Congress passed a long-awaited, long-term highway funding measure on December 3. In addition, the Senate passed legislation that would dismantle key parts of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148). Lawmakers now turn their attention to negotiating a tax-extenders package. The IRS, meanwhile, has released guidance addressing student loans, debt instruments and tribal loans.
On December 3, Congress passed the Fixing America’s Surface Transportation Act (FAST) (HR 22) (TAXDAY, 2015/12/04, C.2). The vote in the House was 359 to 65, and the vote in the Senate was 83 to 16. The president is expected to sign the legislation. The legislation, which is to provide $305 billion for highways and mass transit over the next five years, maintains the current level of the gasoline excise tax and relies on revenue sources that are not transportation related for the remainder of its funding. Tax provisions included in the legislation authorize the IRS to utilize private debt collectors to collect bad tax debts, authority the IRS did not seek. The legislation also includes a provision permitting the State Department to revoke passports of individuals with more than $50,000 of delinquent tax debt. That provision is expected to bring in $398 million over 10 years. Other tax provisions create an IRS special compliance personnel program and repeal a provision enacted earlier in the year modifying the due date for returns of certain employee benefit plans.
House and Senate negotiators for a tax-extenders package are looking at making some of the 50 provisions permanent and possibly letting some provisions expire over several years (TAXDAY, 2015/12/01, C.1). The bill is estimated to cost over $800 billion over 10 years. Republicans are pushing to make permanent provisions that have already been approved by the House Ways and Means Committee and some by the full House, including the research and development credit, Code Sec. 179 expensing for small businesses, deductions for state and local sales taxes, plus provisions having to do with charitable giving. However, bonus depreciation and the Work Opportunity Tax Credit could be phased out after five years as well as the wind power tax credit.
Sen. Benjamin L. Cardin, D-Md., and Rep. Xavier Becerra, D-Calif., on December 1 introduced companion legislation in the House and Senate, the Taxpayer Rights Bill of 2015 (HR 4128, Sen 2333), that is intended to improve IRS services and procedures and to protect taxpayers’ rights (TAXDAY, 2015/12/03, C.1). Cardin and Becerra said their bill codifies 10 primary taxpayer rights; strengthens programs and other rules related to the preparation of tax returns; improves IRS lien and levy procedures, including procedures related to retirement accounts; and enhances the ability of the Office of the National Taxpayer Advocate to further aid and protect taxpayers.
House. Two House lawmakers have introduced legislation, the Tax Return Preparer Competency Bill (HR 4141), which would require professional tax return preparers to undergo examinations, annual continuing education classes and to submit to a background check (TAXDAY, 2015/12/03, C.1). The bill was introduced by Reps. Diane Black, R-Tenn. and Pat Meehan, R-Pa., on December 1. The bill’s introduction follows the release of the IRS’s “Dirty Dozen ” list of tax scams for 2015, which warns of “dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers.” Black and Meehan said that tax preparer fraud raises particular concerns for the Earned Income Tax Credit (EITC). A
Senate. The Senate on December 3 approved, by a margin of 52 to 47, a budget reconciliation bill, the Restoring Americans’ Healthcare Freedom Reconciliation Bill of 2015 (HR 3762), which repeals portions of PPACA (TAXDAY, 2015/12/04, C.1). The Senate version, in the form of an amendment by Majority Leader Mitch McConnell, R-Ky., calls for stronger measures than the bill approved by the House on October 23 (TAXDAY, 2015/10/26, C.1). The bill is essentially considered a message from Republicans that the health care law is a failure. The House will now have to approve the Senate’s amended version of the bill before it can be sent to the White House. President Obama has no intention of signing the legislation, which would repeal the individual and employer mandates, as well as the medical device tax, the so-called “Cadillac tax” on high-end health care plans and the Independent Payment Advisory Board, which holds sway over health care choices; the administration on December 2 issued a Statement of Administration Policy indicating that the president would veto the measure.
Witnesses at a December 1 House Ways and Means Subcommittee on Tax Policy hearing on the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project told the panel of the need for general corporate and international tax reform, as well as the related need to address U.S.-base stripping and inversion transactions (TAXDAY, 2015/12/02, C.1). Chairman Charles Boustany, R-La., said in his opening statement that Congress was out of time after nearly three decades of “procrastinating ” on tax reform.
The Treasury Inspector General for Tax Administration (TIGTA) issued reports finding:
The IRS’s Identity Protection Specialized Unit (IPSU) needs to better assist victims of identity theft (Ref. No.: 2016-40-003; TAXDAY 2015/12/04, T.1). TIGTA found that the IRS no longer provides most identity theft victims with an IPSU single point of contact because of budgetary constraints. In addition, the IRS did not always issue required acknowledgment and case status letters to taxpayers or effectively conduct research to identify and assist taxpayers who submit identity theft claim documentation without their Social Security Number.
