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Archive for Annette Nellen

Recent Tax Law Change Cautions


There were numerous public laws enacted in 2015 changing our federal tax system. The largest in terms of number of change (over 130) is Public Law 114-113 (12/18/15). See basics and links in my 1/10/16 post. That’s a lot of changes.  There are a variety of effective dates including many that are retroactively effecting back to 1/1/15. Did we need all of these changes? I don’t think so.  Or at least not all at once.

I want to note a few cautions based on what I’ve learned from reading this and thinking about it for the past several weeks.  I’ve been covering many of these updates in update presentations I’ve been making for the past few weeks.

This is not all of the cautions.  Please comment to this post if you have more to offer. Read more

Proposed IRS Regulations Oppose Court Decision

Annette Nellen

Continuing with my list of ten news items and activities from 2015 that I think have particular tax policy relevance.  Today, for my fourth item is an odd and unfortunate way that the IRS is telling us they disagree with a 2013 court decision. In August 2015, the IRS issued proposed regulations under Section 199, Income attributable to domestic production activities – REG–136459–09 (8/27/15). This provision was added in 2004 and provides a “bonus” deduction for taxpayers engaged in domestic manufacturing which is broadly defined to include some construction, film production, and software development. It is a fairly complex provision that involves numerous definitions and allocations to identify the specified income that then generally produces a 9% deduction for the taxpayer.

The issue helps show the complexity that is involved when special rules exist. Special rules require precise definitions to know what qualifies and what does not. The particular issue I’m referring to what constitutes minor assembly (no 199 deduction) versus production (generates a 199 deduction).

Read more

Tax To Do List For The Upcoming Filing Season

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If you’re looking for things to do to get ready for the upcoming filing season or want to check your list against another, I have one for you.  Please see “Preparing for the 2016 Filing Season,” AICPA Tax Insider, 12/17/15.

The article was written before passage of the extenders and appropriations tax package.  Here is a list of links to that legislation you may find useful along with a list of some items for immediate consideration.

P.L. 114-113 (12/18/15) – H.R. 2029, Consolidated Appropriations Act 2016 – includes appropriations and other changes along with the Protecting Americans from Tax Hikes Act of 2015 (PATH), which is the extenders bill.

NOTE ON EXTENDERS: The bulk of the tax changes are in PATH, although a few, including a two year extension of Read more

Top Ten Items of Tax Policy Interest for 2015 – #3

TaxConnections Member Annette Nellen

Continuing with my list of ten news items and activities from 2015 that I think have particular tax policy relevance.  Today, for my third item is Justice Kennedy’s concurring opinion in Direct Marketing Association v Brohl, Exec Dir, Colorado Dept of Revenue, No. 13-1032 (3/3/15). In this opinion, Justice Kennedy posits that perhaps given “changes in technology and consumer sophistication,” it is time to revisit the Court’s 1992 decision in Quill, 504 U.S. 298! He also noted that Quill was a case “questionable even when decided, [that] now harms States to a degree far greater than could have been anticipated earlier.”  This is a major item for 2015. It is really an invitation to any and all states with a sales tax to send a bill to a remote (non-present) vendor and hope that the vendor will challenge the assessment all the way up the administrative and judicial review process to land on the US Supreme Court’s agenda. Read more

Top Ten Items of Tax Policy Interest for 2015 – #2

TaxConnections Member Annette Nellen

Continuing with my list of ten news items and activities from 2015 that I think have particular tax policy relevance.

#2 – IRS Funding Challenges – Despite an aging workforce resulting in many retirements, a tax statute that is made increasingly more complicated each year, and the need to modernize operational and technology practices, the IRS budget has been cut by over $1.2 billion from FY2010 to FY2015. [See 5/18/15 TIGTA report, Center for Budget and Policy Priorities article on the cuts of 9/30/15 and USA Today article of 6/17/15.]

The May 2015 TIGTA report includes the following graphs showing the decrease in the number of collection officers and a 95% increase in computer downtime due to use of old technology (hardware and software). Read more

Top Ten Items of Tax Policy Interest For 2015 #1

TaxConnections Member Annette Nellen

For the rest of 2015, I’m going to share my list of ten items from 2015 that I think have particular tax policy relevance.  It’s not a countdown so the start of this list today – #1, isn’t necessarily the biggest item of interest.

