Every four years, Congress returns to work after a summer recess and is overshadowed by the looming presidential election. This year is no exception with taxpayers and lawmakers focused on Election Day, November 8. In the meantime, however, lawmakers have more than a month to take up legislation left pending when they recessed in July. Included on their agenda are many tax-related bills, potentially impacting individuals, businesses and others.
Just before recessing, the House passed a much-watched bill, the Small Business Health Care Relief Bill (HR 5447). The bill is intended to provide relief to small businesses that have traditionally used Health Reimbursement Arrangements (HRAs) to reimburse employees for health care expenses. After Congress passed the Affordable Care Act (ACA), the IRS determined that these arrangements did not satisfy the new law’s market reforms. As a result, small business could be liable for significant penalties. The IRS offered temporary penalty relief but left it up to Congress to make a permanent fix.
The Senate is expected to address this issue before year-end. The Senate may take up the House bill or approve its own version. Our office will keep you posted as developments move forward.
IRS seizures and forfeitures
Structuring is the practice of conducting financial transactions in a specific pattern intended to avoid the creation of certain records and reports required by the Bank Secrecy Act (BSA) and other federal laws. The IRS’s approach to structuring in recent years has generated controversy. The agency has viewed structuring cases as generated from funds associated with legal source income and funds associated from illegal source income, such as money laundering and narcotics trafficking. In June, the IRS announced a special refund procedure for taxpayers whose assets were forfeited because they were involved in “legal source” structuring.
Pending before the House is the Clyde-Hirsch-Sowers RESPECT bill (HR 5523). The bill would codify the IRS’s current policy. The bill would limit the IRS’s authority in conducting civil asset seizure and forfeiture relating to structuring transactions defined by the Bank Secrecy Act. Unless the property in question originated from an illegal source or was purposely structured to conceal criminal violations or regulations, the IRS would no longer be authorized to seize the property. The House is expected to take up the bill before year-end.
House Ways and Means Chair Kevin Brady, R-Texas, unveiled a Blueprint for Tax Reform before the summer recess. The blueprint set forth some broad principles for tax reform including consolidating the current seven individual income tax rates into three; repealing the alternative minimum tax (AMT) for individuals, increasing the child tax credit; and reducing the corporate tax rate. Brady may unveil legislation before Election Day or wait until the lame-duck session or until 2017. Our office will keep you posted of developments.
Just like last year, a number of temporary tax incentives (known as tax extenders) are scheduled to expire after December 31, 2016. Unlike last year, the list of expiring incentives is shorter, thanks to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The PATH Act made permanent many of the temporary breaks, including the American Opportunity Tax Credit (AOTC), the teachers’ classroom expense deduction and the research tax credit.
However, many other popular breaks remain temporary. For individuals, these include the tuition and fees deduction, the Code Sec. 25C residential energy property credit, and the mortgage debt exclusion. For businesses, these include the Indian employment credit, the energy efficient commercial building deduction, and special expensing rules for film and television productions. Congress has traditionally taken up the extenders in year-end legislation and this year will likely be the same.
Please contact Warady & Davis LLP at (847) 267-9600 if you have any questions about these or other pending federal tax bills.