CCH Weekly Report from Washington, D.C.

During the week of November 26, the White House made an offer to avoid going over the fiscal cliff that was rejected by House Speaker John Boehner and House lawmakers heard about IRS efforts to curb identity theft. The IRS issued a number of pieces of guidance, including guidance on the net investment income tax, the additional Medicare tax, APMA user fees, quarterly interest rates and ITIN application procedures.

White House

The White House on November 26 released a study indicating that allowing the middle-class tax rates to rise and failing to patch the Alternative Minimum Tax (AMT) could cut the growth of consumer spending by 1.7 percentage points in 2013 (TAXDAY, 2012/11/27, W.1 ). The study by the National Economic Council (NEC) and the Council of Economic Advisers (CEA) estimates that consumers could spend nearly $200 billion less than anticipated in 2013 because of higher taxes. The CEA estimated that the average middle class family of four would see their taxes increase by $2,200 if Congress fails to extend the Bush-era tax cuts.

A visit to Capitol Hill on Nov. 29 by Treasury Secretary Timothy F. Geithner to discuss the fiscal cliff in separate meetings with Republican and Democratic leaders left GOP leaders frustrated as the Obama Administration continued to press its demand to first extend the Bush-era tax breaks for the middle-class only as a down-payment to reduce the deficit (TAXDAY, 2012/11/30, C.1 ). Geithner reportedly proposed in his meeting with House Speaker John Boehner, R-Ohio, $1.6 trillion in tax increases, $400 billion in spending cuts and a more permanent increase in the debt ceiling. The Speaker rejected the offer. The White House reiterated that the president would not sign any bill that does not increase tax rates on the top 2 percent of income earners.

According to an unofficial copy of the White House offer to Boehner, obtained by CCH, the president’s plan would raise $960 billion over 10 years by increasing the top two marginal tax rates, as well as rates on capital gains and dividends. Another $600 billion would be raised by capping deductions. The offer also reportedly includes setting estate taxation at 2009 levels and extending bonus depreciation. The proposal also calls for alternative minimum tax relief at a cost of $236 billion and an extension of payroll tax relief at $110 billion.

Congress

Senate Majority Whip Richard Durbin, D-Ill., on November 27 continued the Democratic assault on Republicans, calling on them to immediately pass an extension of the Bush-era tax cuts for those earning less than $250,000 and to deal with entitlement reform at a later time (TAXDAY, 2012/11/28, C.2 ). Durbin pressed his case in a speech at the liberal think tank, the Center for American Progress. Durbin made it clear that entitlements such as Medicare, held areas of savings that were brought up by the Simpson-Bowles Commission and need to be part of the fiscal talks, but not at this time.

Beth Tucker, IRS Deputy Commissioner for Operations, told House lawmakers on November 29 that the IRS is working to balance timely responses to early tax return filers with the need to filter out tax fraud and identity theft activities by criminals (TAXDAY, 2012/11/30, C.2 ). Tucker testified before the House Subcommittee on Government Organization, Efficiency and Financial Management, telling lawmakers that the IRS has two new filters in place to detect fraud among early electronic return filers.

Treasury

Denmark/Mexico Sign FATCA Agreements. The Kingdom of Denmark and the United States have entered into an intergovernmental agreement to facilitate implementation the Foreign Account Tax Compliance Act (FATCA) (enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 (P.L. 111-147 )) (TAXDAY, 2012/11/26, T.1 ). Mexico also entered into an intergovernmental agreement with the United States (TAXDAY, 2012/11/29, I.1 .. Both agreements are Model I-type agreements that require Danish or Mexican Foreign Financial Institutions (FFIs) to report certain account information to their home revenue authorities, which will forward the information to the IRS.

IRS

Net Investment Income Tax. The IRS released proposed regulations and related FAQs on the Code Sec. 1411 net investment income tax (NPRM REG-130507-11 ; TAXDAY, 2012/12/03, I.3 ). The proposed regulations include income thresholds for determining who is subject to the additional 3.8-percent tax, and additional clarification of what sources of income are included in net investment income.

Additional Medicare Tax. The IRS released proposed regulations and related FAQs on the additional hospital insurance tax on income above threshold amounts (NPRM REG-130074-11 ; TAXDAY, 2012/12/03, I.3 ). The proposed regulations provide guidance for employers and individuals relating to the implementation of the 0.9-percent additional Medicare tax, including the requirement to withhold additional Medicare tax on certain wages and compensation, the requirement to file a return reporting additional Medicare tax, the employer process for adjusting underpayments and overpayments of additional Medicare tax, and the employer and employee processes for filing a claim for refund of additional Medicare tax.

APMA User Fees/Pay.gov. The IRS announced that beginning on December 31, 2012, certain international program user fees must be paid through Pay.gov, an online payment site operated by the U.S. Treasury (TAXDAY, 2012/12/03, I.4 ). The Advance Pricing and Mutual Agreement (APMA) Program, which deals with transfer pricing issues, will begin using Treasury’s Pay.gov website to receive Advance Pricing Agreement user fees. The use of Pay.gov for these fees is mandatory.

