Congress was busy during the week of April 13, with the House passing legislation that would repeal the estate tax, provide additional IRS oversight and permanently extend the deduction for state and local sales taxes. The Senate approved legislation that repeals the Medicare sustainable growth rate (SGR) and improves physician payments; President Obama signed the measure on April 16. Lawmakers also introduced legislation to prevent corporate inversions. As the tax-filing season came to a close, IRS Commissioner John Koskinen congratulated tax professionals and the Service’s partners for successfully reaching the April 15, 2015, deadline and apologized for any long delays they may have encountered while attempting to obtain IRS assistance and expressed his appreciation for their hard work.
The president on April 16 signed the Medicare Access and CHIP Reauthorization Act of 2015 (HR 2), also known as the “doc fix” bill, after the Senate approved the legislation by a vote of 92 to 8 on April 14 (TAXDAY, 2015/04/17 C.2). President Obama signed the legislation on April 16. The bill amends Title XVIII of the Social Security Act to repeal the Medicare SGR and strengthen Medicare access by improving physician payments and making other improvements, to reauthorize the Children’s Health Insurance Program, and for other purposes. Before being amended by HR 2, Code Sec. 6331(h)(3) provided that a continuous IRS levy to collect an unpaid tax liability of a Medicare provider was limited to 30 percent of a qualified payment. Under the enacted measure, the IRS can levy up to 100 percent of a qualified payment owed to a Medicare provider to collect an unpaid tax liability. The Congressional Budget Office (CBO) has estimated that the bill would raise $600 million over 10 years.
President Obama on April 13 sent the U.S.-Japan tax protocol to the Senate and urged lawmakers to act on the treaty. The accord was initially signed on January 24, 2013, and correcting notes were added in March 2013 (TAXDAY, 2015/04/15, W.1). According to the message from the president, the proposed protocol was negotiated to bring U.S.-Japan tax treaty relations into closer conformity with current U.S. tax treaty policy. The measure would exempt cross-border interest payments from withholding. In addition, it calls for mandatory arbitration of certain cases that the authorities in the two countries have been unable to resolve.
Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Committee Chairman Paul Ryan, R-Wis., are asking the Coalition for Fair Effective Tax Rates for their input on statutory tax rates (TAXDAY, 2015/04/14, C.2). In a letter to the coalition, the chairmen said they were looking for ideas on how to reduce the effective tax rate in a manner that would make small businesses more competitive. They added that they were are also seeking input on how to simplify tax filing and tax compliance for small and closely held businesses. Hatch and Ryan said that, although the current administration does not share their vision for tax reform and with President Obama unwilling to reduce individual statutory tax rates, “it is likely that some aspects of tax reform will not be completed until the next administration takes office.”
Hatch and Ryan have also asked Koskinen to clarify the tax status of organizations known as “worker centers.” They expressed concern in an April 15 letter that some worker centers have engaged in conduct similar to labor organizations, which would disqualify the organizations from receiving a tax-exemption under Code Sec. 501(c)(3) because their benefits accrue to specific employees instead of the general public, suggesting they should be 501(c)(5) organizations and donations to them should not qualify for tax deductions.
House and Senate lawmakers on April 16 introduced legislation that would ban federal contracts for companies that move their headquarters overseas in order to avoid paying U.S. taxes, a process known as “inversion” (TAXDAY, 2015/04/17, C.3). Over the last five years, companies have received $1 billion in federal contracts while using the tax loophole. A surge of inversion announcements in 2014 led Democrats in the Senate and House to introduce several different measures to stop the practice. Republicans in both chambers decided not to support the legislation even though similar measures received bipartisan support in the past. According to the Joint Committee on Taxation, inversions could cause the U.S. to lose about $20 billion in tax revenue over the next decade.
House. The House on April 15 overwhelmingly approved, by a bipartisan voice vote, a series of bills dealing with oversight of the IRS (TAXDAY, 2015/04/16, C.1). The bills now move to the Senate, where House Republican leaders also expect Democratic support for the proposals. Ways and Means Oversight Subcommittee Chairman Peter Roskam, R-Ill., said the House was marking April 15, or tax day, “by passing a series of common-sense bills to rein in IRS abuse, protect taxpayer rights and hold agency employees accountable for misconduct.”
House lawmakers on April 16 approved a bill (HR 1105) to permanently repeal the estate tax (TAXDAY, 2015/04/17, C.1). The 240-to-179 vote was mainly along party lines. The measure also repeals the generation-skipping transfer (GST) tax for all future transfers. Most Democrats vehemently opposed the measure, charging that it would increase the deficit and mostly favors the wealthy. The vote to repeal the estate tax may be moot, however, as the White House has said the president will veto the bill.
The House on April 16 passed the State & Local Sales Tax Deduction Fairness Bill (HR 622), which would permanently extend the deduction for state and local sales taxes, which expired at the end of 2014 (TAXDAY, 2015/04/17, C.1). The final vote was 272 to 152. The measure is one of some 50 plus “tax extenders” that typically come up for renewal at the end of the year. Ryan said the bill would give people more certainty, instead of waiting each year to see if it is included in the extenders package. The White House said it would veto the measure if it came to the president’s desk for signature because its cost is not offset and would add to long-term deficits.
