President Obama signed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and the Consolidated Appropriations Act in December. The PATH Act makes permanent a number of tax extenders for individuals and businesses. The PATH Act also extended other extenders (some through 2016 and some through 2019), revised some of the rules for real estate investment trusts (REITs), revised rules for the Tax Court, and more. The Consolidated Appropriations Act earmarked an additional $290 million to the IRS to improve customer service and cybersecurity, and better combat tax-related identity theft. Federal Tax Weekly No. 52, December 31, 2015.
Also in December, President Obama signed the Fixing America’s Surface Transportation (FAST) Act, a multi-year highway and transportation spending bill. The FAST Act authorizes the federal government to deny or revoke a U.S. passport to individuals with “seriously delinquent tax debt,” mandates that the IRS contracts with private collection agencies to collect some tax debts, extends highway taxes, and more. Federal Tax Weekly No. 50, December 10, 2015.
In November, President Obama signed the Bipartisan Budget Act of 2015, which repeals the TEFRA unified partnership audit rules and replaces them with streamlined procedures. The 2015 Budget Act also repeals automatic enrollment in certain employer-sponsored health plans and makes a number of pension-related changes. Federal Tax Weekly No. 45, November 5, 2015.
Affordable Care Act
The PATH Act imposes a two-year moratorium (2016 and 2017) on the Affordable Care Act (ACA) excise tax on qualified medical devices. The Consolidated Appropriations Act provides for a two-year delay of the excise tax on high-cost employer-sponsored health coverage (known as “Cadillac plans”) and also provides for a one-year moratorium (2017) on the ACA’s health insurance provider fee. Federal Tax Weekly No. 52, December 31, 2015.
At year-end, the IRS announced an automatic extension of filing deadlines for certain 2015 information returns under the ACA. The extension affects Code Sec. 6055 reporting by insurers, self-insuring employers and other providers of minimum essential coverage and Code Sec. 6056 reporting by applicable large employers (ALEs). The IRS also provided transition relief for individuals who may be impacted by the extension. Federal Tax Weekly No. 1, January 7, 2016.
In October, President Obama signed into law the Protecting Affordable Coverage for Employees Act (PACE Act). The PACE Act amends the Public Health Service Act to redefine small employer as one with 50 or fewer employees for purposes of the small group health market. The PACE Act also gives states the option to expand the definition to include employers with up to 100 employees for purposes of the small group health market. Federal Tax Weekly No. 42, October 15, 2015.
2016 mileage rates
In December, the IRS issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, medical, moving and charitable purposes. The optional business standard mileage rate for 2016 is 54 cents per mile, a decrease of 3.5 cents compared to 2015. The optional standard mileage rate for medical and moving expenses for 2016 is 19 cents per mile, a decrease of four cents compared to 2015. The optional standard mileage rate for charitable expenses is set by statute and remains at 14 cents per mile. Federal Tax Weekly No. 52, December 31, 2015.
In October, the IRS announced that personal and dependency exemptions will increase from $4,000 in 2015 to $4,050 for 2016. Standard deductions will remain the same for 2016, with the exception of the standard deduction for heads of household. For 2016, the amount of itemized deductions that can be claimed will begin to phase out for certain taxpayers whose income exceeds $311,300 (married joint filers); $285,350 (heads of household); $259,400 (single filers); or $155,650 (married separate filers). Federal Tax Weekly No. 44, October 29, 2015.
The IRS also announced that many retirement plan contribution and benefit limit amounts will remain the same for 2016 as for 2015. The 2016 cost of living adjustments (COLAs) affect a wide range of retirement savings vehicles, including defined contribution plans, defined benefit plans, employee stock ownership plans (ESOPs), and individual retirement arrangements (IRAs). Federal Tax Weekly No. 44, October 29, 2015.
In October, the Social Security Administration (SSA) announced that the maximum amount of earnings subject to OASDI Social Security tax will remain at $118,500 for 2016, the same as for 2015. For 2016, the domestic employee coverage threshold, as adjusted for a slightly different inflation factor and subject to rounding, will be $2,000, up from $1,900 in 2015. Federal Tax Weekly No. 43, October 22, 2015.
The IRS announced in December an increase in the de minimis safe harbor limit under the “repair regs” for taxpayers without an applicable financial statement (AFS). The new $2,500 threshold takes effect starting with tax year 2016. The IRS also provided audit protection to qualified taxpayers by not challenging use of the new $2,500 threshold in tax years prior to 2016. Federal Tax Weekly No. 49, December 3, 2015.