Quarterly Interest Rates. The IRS announced that interest rates will remain the same for the calendar quarter beginning January 1, 2013 (IR-2012-99 ; Rev. Rul. 2012-32 ; TAXDAY, 2012/12/03, I.1 ).

Branded Prescription Drug Fee. Guidance has been provided on the branded prescription drug fee for the 2013 fee year (Notice 2012-74 ; TAXDAY, 2012/11/30, I.4 ). The deadline for submission of Form 8947, Report of Branded Prescription Drug Information, is December 17, 2012; the IRS will mail notices of a preliminary fee calculation by April 1, 2013 (notification of final fee calculation will occur by August 31, 2013); and error reports regarding the IRS’s preliminary fee calculation must be mailed to the IRS by May 16, 2013.

ITIN Application Procedures. The IRS has updated application procedures to strengthen the Individual Taxpayer Identification Number (ITIN) program requirements (IR-2012-98 ; FS-2012-11 ; TAXDAY, 2012/11/30, I.5 ). The procedures are effective January 1, 2013.

Tax-Exempt Bond/Hurricane Relief. Government entity issuers of tax-exempt bonds affected by Hurricane Sandy will have until February 1, 2013, to file certain returns related to tax-exempt bonds, qualified tax credit bonds and specified tax credit bonds (TAXDAY, 2012/11/30, I.8 ). Affected issuers may include those required to file Form 8038 series information returns or a Form 8038-T in connection with an arbitrage payment, with a due date between late October and January 31, 2013.

Railroad Tax Rates. The IRS has released the tier 2 Railroad Retirement Tax Act (RRTA) tax rates for 2013 for railroad employees, employers and employee representatives (TAXDAY, 2012/11/30, I.1 ).

Like-Kind Exchanges. Taxpayers engaged in exchanging multiple properties in nonsimultaneous exchanges may have flexibility in structuring the transactions to determine the application of Code Sec. 1031 dealing with like-kind exchanges, said IRS officials during a November 28 panel discussion sponsored by the DC bar association (TAXDAY, 2012/11/29, I.2 ). Speakers implied that taxpayers may be able to bifurcate the exchanges so that some aspects of the transaction are tax-free, while other aspects of the transactions are subject to tax on gain or loss.

Treasury Bill Rate. A table outlining the base period Treasury bill rate for the period that ended on September 30, 2012, has been released by the IRS (Rev. Rul. 2012-22 ; TAXDAY, 2012/11/27, I.1 ). The figures in the table will be used to determine the amount of interest to be paid each year by a shareholder of a domestic international sales corporation (DISC).

Substitute Forms. The IRS has set forth the requirements for using IRS forms to file 2012 information returns, preparing acceptable substitutes of the official forms, and using official or acceptable substitute forms to furnish information to recipients (Rev. Proc. 2012-38 ; TAXDAY, 2012/11/27, I.3 ). The procedures cover Forms 1096, 1097-BTC, 1098 series, 1099 series, 3921, 3922, 5498 series, W-2G, 1042-S and 8935.

Maximum Travel Per Diem Rates. The U.S. State Department has released a listing of maximum travel per diem allowances for travel in foreign areas (TAXDAY, 2012/11/27, I.6 ). The rates apply to all government employees and contractors, and are effective as of December 1, 2012.

Adequate Disclosure Procedures. The IRS has provided updated guidance to identify circumstances when the disclosure on a taxpayer’s income tax return with respect to an item or a position is adequate for the purpose of reducing the Code Sec. 6662(d) accuracy-related penalty for substantial understatement of income tax, as well as for the purpose of avoiding the Code Sec. 6694(a) preparer penalty for understatements due to unreasonable positions with regard to income tax returns (Rev. Proc. 2012-51 ; TAXDAY, 2012/11/27, I.7 ).

Defined Benefit Plan. The IRS has extended the deadline to amend a defined benefit plan to satisfy the requirements of Code Sec. 436 , and also has provided relief from the requirements of Code Sec. 411(d)(6) (Notice 2012-70 ; TAXDAY, 2012/11/26, I.4 ).

Government Plan/Cycle E Election. The IRS has modified its employee plan staggered remedial amendment period procedures to provide that the sponsor of an individually designed governmental plan, within the meaning of Code Sec. 414(d) , may elect Cycle E (instead of Cycle C) as the second remedial amendment cycle for the plan (Rev. Proc. 2012-50 ; TAXDAY, 2012/11/26, I.5 ).

Fall SOI Bulletin. The IRS has released the Fall 2012 issue of the Statistics of Income Bulletin IR-2012-97 TAXDAY, 2012/11/26, I.6 ). This bulletin features individual income tax return data for tax year 2010.

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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