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Thursday, September 21, 2017

Dueling Health Plans in Senate

The drama on what, if anything, to do with the Affordable Care Act (ACA) aka Obamacare continues. There are two very different new proposal in the Senate. The GCHJ proposal might be voted on the week of September 25. We'll see what happens.  I have a description of both the Republican GCHJ proposal and Senator Sanders' S. 1804, Medicare for all Health Insurance bill below.

Graham-Cassidy-Heller-Johnson (GCHJ) Proposal, introduced on 9/13/17 as an amendment to H.R. 1628, would repeal the ACA and instead offer block grants (run through CHIP) to states. Sponsors claim the proposal treats everyone the same regardless of where they live.
·         Text (140 pages)
·         FAQs

S. 1804 (Sanders)- Medicare For All Health Insurance Proposal introduced in September.
Per Senator Sanders: “would create a federally administered single-payer health care program. Universal single-payer health care means comprehensive coverage for all Americans. Bernie’s plan will cover the entire continuum of health care, from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics and treatments. Patients will be able to choose a health care provider without worrying about whether that provider is in-network and will be able to get the care they need without having to read any fine print or trying to figure out how they can afford the out-of-pocket costs.”
  1. Claimed cost savings – Senator Sanders notes that the we spend about $3 trillion annually or about $10,000 per person. He states that his plan will save middle-class families over $5,000 per year and employers over $9,400 per employee.
  2. He estimates that the annual cost would be about $1.38 trillion.
  3. Senator Sanders proposes to pay for the plan as follows:
    1. 6.2% income-based premium paid by employers.
    2. 2.2% income-based health care premium on income over $28,800 paid by households.
    3. A more progressive income tax system. New marginal rates:
                          37% on income between $250,000 and $500,000.
                          43% on income between $500,000 and $2 million.
                           48% on income between $2 million and $10 million. Per Sanders, this is about 113,000 households or the top 0.08% of taxpayers.
                          52% on income above $10 million, which affects about 13,000 households.

    1. Tax capital gains and dividends at ordinary tax rates.
    2. For individuals with over $250,000 of income, limit the tax benefit for deductions to 28%. This would replace the AMT, and the phase-out for personal exemptions and itemized deductions.
    3. Create more progressive estate tax rates.
    4. Savings from the disappearance of health-related tax expenditures such as the income exclusion for employer-provided health care.
  1. 16 cosponsors at 9/21/17.
What do you think?

Friday, September 15, 2017

Disaster Relief Tax Links

Recent Hurricanes Harvey and Irma left many in distress. In addition to the need for resources to help in the recovery, tax considerations exist. For example, is aid taxable, what about insurance recovery, what if you pull money from your retirement account, what if employees give up leave so their employers can donate it to relief efforts? Tax returns and taxes are due, but most are extended to January 31, 2018. Some taxpayers might not be directly affected, but have records lost in the disaster.

The IRS has lots of information to help - here +  Pub 547  +  resources for tax professionals.


COST and the AICPA have a list of information from state tax agencies about state relief.


FinCEN states that FBAR forms normally due 10/15 are due 1/31/18 for those eligible for Hurricane Harvey and Irma relief.

The AICPA has information for tax practitioners:

Links on Hurricane Harvey relief from Texas Society of CPAs
Resources from the Florida Institute of CPAs
Disaster Recovery Resources from the Society of Louisiana CPAs

Resources from Gerard Schreiber, CPA:


And here is information from Consumer Reports on how to help victims of the hurricanes.

Saturday, September 2, 2017

Another large payment owed for incorrect PTC

Another case* addresses a couple receiving an advance Premium Tax Credit (PTC) of a large amount and having to pay it all back. They also note that if they had known they would have to pay it back, they would not have taken the insurance. The cost of the insurance for this California couple was 20%  of pre-tax household income. That's a lot!

For context, if this couple lives in San Jose, rent for a one-bedroom apartment starts at $2,000/month or 33% of the couple's pre-tax income!

The case is a reminder of flaws with the Premium Tax Credit, such as:
  • Individuals only get it if they buy insurance on the exchange AND their household income does not exceed 400% of the federal poverty line. For 2016, this is $47,080 for a single person and $63,720 for a family of two.
  • The PTC is based on the cost of the second lowest cost silver plan. So, one's age and location are factored in. Insurance costs more as you age. But, despite this fact, the eligibility for the credit is still tied to 400% of the federal poverty line. Since people don't automatically make more money as they age, it makes it less likely that older individuals will be able to obtain affordable insurance (until they are old enough for Medicare).
Despite flaws, the PTC has at least one good point - it offers a tax savings. It's not as good as what about 60% of employees get who work for an employer who subsidizes their health coverage. If your employer pays part or all of your health insurance, it is tax-free income. AND there is no limit on this tax benefit regardless of how much your income exceeds 400% of the federal poverty line. So while the PTC is not as good of a benefit, it is at least of some help for individuals without the employer provided tax-free subsidy.

One proposal for some relief is S. 1529 (115th Cong.), Addressing Affordability for More Americans Act of 2017. This bill would increase eligibility for the PTC to individuals with household income of 800% or less of the federal poverty line (rather than 400%). The change is proposed starting for 2018. It still isn't as good as the tax-free employer provided subsidy though.

What do you think?