In November, the IRS unveiled a safe harbor method for qualified taxpayers in the restaurant business or retail trades to use to determine if costs paid or incurred to refresh or remodel a qualified building are deductible or must be capitalized. The IRS also described how taxpayers may obtain automatic consent to change to the safe harbor method of accounting. Federal Tax Weekly No. 48, November 27, 2015.
The IRS issued in December proposed regulations that would require country-by-country (CbC) reporting by U.S.-owned multinational business enterprises (MNEs). Under CbC reporting, the multinational group would be required to provide a report on its business activity in each country where it owns and operates a business entity. Federal Tax Weekly No. 52, December 31, 2015.
In October, the IRS reported that disclosures under the Offshore Voluntary Compliance Program (OVDP) and the related Streamlined Filing Compliance Program continue to increase. The OVDP has generated some $8 billion, according to the IRS. Federal Tax Weekly No. 43, October 22, 2015.
In September, a federal district court denied a request for a preliminary injunction to prevent the IRS from enforcing the Foreign Account Tax Compliance Act (FATCA), the related intergovernmental agreements (IGAs) that supplant FATCA, and the Report of Foreign Bank and Financial Accounts (FBAR) requirement. The court held that the plaintiffs were unlikely to succeed on the merits, because they lacked standing and were not likely to suffer irreparable injury. Crawford v. Treasury, DC-Ohio, Federal Tax Weekly No. 41, October 8, 2015.
In December, the IRS provided guidance to retirement plans and health and welfare plans on the Supreme Court’s decision in Obergefell, 2015-1 ustc ¶50,357. The Supreme Court extended same-sex marriage nationwide. Because same-sex marriages have been recognized for federal tax law purposes since Windsor, 2013-2 ustc ¶50,400, the IRS explained that it does not anticipate any significant impact from Obergefell on the application of federal tax law to employee benefit plans. Federal Tax Weekly No. 51, December 31, 2015; Federal Tax Weekly No. 44, October 29, 2015.
In December, the IRS launched a new initiative for employers that appear to have fallen behind in remitting payroll taxes. The “Early Interaction Initiative” is intended to help employers stay in compliance with their payment and reporting obligations. The IRS can impose the Trust Fund Recovery Penalty (TFRP) for willful failure to collect, account for, or pay over employment taxes. Federal Tax Weekly No. 51, December 17, 2015.
Tax-related identity theft
In November, the IRS announced that victims of identity theft and refund fraud may obtain copies of bogus returns filed under their names. Victims or their authorized representatives may request copies of fraudulent Forms 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ. Federal Tax Weekly No. 47, November 19, 2015.
The IRS reported that 146.8 million individual returns were filed and 1.23 million returns were audited, for an audit rate of 0.84 percent for fiscal year (FY) 2015. Field audits declined from 291,000 in FY 2014 to 267,000 in FY 2015, while correspondence audits increased from 951,000 to 961,000. Examination revenue fell from $12.5 billion in FY 2014 to $7.3 billion in FY 2015. Federal Tax Weekly No. 46, November 12, 2015.
In November, the IRS issued proposed regulations to revise the existing regulations under Code Sec. 6015, which governs relief from joint and several liability for innocent spouses. The proposed regulations would revise Reg. §1.6015-1 so that a requesting spouse does not need to indicate whether he or she is requesting innocent spouse relief under Code Sec. 6015(b), (c), or (f). Federal Tax Weekly No. 48, November 27, 2015.
The IRS announced in November some modifications to its proposed regulations on Achieving a Better Life Experience (ABLE) accounts. The year-end tax legislation also tweaked the rules for ABLE accounts. Federal Tax Weekly No. 48, November 27, 2015; Federal Tax Weekly No. 52, December 31, 2015.
If you have any questions about these or other federal tax developments, please contact our office.
Ryan highlights plans for 2016
House Speaker Paul Ryan, R-Wisc., said on January 7 that he wants 2016 to be a year of ideas. This means putting together a pro-growth agenda and putting it together quickly, Ryan said at his weekly news conference in Washington, D.C. However, he declined to give any specifics beyond mentioning “lower tax rates.”
Ryan also lauded the House’s passage on January 6 of the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015 (H.R. 3762). The Senate previously approved the legislation. “If we elect a Republican president we can use this same path to repeal (the Affordable Care Act),” he said.
Brady discusses tax reform
House Ways and Means Committee Chair Kevin Brady, R-Texas, touched on international tax reform at an event in Washington, D.C. on January 11. “We want a fairer, flatter, simpler Tax Code,” Brady said. Last year, Brady became chair of the House tax-writing committee after Rep. Paul Ryan, R-Wisc., was elected Speaker of the House. In 2015, Brady supported several permanent extensions of various tax extenders, some of which were made permanent in year-end tax legislation.