The IRS has made progress improving information security, but a number of program weaknesses remain that could result in compromised, disrupted, or outdated operations (Ref. No. 2015-20-094; TAXDAY 2015/12/03, T.1). TIGTA identified weaknesses within the IRS’s cybersecurity pertaining to continuous monitoring, configuration management, identity and access management, privacy impact assessments, external connections and audit trails.
The IRS’s Information Security Program generally complied with the requirements of the Federal Information Security Modernization Act (FISMA) (Ref. No. 2015-20-092; TAXDAY 2015/12/02, T.1). TIGTA found that while most of the programs met the FISMA requirements, three security program areas failed to meet FISMA requirements due to not having continuous monitoring management, configuration management and/or identity and access management.
The IRS Return Review Program, being developed to replace the Electronic Fraud Detection System (EFDS), does not set a termination date or establish a retirement plan for the old system (Ref. No. 2015-20-093; TAXDAY 2015/11/30, T.1). TIGTA found that the expense of running both systems could cost taxpayers approximately $18 million per year.
CI Annual Business Report. The IRS Criminal Investigations (CI) Division has issued its annual business report on the 2015 fiscal year, which highlights the significant work CI has performed during the course of the year (IR-2015-135; TAXDAY 2015/12/04, I.1). The CI division has achieved overwhelming success in obtaining criminal convictions, but remains hampered by low hiring rates and budget cutbacks.
Form 1023-EZ Report. According to the IRS’s newly released report on the use of Form 1023-EZ, a simplified online application form for smaller organizations to request and obtain exemption from federal income tax under Code Sec. 501(c)(3), the online application form has reduced taxpayer burdens and increased cost effectiveness (TAXDAY 2015/12/04, I.2). The average processing time for Form 1023-EZ has been 13 days, while the average processing time for the paper Form 1023 is 191 days.
Charitable Organizations. The IRS has issued a statement on proposed regulations affecting charities (NPRM REG-138344-13, I.R.B. 2015-41, 557; TAXDAY, 2015/12/07, I.9)) The proposed regulations would implement an alternative way of substantiating donations of $250 or more, the IRS explained.
Student Loans. The IRS has provided relief for certain taxpayers who took out federal student loans to attend a school owned by Corinthian Colleges, Inc. that were discharged under the Department of Education’s (ED) Defense to Repayment discharge process or Closed School discharge process (Rev. Proc. 2015-57; TAXDAY 2015/12/04, I.3). The new procedure provides that the IRS will not assert that a covered taxpayer whose federal student loans were discharged under ED’s Defense to Repayment discharge process must recognize gross income as a result of the discharge.
Debt Instruments. The IRS has provided the dollar amounts, increased by the 2016 inflation adjustment, for Code Sec. 1274A debt instruments arising out of sales or exchanges (Rev. Rul. 2015-24; TAXDAY 2015/12/01, I.1). The 2016 inflation-adjusted amount is $5,664,800 for Code Sec. 1274A(b) qualified debt instruments and $4,046,300 for Code Sec. 1274A(c)(2)(A) cash method debt instruments.
Fact Sheet/EFINs. The IRS has issued a fact sheet advising tax professionals who are preparing for the 2016 filing season to review their Electronic Filing Identification Number (EFIN) status to insure its accuracy and security (FS-2015-27; TAXDAY 2015/12/01, I.2). EFINs are numbers issued by the IRS that enables authorized IRS e-file Providers to file returns electronically.
Charitable Gifts. The IRS has provided tips and reminders to individuals and businesses making year-end gifts to charity (IR-2015-134; TAXDAY 2015/11/30, I.1). The IRS highlighted the rules for claiming deductions for charitable contributions of clothing and household items along with the guidelines for monetary donations.
SOI Bulletin. The IRS on November 25 released the Fall 2015 issue of the Statistics of Income Bulletin on its website (TAXDAY 2015/11/30, I.2). Articles in the Bulletin provide the most recent data available from various tax and information returns filed by U.S. taxpayers.
Health Coverage Tax Credit. The IRS will begin processing 2014 amended returns for taxpayers eligible to claim the Health Coverage Tax Credit (TAXDAY 2015/11/30, I.5). This affects taxpayers who are eligible trade adjustment assistance (TAA), alternative TAA and reemployment TAA recipients, Pension Benefit Guaranty Corporation pension payees or qualifying family members.
Phishing Scams. The IRS has alerted tax preparers that, in addition to a phishing scam involving an email asking preparers to update their e-services information (TAXDAY, 2015/11/25, I.3), some preparers are also receiving scam phone calls attempting to capture usernames and passwords (TAXDAY 2015/11/30, I.6). The Service has advised anyone receiving emails or calls to not click on the links and ignore the phone calls.
Tribal Bonds. The IRS has updated special rules for bonds issued under a “draw-down” loan structure in which the lender advances funds for the loan on different dates (Draw-down Bonds) (Notice 2015-83; TAXDAY 2015/12/07, I.8). The notice allows additional time to use allocated volume cap for issuance of Draw-down Bonds if an issuer meets certain requirements.
By Jeff Carlson and Jennifer Cordaro, Wolters Kluwer News Staff