Larry's Tax Law

On February 2, 2015, President Obama published his 2016 budget proposal.  It proclaims that “[a] simpler, fairer, and more efficient tax system is critical to achieving many of the President’s fiscal and economic goals.”  While some tax practitioners may debate the claim that the tax provisions embedded in the President’s budget proposal make the tax system simpler, it is a certainty that a significant number of tax practitioners will question the fairness of these provisions.

Charitable Deductions

As in the past, the President’s budget proposes that “wealthy millionaires” pay no less than 30% of their income in federal income taxes.  To facilitate accomplishing that goal, President Obama suggests these taxpayers be prevented from making charitable contributions to reduce their tax liability.  He states:  “…this proposal will act as a backstop to prevent high-income households from using tax preferences to reduce their total tax bills to less than what many middle class families pay.”

As reported in my January 21, 2014 blog post, federal budget cuts continue to hit the IRS hard.  In the Consolidated Appropriations Act of 2014, our lawmakers cut the Service’s budget by more than $500 million.  The Continuing Appropriations Resolution, 2015, signed by President Obama on September 19, 2014, gave the Service about a $350 million budget setback.

While it is hard to debate the need for government budget cuts these days, deciding where to make the cuts is surely a difficult endeavor.  Nevertheless, perplexing as it may be, lawmakers find it necessary and appropriate to cut the funding of the IRS, a division of our government that collects revenue.  Making these budget decisions even more baffling, we currently have an annual tax gap in this country of over $450 billion.  Adequately funding the IRS so that it can enforce our tax laws, thereby reducing the annual tax gap, should be a given.  Apparently, it is not a given to our lawmakers.

Of interesting note, the annual tax gap has increased by approximately $150 billion since 2001.  Yet, the IRS has had its budget slashed by over $1 billion in the last five (5) years.

Whether we will see tax reform in this country anytime soon is debatable.  When and if we see it, whether IRC § 1031 will survive has been a subject of discussion.

House Ways and Means Committee Chairman David Camp issued a discussion draft of the Tax Reform Act of 2014 earlier this year.  The proposed legislation spans almost 1,000 pages.*  One of its provisions repeals IRC § 1031 and taxpayers’ ability to participate in tax-deferred exchanges.  The Obama Administration responded to Chairman Camp’s proposal.  It wants to retain IRC § 1031, but limit its application to $1,000,000 of tax deferral per taxpayer in any tax year.  Based upon the precise wording of the White House’s response to Chairman Camp’s proposal, it appears the $1,000,000 limitation would only apply to real property exchanges.  So, personal property exchanges would be spared from the proposed limitation.  Of course, there is always the possibility that lawmakers, if they take this approach, would expand the White House’s proposed limitation to apply to personal property exchanges.  Only time will tell.

Please join me for the NYU 73RD Institute on Federal Taxation.  This year’s Institute will be held in San Diego at the Hotel Del Coronado November 16 – 21, and in New York City at the Grand Hyatt New York October 19 – 24.  Please see the attached brochure.  The coverage of tax topics is both timely and broad.  This year’s presentations will cover topics in the areas of:  executive compensation and employee benefits; partnerships and LLCs; corporate tax; closely held businesses; and trusts and estates.  What is so terrific about the Institute, in addition to a wonderful faculty and the interesting current presentation topics, you can choose the presentations you want to attend.  In other words, you can pick and choose the topics that relate to your tax practice.

This is my second time speaking at the Institute.  My topic this year is: "Developments In The World Of S Corporations."  I plan to deliver a White Paper that will provide attendees with an historic overview of Subchapter S and a look through a crystal ball at the future of Subchapter S, including a review of the recent cases, rulings and legislative proposals impacting Subchapter S.

I hope to see you in either San Diego or New York.

Best,

Larry

On April 9, 2014, Oregon Governor John Kitzhaber signed into law House Bill 4138 (“HB 4138”).  Effective June 8, 2014, the methodology by which an “Interstate Broadcaster” apportions its business income for purposes of the Oregon corporate excise tax changes in at least two (2) ways:

           1.        Method of Apportionment.  Prior to June 8, 2014, an Interstate Broadcaster included in the numerator of the “sales factor” gross receipts from broadcasting in the ratio that its audience and subscribers located in Oregon bear to its total audience and subscribers located within and without Oregon.  On or after June 8, 2014, Interstate Broadcasters will no longer use this method of apportionment.  Rather, they will include in the numerator of the “sales factor” only those gross receipts from customers (i.e., advertisers and licensees) that have their commercial domicile in Oregon, or (in the case of individuals) who are residents of Oregon.

            2.        Definition of Interstate Broadcasters.  HB 4138 amends the definition of “Interstate Broadcaster” to include anyone engaging in the for-profit business of broadcasting to persons located within and outside of Oregon.   Prior law referred to broadcasting to subscribers or to an audience.  I am not sure this change to the law is significant other than it reduces the verbiage by four (4) words.

Within a few hours after my January 17, 2014 blog post, as we suspected, President Barack Obama signed the Consolidated Appropriations Act, 2014 (“2014 Act”) into law.  Now, at least until September 30, 2014, our federal government may operate without interruption.

Each year, our government must pass bills that appropriate funds for all discretionary spending.  In most years, a bill is passed by each of the twelve subcommittees in the House Committee on Appropriations and each of the twelve subcommittees in the Senate Committee on Appropriations.

When Congress cannot pass separate bills, it rolls the bills into one omnibus bill like the 2014 Act.  This has become the norm rather than the exception over the past several years.  You may be asking yourself why would Congress roll the bills into one single act rather than pass several smaller bills which will be easier for our lawmakers to review and debate.  There may be many reasons, including:

• • Too much party disagreement to pass individual specific bills;

• • Too many issues pending before lawmakers to deal with several pieces of legislation;

• • Time constraints that may prevent dealing with appropriations in a piece meal fashion; and/or

• • The desire to bury in a single massive act some controversial spending provisions.

On January 15, 2014, the House, by a vote of 359-67, passed an appropriations bill to fund our federal government through September 30, 2014.  The next day, January 16, 2014, the Senate passed the bill by a vote of 72-26.  The bill will now make its way to President Obama for signature.

 Once signed by President Obama, the bill, commonly known as the “Consolidated Appropriations Act, 2014,” will become law (the “Act”).  The Act spans 1,524 pages and contains some interesting provisions.  Title I of Division E of the Act focuses on the Department of Treasury. 

The Act provides the IRS with a 2014 budget of $11.3 billion.  This represents a budget decrease of $526 million or 4.4% from its 2013 budget. 

The $11.3 billion budget is primarily allocated among four areas: