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Monday, July 11, 2016

TEI-SJSU Tax Policy Conference on August 2 - you're invited

We hear a lot about tax reform at the federal level.  Will anything ever happen?  I think so.  There are some significant problems that need to be adjusted such as the system being outdated and too complex.

The annual TEI-SJSU Tax Policy Conference will delve into some key/hot tax reform topics - August 2 from 8:20 - 3:30 in Santa Clara.

Here is the line up of topics and speakers including two from DC.

Tax Reform – Getting Ready for Action in 2017
Tuesday, August 2, 2016
8:00 am – 3:30 pm
Biltmore Hotel in Santa Clara (Google map)
http://www.tax-institute.com (for registration)

Topics and Presenters
Inside Washington – What Must Be Done, What Might Get Done 
  • Nicholas P. Giordano, Principal / Tax Policy Leader – Ernst & Young LLP, Washington, DC
A Look Back in Tax Reform Time for Lessons Learned  
·         Annette Nellen, Professor – SJSU MST Program

Inside Sacramento – What Must Be Done, What Might Get Done  
  • Nikki Dobay, West Coast Tax Counsel – Council on State Taxation (COST)
  • Tracey Grose, Chair – California Controller’s Council of Economic Advisors on Tax Reform; former vice president of Bay Area Council Economic Institute
  • Oksana Jaffe, Chief Consultant – California Assembly Committee on Revenue and Taxation
  • John Paek, Partner – Baker & McKenzie LLP
  • David Ruff, Principal Consultant – California Assembly Committee on Revenue and Taxation
  • Greg Turner, Special Counsel – Sheppard Mullin; former Senior Tax Counsel with COST
New State Taxes – What and Why?
  • Nikki Dobay, West Coast Tax Counsel – Council on State Taxation (COST)
  • John Paek, Partner – Baker & McKenzie LLP
Corporate Integration as An Answer to Tax Reform Needs
  • Tony Coughlan, Tax Counsel - Senate Finance Committee, Washington, DC 
  • Roger Royse, Founder - Royse Law Firm
Takeaways for Businesses
  • Eric Johnson, Tax Director – Ross Stores; TEI Silicon Valley Chapter 1st Vice President, moderator

Registration
Fee (includes refreshments, lunch, materials): $180 General ($155 TEI member)  $90  Gov't and non-profit

Register and pay online at http://www.tax-institute.com         

Sunday, July 10, 2016

Would Broader Sales Tax Base Deliver Simplification? Yes!

I've got a tax policy post on SalesTaxSupport.com on complexities of numerous exemptions to sales tax bases. I just pull a few recent rulings from New York as illustration of the complexity, but it exists in all states.  I hope you'll take a look.

A broader base will also allow for a lower tax rate.

What do you think?


Thursday, July 7, 2016

Tax expenditures and oversight

The GAO released a report today - Tax Expenditures: Opportunities Exist to Use Budgeting and Agency Performance Processes to Increase Oversight (GAO-16-622). It looks at the estimated $1.23 trillion annual cost of special tax deductions, exclusions, credits and preferential rates AND how there is basically no oversight of these costs relative to discretionary budget items. Apparently, OMB and federal agencies were to review tax expenditures (there are over 150 of them) to see how they help agency goals. So far, only 11 of 169 expenditures were addressed representing less than one-third of the total cost.

I have not yet read all of the 55 page report, but the exercise sounds somewhat futile because many expenditures likely don't fit into any agency goals.  For example, what federal agency supports not only ownership of a vacation home, but also having a mortgage on it?  Does the Department of Education's goals include making sure couples with up to about $180,000 of income can get a $10,000 scholarship (American Opportunity Tax Credit) for a child?  Seems to be contrary to the underfunded Pell grant program designed to help those in need pay for tuition.

The GAO website includes a nice infographic reproduced here. Too bad it is not part of any effort to increase government finance literacy among the public. I think it would be easier to broaden the tax base if more people knew of the costs of some of these tax expenditures and the minority of taxpayers who benefit from many of the more costly ones.  Helpful information would include how, for example, the annual $80 billion for the mortgage interest deduction might be used more widely to help more taxpayers.   [Data shows that only 1/3 of individuals itemize and that the mortgage interest deduction primarily helps higher income individuals buy a more expensive home. Also home ownership rates in the US are similar to UK and Canada that don't have this deduction (see p 27 of this JCT report.]

