2015 Tax Preview: 5 Stories to Watch (article)

2015 Tax Preview: 5 Stories to Watch (article)

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To paraphrase Macbeth, 2014 proved to be full of sound and fury, but signified virtually nothing when it comes to taxes. Both political parties touted comprehensive tax reform on their agendas, but once again, any substantial changes (save for a last minute extenders bill that expired three weeks later) stalled out before the end of the legislative session. Between the results from the 2014 mid-term elections and lingering court rulings, 2015 promises to be more eventful. As we look ahead, here are five tax-related developments that are on the horizon.

1. Affordable Care Act

Taxpayers on their 2014 tax returns will continue to feel the brunt of the additional Medicare tax on wages and the net investment income tax implemented by the Affordable Care Act (ACA). The ACA's potential tax implications do not end there, however. The individual shared responsibility penalty on individuals without adequate health coverage (or an exemption) will be reported on 2014 tax returns for the first time. And, the Supreme Court will hear arguments in March on another element of the healthcare reform law that could have lasting ramifications on the program.

The ACA established health insurance marketplaces where individuals could use tax subsidies to purchase affordable coverage. States had the option of setting up a marketplace, running a marketplace with the federal government, or letting Uncle Sam run their State's system. Thirty-six states elected to use the federally run system. In 2014, two court cases addressed whether individuals using federally run exchanges would be able to take advantage of the tax credit subsidy in order to purchase their health coverage. The two Courts of Appeals that heard the matter came to different conclusions.

The Supreme Court is reviewing the cases, has scheduled oral arguments in March, and is expected to announce its decision in June 2015. Should the Court rule that individuals using the federal exchanges are ineligible for the tax subsidy, many such individuals would find the government exchange's healthcare options unaffordable, which would be damaging to the ACA.

Furthermore, the House has already passed a bill altering the definition of "full time" under the ACA, increasing the weekly hour definition from 30 to 40, and Republicans have said they intend to repeal the excise tax on medical devices that was enacted as part of the ACA. President Obama has promised to veto any such legislation, and neither the House nor the Senate has enough Republican votes alone to override a veto.

2. Congressional Action

Not only did Congress fail to pass comprehensive tax reform in 2014, but it also waited until the end of the legislative session to pass the tax extenders bill. Even then, the bill was passed retroactively and applied only to 2014, expiring within weeks of its passage. Congress will once again have to address the tax extenders in 2015, and we could very well see a repeat of 2014 when the extenders were subsumed into discussions of broader tax reform. Having taken control of both chambers of Congress in last fall's mid-term elections, Congressional Republicans may try to push an ambitious tax reform bill through Congress only to see it vetoed by President Obama. Although President Obama has indicated that he believes tax reform is something that can be accomplished in 2015, there are real issues about closing "unspecified loopholes" as the quid pro quo for lowering corporate rates. If Republican leaders and the Obama administration can't find common ground on tax reform, the fate of the extenders easily could be deferred again until the end of the year.

3. International Tax Transparency

Corporate inversions, actions taken by Burger King and other U.S. companies to merge with foreign companies as a way to reduce corporate taxes, received considerable attention in the media and on Capitol Hill in 2014. Several bills were introduced in Congress last year in an attempt to curb these inversions and the Treasury Department issued new anti-inversion regulations last fall.  Look for Congress to focus on inversions again in 2015, though it may be wrapped up in discussions on overall tax reform.

Proper reporting and disclosure of foreign assets and income continues to be a focus of the Federal government, as evidenced by its successful conviction of Credit Suisse last spring for willfully aiding its clients in concealing offshore assets and income from the IRS. The Foreign Account Tax Compliance Act (FATCA) added additional reporting requirements to multinational companies as of July 1, 2014. Its regulations also inspired the Organisation for Economic Co-Operation and Development (OECD)'s Common Reporting Standard. Multinational companies will need to incorporate certain FATCA standards to their foreign-based entities in order to stay in compliance with the Common Reporting Standard.

The OECD is also looking at base erosion and profit sharing (BEPS) regulations. It is expected to release additional comments on its BEPS recommendations in September 2015.

4. Scam Calls

Beware of phone calls related to your tax returns. Last August, the Treasury Inspector General for Tax Administration (TIGTA) reported that it had received 90,000 complaints through its telephone hotline. Of those complaints, approximately 1,100 victims had lost an estimated $5 million from those scams. Whether via these scam phone calls, phishing emails or other means, over a million fraudulent tax returns are filed each year, generating billions of dollars in refunds that are caught by the IRS before they are issued, while billions more go undetected. The IRS has instituted additional safeguards, such as identity theft PINs and limits on the number of refunds deposited to a particular account, as a way to curb the abuses. Nevertheless, taxpayers should expect these trends to continue in 2015 and should safeguard their information accordingly.

5. Budget Constraints Affect IRS

The 2014 year-end spending deal passed by Congress dealt $346 million in budget cuts to the IRS. The budget deal affects an already strapped IRS. In its 2013 Annual Report to Congress, the IRS's Taxpayer Advocate Service raised concerns about its funding limitations: "Since FY 2010, the IRS's workload has grown, and its budget has been reduced by 8%. The combination of more work and less funding has predictably impaired the IRS's performance."

IRS Commissioner John Koskinen warned that with the year-end budget cuts, the public might experience a delay in receiving their 2014 tax refunds. He also said the IRS would institute a hiring freeze in most scenarios, though temporary staff would be hired to help with the 2015 tax filing season.

A tight budget comes with a silver lining for individuals and businesses; because of staffing limitations, the likelihood of audit will once again be low.

Stay Tuned

We will provide updates about the regulatory changes affecting you as they occur. For more information about these subject or other tax matters, please contact your local CBIZ MHM tax professional or your tax advisor.


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2015 Tax Preview: 5 Stories to Watch (article)To paraphrase Macbeth, 2014 proved to be full of sound and fury, but signified virtually nothing when it comes to taxes....2015-01-12T19:50:00-05:00To paraphrase Macbeth, 2014 proved to be full of sound and fury, but signified virtually nothing when it comes to taxes.