Newsletters
The IRS has reminded taxpayers to report digital asset income on 2023 federal tax returns, with an updated question now on Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return...
For purposes of the new clean vehicle credit and the used clean vehicle credit, the IRS has extended the deadlines for submitting seller reports for vehicles placed in service in 2023 and ea...
For purposes of the low-income housing credit, the IRS concluded that additional housing credit dollar amounts (HCDAs) for 2021 and 2022 that are returned to a state housing agency may be realloca...
The IRS has underscored the vital importance of selecting a tax professional carefully to safeguard personal and financial information. Taxpayers bear legal responsibility for their income tax...
The Financial Crimes Enforcement Network (FinCEN) issued guidance on inflation adjustments to its civil monetary penalties as mandated by the Federal Civil Penalties Inflation Adjustment...
For Connecticut property tax purposes, the Supreme Court upheld property tax assessments on two motor vehicles owned by the taxpayer because the motor vehicle property tax authorized by § 12-71 (f) i...
The New Jersey petroleum products gross receipt tax rates on the following remain as indicated for the period April 1 through June 30, 2024:gasoline and LPG—31.8 cents per gallon;diesel—35.8 cents...
For New York personal income tax purposes, a taxpayer’s petition challenging a notice of disallowance (notice) of a 2021 School Tax Relief (STAR) credit was dismissed because the petition was not fi...
The Philadelphia Department of Revenue reminds taxpayers that March 31 is the last day to pay current Philadelphia real estate taxes. Payments may be made in-person at the Municipal Services Building,...
Following what was described as a successful launch of beneficial ownership information reporting requirements, officials from the Department of the Treasury found themselves before the House Financial Services Committee defending the regulations.
Following what was described as a successful launch of beneficial ownership information reporting requirements, officials from the Department of the Treasury found themselves before the House Financial Services Committee defending the regulations.
"The beneficial ownership registry successfully launched on January 1 this year," Andrea Gacki, director of the Financial Crimes Enforcement Network, said during a February 14 oversight hearing of the committee. "In the first week alone, more than 100,000 companies successfully filed their beneficial ownership information. And I am pleased to report that today, so far, FinCEN has received more than half a million reports successfully filed."
Brian Nelson, Treasury undersecretary for Terrorism and Financial Intelligence, told the committee that there are 32 million companies that are expected to file a BOI report.
Gacki continued: "The now ongoing better collection of beneficial ownership information, paired with the forthcoming phased provision of access to the database by law enforcement and other authorized users will close what is long been identified as a gap in the United States anti-money laundering and countering the financing of terrorism regime."
Gacki and Nelson were put on the defensive during the hearing as committee members challenged them on the effect of the reporting requirements on small businesses.
She noted that FinCEN took steps to make sure the filing system is "workable for small businesses," including making it simple with the ability to complete in 20 minutes without the need to seek professional help that could end up costing a small business more money.
Nelson also emphasized that Treasury is using all available tools to spread the word of the filing requirements and offer guides on how to file.
"We recognize that a number of these small businesses have never heard of FinCEN, so there’s a big educational campaign," he said, adding that the agency is working on a solution for those unable to file BOI electronically, such as businesses in Amish communities.
Gacki also stressed that if there are issues related to filing, FinCEN is not looking to take action against those who are simply having trouble filing their BOI report.
"I want to stress that, when it comes to enforcement, the statute is clear," she said. "We can only take enforcement action for willful violations. We are not out to take ‘gotcha’ enforcement actions. We want to educate about the requirement."
AICPA Calls For Suspension Of BOI Reporting Requirement
Despite the efforts FinCEN and the broader Treasury department are making to educate the public on the BOI reporting requirements, the American Institute of CPAs is calling for the suspension of BOI reporting requirements.
In a February 13, 2024, letter to the leadership of the House Financial Services Committee and the Senate Banking Committee, AICPA stated the BOI reporting rule "should be suspended until the small business community is considered well-informed of their requirement to report BOI information to FinCEN and the outstanding questions by the financial professionals who serve this community have been answered."
