During the second of three debates prior to the election, Republican presidential candidate Mitt Romney steadfastly stood by his claim that he would cut tax rates by 20 percent without increasing the deficit despite charges by President Obama that the math did not add up. The Joint Committee on Taxation (JCT) released a report indicating that individual tax rate reduction from closing tax expenditures, credits or deductions would only generate enough savings to reduce marginal tax rates by 4 percent. The IRS has released various inflation-adjusted amounts for 2013, as well as cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions, effective January 1, 2013.
Romney, during the October 16 debate, said he would not allow further tax cuts for the wealthy but would give relief to the middle class (TAXDAY, 2012/10/17, W.1 ). He said he would allow a certain amount of tax deductions for the middle class, allowing tax filers to choose their deductions, such as home mortgage interest deduction, charity and child tax credits. In addition, he said he would decrease the burden on the middle class by getting rid of taxes on interest, dividends, or capital gains. The president countered that Romney failed to say specifically what he would cut to offset the cost, saying Romney’s plan would add $5 trillion to the deficit.
An analysis by the bipartisan JCT of individual tax rate reduction from closing tax expenditures, credits or deductions would only generate enough savings to reduce marginal tax rates by 4 percent (TAXDAY, 2012/10/16, C.1 ). The report based its findings on the assumption that the 2001 and 2003 tax rates would expire, leading to higher rates to begin with, and resulting in a reduced top rate of 38.02 percent. The report stemmed from a September 19 request by Senate Finance Committee Chairman Max Baucus, D-Mont., during a meeting of the members of the committee to discuss the alternative minimum tax and provisions of the Internal Revenue Code that have either expired over the past year or are about to expire. Baucus asked the JCT about the concept of repealing all tax expenditures and using all or part of the revenues to reduce statutory marginal tax rates. Republicans attacked the study as misleading and hypothetical; warning that it should not thwart efforts to reform the tax code by lowering rates. Democrats said the study was further proof that Republican plans to reduce tax rates would place a heavier burden on the middle class.
The Treasury Inspector General for Tax Administration (TIGTA) issued the following reports during the week of October 15:
The IRS needs to timely and accurately post audit results to taxpayer accounts and protect the statutory period for assessing tax deficiencies (Reference Number: 2012-30-097 ; TAXDAY, 2012/10/19, T.1 ). TIGTA analyzed fiscal year (FY) 2011 audit closures and found 229 audits with short statute expiration dates that should have been sent for expedited processing in accordance with established procedures.
Many taxpayers did not receive abatement of the failure to file (FTF) and failure to pay (FTP) penalties even though they qualified under the “First-Time Abate” (FTA) criteria (Reference Number: 2012-40-113 ; TAXDAY, 2012/10/18, T.1 ). The unabated penalties totaled more than $181 million.
The IRS should document the skills of its information technology (IT) workforce to allow it to more effectively manage its human capital (Reference Number: 2012-20-107 ; TAXDAY, 2012/10/17, T.1 ). TIGTA believes that the IRS IT organization should implement an automated tool in order to provide a cost-efficient means to identify skills gaps.
The interest paid by the IRS on net operating loss (NOL) claims was excessive because NOL cases were not processed within 45 days (Reference Number: 2012-40-111 ; TAXDAY, 2012/10/16, T.1 ). The IRS agreed with TIGTA’s recommendations that it analyze excessive reassignment, pursue programming to correct computer coding issues and reevaluate certain case data criteria.
Treasury Announces FY 2012 Deficit. U.S. Treasury Secretary Timothy Geithner and Office of Management and Budget (OMB) Deputy Director for Management Jeffrey Zients released details of the final FY 2012 budget results (TDNR TG-1734 ; TAXDAY, 2012/10/15, T.1 ). The release shows the deficit in FY 2012 fell to $1.089 trillion, $207 billion less than the FY 2011 deficit and $238 billion less than forecast in President Obama’s February budget proposal.
November AFRs. The IRS has provided the prescribed rates for federal income tax purposes for November 2012 (Rev. Rul. 2012-30 ; TAXDAY, 2012/10/19, I.1 ).
COLA Increase/Pension Plans. Cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions, effective January 1, 2013, have been released by the IRS (IR-2012-77 ; TAXDAY, 2012/10/19, I.2 ). Many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.
Inflation Adjustment Amounts. The IRS has released various inflation-adjusted amounts for 2013 (IR-2012-78 ;Rev. Proc. 2012-41 ; TAXDAY, 2012/10/19, I.3 ). For tax years beginning in 2013, some of the more commonly applicable inflation adjustments, which apply to many individual returns, include the kiddie tax, low-income housing credit, and savings bond education exclusion. The IRS, however, did not release 2013 tax bracket amounts, the standard deduction or personal exemption amounts, or other figures that would typically be included in its annual announcement pending congressional resolution of the fate of the Bush-era tax cuts and other expiring provisions.
Payment Settlement Entities. The IRS has provided interim guidance on an alternate method to that which was set out in Notice 2011-71 , I.R.B. 2011-37, 233, for a payment settlement entity (PSE) to determine whether it must make the return of information required under Reg. §1.6050W-1(a)(1) with respect to a payment made outside the United States to an offshore account (Notice 2012-2 ; TAXDAY, 2012/10/19, I.5 ).
Indoor Tanning ATG. The IRS has posted a revised Audit Techniques Guide (ATG) on the excise tax imposed on providers of indoor tanning services under Code Sec. 5000B (TAXDAY, 2012/10/18, I.1 ).
Low-income housing credit. The IRS has announced the allocation to qualified states of previously unused low-income housing credit authority for calendar year 2012 (Rev. Proc. 2012-42 ; TAXDAY, 2012/10/17, I.1 ). Among states receiving an allocation, the allocation amounts range from a high of $364,494 for California to a low of $6,058 for Vermont.
Chief Counsel Notice/Response To Requests. The Office of Chief Counsel issued a notice that updates procedures for the preparation and review of the IRS’s responses to requests and demands for testimony and production of internal revenue records or information in IRS matters, non-IRS matters, and IRS congressional matters (CC-2013-001 ; TAXDAY, 2012/10/17, I.3 ).
Group Exemption Holders. The IRS is sending letters to nearly 2,000 group exemption (group ruling) holders requesting them to complete online questionnaires, Stephen M. Clarke, project manager, IRS Tax-Exempt/Government Entities (TE/GE), said during an October 16 conference “Tax Issues for Healthcare Organizations,” sponsored by the American Health Lawyers Association, in Arlington, Va. (TAXDAY, 2012/10/17, I.4 ). The questionnaires are intended to help the IRS better understand the relationship between central organizations and their subordinates, and how they meet their exemption and filing requirements.
Nonacquiescence. The IRS has announced that it does not acquiesce in the decision of the Minnesota District Court in L & S Industrial & Marine, Inc. , 2009-2 ustc ¶70,287 (TAXDAY, 2012/10/15, I.1 ). The IRS maintains that the district court’s holding conflicts with the long-standing judicial principle that courts should construe exemptions from tax narrowly.
By Jeff Carlson and Jennifer J. Rodibaugh, CCH News Staff