After winning reelection on November 6, President Obama invited the leadership of the GOP-controlled House and Democratic controlled Senate to a White House meeting during the week of November 12 to address the so-called fiscal cliff. He urged lawmakers to extend the Bush-era tax cuts for the middle class immediately since that is an area of bipartisan agreement. House Speaker John Boehner, R-Ohio, stated that GOP lawmakers in the House would accept new revenues generated by economic growth and tax reform as part of the fiscal cliff negotiations. The IRS, meanwhile, issued a slew of guidance to assist victims of Hurricane Sandy along the East Coast.
President Obama and Vice President Joe Biden were re-elected on November 6, defeating former Gov. Mitt Romney and his running mate, House Budget Committee Chairman Paul Ryan, R-Wis. (TAXDAY, 2012/11/07, C.1 ). Obama garnered 303 electoral college votes to win a second term, while Romney, who picked up 206 electoral college votes, failed to make the case to voters that the nation’s economic hardship required a change in presidential leadership (at press time, Florida was still in the process of counting votes).
Obama invited the leadership of the GOP-controlled House and Democratic controlled Senate to a White House meeting during the week of November 12 to address the so-called fiscal cliff of expiring tax cuts and lower defense spending and entitlement spending (TAXDAY, 2012/11/12, W.1 ). During the campaign, Obama pledged to pursue a balanced approach to closing the federal budget deficit through a combination of tax increases and spending cuts. If no action is taken, tax rates will rise on January 1, 2013, and across-the-board spending cuts will affect military and domestic spending.
House Speaker John Boehner, R-Ohio, stated that GOP lawmakers in the House would accept new revenues generated by economic growth and tax reform as part of the fiscal cliff negotiations. Like many of his GOP colleagues, Boehner insisted that if tax rates are raised on upper-income individuals who own small businesses, it would harm the economy and job creation. Obama said Congress should extend the Bush-era tax cuts for the middle class immediately since that is an area of bipartisan agreement.
Democrats maintained their majority in the Senate following the November 6 elections, picking up two new seats in Massachusetts and Indiana that were previously held by Republicans (TAXDAY, 2012/11/07, C.1 ). The House remained in Republican control with House Majority Leader Eric Cantor, R-Va., winning re-election and Boehner retaining his top leadership seat, as he ran unopposed for his congressional seat.
The Senate Finance Committee remained unchanged as all five Democrats, Sens. Bill Nelson, D-Fla., Thomas R. Carper, D-Del., Benjamin L. Cardin, D-Md., Maria Cantwell, D-Wash., and Robert Menendez, D-N.J., won their re-election contests as did ranking minority member Orrin G. Hatch, R-Utah.
The House Ways and Means Committee lost one member and possibly a second as Rep. Fortney Pete Stark, D-Calif., lost his bid for re-election and Rep. Charles W. Boustany Jr., R-La. faces a runoff in December against Rep. Jeffrey M. Landry, R-La. after Boustany fell short of a full majority to retain his seat. The two Republican incumbents were forced into the same 3rd District after redistricting last year.
Senate Majority Leader Harry Reid, D-Nev. told reporters on November 7 that Republicans and Democrats need to work together to avoid going over the so-called fiscal cliff (TAXDAY, 2012/11/08, C.1 ). Reid said he was confident that Boehner would also strive to seek common ground. Reid said that he was willing to seek compromise but Democrats would not allow Republicans to push them around when it came to letting the Bush tax cuts expire for the wealthy.
FATCA Negotiations. The Treasury announced that it is currently engaged with over 50 countries and jurisdictions throughout the world in an effort to improve international tax compliance and implement the information reporting and withholding tax provisions 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 ) (TDNR TG-1759 ; TAXDAY, 2012/11/09, T.1 ).
FATCA Final Regulations. Brenda Zent, a certified public accountant and tax specialist with Treasury’s Office of International Tax Counsel, told a panel of AICPA members that the Treasury expects to issue final regulations under FATCA by the end of December 2012 (TAXDAY, 2012/11/07, T.2 ).