AICPA stated that small businesses "should have a reasonable chance at compliance" in addition to a timeframe to gain awareness of the requirements. "To comply and provide the information necessary, small businesses need additional time to work through these and other questions that have not been answered in the six weeks this rule has been in effect. We urge you to suspend the rule and give small entities the time necessary to work through this requirement so we can best support the small business community."
By Gregory Twachtman, Washington News Editor
The IRS has issued a warning to small businesses regarding potential issues with Employee Retention Credit (ERC) claims as the March 22, 2024 deadline for the ERC Voluntary Disclosure Program approaches. Seven suspicious warning signs have been identified based on feedback from tax professionals and compliance personnel. These signs may indicate erroneous claims and could lead to IRS scrutiny.
The IRS has issued a warning to small businesses regarding potential issues with Employee Retention Credit (ERC) claims as the March 22, 2024 deadline for the ERC Voluntary Disclosure Program approaches. Seven suspicious warning signs have been identified based on feedback from tax professionals and compliance personnel. These signs may indicate erroneous claims and could lead to IRS scrutiny. The ERC Voluntary Disclosure Program allows businesses to rectify incorrect claims by repaying just 80% of the amount claimed. Taxpayers who realize their claims are ineligible are urged to quickly pursue the claim withdrawal process.
The IRS has highlighted seven suspicious signs indicating potential inaccuracies in ERC claims. These include:
- Too many quarters being claimed: Employers should ensure they meet eligibilitycriteria for each quarter claimed.
- Government orders that dont qualify: Employers should have clear documentation demonstrating how and when government orders related to COVID-19 impacted their operations.The frequently asked questions about ERC – Qualifying Government Orders section of IRS.gov has helpful examples. Also, employers should avoid a promoter that supplies a generic narrative about a government order.
- Too many employees and wrong calculations : Employers should accurately calculate the credit based on changes in the law and avoid overclaiming. For details about credit amounts, see the Employee Retention Credit - 2020 vs 2021 Comparison Chart.
- Business citing supply chain issues :Employers should carefully review the rules on supply chain issues and examples in the 2023 legal memo on supply chain disruptions.
- Business claiming ERC for too much of a tax period: Businesses should check their claim for overstated qualifying wages and should keep payroll records that support their claim.
- Business didn’t pay wages or didn’t exist during eligibility period: Employers can only claim ERC for tax periods when they paid wages to employees.
- Promoter says there’s nothing to lose: Businesses should be on high alert with any ERC promoter who urged them to claim ERC because they have nothing to lose.
The Employee Retention Credit (ERC) is available to eligible employers who paid qualified wages to some or all employees between March 12, 2020, and January 1, 2022. Eligibility varies based on the time period:
- For 2020 and the first two quarters of 2021: Eligibility is based on trade or business operations being fully or partially suspended due to a COVID-19-related government order or experiencing a decline in gross receipts.
- For the third quarter of 2021: Eligibility includes suspension of trade or business operations, a decline in gross receipts, or being classified as a recovery startup business.
- For the fourth quarter of 2021: Only recovery startup businesses are eligible.
The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2024 and the lease inclusion amounts for business vehicles first leased in 2024.
The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2024 and the lease inclusion amounts for business vehicles first leased in 2024.
Luxury Passenger Car Depreciation Caps
The luxury car depreciation caps for a passenger car placed in service in 2024 limit annual depreciation deductions to:
- $12,400 for the first year without bonus depreciation
- $20,400 for the first year with bonus depreciation
- $19,800 for the second year
- $11,900 for the third year
- $7,160 for the fourth through sixth year
Depreciation Caps for SUVs, Trucks and Vans
The luxury car depreciation caps for a sport utility vehicle, truck, or van placed in service in 2024 are:
- $12,400 for the first year without bonus depreciation
- $20,400 for the first year with bonus depreciation
- $19,800 for the second year
- $11,900 for the third year
- $7,160 for the fourth through sixth year
Excess Depreciation on Luxury Vehicles
If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.
