The Tax Reform Act of 1986 (TRA) quietly reached its 30th anniversary on October 22, 2016. The TRA was enacted to lower tax rates by broadening the tax base, but over time its reforms have become almost unrecognizable. Following the 2016 presidential election, tax reform is again a topic of conversation. Although seasoned CPAs have learned from experience to be skeptical, it is still good to consider what changes might affect clients and organizations and discuss them when preparing 2016 tax filings. Tax preparers need to balance staying current with existing tax law with helping taxpayers plan for change. The Tax Policy Center website is an excellent resource for specifics on potential tax law changes, while tax podcasts and IRS Quick Alerts can provide timely advice.
Tax Policy Center
The Tax Policy Center (TPC) is a nonpartisan research organization that provides analysis and information on a variety of federal, state, and international tax issues on its website, http://www.taxpolicycenter.org. The TPC's website was introduced in this column in February 2010, but the Center launched an updated site with new features and tools in early 2016. The current potential for major tax reform also makes now an excellent time to become acquainted with some of the resources available and check it regularly for new discussion and commentary.
The TPC published a 32-page “An Analysis of Donald Trump's Revised Tax Plan” in October 2016 (http://tpc.io/2hHPePu). Very briefly, the Trump plan would reduce individual and corporate tax rates, increase the standard deduction, and add a new deduction for child and dependent care. Personal exemptions and head-of-household status would be eliminated, along with the alternative minimum tax and estate and gift taxes. Flow-through income from conduit entities could be taxed at 15% by owner election.
The House GOP plan was also scrutinized in a 36-page September 2016 report (http://tpc.io/2hcEGZO). In summary, the GOP plan would reduce individual and corporate tax rates more conservatively than the Trump plan, allow individuals to deduct 50% of capital gains and dividends, and increase the standard deduction. The GOP plan would eliminate many itemized deductions, personal exemptions, the alternative minimum tax, Affordable Care Act (ACA) taxes, and estate and gift taxes. The corporate income tax would be replaced by a cash flow consumption tax for all businesses, and international corporate taxes would move to a destination-based system.
One of the updated areas of the new TPC website is the Interactive Tools section (http://www.taxpolicycenter.org/interactive-tools). The 2016 Election Calculator (http://tpc-election-calculator.urban.org/) allows users to see the effect of proposed tax policy changes on sample taxpayers. After selecting a filing status and income level, taxpayers can see calculations of adjusted gross income, taxable income, tax liability, and additional taxes and credits. Users can also create their own scenario by selecting marital status, number of dependents, and keying in income and deduction amounts.
For tax advisors still coping with 2016 tax law, there are interactive tools for an individual ACA penalty calculator and a marriage bonus and penalty calculator. The ACA calculator can estimate the shared responsibility payment by filing status, number of dependents, and income for 2014 through 2016 (http://www.taxpolicycenter.org/interactive-tools/aca-tax-calculator). The marriage calculator compares the tax results for a married couple versus two singles (http://www.taxpolicycenter.org/interactive-tools/marriage-bonus-and-penalty-tax-calculator).
Although many might avoid the TPC's statistics section, some of the international data tables may be useful to CPAs advising clients on offshore matters (http://www.taxpolicycenter.org/statistics/international). The OECD Taxation of Corporate Income table details the corporate tax rates published for 2014 (http://www.taxpolicycenter.org/statistics/oecd-taxation-corporate-income), and the OECD Taxation of Wage Income spreadsheet reports the top marginal personal income tax rates as of 2013 (http://www.taxpolicycenter.org/statistics/oecd-taxation-wage-income-2000-2013). The statistical tables can be downloaded as PDF or Excel documents.
Finally, the TaxVox Blog presents almost daily articles on current tax policy topics written by TPC researchers and staff, and includes links to research reports and other related resources (http://www.taxpolicycenter.org/taxvox). “Navigating the Confusing Language of International Tax Reform” (Eric Toder, Dec. 14, 2016) explains the terms territorial tax, worldwide tax, and destination-based tax, as well as current U.S. policy. New taxes on sugary drinks have recently been passed in several localities, and “Building a Better Soda Tax” (Donald Marron, Dec. 12, 2016) suggests that the tax design is weak and should focus on sugar content rather than drink volume, as that would be a more direct connection to the stated purpose of discouraging consumption.
During the busy season, receiving updates on the latest tax news by listening to audio programs can be an appealing option. Two high-quality sources are Federal Tax Updates and Tax Credit Tuesday. Both of these resources are available on a weekly basis and run approximately 20–25 minutes per session.
Federal Tax Updates is created by Edward K. Zollars, CPA, for Nichols Patrick CPE, Inc., and is offered through state CPA societies. Both the Ohio Society of CPAs (http://oscpa.libsyn.com/) and the Florida Institute of CPAs (http://feeds.ficpa.org/ficpa/taxpodcasts) carry the podcast on their websites. The December 12, 2016, episode covers a Tax Court case allowing farm expense deductions in two separate tax years by a decedent and surviving spouse, a franchisee group that was not allowed a tax exemption under Internal Revenue Code (IRC) section 501(c)(6), the early release of 2017 payroll tax withholding tables (included in the citation PDF), and a new tax bill to allow an exemption for employer reimbursement of private health insurance premiums.
Tax Credit Tuesday is provided by Michael J. Novogradac, CPA, of Novogradac & Company, LLP. The broadcasts are archived on the firm's website (https://www.novoco.com/podcast) and also accessible by RSS feed every Tuesday. Downloadable PDF summaries of each podcast are available. Each episode includes an update of general news, followed by specific tax credit information. The December 13, 2016, episode covers the early December continuing resolution to fund the federal government through April 28, 2017, details the House Ways and Means Committee's planned tax reform proposals, and evaluates candidates for deputy secretary of the Department of Housing and Urban Development from a perspective of potential consequences for the low-income housing tax credit (LIHTC). The second half of the program was dedicated specifically to LIHTC issues.
IRS Quick Alerts
Quick Alerts is a free online service that sends ACA and e-filing alerts, notifications, and news to tax professionals. Subscribers can select from their choice of five options: processing alerts, software notices, general notices about seminars and e-file publications, general e-file service center messages, and ACA information return messages. Tax professionals who already have online accounts can subscribe at any time (http://bit.ly/2h1TR2O). Quick Alerts messages are also posted to the Quick Alerts Library webpage once per month, and the monthly summaries can be downloaded as PDF files, many containing embedded links to further content (https://www.irs.gov/uac/quickalerts-library).