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Sunday October 4, 2015

Washington News

Washington Hotline

CPAs - Pass Tax Extenders Now!

In a letter to House and Senate leaders of the taxwriting committees, CPA Troy Lewis implored Congress to act promptly to pass tax extenders. Lewis, Chair of the American Institute of CPAs (AICPA), urged the House and Senate to “immediately address the 52 tax provisions that expired at the end of 2014 and the tax provision that will expire at the end of 2015 (hereafter referred to collectively as ‘tax extenders’).”

Lewis highlighted four specific problems with the delayed passage of tax extenders.

1. Difficult Tax Reporting – Many American companies publish quarterly financial statements. The failure to pass the tax extenders leads to statements with excessive tax liability and therefore improperly low net-income amounts.

2. Increased Complexities – Many IRS forms are published prior to the final tax bill. They are incorrect until a later update. Some corporations file tax returns and must later file an amended return with the correct forms that reflect provisions in the final tax extenders bill.

3. Small Businesses Harmed – Many small businesses do not have access to highly-qualified tax professionals and are uncertain about tax rules. Lewis notes, “If businesses are not able to rely on these tax benefits for the long-term, they are limited in their ability to plan, invest, expand and hire additional workers.”

4. Economic Decisions – Business owners must make their best guess when they are filing quarterly tax payments. These are difficult to estimate and an error could lead to penalties later.

The AICPA urges Congress to move quickly. While it would be positive to have permanent passage of many of the tax extenders, it may be necessary to pass the Senate two-year bill and address the permanent extenders at a later time.

Editor’s Note: As CPA Lewis states, the clock is running and time is growing short. The Senate still has not voted on its two-year tax extender bill. House members are working diligently on the Highway Bill and the 2016 budget. In the meantime, taxpayers who would like to use the 2015 IRA charitable rollover are impatiently waiting for passage.

McCarthy Seeks a Six-Year Highway Bill

Following 34 short-term extensions of the funding for highways, House Majority Leader Kevin McCarthy (R-CA) spoke at a conference on September 29th and advocated passage of a six-year Highway Bill.

House Ways and Means Chairman Paul Ryan (R-WI) has been meeting with McCarthy and other congressional leaders to move forward with the plan. McCarthy commented, “We have got a plan that will help build six years of highways, bring money back to America, have a tax reform to start out with. That would be a great start for October.” The plans discussed by McCarthy and Ryan do not include an increase in the federal gas tax.

Ryan has been meeting with Sens. Chuck Schumer (D-NY) and Rob Portman (R-OH). They hope to set up a joint plan that combines international tax reform with a highway plan. Under the international tax reform plan, corporations would be permitted to repatriate part or all of the $2 trillion currently held overseas with a reduced tax rate. The tax revenues from the corporate repatriation could fund the six-year Highway Bill.

Portman stated, “It is going to take some time to go through the issues here. The administration and Congressman Ryan both said favorable things about our report, which provides for a low level of tax for a deemed repatriation and an effective permanent repatriation going forward.”

Editor’s Note: The Highway Bill has been a very contentious and time-consuming effort. The basic problem is that more infrastructure funding is needed. While many members of Congress agree that the combination of the Highway Bill with international repatriation of funds is not a perfect solution, it may move the process forward. The goal of McCarthy and Ryan is to fund highways and other infrastructure for six years. Hopefully, the repatriated corporate funds would also encourage companies to expand in America and lead to greater job growth.

Private Foundation Flexible Investment Selection

In Notice 2015-62; 2015-39 IRB 1 (14 Sep 2015), the IRS permitted private foundation managers greater flexibility in making investments.

Private foundations are subject to potential excise tax under Sec. 4944(a)(1) for investing “in such a manner as to jeopardize the carrying out of any of its exempt purposes.” Sec. 4944(c) permits an investment for program-related purposes if there is no significant purpose to produce income or benefit from appreciation.

However, private foundation managers may desire to make investments that are not directly program related, but may not produce the greatest economic benefits. Notice 2015-62 permits such investments, so long as they meet “the requisite business care and prudence” standard, even if the investment does not provide “the highest rates of return, the lowest risks, or the greatest liquidity.”

Therefore, foundation managers may make below-normal-yield investments that are beneficial even though they do not match the specific exempt purpose of the nonprofit.

Applicable Federal Rate of 2.0% for October -- Rev. Rul. 2015-21; 2015-40 IRB 1 (17 September 2015)

The IRS has announced the Applicable Federal Rate (AFR) for October of 2015. The AFR under Section 7520 for the month of October will be 2.0%. The rates for September of 2.2% or August of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published October 2, 2015

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