The annual cap for this excess depreciation is:
- $7,160 for passenger cars and
- $7,160 for SUVS, trucks, and vans.
Lease Inclusion Amounts for Cars, SUVs, Trucks and Vans
If a vehicle is first leased in 2024, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:
- $62,000 for a passenger car, or
- $64,000 for an SUV, truck or van.
The 2024 lease inclusion tables provide the lease inclusion amounts for each year of the lease.
The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.
Vehicles Exempt from Depreciation Caps and Lease Inclusion Amounts
The depreciation caps and lease inclusion amounts do not apply to:
- cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
- SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.
So taxpayers who want to avoid these limits should "think big."
The Internal Revenue Service has reviewed, redesigned and deployed 31 notices for the 2024 tax filing season in an effort to simplify the notices and improve their clarity.
This is a part of a broader effort to simplify up to 90 percent of the notices the agency sends out to taxpayers on an annual basis.
The Internal Revenue Service has reviewed, redesigned and deployed 31 notices for the 2024 tax filing season in an effort to simplify the notices and improve their clarity.
This is a part of a broader effort to simplify up to 90 percent of the notices the agency sends out to taxpayers on an annual basis.
Included in the first wave of redesigned notices are notices to taxpayers who served in combat that may be eligible for tax deferment, notices that remind a taxpayer that they may have an unfiled return, and notices that remind a taxpayer about their balance due and where they can go for assistance.
"The IRS has a large number of these letters as well as other standard correspondence,"IRS Commissioner Daniel Werfel said during a January 23, 2024, teleconference with reporters."And as we’ve heard from tax professionals as well as taxpayers, these notices can be confusing. They cover complex topics. They can include a lot of legal language, and with our current systems and machines, the letters can be a mishmash of looks that do not always have a consistent familiar look you might get from a credit card company or a bank."
Werfel said that these issues made it clear the agency management that they need to redesign the notices to utilize clearer, plain language that a taxpayer can act upon without potentially needing to consult with a tax professional to help understand the information being sent and potentially requested. About 20 million of these 31 notices were sent to taxpayers in calendar year 2022, he said.
He highlighted the potential that the redesigned notices will have by discussing the pilot program that redesigned Notice 5071C, which asks questions about possible identity theft. The IRS made the language clearer and included a QR code to direct taxpayers to the appropriate web page to allow them to respond to the notice.
"In all, 60,000 taxpayers received this pilot letter compared to taxpayers who received the original letter,"Werfel said."There was a 16 percent reduction in taxpayers who called the IRS as their first action and a 6 percent increase in taxpayers who used the online option. The IRS will apply the lessons learned from this pilot to a larger redesign initiative."
By the 2025 tax filing season, Werfel said the IRS is hoping to have redesigned up to 200 notices, which make up about 90 percent of the notices sent out to individual taxpayers in 2022.
By Gregory Twachtman, Washington News Editor
The IRS, with its Criminal Investigation (CI) arm, has urged businesses to review eligibility for the Employee Retention Credit (ERC). To combat fraud, they intensified compliance efforts related to this pandemic-era credit. Businesses wrongly claiming the ERC are advised to consider applying for the Voluntary Disclosure Program before the March 22 deadline. A special withdrawal program is also available for those with eligibility concerns on pending claims.
The IRS, with its Criminal Investigation (CI) arm, has urged businesses to review eligibility for the Employee Retention Credit (ERC). To combat fraud, they intensified compliance efforts related to this pandemic-era credit. Businesses wrongly claiming the ERC are advised to consider applying for the Voluntary Disclosure Program before the March 22 deadline. A special withdrawal program is also available for those with eligibility concerns on pending claims. Both programs aimed to help employers to avoid penalties and interest on incorrect claims. CI special agents plan to conduct nationwide educational sessions in February for tax professionals, focusing on the ERC. These sessions, part of a broader initiative, will be held in at least 23 U.S. states and the District of Columbia. The IRS has implemented several initiatives to address inappropriate claims by businesses. Some key points are listed below.