#1 – Congress can alter our tax system via a lot of non-tax bills.  In 2015, we saw ten bills enacted (as of 12/11/15) with tax changes. Yet, these bills were not intended to be tax bills, they all had a different primary purpose such as enacting trade deals or funding the Highway Trust Fund. Various tax changes were added in, many of which had been around for a while. For example, the GAO has been suggesting for years that additional information be required on Form 1098 mortgage interest statement. The change in due dates for some tax forms has also been talked about for some time and was even in Congressman Camp’s H.R. 1 (113rd Congress) tax reform bill. Read more

Tax Return Due Dates and Some History

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Several federal bills enacted in 2015 included tax changes. One of these was P.L. 114-41 (7/31/15), the Surface Transportation and Veterans Health Care Choice Improvement Act. Given the title, we might think that any tax change involved transportation, such as the gasoline excise tax. Wrong! This bill does not increase the gasoline excise tax. Its main purpose is to transfer money from the general fund to the Highway Trust Fund because our gasoline excise tax of 18.4 cents per gallon is insufficient to fund the HTF (and more fuel efficient cars means we buy less gas each year).  [I’ve blogged on this a few times – here, for example.]

One of the tax change in P.L. 114-41 is to change due dates of certain returns, starting mostly for the 2016 tax year. The purpose is improved administration of our tax system. For example, one change is to move the due date for a Read more

10th Anniversary of Bush Tax Reform Report

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In January 2005, President Bush created his Advisory Panel on Federal Tax Reform. It was tasked to examine the tax system and propose simplified options that were revenue neutral, pro-growth and internationally competitive. One option was to be a consumption tax. The report was due and was issued on November 1, 2005.

The panel held public hearings, reviewed lots of data and studies and suggested reforms. One of their initial findings was the high cost of tax system complexity which they estimated to be $140 billion per year. Per the panel:

“To put this amount in perspective, it is roughly the same as giving $1,000 to every family in America or the amount of money needed to fund all of the following: the Department of Homeland Security, the State Department, NASA, Read more

“Abolish The IRS” Distracts From Needed Reforms

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Republican presidential candidates Senators Ted Cruz and Mike Huckabee would like to abolish the IRS. They are not saying they want to abolish taxes, just the agency that collects them. Even if either is able to simplify taxes to the point that no taxpayers have questions or need guidance, we still need a tax collector, as well as an auditor to ensure compliance.

A call to abolish the IRS is a distraction. That’s too bad because there are significant improvements needed to our federal tax system – a system that includes not only the income tax, but also employment, excise and estate and gift taxes. Tax reform must be the focal point, not termination of the entity that collects revenues to fund schools and roads, provide national defense, and much more.

The IRS is an easy scapegoat for complaints about our tax laws. But those laws come from Congress. Yes, the Read more

Responsible Governance – Tax Break Bills Vetoed!

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Why are our tax systems so complex?  One key reason is that lawmakers keep adding to them and rarely delete anything.  Also, items added for temporary purposes are often renewed (rather than dropped or made permanent). Also, we often have numerous rules serving similar purposes (such as for higher education spending or savings).

Well, on October 10, 2015, California Governor Brown, said “NO” to nine tax bills presented to him.

His reason was that they might bust the budget given other budget issues.  Each of the nine would have either added or expanded an existing or expired provision or added something new. Read more

Obamacare – Can Pieces Be Removed?

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Presidential candidate Clinton has called for repeal one of the numerous parts of the Affordable Care Act (aka Obamacare).  Reuters reports that on September 29, 2015, she called for repeal of the “Cadillac tax” provision that goes into effect starting in 2018 (“Clinton calls for repeal of ‘Cadillac tax’ on healthcare plans,” by John Whitesides, Reuters, 9/29/15).

A few observations on this:

• What happens when one piece of the complete healthcare reform plan is removed? The Cadillac tax raises revenue by imposing an excise tax on certain expensive plans offered to employees (see IRC Section 4980I).  Likely it also is an incentive not to offer these Read more

Odd Tax Holiday In Colorado

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Several states have “sales tax holidays” where for a day or a few days specified during the year, there is no sales tax on specified items.  For example, it might be on children’s clothes or school supplies close to the time when school begins. Some states have them for guns and emergency preparedness items. The Federation of Tax Administrators maintains a list of these holidays in the states.

September 16, 2015, Colorado had a holiday on marijuana – but just the special 10% and 15% taxes (there are a lot of taxes on marijuana in Colorado). The reason is complicated and ties to the fact that when recreational sales became legal in Colorado and new taxes added, they raised more than allowed. HB15-1367 explains some of this (in 33 pages!). Read more