The individual and employer mandates under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) will continue to disrupt both the health insurance market and the labor market, according to Douglas Holtz-Eakin of the American Action Forum, and former director of the Congressional Budget Office (CBO) (TAXDAY, 2015/04/15, C.3). As the main witness at an April 14 House Ways and Means Subcommittee on Health hearing on the mandates, Holtz-Eakin maintained that there are alternatives, saying, “the individual mandate is not working as envisioned.” He recommended: requiring guaranteed renewability of coverage conditioned on maintaining continuous coverage; creation of high-risk pools for those with pre-existing conditions; repealing community rating restrictions under the PPACA; and allowing nonqualified health plans to be sold outside of the Marketplace.
In an April 15 appearance before the House Oversight and Government Reform Subcommittee on Government Operations, IRS National Taxpayer Advocate said the IRS is failing in nine key areas (TAXDAY, 2015/04/16, C.3). Olson recommended that Congress reinstate joint oversight hearings to review the IRS’s progress in meeting its objectives and improving taxpayer service, enforcing the tax laws and promoting voluntary compliance. Olson told the panel that the federal government is currently “failing badly” to meet the service needs of its taxpayers. She said that, in order to address the problem, the IRS will need more resources to answer taxpayer telephone calls, process and respond to taxpayer correspondence, and assist taxpayers who seek help in its walk-in sites.
House Ways and Means Oversight Subcommittee Chairman Peter Roskam, R-Ill., announced on April 15 that the subcommittee will hold a hearing on the 2015 tax filing season and general operations at the IRS (TAXDAY, 2015/04/16, C.4). The hearing will take place on Wednesday, April 22, beginning at 10:00 a.m. in Room 1100 of the Longworth House Office Building. Oral testimony will be given by invited witnesses only.
Senate. Senate Budget Committee ranking member Bernie Sanders, I-Vt., on April 14 introduced a bill, the Corporate Tax Dodging Prevention Bill of 2015, to stop profitable corporations from sheltering income overseas in the Cayman Islands and other tax havens to avoid paying U.S. taxes (TAXDAY, 2015/04/15, C.2). The legislation also would end tax breaks for companies that ship jobs and factories overseas. Sanders pointed to a recent Government Accountability Office study that indicated that 83 of the Fortune 100 companies in the U.S. have used offshore tax havens to lower their taxes. Sanders’ bill and a companion measure introduced in the House by Rep. Jan Schakowsky, D-Ill., would yield more than $590 billion in revenue over the next decade, according to the Joint Committee on Taxation.
Hatch is strongly urging Koskinen to cancel the Service’s plans to broaden a proposed rule that Hatch believes would further restrict the speech and activities of a wide range of tax-exempt organizations (TAXDAY, 2015/04/14, C.3). In a letter dated April 13, Hatch wrote that he had already warned Koskinen that attempts to limit political speech through the tax code would not be tolerated, and would only serve to “further entangle your agency in political debate and controversy.” In March 2015, Koskinen announced the IRS was looking to expand the proposed rule. The IRS previously “called off” a proposed rule regulating 501(c)(4) organizations in May 2014 after objections from organizations across the political spectrum.
TIGTA Interim Report/2015 Filing Season. The Treasury Inspector General for Tax Administration (TIGTA) has published its annual interim report on the performance of the IRS during the tax filing season (January 2015 to mid-April 2015) (Ref. No. 2015-40-032; TAXDAY, 2015/04/17, T.1). The report commended the IRS on its success in beginning the filing season on time, but also found that as a result of continued budget cuts, nearly 4-percent fewer customers will receive live assistance from the IRS in 2015.
Treasury Official Comments on Final Code Sec. 162(m) Regulations. The final regulations issued under Code Sec. 162(m) (T.D. 9716; TAXDAY, 2015/03/31, I.2) were intended to address primarily two issues, Robert Neis, Treasury deputy benefits tax counsel, said during an April 15 webcast hosted by the American Bar Association (TAXDAY, 2015/04/15, T.1). These two issues were the per-employee share limit under Code Sec. 162(m) and the transition rules for private companies that went public.
AFRs for May. The IRS has issued various prescribed rates for federal income tax purposes for May 2015 (Rev. Rul. 2015-8; TAXDAY, 2015/04/20, I.1).
General Welfare Exclusion/Tribal Government Programs. The IRS has advised taxpayers that they may continue to rely on Rev. Proc. 2014-35, I.R.B. 2014-26, 1110, following passage of the Tribal General Welfare Exclusion Act of 2014 (P.L. 113-168) (Notice 2015-34; TAXDAY, 2015/04/17, I.2). Rev. Proc. 2014-35 is broader than Code Sec. 139E in some respects, and which provides certainty that the need requirement is satisfied for the benefits described in the procedure and that such benefits are not compensation for services.