ERC Voluntary Disclosure Program (Open until March 22, 2024):
- businesses with erroneous claims and received payments can participate;and
- the program runs until March 22, 2024.
Withdrawal Program for Pending ERC Claims:
- the IRS continues to accept and process requests to withdraw an employer's full ERC claim under a special withdrawal process.
ERC Eligibility Information:
- special information is available to help businesses understand Employee Retention Tax Credit guidelines; and
- resources include ERC FAQs and the ERC Eligibility Checklist, offered as an interactive toolor a printable guide.
Increased IRS Compliance Activity:
- letters notifying taxpayers of disallowed ERC claims have been sent;
- letters related to claiming an erroneous or excessive credit are planned; and
- ongoing compliance efforts include Audits, Civil Investigations, and Criminal Investigations.
The Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide (Guide) to provide an overview of the Beneficial Ownership Information Access and Safeguards Rule (Access Rule) requirements for small entities that obtain beneficial ownership information (BOI) from FinCEN.
The Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide (Guide) to provide an overview of the Beneficial Ownership Information Access and Safeguards Rule (Access Rule) requirements for small entities that obtain beneficial ownership information (BOI) from FinCEN. Under the Access Rule, issued in December 2023, BOI reported to FinCEN is confidential, must be protected and may be disclosed only to certain authorized federal agencies; state, local, tribal and foreign governments; and financial institutions. The guide includes sections summarizing the Access Rule’s requirements that pertain to small financial institutions’ access to BOI.
Further, FinCEN intends to provide access to certain categories of financial institutions with obligations under the current Customer Due Diligence (CDD) Rule. Therefore, this Guide includes sections summarizing the Access Rule’s requirements that pertain to these small financial institutions only
The Department of the Treasury and the Internal Revenue Service have released new analysis that shows the additional funding provided to the IRS under the Inflation Reduction Act can increase revenues by"as much as" $561 billion.
The Department of the Treasury and the Internal Revenue Service have released new analysis that shows the additional funding provided to the IRS under the Inflation Reduction Act can increase revenues by"as much as" $561 billion.
"This analysis provides a more comprehensive assessment of the revenue effects of the transformational enforcement and modernization efforts enabled by the IRA" Greg Leiserson, Treasury deputy assistant secretary for tax analysis, said February 6, 2024, during a press teleconference."The IRS estimates that the IRA, as enacted, would increase revenue by as much as $561billion through fiscal year 2034, substantially more than earlier estimates. If IRA funding is renewed with it runs out, as the administration has proposed, estimated revenue would be as much as $851 billion."
A previous estimate had the IRA generating an additional $390 billion over the next 10 years based primarily on enforcement hires as the key revenue driver and assuming a diminished return over time.
Leiserson noted that previous estimates"were limited to revenues generated by direct enforcement activities resulting from higher enforcement staffing. This narrow focus does not consider the significant impact of the technology, data, and service improvements made possible by the IRA or any deterrent effect the greater enforcement capabilities and activities would have in order to better assess the revenue raised by this transformation."
The new analysis is broken down into five categories:
- Direct Revenue: payments received related to enforcement actions
- Revenue Protected: stopping illegitimate refund claims before the refund is issued
- Impact of Service on Compliance: making it easier for taxpayers to pay what they owe
- Compliance Assurance: increasing transparency and tax certainty for complex tax situations
- Efficiency Gains: including from IT investments and improvements to data analytics
The IRS has traditionally made estimates in the first two categories listed.
IRS Chief Data and Analytics Officer Melanie Krause during the call highlighted that in addition to the heightened compliance and enforcement efforts going on against the wealthy individuals that may not be paying taxes they legitimately owe, the improvements to things such as customer service and to improving access to Taxpayer Assistance Centers also helps.
