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Tuesday, December 15, 2015

Top Ten Items of Tax Policy Interest for 2015 - #1

For the rest of 2015, I'm going to share my list of ten items from 2015 that I think have particular tax policy relevance.  It's not a countdown so the start of this list today - #1, isn't necessarily the biggest item of interest.

#1 - Congress can alter out tax system via a lot of non-tax bills.  In 2015, we saw ten bills enacted (as of 12/11/15) with tax changes. Yet, these bills were not intended to be tax bills, they all had a different primary purpose such as enacting trade deals or funding the Highway Trust Fund. Various tax changes were added in, many of which had been around for a while. For example, the GAO has been suggesting for years that additional information be required on Form 1098 mortgage interest statement. The change in due dates for some tax forms has also been talked about for some time and was even in Congressman Camp's H.R. 1 (113rd Congress) tax reform bill.

Relevance - this is really not the best way to improve our tax system. Isolated changes, some of them significant, such as due date changes and changes in the audit procedures for partnerships, should really be part of a deliberate bill to improve our tax system. Efforts to reduce the tax gap, such as by denying passports to some delinquent taxpayers is good, but what else is also needed?  But, perhaps it is easier in Congress today to just tuck in changes that are of interest to enough members to be included or perhaps not of enough interest to others to hold up a bill.  Certainly, if there is some dire need to fix something, inserting it into the next bill to be voted on may make sense, but I think our tax system would be better served by looking at the system as a whole and improving it.

Here are the ten laws enacted in 2015 (as of 12/11/15) that included tax changes:

1.      P.L. 114-10 (4/16/15) – Medicare Access and CHIP Reauthorization Act - Medicare changes and a process to remove Social Security numbers from Medicare cards.

2.      P.L. 114-14 (5/22/15) – Don’t Tax Our Fallen Public Safety Heroes Act – modifies the Sec. 104 exclusion for injuries.

3.      P.L. 114-26 (6/29/15) – Defending Public Safety Employees’ Retirement Act – adds a new exemption to the 10% early distribution penalty.

4.      P.L. 114-27 (6/29/15) – Trade Preferences Extension Act – tax changes include requiring a Form 1098-T to claim certain education credits and deductions, denial of the refundable child tax credit when the Sec. 911 foreign earned income exclusion is used, and increased penalties for failure to file correct information returns (Sec. 6721) and payee statements (Sec. 6724).

5.      P.L. 114-41 (7/31/15) – Surface Transportation and Veterans Health Care Choice Improvement Act – changes include new due dates starting with 2016 returns (see AICPA chart), a new basis consistency requirement and reporting obligation for certain estates, and additional information required for Form 1098 on mortgage interest.

6.      P.L. 114-53 (9/30/15) – Continuing Appropriations Act – extends the Internet Tax Freedom Act to Dec. 11, 2015.

7.      P.L. 114-60 (10/7/15) – Protecting Affordable Coverage for Employees – includes a definitional change to the Affordable Care Act.

8.      P.L. 114-74 (11/2/15) – Bipartisan Budget Act of 2015 – makes significant changes to examination of certain partnerships.

9.      P.L. 114-94 (12/4/15) - Fixing America's Surface Transportation Act – denies a passport to individuals with seriously delinquent tax liabilities and removes the changed extended due date for Forms 5500 added by P.L. 114-41.

10.   P.L. 114-__ (H.R. 2250, 12/11/15) – Further Continuing Appropriations Act, 2016 - Extends appropriations of P.L. 114-53 (9/30/15) through Dec. 16, 2015. Thus, extends Internet Tax Freedom Act to Dec. 16, 2015.
What do you think?


Bob said...

When Congress does tuck a tax bill (e.g. "Protecting America from Tax Hikes Act of 2015") into omnibus bill H.R. 2029, where does the amendment language come from? I assume that the legislation takes pieces of many other bills that were introduced earlier in the year but didn't pass one or both of the chambers.

It makes it difficult to find a congressional report that is specific to Division Q of H.R. 2029 if there is such a report at all. To me it seems like it was thrown in at the last minute without much consideration.

Professor Nellen said...

Bob, Good points. It has been difficult to get a lot of background on many recent tax bills. The Joint Committee on Taxation reports are helpful. I have some links in my 12/23/15 post to various government reports on the extenders and appropriations bill.

James Kronenberg said...

Professor Nellen: Given this "New Age" version of IRS which appears to be a Congressional prescription to create "dysfunctional" government ultimately resulting in extinction of IRS (self-fulfilling prophecy for Libertarians & those who hate government), what should be our focus to re-vitalize IRS as a tool for tax compliance (assuming Congress can be pressured into Tax Simplificaiton) ?

Professor Nellen said...

James, thanks for the comment. Certainly, we need a tax administrative body to collect taxes and administer the tax law. We can likely find some efficiencies by simplifying the tax law and improving the use of technology (perhaps or Google can design a better system). I think problems will get worse due to funding reductions. The IRS has not been hiring or training sufficiently given its aging and retiring workforce. So that will set it behind. Also, reduced audit activity will result in reduced collections that will lead to spending cuts and/or tax increases - certainly to a larger tax gap. What do you think?

James Kronenberg said...

Professor, your feedback does focus this poignant discussion IRS is forced to leverage "Technology" (website)as a "CRUTCH" for substituting "Critical Thinking" provided by well trained IRS associates.

IRS has been forced (due to Congressional SIGNIFICANT budgetary cuts) to create a "Knowledge Base" for public to access given Congressional justification that "robust/proactive"regulatory environment is somehow "EVIL".

Given the exponential growth of complexity for taxpayers to faithfully comply with Internal Revenue Code provisions applicable to their own unique situations (most likely involving significant change each tax filing season), these ongoing efforts by IRS (out of desperation, of course, with shrinking resources) to provide digital resources (akin to "SELF-SERVICE" - a cultural trend that permeate our society & way of life) simply encourages "Do-It-Yourself" tax preparation to take tremendous "LIBERTY to generate "FAVORABLE" outcomes (self serving) that at times borders on fraudulent tax filing.

One might argue we have plenty of material to write a movie script "US Government Regulatory Reform Gone WILD"- potential to approach Michael Moore as director !