The Treasury Inspector General for Tax Administration issued the following reports:
The IRS timely processed the majority of individual income tax returns during the 2012 filing season (Reference Number: 2012-40-119 ; TAXDAY, 2012/11/12, T.2 ). However, some taxpayers who electronically filed early in the 2012 filing season experienced delays in receiving their tax refunds.
The IRS should do more to strengthen its ability to determine whether its employees are inappropriately accessing taxpayer data (Reference Number: 2012-20-099 ; TAXDAY, 2012/11/07, T.1 ). The report found that the IRS needs to improve its processes for ensuring that audit trails effectively support unauthorized access to taxpayer data (UNAX) investigations and allow IRS management to identify noncompliant activity and hold employees accountable.
The IRS’s upgrade of its computer systems to allow the use of SmartID cards is taking longer than expected (Reference Number: 2012-20-115 ; TAXDAY, 2012/11/06, T.1 ). “The IRS is nearly two years behind its original planned completion date for implementing the new two-factor authentication system and enabling all employees to use SmartID cards for logical access,” said Treasury Inspector General for Tax Administration J. Russell George.
IRS Warns Against Hurricane Sandy Scams. The IRS issued a consumer alert about possible scams taking place in the wake of Hurricane Sandy (IR-2012-91 ; TAXDAY, 2012/11/12, I.6 ). The IRS stated that scam artists frequently take advantage of disasters by impersonating charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.
This week the IRS issued the following announcements relating to Hurricane Sandy disaster relief.
Victims of Hurricane Sandy in parts of Connecticut and New York may qualify for tax relief from certain IRS deadlines falling on or after October 27, 2012, and on or before February 1, 2013 (CT-2012-48 ; NJ-2012-47 ; NY-2012-47 ; TAXDAY, 2012/11/09, I.1 ). The president has currently declared the following counties federal disaster areas: (Connecticut) Fairfield, Middlesex, New Haven and New London counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County; (New York) Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk, and Westchester.
The IRS announced that an expedited review and approval process will be offered for organizations seeking tax-exempt status in order to provide relief for victims of Hurricane Sandy (IR-2012-87 ; TAXDAY, 2012/11/07, I.1 ).
The IRS issued guidance regarding adoption by employers of leave-based donation programs to aid victims of Hurricane Sandy (IR-2012-88 ; Notice 2012-69 ; TAXDAY, 2012/11/07, I.2 ). Under such programs, employees elect to forgo vacation, sick, or personal leave in exchange for cash payments made by the employer to charitable organizations for the relief of victims of Hurricane Sandy.
In response to diesel fuel shortages due to Hurricane Sandy, the IRS will not impose a tax penalty when dyed diesel fuel is sold for use or used on the highway (IR-2012-85 ; TAXDAY, 2012/11/06, I.1 ). The relief applies from October 30, 2012, through November 20, 2012.
The IRS will waive low-income housing tax credit rules that prohibit owners of low-income housing from providing housing to victims of Hurricane Sandy who do not qualify as low-income (IR-2012-86 ; TAXDAY, 2012/11/06, I.2 ). Specifically, the IRS will temporarily suspend income limitation requirements and non-transient requirements for qualified low-income housing projects that provide housing to victims of Hurricane Sandy.
The IRS alerted employers and other taxpayers that employers can make qualified disaster relief payments to individuals that will be excluded from those individuals’ taxable income (IR-2012-84 ; TAXDAY, 2012/11/05, I.5 ).
The IRS issued an announcement concerning extended filing deadlines for returns due on October 31 (IR-2012-82 , TAXDAY, 2012/11/01, I.2 ) and additional tax relief for individuals and businesses affected by Hurricane Sandy (IR-2012-83 ; TAXDAY, 2012/11/05, I.6 ).