"For example, whether we have the resources to serve taxpayers by being available to answer the phone" when they have question is important for voluntary compliance, she said, adding that the same is true for when people use TACs.
She noted that the analysis being published"is a pioneering step forward for developing a more exhaustive and accurate estimates of the return on investment for IRS funding, which will enrich our understanding of how these investments yield tangible outcomes,"she said.
Taking into consideration everything and not just enforcement gains "illustrate the bottom-line importance of investing in our nation’s tax system really can’t be overstated," Krause said."And the resulting changes will ripple out and create benefits for taxpayers and the nation in many ways."
By Gregory Twachtman, Washington News Editor
The American Institute of CPAs offered a series of guidance recommendations to the Department of the Treasury and the Internal Revenue Service to help provide clarity on a notice issued by the IRS on changes to the regulation for Roth IRA catch-up contributions made by SECURE 2.0.
The American Institute of CPAs offered a series of guidance recommendations to the Department of the Treasury and the Internal Revenue Service to help provide clarity on a notice issued by the IRS on changes to the regulation for Roth IRA catch-up contributions made by SECURE 2.0.
In a January 17, 2024, letter to the agencies, AICPA recommend that guidance be issued across areas.
First, the organization recommended that Treasury and the IRS "ssue guidance stated that federal income tax withholding with respect to a participant’s mandatory Roth IRAcatch-up contribution is not required before February 1 of the year in which the amount is contributed," the letter stated.
Second, AICPA called for guidance "allowing an elective deferral which is treated as a Roth catch-up contribution due to being recharacterized based on the failure of the ADP [actual deferral percentage] test, to be taxable to the participant in the year of recharacterization."
Third, it was recommended that future guidance issued in relation to Section V.3 of the Notice 2023-62"clarifies that for purposes of determining if an employee’s participating wages exceeds $145,000 (as adjusted0, only wages from the employee’s specific common law employer in the previous year are included, and only if it is a participating employer in the plan."
Finally, AICPA recommends the agencies "issueguidance stating that an individual who had deferrals characterized as Roth contributions as a result of not contributing deferrals equal to the regular limit be permitted to have them designated as regular deferrals."
The organization characterized these guidance recommendations as helping to bring more simplicity to the tax system.
"Due to the mandate in SECURE 2.0 requiring certain catch-up contributions be made on a Roth IRA basis, the IRS issued notice 2023-62 to help implement the provision," Kristin Esposito, AICPA director of tax policy and advocacy, said in a statement. "AICPA want to highlight certain administrability issues noticed in the guidance that we believe will make for a smoother transition."
By Gregory Twachtman, Washington News Editor
As part of the ongoing efforts to improve tax compliance in high income categories, the IRS will begin dozens of audits on business aircraft involving personal use.
As part of the ongoing efforts to improve tax compliance in high income categories, the IRS will begin dozens of audits on business aircraft involving personal use. The audits will be focused on large corporations, large partnerships and other high income taxpayers, and will scrutinize whether the use of jets is being properly allocated between business and personal reasons. "During tax season, millions of people are doing the right thing by filing and paying their taxes, and they should have confidence that everyone is also following the law," said IRS Commissioner Danny Werfel, "These aircraftaudits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities."
These audits of corporate jet usage is part of the IRS Large Business and International division’s "campaign" program and includes issue-focused examinations, taxpayer outreach and education, tax form changes and focusing on particular issues that present a high risk of noncompliance. "The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act," Werfel said. In addition to the work on corporate jets,the IRS has a variety of efforts underway to improve tax compliance in complex, overlooked high-dollar areas where the agency did not have adequate resources prior to Inflation Reduction Act funding.
