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Corporate Inversions

August 22, 2014 Comments off

Corporate Inversions
Source: Urban Institute

Recently, there has been a spate of corporate inversions, where U.S. multinational corporations have combined with foreign companies, arranging their corporate structure to locate the residence of the resulting corporation in a foreign country with an attractive corporate tax climate. Several features of the U.S. tax system provide strong incentives for corporate inversion: a high statutory tax rate, a worldwide system of taxation, and limits on income shifting. Corporate inversions allow more flexible access to foreign cash stockpiles and easier shifting of income out of the U.S. tax base. The recent surge in inversions has likely resulted from the large accumulation of unrepatriated foreign cash together with pessimism about the prospect of policy changes that would reduce the U.S. tax burden associated with cash repatriations. If unfettered, corporate inversions are likely to undermine the U.S. tax base, so swift policy action is likely warranted. Inversions can be effectively addressed in a targeted fashion.

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U.S. Employers Expect Health Care Costs to Rise 4% in 2015

August 21, 2014 Comments off

U.S. Employers Expect Health Care Costs to Rise 4% in 2015
Source: Towers Watson

U.S. employers expect a 4% increase in 2015 health care costs for active employees after plan design changes, according to global professional services company Towers Watson (NYSE, NASDAQ: TW). If no adjustments are made, employers project a 5.2% growth rate, putting absolute cost per person for health care benefits at an all-time high. Despite this cost trend, most (83%) employers consider health benefits an important element of their employee value proposition, and plan to continue subsidizing and managing them for both full-time and part-time active employees, according to the 2014 Towers Watson Health Care Changes Ahead Survey. They are, however, continuing to rethink company subsidies for spouses and dependents.

Of particular concern on the cost front is the Patient Protection and Affordable Care Act’s excise tax,* which goes into effect in 2018. Nearly three-quarters (73%) of employers said they are somewhat or very concerned they will trigger the tax based on their current plans and cost trajectory. More than four in 10 (43%) said avoiding the tax is the top priority for their health care strategies in 2015. As a result of the excise tax and other provisions of the health care reform law, CEOs and CFOs are more actively engaged in strategy discussions.

Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA

August 19, 2014 Comments off

Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA
Source: Social Science Research Network

The Patient Protection and Affordable Care Act (PPACA) provides tax credits and subsidies for the purchase of qualifying health insurance plans on state-run insurance exchanges. Contrary to expectations, many states are refusing or otherwise failing to create such exchanges. An Internal Revenue Service (IRS) rule purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own. This rule lacks statutory authority. The text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds. Because the granting of tax credits can trigger the imposition of fines on millions of individuals and employers, the IRS rule is likely to be challenged in court.

CRS — Social Security: Calculation and History of Taxing Benefits (August 4, 2014)

August 13, 2014 Comments off

Social Security: Calculation and History of Taxing Benefits (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Social Security provides monthly cash benefits to retired or disabled workers and their family members, and to the family members of deceased workers. Those benefits were exempt from federal income tax, but in 1983, Congress approved recommendations from the National Commission on Social Security Reform (also known as the Greenspan Commission) to tax the benefits of some higher-income Social Security beneficiaries. Beginning in 1984, up to 50% of Social Security and Railroad Retirement Tier I benefits were taxable for individuals whose provisional income exceeds $25,000. The threshold is $32,000 for married couples. Provisional income equals adjusted gross income (total income from all sources recognized for tax purposes) plus certain otherwise tax-exempt income, including half of Social Security and Railroad Retirement Tier I benefits. The proceeds from taxing Social Security and Railroad Retirement Tier I benefits at up to the 50% rate are credited to the Old-Age and Survivors Insurance (OASI) trust fund, the Disability Insurance (DI) trust fund, and the Railroad Retirement system respectively, based on the source of the benefit taxed.