What do you think?

http://www.gao.gov/products/GAO-16-622


Wednesday, July 6, 2016

Crowdfunding and taxes

In Information Letter 2016-0036 (6/24/16), the IRS explains general rules that might apply to someone’s receipts of funds via a crowdfunding platform. It doesn’t mention any websites, but examples of such web platforms include Kickstarter and GoFundMe. The IRS notes the broad rule of Section 61 that receipt of funds is likely to be taxable gross income. Three examples of non-taxable receipts offered by the IRS are:
a.       Loans (must be paid back)
b.      Capital contributions (equity)
c.       Gifts “made out of detached generosity and without any ‘quid pro quo.’”
Without details, the IRS also states: “However, a voluntary transfer without a “quid pro quo” is not necessarily a gift for federal income tax purposes.”
Reg. §1.451-2 on constructive receipt is also mentioned. Per the IRS: “income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. The regulation further provides that income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions. However, a self-imposed restriction on the availability of income does not legally defer recognition of that income.”
The IRS also states that the particular facts and circumstances of the funding must be examined to determine the tax consequences.
The IRS also notes that a taxpayer may request a private letter ruling (PLR) on how the law applies to their particular situation.
Observations: It would be helpful if the IRS would issue a publication with an explanation of the general rules as many people generating funds from crowdfunding do not know about the tax consequences. They are likely to get a 1099-K from the crowdfunding website. The IRS should explain what the recipient should do with a 1099 that doesn’t represent taxable income. The publication should also cover the rules for the contributor of the funds. It is not unlikely that someone contributing funds for a stranger’s medical bills thinks it is a charitable contribution (even though it is likely that there was no Section 501(c)(3) entity).
The IRS should issue binding guidance on when a “gift” crowdfunding site might be taxable to the recipient even though there is no “quid pro quo.”

One example that comes to mind for me is where there is some type of relationship (other than family) between the giver and the givee.  For example, let's say a college student sets up a fund to get money to help pay tuition. Her employer contributes funds. That is not really a gift because the employer expects something from the employee/student - continued work or perhaps it is for past work.  It would be nice to see a revenue ruling from the IRS with various fact patterns and the tax treatment for both parties.  A lot of this is not new law, just new fact patterns.  

The law also needs to be changed to require the crowdfunding site to issue a 1099 regardless of the dollars involved.  Again, IRS guidance would help on what to do with the 1099, particularly if the amount received either is not income (for example, it is loan proceeds) or it is an excludable gift.
States also need to issue guidance on the state income and sales tax consequences of crowdfunding.
Also see my post of 2/14/11.
What do you think?

Friday, July 1, 2016

House Republican Blueprint and Postcard Size Tax Return

On June 24, 2016, the House Republicans released their tax reform blueprint, the last part of their "Better Way" plan. The plan includes reasons for tax reform and the basics of the plan. There is no legislative language so the details are not all there.  But, here are some highlights:
  • Aims to be revenue and distributionally neutral. The revenue target is the baseline that assumes current temporary tax provisions will not expire. This allows the target to be $400 billion less than the CBO baseline which assumes that the temporary provisions expire on schedule. (page 16)
  • Dynamic scoring will be used in measuring the revenue effect. (page 16)
  • Both the corporate and individual AMT are repealed.
  • The corporate tax rate is a flat 20%.
  • Individual tax rate structure – 0, 12, 25 and 33%. The 0% rate is the effective rate if income is below the standard deduction threshold and child credit amounts. Capital gains are taxed at the same rate but only 50% of investment income is taxed.
  • Active business income of an individual is taxed at no more than 25%.
  • Standard deduction for MFJ is $24,000, $18,000 for HH and $12,000 for Single.
  • Credits: EITC, modified child credit and some type of education benefit to be designed by House Ways & Means Committee.
  • Repeal the estate and generation-skipping transfer taxes; no mention of gift taxes or treatment of gains and losses at date of death.
  • Businesses - immediate expensing of assets other than land and inventory. LIFO remains.
  • Section 199 deduction and most credits other than for research are repealed.
  • Move to a territorial system and more of a consumption tax system with a goal of being allowed to tax imports and exempt exports from tax. Details missing.
  • Businesses only deduct interest expense to extent of interest income with excess carrying forward (under a true consumption tax, no interest income or expense would be reported).
  • NOLs carryforward forever adjusted by an interest factor. NOLs can't reduce taxable income by more than 90%.
There are 15 specific areas where the House Ways & Means Committee is instructed to create the rule including for consolidating retirement plan rules and creating transition rules.

A centerpiece of the individual change is a postcard size return! I view this as telling us little and mostly being misleading. Our current tax system could be filed on a postcard. The size of the return submitted to the IRS just depends on how much summary information can be tolerated. Today's postcard could have the taxpayer's identification information, taxable income, tax, aggregate credits, refund/payment, signatures. That says nothing about the complexity of calculating all of these figures.

Here is the proposed postcard from the Republican Blueprint:




There is a lot missing from the postcard:

  • Taxpayer's name, address and Social Security number.
  • Dependent information.
  • Business, rental and partnership information (Schedules C, E, and F).
  • Capital gains and loss and Schedule D.
  • Schedules for computing the credits (today forms exist for the EITC and education credits).
  • What to do with the refund (today's return has information for direct deposit of the refund).
  • Penalty of perjury statement.
  • Taxpayer and preparer signatures.
And of course, as most people file using software and file electronically, it is not so much the size of the final return which they might not even print out, but the number of questions required to get the return completed and the number of records to be gathered and maintained to prove income, deductions, credits and estimated tax payments.

I'll have more soon in an article I'll post.


There are many items in the plan worthy of discussion. A lot more details are also needed for that discussion.


What do you think?