Passage of the “Tax Extenders” undeniably provided one of the major headlines – and tax benefits – to come out of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law on December 18, 2015. Although these tax extenders (over 50 of them in all) were largely made retroactive to January 1, 2015, valuable enhancements to some of these tax benefits were not made retroactive. Rather, these enhancements were made effective only starting January 1, 2016. As a result, individuals and businesses alike should treat these enhancements as brand-new tax breaks, taking a close look at whether one or several of them may apply. Here’s a list to consider as 2016 tax planning gets underway now that tax filing-season has ended.
Passage of the “Tax Extenders” undeniably provided one of the major headlines – and tax benefits – to come out of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law on December 18, 2015. Although these tax extenders (over 50 of them in all) were largely made retroactive to January 1, 2015, valuable enhancements to some of these tax benefits were not made retroactive. Rather, these enhancements were made effective only starting January 1, 2016. As a result, individuals and businesses alike should treat these enhancements as brand-new tax breaks, taking a close look at whether one or several of them may apply. Here’s a list to consider as 2016 tax planning gets underway now that tax filing-season has ended:
Section 179 expensing. The PATH Act permanently extended the Code Section 179 dollar of investment limitations at the higher $500,000 and $2 million, levels, which are adjusted for inflation for tax years beginning after 2015 (it is $500,000 and $2,010,000 for 2016). In addition, starting only in 2016, the $250,000 limitation on the amount of section 179 property that can be attributable to qualified real property has been eliminated. Further, for tax years beginning after 2015, the Code Section 179 expense deduction is now allowed for air conditioning and heating units.
Bonus depreciation. In addition to the big news that the PATH Act extended Code Section 168(k) bonus depreciation to apply to most qualifying property placed in service before January 1, 2020, it made a number of modifications, including:
- replacement of the bonus allowance for qualified leasehold improvement property with a bonus allowance for additions and improvements to the interior of any nonresidential real property, effective for property placed in service after 2015; and
- allowance to farmers of a 50 percent deduction in place of bonus depreciation on certain trees, vines, and plants in the year of planting or grafting rather than the placed-in-service year, effective for planting and grafting after 2015.
Section 181 expensing. Special Section 181 expensing for qualified film and television productions is extended for two years to apply to qualified film and television productions commencing before January 1, 2017. However, the expensing rule is also expanded to apply to qualified live theatrical productions commencing after December 31, 2015.
WOTC. The Work Opportunity Tax Credit (WOTC) has been extended five years through December 31, 2019. In addition, the credit has been expanded and made available to employers who hire individuals who are qualified long-term unemployment recipients who begin work for the employer after December 31, 2015.
Research credit. The PATH Act permanently extended the research credit that applies to amounts paid or incurred after December 31, 2014. However, a new allowance of the research credit against alternative minimum tax liability applies to credits determined for tax years beginning after December 31, 2015. In addition, a new payroll tax credit associated with the research credit applies only to tax years beginning after December 31, 2015 (Act Sec. 121(d) (3) of the PATH Act).
Military differential pay. The PATH Act extended the employer tax credit for differential wage payments made to qualified employees on active military duty has been made permanent and applies to payments made after December 31, 2014. Effective only for tax years beginning after December 31, 2015, however, the credit may be claimed by all employers regardless of the average number of individuals employed during the tax year. The credit is also no longer limited to eligible small business employers with less than 50 employees.
Teachers' classroom expense deduction. The PATH Act permanently extended the above-the-line deduction for elementary and secondary school teachers' classroom expenses. Additionally, for tax years after 2015, the Act includes "professional development expenses" within the scope of the deduction. These expenses include courses related to the curriculum in which the educator provides instruction.
Nonbusiness energy property credit. The PATH Act extended the nonrefundable nonbusiness energy property credit allowed to individuals under Code Sec. 25C for two years, making it available for qualified energy improvements and property placed in service before January 1, 2017. For property placed in service after December 31, 2015, the standards for energy efficient building envelope components are modified to meet new conservation criteria.
If you have any questions about these new “extenders,” please contact our office.