Obama vetoes bill repealing ACA
On January 8, President Obama vetoed the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015 (H.R. 3762). The House had approved the bill along party-lines in early January; the Senate had approved the bill last year. In a statement, President Obama said that the bill “earned his veto because of the harm it would cause to the health and financial security of Americans.”
IRS holds hearing on Code Sec. 2801 regs
Speakers at an IRS hearing on proposed regulations under Code Sec. 2801 told the IRS that the statute and proposed regs would unfairly and excessively impose heavy taxes on U.S. residents who move abroad. One speaker told the IRS that the statute goes beyond its stated Congressional purpose of retaining tax neutrality and should not be implemented by the IRS until Congress changes the law. Another speaker asked the IRS to use the regs to clarify the interaction between the statute and overlapping treaty provisions that could reduce the impact of the tax.
Code Sec. 2801 imposes a transfer tax on gifts and bequests from individuals who abandon U.S. citizenship or residency and later make a gift or bequest to a U.S. taxpayer. The tax is imposed at a 40 percent rate on the amount transferred. Unlike the estate tax, which currently exempts estates up to $5.43 million (indexed for inflation) from tax, there is no comparable exemption under Code Sec. 2801. Thus, if the transferor is a covered expatriate, the tax applies to any gift or bequest worth more than $14,000 (one gift tax exemption).
Watchdog reviews administration of Code Sec. 36B credit
The Inspector General for the U.S. Department of Health and Human Services (HHS) has issued a report on the administration of the Code Sec. 36B premium assistance tax credit by the Health Insurance Marketplaces. Individuals who enroll in coverage through the Marketplaces may qualify for the Code Sec. 36B credit to help offset the cost of coverage. Generally, individuals and families whose household income for the year is between 100 percent and 400 percent of the federal poverty line for their family size may be eligible for the credit. The credit may be paid in advance to insurers. The Marketplaces determine the amount of advance payments of the credit using the price of the second-lowest-priced silver-level plan available in the area in which the enrollees reside and the enrollees’ reported income and family size. During the 2015 filing season, the IRS processed some 1.4 million tax returns that reported approximately $4.4 billion in Code Sec. 36B credits, which were either received in advance or claimed at the time of filing.
The HHS Inspector General met with insurers and officials of the Marketplaces. The HHS Inspector General also interviewed officials with the Treasury Inspector General for Tax Administration (TIGTA) to review how HHS and the IRS work together to administer the credit.
The HHS Inspector General discovered that HHS does not have a process in place to ensure that advance payments of the Code Sec. 36B credit are made only for enrollees who had paid their monthly premiums. HHS relied on insurers to verify that enrollees paid their monthly premiums and to attest that payment information that the insurer reported was accurate.
Swiss bank agrees to penalty
The U.S. Department of Justice (DOJ) announced on January 6 that Swiss Bank Union Bancaire Privee (UBP) has agreed to pay a penalty of $187 million under the Swiss Bank Program. The Swiss Bank Program is intended to provide a route for Swiss banks to resolve potential liabilities with the U.S. related to tax crimes, DOJ explained. Under the program, banks are required to, among other provisions, make a complete disclosure of cross-border activities, provide information on accounts in which U.S. taxpayers have an interest, and pay appropriate penalties.
“The agreement is a significant one,” Richard Weber, chief, IRS Criminal Investigation, said in a statement. “UBP, as one of the largest private banks in Switzerland, had nearly 3,000 U.S.-related accounts,” Weber reported. UBP mitigated its penalty by encouraging U.S. accountholders to come into compliance with their tax and disclosure obligations. “The agreement marks the final resolution with UBP, which acknowledges its role in conspiring with U.S. taxpayers to evade U.S. taxes through an array of sham entities, structured transactions, nominees, and bank services designed to disguise the true ownership of foreign accounts,” Caroline Ciraolo, acting Assistant Attorney General, Tax Division, said in a statement.
Employers deposit Social Security, Medicare, and withheld income tax for January 9, 10, 11, and 12.
If the monthly deposit rule applies, employers deposit the tax for payments in December 2015.
The 2016 filing season opens.
Employers deposit Social Security, Medicare, and withheld income tax for January 13, 14, and 15
Employers deposit Social Security, Medicare, and withheld income tax for January 16, 17, 18, and 19.
Employers deposit Social Security, Medicare, and withheld income tax for January 20, 21, and 22.
Employers deposit Social Security, Medicare, and withheld income tax for January 23, 24, 25, and 26.