2015 The year ahead in tax policyBy: Rachel Bade, Kelsey Snell and Brian Faler
What will 2015 bring for tax policy? Here is Pro Tax’s unofficial list of hot topics for the year ahead.
Inversions. Tax inversions made it into the lexicon in 2014 — and all eyes are now on the Treasury Department, which is expected to issue regulations to follow up its September notice that seeks to prevent companies from using creative intracompany loans to avoid U.S. taxes and other strategies to skirt current rules.
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The wild card: How will Treasury address so-called earnings stripping, essentially shifting profits out of the U.S.; the department has said it is mulling future action.
“That is the big unknown right now,” said Jeffrey LeSage, a vice chairman at KPMG. “It certainly puts something of a chilling effect over the market.”
Corporate tax reform. Look for Democrats and Republicans to begin feeling each other out for potential compromise. President Barack Obama has said his administration will begin talking with congressional Republicans early in 2015 to see if there’s a chance they can work out their long-standing differences over the parameters of any reform, like whether it could be used to raise revenue.
In an olive branch to Democrats, incoming House Ways and Means Committee Chairman Paul Ryan said he is withholding judgment on their demands that any overhaul help finance infrastructure projects. Still, there are plenty of obstacles, including whether the business changes should move the U.S. closer to a so-called territorial system and many other issues vying for their time. And the Senate’s top Democrat, Harry Reid, has signaled he’s not interested in corporate-only reform, telling POLITICO that it would be a “code message for, ‘Let’s take care of business.’”
Tax extenders. The hodgepodge of more than 50 expired tax breaks won renewal in December — but only for tax year 2014.
The list includes big, expensive priorities — like the research and development tax credit — and relatively small but well-loved write-offs — like those for teachers who buy their own supplies.
Incoming Senate Finance Committee Chairman Orrin Hatch acknowledged in December that he will have to tackle the tax breaks again in 2015 but would not say when that work would begin.
Hatch and Ryan have both talked about drafting new tax reform bills in 2015.
If past is prologue, extenders will become an end-of-year debate in 2015 because any tax reform talks will include plans to end the “temporary” tax breaks entirely. Extending them in the middle of that debate would be tantamount to admitting the work cannot be completed before the end of the year.
Obamacare. A pivotal Supreme Court case over the IRS’ ability to grant tax credits to those who got subsidies in the federal health care exchanges could upend the law. That’s because residents of most states rely on the federal exchanges — and without subsidies, insurance would likely be out of financial reach.
On the administrative side, the Obamacare exchanges in 2014 doled out the first health care tax credits to help consumers afford new insurance plans. Now, the IRS this coming tax season will determine whether they got the right amount or if they got too much and owe money. Consumers estimated their income to get the subsidies, so any life changes, like a pay raise, divorce or marriage, will adjust the credits.
“The reconciliation issue involves the relationship between the consumer and the IRS; did the consumer get too much when IRS paid … to the insurance company?” said Stan Dorn, a fellow at the Urban Institute who is worried that consumers are going to be surprised to find they owe money if they haven’t notified the health exchanges of a change in status.
Social welfare groups. Following the 2013 controversy over added scrutiny, some IRS officials gave to conservative groups that had applied, the Obama administration proposed and then withdrew draft rules to rein in social welfare groups that engage in too much “candidate-related political activity.”
A new version is expected in the first quarter of 2015, IRS Commissioner John Koskinen has said.
The government has been sifting through comments on the pivotal question of how much political activity pushes such 501(c)(4) groups over the edge and out of tax-exempt territory. Confusing statutory and regulatory language allows political groups wide latitude to keep their tax breaks, confusing IRS agents, critics say. Republicans, on the other hand, charge the administration with trying to curb political speech and are gearing up for a fight.
Also on deck are final detailed reports from the Senate Finance and House Ways and Means committees and the Treasury Inspector General for Tax Administration on the tea party controversy .