Anti-Cutback Final Regulations. The IRS has released final regulations on the anti-cutback rules of Code Sec. 411(d)(6) , which generally prohibit plan amendments eliminating or reducing accrued benefits, early retirement benefits, retirement-type subsidies, and optional forms of benefit under qualified retirement plans (T.D. 9601 ; TAXDAY, 2012/11/08, I.2 ).
Shulman’s Term Ends. In his final public address as Commissioner of the Internal Revenue Service, Douglas H. Shulman called for Congress to maintain a consistently well-funded IRS budget, to remember the importance of tax simplicity in effecting tax policy, and, significantly, to pass an AMT patch for the 2012 tax year in order to avoid delays in the 2013 filing season (IR-2012-89 ; TAXDAY, 2012/11/08, I.3 ). Shulman’s five-year term ended on November 9. Deputy Commissioner Steven T. Miller will serve as acting IRS Commissioner until President Obama nominates a permanent successor.
Corporate Bond Rate. For pension plan years beginning in November 2012, the IRS has released the corporate bond weighted average interest rate (Notice 2012-66 ; TAXDAY, 2012/11/09, I.2 ). The IRS also released the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2012 and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan’s funding target under Code Sec. 430(h)(2) .
IRS Process Maturity Level. The IRS announced that its Applications Development group has achieved Capability Maturity Model Integration (CMMI) Level 3 (IR-2012-90 ; TAXDAY, 2012/11/09, I.3 ). The IRS is the only large civilian U.S. government agency to have achieved this level of process maturity.
National Taxpayer Advocate/Tax Reform. National Taxpayer Advocate Nina Olson told accounting and tax professionals at the AICPA National Tax Conference in Washington, D.C. on November 7 that she intends to push for tax reform and simplification in 2013 (TAXDAY, 2012/11/08, I.4 ). “The election may have shown there is a ground swell for tax reform,” Olson said.
Small Business Audits Increase. Faris R. Fink, commissioner, IRS Small Business/Self-Employed Division predicted on November 7 that audits of flow-through entities will increase in coming years (TAXDAY, 2012/11/08, I.5 ). Fink spoke at the AICPA National Tax Conference in Washington, D.C.
Electronic Forms W-8. A withholding agent may accept a Form W-8 that is signed with a handwritten signature, scanned into an electronic system, and then transmitted directly to a withholding agent through that electronic system (for example, as a PDF or facsimile) because such a document would meet the electronic submission requirements of Reg. §1.1441-1(e)(4)(iv) (AM 2012-008 ; TAXDAY, 2012/11/06, I.6 ).
Frivolous Tax Submission Penalty. The IRS issued a procedure outlining the limited circumstances under which a frivolous tax submission penalty assessed under Code Sec. 6702(a) or Code Sec. 6702(b) will be reduced (Rev. Proc. 2012-43 ; TAXDAY, 2012/11/06, I.7 ). The procedure also prescribes how a person may request a reduction and the eligibility requirements for reduction.
IRS FAQs. The IRS released Frequently Asked Questions (FAQs) from members of the financial community and the corresponding answers regarding qualified intermediaries (QIs) (Qualified Intermediary FAQs ; TAXDAY, 2012/11/05, I.3 ). The IRS also released FAQs for U.S. withholding agents, major corporations and multinational companies outside of the financial service community that are designed to clarify certain reporting and withholding requirements for payments typically made by these types of entities to foreign vendors and others (U.S. Withholding FAQs ; TAXDAY, 2012/11/05, I.4 ).
EIC Preparer Letters. During October and November 2012, the IRS will send letters to tax return preparers suspected of filing inaccurate Earned Income Tax Credit (EIC) claims (Letter 4833, Rev. 10-2012 ; TAXDAY, 2012/11/05, I.7 ). The letters focus on the primary issues identified on the returns, address the consequences of filing inaccurate claims for the EITC, and tell the preparer that the IRS will continue to monitor the types of claims for EITC they file.
By Jeff Carlson, Stephen K. Cooper and Jennifer J. Rodibaugh, CCH News Staff