Tax reform continues to be highly touted in Congress as lawmakers from both parties call for simplification of countless complex rules, overhaul of tax rates, and more. At times this year, President Obama and Congressional Republicans seem far apart on a way forward, but at similar times in the past, agreements have quickly and often surprisingly emerged, most recently in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). As the November elections approach more closely every passing day, lawmakers from both parties and the President have a short window to agree on tax legislation. The weeks leading up to Congress’ summer recess may be decisive.
Tax reform continues to be highly touted in Congress as lawmakers from both parties call for simplification of countless complex rules, overhaul of tax rates, and more. At times this year, President Obama and Congressional Republicans seem far apart on a way forward, but at similar times in the past, agreements have quickly and often surprisingly emerged, most recently in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). As the November elections approach more closely every passing day, lawmakers from both parties and the President have a short window to agree on tax legislation. The weeks leading up to Congress’ summer recess may be decisive.
PATH Act as path forward
The scope of the PATH Act surprised many Hill observers. Instead of merely extending the so-called tax extenders (including the state and local sales tax deduction, research tax credit, teachers’ classroom expense deduction), Congress voted to make permanent many of the incentives. Although there had been hearings and discussions about permanently extending some of the incentives, the prospect of getting a bill through Congress and to the President’s desk seemed remote right up to December. Behind the scenes negotiations between the White House and Congressional Republicans resulted in the largest tax bill since the American Tax Relief Act of 2012. The PATH Act went far beyond the extenders. It made changes to the rules for IRS administration, real estate investment trusts (REITs), how the Tax Court works, and more.
Passage of the PATH Act shows that another tax bill, possibly an even larger tax reform package, could make it out of Congress before year-end. Speaking in Washington, D.C. earlier this year, Senate Finance Committee (SFC) ranking member Ron Wyden, D-Oregon, suggested such an outcome. “Against all odds, Democrats and Republicans reached a bipartisan agreement on the PATH Act," Wyden said. "The December agreement (leading to passage of the PATH Act worked out because of the approach members took to the negotiations." Wyden predicted that lawmakers would use the PATH Act as a "blueprint for broader reform."
Everything on the table
Almost everything in the Tax Code appears to be on the table at this time. House Ways and Means Chair Kevin Brady, R-Texas, who is a leading proponent of tax reform, in the House has said as much. "Not all deductions and exclusions will stay; not all will go. The question to ask is: how will these policies drive economic growth?" Among the provisions/ideas being discussed by legislators are:
- Consolidation of the individual income tax rates
- Enhancing incentives for lower and middle income taxpayers
- Revising/repealing some of the tax measures under the Affordable Care Act
- Lowering the U.S. corporate tax rate
- Consolidating education tax incentives
- Eliminating/consolidating some energy tax breaks
- Repealing the alternative minimum tax (AMT)
- Tweaking the child tax credit, earned income tax credit, child and dependent care credit
International tax reform
Reforming the rules for international taxation, such as the complex rules for corporate inversions, transfer pricing, and more, has been of special interest this year to the House Ways and Means Committee. One unanswered question is whether international tax reform can move forward by itself or if proponents need to add “sweeteners” such as expanded tax breaks for lower and middle income taxpayers to win support in Congress. Some lawmakers want to link international tax reform to a cut in the U.S. corporate tax rate. How to pay for any rate cuts also is generating questions and few answers. President Obama has proposed to tighten the international tax rules and use the expected revenue to pay for infrastructure projects, along with reducing the corporate tax rate.
Energy tax measures
Before Congress’ summer recess, a package of energy tax breaks could be approved by the House and Senate. Many of these are temporary incentives that were not included in the PATH Act, such as the special credits for fuel cell vehicles. There appears to be bipartisan support to make permanent some, if not all, of these tax breaks. SFC ranking member Wyden is spearheading the movement to win passage of these energy tax incentives, seeking to attach them to a bipartisan aviation bill.
Please contact our office if you have any questions about tax reform and what measures might be taken now in anticipation of various changes.