Legislation to extend federal fuel excise taxes, make pension program changes and raise cigarette taxes passed Congress on June 29 as part of a two-year reauthorization of federal highway programs. Congress approved the conference report to the Surface Transportation Extension Act of 2012 (HR 4348 ) and President Obama is expected to sign the measure, which was completed following weeks of negotiations between House and Senate lawmakers from both political parties (TAXDAY, 2012/07/02, C.1 ).
The House passed the measure by a vote of 373 to 52, followed shortly by a 74-to-19 vote in the Senate. According to an estimate provided by the Joint Committee on Taxation, the legislation would raise $9.4 billion by stabilizing interest rates for pension funds and about $9.8 billion from changes to single-employer pension plans. The legislation also expands taxation of roll-your-own cigarettes and extends the six excise taxes that fund the federal Highway Trust Fund.
Members of two House Ways and Means subcommittees considered whether the current mix of income safety net programs and marginal tax rates provide a disincentive for poorer Americans to seek employment (TAXDAY, 2012/06/28, C.1 ). The hearing was held by lawmakers at a joint hearing of the Human Resources and Select Revenue Measures Subcommittees on June 27. Eugene Steuerle, a senior fellow of the D.C.-based Urban Institute, told lawmakers that Congress should begin rethinking the classic liberal-conservative compromise that resulted in means-tested programs and the Earned Income Tax Credit. He suggested a broad-based social welfare reform that consolidated programs combined with putting tax rates directly in the tax code to replace implicit rates.
House Republican leaders on June 28 immediately called for a vote on July 11 to repeal the Patient Protection and Affordable Care Act (P.L. 111-148 ) (TAXDAY, 2012/06/29, J.1 ), following the Supreme Court’s decision to uphold the law. Democrats called the ruling a victory for President Obama that would likely re-invigorate his reelection campaign. For his part, the president asked Congress and the country to move beyond divisive politics and to focus on improving the economy. GOP leaders in both the House and the Senate said most Americans oppose the law, and health care will be a major issue in the presidential election, including its impact on the economy and jobs. While Republicans vowed to continue their efforts to overturn the law, Democrats quietly expressed approval of the Court’s finding that health care reform abided by the Constitution, leaving Congress with the freedom to focus now on the economy.
The Treasury Inspector General for Tax Administration issued the following reports:
- Liens issued by the IRS comply with Code Sec. 6320 , which requires the IRS to notify taxpayers in writing, at their last known address, within five business days of the filing of an NFTL (TAXDAY, 2012/06/29, T.1 ). Still, problems persisted due to the IRS’s failure to send lien notices to taxpayer representatives and the IRS’s ineffective procedures with respect to undelivered lien notices.
- The IRS has successfully established a testing environment for the performance and capacity of its new Customer Account Data Engine (CADE 2) that is representative of the production environment (TAXDAY, 2012/06/28, T.1 ). However, it may not have acquired all the information it needs to make a fully informed decision on the ability of the new CADE 2 system to handle workloads.
- The IRS has made progress establishing controls to determine whether tax-exempt hospitals comply with the Patient Protection and Affordable Care Act (PPACA) and has already opened reviews of the community benefit activities of approximately 1,700 health care organizations (TAXDAY, 2012/06/28, T.2 ). However, the lack of legal guidance up to this point makes it difficult to determine how much additional work will be required to fully implement controls.
Passive Foreign Investment. The IRS released guidance on the treatment of certain government bonds for purposes of determining whether a foreign corporation is a passive foreign investment company (PFIC) (Notice 2012-45 ;TAXDAY, 2012/06/29, I.1 ). A foreign corporation is a PFIC if a specified amount of its income is passive income or if a certain percentage of its assets produces passive income. However, passive income excludes income derived in the active conduct of a banking business.
U.S.-Netherlands. The IRS has released the text of the agreement between the Competent Authorities of the Kingdom of the Netherlands and the United States with respect to certain U.S. source dividends and interest paid to a limited fund for mutual account (LFMA) for benefits (Announcement 2012-26 ; TAXDAY, 2012/06/29, I.2 ).
FASIT Rules Withdrawn. The IRS withdrew a notice of proposed rulemaking (NPRM REG-100276-97 ) issued on February 22, 2000, and relating to financial asset securitization trusts (FASITs), due to a subsequent change in the law (Announcement 2012-27 ; TAXDAY, 2012/06/29, I.3 ).
National Taxpayer Advocate. National Taxpayer Advocate Nina E. Olson released a report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year (IRS News Release IR-2012-66 ; TAXDAY, 2012/06/28, I.1 ). These issues include: the impact of expired and expiring tax provisions; the rise in tax fraud and tax-related identity theft; and attempts to limit the National Taxpayer Advocate’s formal input on issues that affect taxpayer rights.
Stock Election Language. The IRS has provided sample language that may be used for making an election under Code Sec. 83(b) , which would satisfy the requirements of Reg. §1.83-2 with respect to shares of common stock subject to a substantial risk of forfeiture, and has provided examples of the income tax consequences of making such an election (Rev. Proc. 2012-29 ; TAXDAY, 2012/06/27, I.1 ).
Updated OVDP. The IRS has updated the offshore voluntary disclosure program (OVDP) announced in IRS News Release IR-2012-5 (TAXDAY, 2012/01/10, I.1 ) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs IRS News Release IR-2012-64 ; TAXDAY, 2012/06/27, I.2 ). The program is similar to the 2011 program; however, there is no set deadline for people to apply and the penalty has been raised to 27.5 percent from 25 percent in the 2011 program.
Overseas U.S. Citizens. The IRS has announced a plan that will become effective on September 1, 2012, to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and to provide assistance for individuals with foreign retirement plan issues IRS News Release IR-2012-65 ; TAXDAY, 2012/06/27, I.3 ). Eligible individuals generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.
Real-Time Tax System. IRS Commissioner Douglas Shulman remains interested in a real-time tax system, IRS Deputy Commissioner (Operations Support) Beth Tucker stated at the June 26 Council for Electronic Revenue Communication Advancement (CERCA) 2012 Software Developer Conference (TAXDAY, 2012/06/27, I.4 ). The IRS will continue public discussion of the concept in the months ahead, Tucker indicated.
July Per Diem Travel Rates. The U.S. State Department has released a listing of maximum travel per diem allowances for travel in foreign areas (TAXDAY, 2012/06/26, I.1 ). The rates apply to all government employees and contractors, and are effective as of July 1, 2012.
Energy Conservation Bonds. The IRS has provided guidance on qualified energy conservation bonds under Code Sec. 54D that answers questions regarding ”qualified conservation purposes” eligible for financing with these bonds (Notice 2012-44 ; TAXDAY, 2012/06/26, I.2 ). The guidance addresses in particular: (1) how to measure reductions of energy consumption in publicly owned buildings by at least 20 percent under Code Sec. 54D(f)(1)(A)(i) and (2) what constitutes a ”green-community program” under Code Sec. 54D(f)(1)(A)(ii) .
Restricted Stock Dividends. The IRS has provided guidance on the issue of whether dividends and dividend equivalents relating to restricted stock and restricted stock units (RSUs) that are performance-based compensation underCode Sec. 162(m)(4)(C) must separately satisfy the requirements of that section to be treated as performance-based compensation (Rev. Rul. 2012-19 ; TAXDAY, 2012/06/26, I.4 ).
By Jeff Carlson, Stephen K. Cooper and Jennifer J. Rodibaugh, CCH News Staff