*Here is a summary of the recent case: (see my 7/20/17 post for another case on this topic)

McGuire, 149 TC No. 9 (8/28/17) – The McGuires received an advance Premium Tax Credit (APTC) in 2014 of $591 per month ($7,092 for the year). The monthly premium on their Silver plan was $1,182. This was arranged through Covered California in 2013. Still in 2013, Mrs. M started working and “promptly notified Covered California.” This was a significant change because it caused the couple’s household income to exceed 400% of the federal poverty line (FPL) for 2014 making them ineligible for the PTC. It was not until mid-June 2014 that Covered California (CC) acknowledged their reported change in household income. This letter also stated:

The Covered California website shows how much your premium assistance lowers your premium. Your premium assistance is based on our records and the income you put on your application that you expect this year. If you take the full premium assistance to pay the premium, and your income is higher, you may have to pay some back at tax time.”


The court noted that it was not clear whether the couple could have changed to a plan with a lower premium. The court also notes that it would not have mattered what was in the letter because the couple never received the letter. Per the court, the couple made several attempts to alert CC about the change in their income, but to no avail. CC also did not react to the couple’s request to change their address. The McGuires also never received Form 1095-A from CC.

On their 2014 Form 1040, the couple checked the box on line 61 to indicate they had coverage for every month of the year. They did not include Form 8962 on the PTC or indicate receiving an APTC of $7,092. The IRS received the Form 1095-A and issued a notice of deficiency.


The court agreed with the IRS. Because the McGuire’s household income exceeded 400% of the FPL, they are not entitled to a PTC and must pay back the APTC. The couple noted that they would not have taken the coverage if they had known they had to cover the entire cost. While the court was sympathetic, it noted that there was nothing it could do. We “are not a court of equity, and we cannot ignore the law to achieve an equitable end.”


The court did waive the negligence penalty and found reasonable cause to waive the substantial understatement of tax penalty. The McGuires did not receive the Form 1095-A and did not receive the APTC directly so were not completely aware of the additional benefit or amount. Also, they attempted a few times to get CC to correct the APTC. In addition, the couple relied on a CPA to prepare their return.

Tuesday, August 22, 2017

Federal Tax Reform and Intangibles

©    TM   Patents   URLs

Federal tax reform discussions have included writing off all business assets (other than land) at acquisition. In contrast, some have suggested increasing the Section 179 expensing amount which covers tangible assets. Some reform proposals have suggested lengthening depreciable lives for tangibles and intangibles. Proposals are obviously quite varied.  I think that is primarily due to two factors: (1) no agreed upon goal for tax reform, and (2) focus on hitting a certain revenue target to allow for lower rates in a revenue neutral manner.

I have an article in this week's BloombergBNA Tax Management Memorandum on Federal Tax Reform and the Future of §197. It reviews various tax reform plans of the past few years. It also notes some reforms needed to Section 197 on amortization of intangible assets.  Section 197 was enacted in 1993 and allows for 15-year straight-line amortization of acquired and some self-created intangible assets. Given its pre-Internet enactment date, it doesn't mention domain names (URLs), social media assets, and other modern intangibles. Thus, it should be updated for new intangibles.

Also, I think Section 179 on expensing of assets up to $500,000 with a dollar-for-dollar reduction once acquired eligible assets for the year exceeds $2 million, should be modified to cover both tangible and intangible assets. The purpose of this rule is simplification and to encourage asset acquisition by small and medium-sized businesses. Today, acquisition of intangible assets is common for all businesses.

I hope you'll take a look at the article.

What do you think?  How should Section 197 be reformed and fit into overall fundamental tax reform?

Tuesday, August 15, 2017

Shopping trends and taxes

I like to look at trends because they are interesting and many have tax implications.* Trends may indicate a need to update or modernize tax rules or systems. I'm a bit behind on blogging on this, but several weeks ago, there was an article in Fortune - Phil Wahba, "Major Wall Street Firm Expects 25% of U.S. Malls to Close by 2022," 5/31/17. Reasons included bankruptcies and continuing growth in retail e-commerce sales.

I remember when the US Census Bureau first started reporting retail sales for e-commerce in the 1990s and it was less than 1%.  They just updated data for 2015 and report that e-commerce retail sales represent 7.2% of total sales for 2015 (it was 6.4% in 2014).  That doesn't seem like a lot to me. In contrast, the US Census Bureau reports that for 2015, e-commerce sales of merchant wholesalers represented 30.2% of total sales (it was 28.1% in 2014).

Are retail e-commerce sales going to increase to the point were 25% of US malls will close in the next five years? Seems high to me.  I expect re-purposing where, perhaps, we might do more online shopping while at the mall looking at samples of what we can buy, and getting a latte and recharging our smartphones.  That would use less retail space. Malls might add more ways for people to hang out - activities, fairs, etc.

Tax implications?  A few:
  • More online shopping can mean more uncollected use tax although I suspect a lot of the e-commerce growth will be with Amazon that collects tax in all states (at least on their direct sales).
  • If malls turn into abandoned buildings or vacant lots, property taxes will go down. Is there another need for them?  With an aging population, perhaps the space gets turned into living spaces for older folks - single level, close to public transportation and medical facilities, etc.
What do you think? Will we see 25% of malls close? What will happen to the space?

*For some nostalgia, see this June 2008 blog post on some trends relevant to tax reform.