the individual has a legitimate reason for renouncing his or her citizenship, no penalties will apply. If the IRS finds that an individual gave up their passport for substantial tax purposes, it would impose a tax on their future investment gains, regardless of where he or she resides. The tax rate for capital gains tax would be 30 percent.

 

IRS

 

Health Insurance Premium Tax Credit. The IRS issued final regulations on Health Insurance Premium Tax Credit enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (T.D. 9590; TAXDAY, 2012/05/21, I.1). The final regulations made several changes to the proposed regulations, for example clarifying that a family may include all individuals not subject to the Code Sec. 5000A penalty and also amending the definition of “modified adjusted gross income” to include Social Security benefits.

 

June AFRs. The IRS prescribed various rates for federal income tax purposes for June 2012 (Rev. Rul. 2012-15; TAXDAY, 2012/05/18, I.2).

 

Medical Device Excise Tax Hearing. The proposed regulations under Code Sec. 4191 on taxable medical devices are still too broad or unclear to be efficiently understood and implemented, industry stakeholders stated at a May 16 IRS public hearing (NPRM REG-113770-10; TAXDAY, 2012/05/17, I.1). Hearing speakers expressed some satisfaction with the IRS’s progress in addressing numerous industry concerns regarding the proposed regulations, but stated, among other things, that additional clarification is needed as to what medical devices qualify for the retail exemption.

 

Identity Theft. In the 2012 filing season, the IRS has already flagged 2.6 million returns for possible identity theft, Steven T. Miller, deputy commissioner, services and enforcement, told the Council for Electronic Revenue Communication Advancement (CERCA) on May 16 (TAXDAY, 2012/05/17, I.2). Miller stated that the IRS will spend approximately $330 million during the year to combat identity theft and return fraud.

 

IRS Web Portal. The IRS is working to improve users’ online experience, Rajive K. Mathur, director, online services, said on May 16 in Arlington, Va., at the Spring 2012 Meeting of the Council for Electronic Revenue Communication Advancement (CERCA) (TAXDAY, 2012/05/17, I.3). One enhancement may be a more transaction-based website, and later in 2012, the IRS plans to roll out an enhanced web portal with a better search function.

 

FATCA Hearing/Proposed Regulations. Speakers urged the Treasury and IRS to delay the effective date of the final regulations under the Foreign Account Tax Compliance Act (FATCA), as enacted in the Hiring Incentives to Restore Employment (HIRE) Act of 2010 (P.L. 111-147), for at least one year, from the current date of January 1, 2013, until January 1, 2014 (NPRM REG-121647-10; TAXDAY, 2012/05/16, I.1). The extended timeline would give institutions the necessary time to prepare their information technology systems to handle the documentation and reporting requirements.

 

Tribal Government Welfare. Treasury and the IRS announced they will jointly conduct another consultation and listening session regarding the application of the general welfare exclusion to benefits provided under Indian tribal government programs (IR-2012-52; TAXDAY, 2012/05/15, I.1).

 

Ex Parte Guidance. The IRS provided guidance regarding the updated ex parte communication rules in Rev. Proc. 2012-18 between IRS Appeals and other IRS functions without the participation of the taxpayer or the taxpayer’s representative (CC-2012-010; TAXDAY, 2012/05/15, I.2).

 

 

By Jeff Carlson, Stephen K. Cooper and Jennifer J. Rodibaugh, CCH News Staff

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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