Commissioner’s Statement. IRS Commissioner John Koskinen issued a statement congratulating tax professionals and the Service’s partners for successfully reaching April 15, 2015, which brings an end to the busy 2015 tax return filing season (TAXDAY, 2015/04/16, I.1). He apologized for any long delays they may have encountered while attempting to obtain IRS assistance and expressed his appreciation for their hard work.
FATCA IDES. The IRS has announced that the FATCA International Data Exchange Service (IDES) will be open for testing from Monday, April 20 at 12:00 p.m. EDT to Friday, April 24 at 12:00 p.m. EDT to all financial institutions and tax administrators who have completed their IDES enrollment by Thursday, April 16, 2015, at 5:00 p.m. EDT (TAXDAY, 2015/04/16, I.3).
Renewable Electricity Production Credit. The IRS has published the inflation adjustment factors and reference prices to be used in computing the renewable electricity production credit for calendar year 2015 (TAXDAY, 2015/04/15, I.1). The inflation adjustment factors and references prices apply to sales in calendar year 2015 of kilowatt hours of electricity produced in the United States or a U.S. possession from qualified energy resources. For 2015, the credit period for Indian coal production has expired.
Foreign Housing Expense Exclusions. The IRS has provide the foreign housing expense exclusion/deduction amounts for tax year 2015 (Notice 2015-33; TAXDAY, 2015/04/15, I.2). The adjusted limitations apply to tax years beginning on or after January 1, 2015. However, taxpayers may elect to apply the 2015 adjusted limitations to the 2014 tax year, in lieu of the adjusted limitations provided in Notice 2014-29, I.R.B. 2014-18, 991, if the 2015 limitations are higher.
New IRS Publication. The IRS has released a new publication for tax professionals that discusses the many convenient ways to pay taxes (TAXDAY, 2015/04/15, I.4). The new Publication 5034, Need to Make a Tax Payment? flyer outlines the options, including IRS Direct Pay and the Online Payment Agreement tool. It is available in English and Spanish.
Treasury Security Rate. For pension plan years beginning in April 2015, the IRS has released the 30-year Treasury bond weighted average interest rate, the unadjusted segment rates, Highway and Transportation Funding Act of 2015 (HATFA) (P.L. 113-159) adjusted rates, the Moving Ahead for Progress in the 21st Century (MAP-21) Act (P.L. 112-141) adjusted rates, and the minimum present value segment rates (Notice 2015-31; TAXDAY, 2015/04/14, I.4).
EPSS Help Desk Reminder. The IRS has reminded the public that the EPSS e-help desk assists tax professionals with nonaccount related questions and issues concerning e-products (TAXDAY, 2015/04/14, I.5). They do not provide support to individual taxpayers experiencing e-filing issues.
Filing Requirements for U.S. Citizens with Foreign Assets. The IRS has reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, that they may have a U.S. tax liability and are likely required to file a U.S. tax return during the 2015 filing season (IR-2015-70; TAXDAY, 2015/04/13, I.2). This filing requirement generally applies, even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, which substantially reduce or eliminate their U.S. tax liability.
Delayed Forms 1095-A/Penalty Relief. The IRS has provided penalty relief for taxpayers who received a Form 1095-A, Health Insurance Marketplace Statement, that was delayed or that the taxpayer believes to be incorrect, and who timely filed their 2014 income tax returns, including extensions (Notice 2015-30; TAXDAY, 2015/04/13, I.3). The notice provides relief from Code Sec. 6651(a)(2) for late payment of a balance due, the penalty under Code Sec. 6651(a)(3) for failure to pay an amount due upon notice and demand, the penalty under Code Sec. 6654(a) for underpayment of estimated tax, and the accuracy-related penalty under Code Sec. 6662.
Chief Counsel/Power of Attorney. IRS Chief Counsel has addressed the question of who can grant a power of attorney (POA) that is sufficient for an IRS employee to solicit documents and discuss details of a partnership-level proceeding with the individual granted power of attorney (AM 2015-004; TAXDAY, 2015/04/13, I.4). The IRS can make inquiries and disclose details of a TEFRA partnership-level examination to any person who is a party to the examination, or who has authority to represent a party in such an examination, Chief Counsel explained.
A recent study commissioned by the Business Roundtable found that a U.S. corporate income tax rate of 25-percent would have significantly reduced U.S. companies’ disadvantages and would likely have resulted in the U.S. being a net acquirer in the cross-border mergers and acquisition (M&A) market (TAXDAY, 2015/04/14, M.1). The study was conducted by Ernst & Young. With a 25-percent tax rate, U.S. companies would have acquired $590 billion in cross-border assets over the past 10 years instead of losing $179 billion in assets—a net shift of $769 billion in assets from foreign countries to the U.S. The report also estimates that a 25-percent tax rate, the average rate for countries in the Organisation for Economic Co-operation and Development (OECD), would have kept 1,300 companies in the U.S. over the last 10 years.
By Jeff Carlson and Jennifer Cordaro, Wolters Kluwer News Staff