New From the GAO

August 11, 2014 Comments off

New GAO Reports
Source: Government Accountability Office

1. New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness. GAO-14-500, July 10.
http://www.gao.gov/products/GAO-14-500
Highlights – http://www.gao.gov/assets/670/664716.pdf

2. Electricity Markets: Actions Needed to Expand GSA and DOD Participation in Demand-Response Activities. GAO-14-594, July 11.
http://www.gao.gov/products/GAO-14-594
Highlights – http://www.gao.gov/assets/670/664754.pdf

3. Health Prevention: Cost-effective Services in Recent Peer-Reviewed Health Care Literature. GAO-14-789R, August 11.
http://www.gao.gov/products/GAO-14-789R

Implications for Changing the Child Tax Credit Refundability Threshold

August 11, 2014 Comments off

Implications for Changing the Child Tax Credit Refundability Threshold
Source: Urban Institute

This Tax Fact explores the child tax credit’s refundability thresholds since its inception. Currently, the CTC is a $1,000-per-child credit that is partially refundable for households earning more than $3,000. This Tax Fact explores the distribution of credits when the refundability threshold rises to $15,000 in 2018, and finds that families in the lowest income quintile would be affected the most.

IRS — Fiscal Year 2014 Review of Compliance With Legal Guidelines When Conducting Seizures of Taxpayers’ Property

August 11, 2014 Comments off

Fiscal Year 2014 Review of Compliance With Legal Guidelines When Conducting Seizures of Taxpayers’ Property
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS

Taking a taxpayer’s property for unpaid tax is commonly referred to as a “seizure.” To ensure that taxpayers’ rights are protected, the IRS Restructuring and Reform Act of 1998 amended the seizure provisions in Internal Revenue Code (I.R.C.) Sections (§§) 6330 through 6344. These provisions govern many aspects of the seizure process from notification of the taxpayer through sale or redemption of the property.

WHY TIGTA DID THE AUDIT

TIGTA is required under I.R.C. § 7803(d)(1)(A)(iv) to annually evaluate the IRS’s compliance with the legal seizure provisions to ensure that taxpayers’ rights were not violated while seizures were being conducted. The overall objective of this review was to determine whether seizures conducted by the IRS complied with legal provisions set forth in I.R.C. §§ 6330 through 6344 and with the IRS’s own internal procedures.

WHAT TIGTA FOUND

TIGTA reviewed a random sample of 50 of the 580 seizures conducted from July 1, 2012, through June 30, 2013, to determine whether the IRS complied with legal and internal guidelines when conducting each seizure.

In the majority of the seizures reviewed, the IRS followed all guidelines. However, in 14 seizures, TIGTA identified 19 instances in which the IRS did not comply with a particular I.R.C. requirement. Specifically, TIGTA found that:

· The sale of the seized property was not properly advertised. (I.R.C. § 6335(b))

· The balance-due letter sent to the taxpayer after sale proceeds were applied to the taxpayer’s account did not show the correct remaining balance. (I.R.C. § 6340(c))

· The amount of the liability for which the seizure was made was not correct on the notice of seizure provided to the taxpayer. (I.R.C. § 6335(a))

· The notice of the intent to levy and the notice of the right to a hearing before the levy was not provided for each tax period listed on Form 668-B, Levy. (I.R.C. §§ 6330(a) and 6331(d))

When legal and internal guidelines are not followed, it could result in the abuse of taxpayers’ rights. However, in the instances above, we did not identify any in which the taxpayers were adversely affected.

In addition, internal procedures do not require the IRS to retain a copy of all seizure sale advertisements, which would help them verify that their actions conformed with statutes, regulations, and Internal Revenue Manual procedural guidelines.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Director, Collection Policy, Small Business/Self-Employed Division, include an instruction in the Internal Revenue Manual that requires the Property Appraisal and Liquidation Specialist to retain a file copy of all print advertisements, a copy of any Internet advertisements and mail-in bid forms, and a text copy of information provided in any radio and television advertisements of seizure sales.

In their response to the report, IRS officials agreed with the recommendation and plan to take appropriate corrective action.

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