Tax evasion efforts. The Foreign Account Tax Compliance Act, requiring foreign financial institutions to give U.S. regulators data about the banks’ U.S. clients — or face a 30 percent withholding tax on U.S. source income — went into force in July 2014.
The Treasury Department in the new year will continue inking deals with foreign governments to smooth the handover of client data, and the IRS this year is slated to begin sifting through the data in search of tax cheaters — though the agency budget crunch may hamper its efforts, the agency has said.
Separately, the Justice Department’s stay-out-of-jail-free program, aimed at luring Swiss banks not currently under investigation into line, ended Dec. 31, 2013. The idea was to allow Swiss banks that thought they may have facilitated tax evasion to come forward, turn over client data and settle up to avoid the fate of UBS and Credit Suisse.
But many of the banks that participated now say Justice is asking for too much information — and some are withdrawing, throwing the program into jeopardy.
Also on the radar: Justice could potentially wrap up the ongoing investigations against about a dozen large Swiss banks, which have been open for years.
Next up: Applying the Swiss investigative model to other countries that may have facilitated tax evasion, such as Israel.
Internet sales tax. Proponents of the Senate-passed Marketplace Fairness Act, which gives states the authority to compel out-of-state Internet retailers to collect sales tax, saw momentum wane in late 2014, with House Republicans reluctant to take up the measure.
All eyes are now on Rep. Bob Goodlatte (R-Va.). As chairman of the House Judiciary Committee, he will be in charge of crafting a House version of the bill. He told reporters throughout last year that he was working on legislation, but the proposal never saw the light of day. He was not happy with the Senate bill and was working to hone the language to satisfy both brick-and-mortar retailers like Wal-Mart that backed the bill and nationwide Internet retailers like eBay that have fought the bill every step of the way.
Rep. Jason Chaffetz (R-Utah) has been working on separate legislation to address concerns that the law would put an excessive burden on small businesses. His legislation could be released in early 2015.
Backers will try again to attach the bill to a broadly backed ban on taxing broadband that expires in October. The Senate would have to vote on a new bill either way since the existing MFA legislation is invalidated at the end of the 113th Congress.
State tax action. A number of states with Republican governors are signaling interest in tax reforms, though they’re keeping Republican Kansas Gov. Sam Brownback’s tax troubles in the back of their minds, promising not to wind up with the revenue shortfalls that crippled his state.
Ohio Gov. John Kasich will roll out an income tax cut, likely offset by an oil severance tax increase. Maine Gov. Paul LePage has suggested he wants to eliminate personal income taxes and expand sales taxes — though it’s unclear if he’ll make a move this way in 2015.
In Arkansas, Gov.-elect Asa Hutchinson on the campaign trail said he wants to cut taxes on people earning between $20,000 and $75,000 in his first year. And in Mississippi, Gov. Phil Bryant has said he’s looking to cut taxes for people earning under $53,000.
Arizona Gov.-elect Doug Ducey also ran on a platform of trying to eliminate income taxes, but that’s one of several states that’s backing off due to budget shortfalls. Gov. Scott Walker in Wisconsin is in the same boat, though he is expected to try to alleviate property tax burdens in the next few years.
Then there are some legislature-driven tax ideas in the mix. Iowa Republicans are looking to reduce income taxes or create an optional flat tax; Tennessee Republicans are again going to try to eliminate their tax on unearned income; and North Carolina is considering further tax cuts to capital gains, state tax watchers say.
Some states, like Michigan and Georgia, are looking at potential tax increases to fix massive transportation budget holes.
OECD’s Base Erosion and Profit Shifting project. While major changes to the Tax Code are unlikely next year, the Organization for Economic Cooperation and Development’s BEPS project continues to put pressure on multinationals to change their international tax planning practices. For example, the U.K. recently moved to require companies to spell out country-by-country reporting of their revenue, taxes paid and the like. The Paris-based group will release more of its recommendations in 2015, including ones on hot topics, like transfer pricing.View Source