Daily Tax Update - April 8, 2014: Ways and Means Holds Hearing on Tax Extenders

WAYS AND MEANS HOLDS HEARING ON TAX EXTENDERS:  Today, the House Ways and Means Committee held a hearing to evaluate the policy ramifications of short-term extensions versus making the expired tax provisions permanent.

In his opening remarks, Chairman Dave Camp said, “As we explore what tax reform means to the American economy and for American families, we must move away from short-term tax policy and work towards greater certainty in the tax code.   When I released the draft, the first item I asked for public feedback on was the extenders and our revenue baseline.  The question is not only about the merits of the individual policy, but how we should treat the revenue gained or lost by either making those policies permanent, reforming them or repealing them.  Today’s hearing will help the Committee find answers to these questions.” Camp added, “One thing everyone in this room can agree on is that today’s tax code is too complex.  And, one of the best examples of the complexity of our current tax code is so-called tax extenders and their temporary status.  As such, job creators are left constantly guessing if a group of policies are going to be around next year.  Families and employers literally don’t know what tax benefits they will be able to take advantage of from year to year.  Yet, when examining some of these provisions, such as the research and development tax credit, we find out that some have been around for the thirty years or more.” 

Camp continued, “Specifically today, we will address the research and development credit, small business expensing, active financing exception, depreciation for certain race horses, CFC look-through, and two S-corp provisions.  It is important to note that most of these provisions have had bipartisan support in the past. . . .By supporting permanent policies, Washington can promote certainty for American businesses and generate additional economic growth.  But, the Committee’s work will not end here, this is just the beginning of the conversation that we must have in order to overhaul the tax code so it is simpler and fairer for families.  You have heard it from me before, and you will continue to hear it:  We can no longer accept the status quo.  Washington needs to wake up to this reality and start offering concrete solutions and debating real policies that strengthen the economy and help hardworking taxpayers.  Tax reform is one way we can do that.”

The witnesses were:

Ms. Judith Zelisko
Vice President of Tax, Brunswick Corporation

Mr. Bob Stallman
President, American Farm Bureau Federation

Mr. James Redpath
Managing and Tax Partner, HLB Tautges Redpath, Ltd

Mr. Joshua Odintz
Partner, Baker & McKenzie LLP

Mr. Thomas Hungerford
Senior Economist and Director of Tax and Budget Policy, Economic Policy Institute

Highlights from today’s testimony include:

Ms. Zelisko stated, “Brunswick is an ardent supporter of a strong and permanent R&D incentive.”

Mr. Stallman testified, “Long-standing tax provisions, like Section 179 small business expensing which help farm and ranch businesses cash flow, should be made permanent at the 2013 level.”

Mr. Redpath said, “In addition to the permanent BIG holding period reduction and charitable deduction provisions, the draft includes the expansion of qualifying beneficiaries for electing small business trusts to include nonresident alien individuals. This provision would allow businesses to continue to be owned and operated by a family even as the family grows beyond the borders of the United States.”

Mr. Odintz testified, “While some provisions may be temporary by design (as stimulus measures, for example), AFE and CFC look-through are designed to be permanent tax policy.”

Mr. Hungerford stated, “I think the appropriate question regarding the tax extenders is which ones should remain in the tax code and which ones should be eliminated, rather than asking if they should be permanent or temporary. Some may have outlived their usefulness, others were never effective, and still others achieve important economic goals. Congress would be justified in keeping those that (1) correct a market failure, (2) are appropriately targeted, (3) do not unduly compromise the progressivity of the income tax, (4) do not add excessively to the complexity of the income tax, (5) avoid economic disruptions, and (6) are more cost-effective than a direct expenditure program.”

FINANCE HEARING ON UNETHICAL TAX RETURN PREPARERS:  Today, the Senate Finance Committee held a hearing titled, “Protecting Taxpayers from Incompetent and Unethical Return Preparers.”

In his opening remarks, Chairman Wyden said, “[B]ecause the tax code is so byzantine, so complicated and so overgrown, nearly 80 million Americans pay for help preparing their tax return. Here’s the alarming thing: most of those paid tax return preparers don’t have to meet any standards for competence in order to prepare someone else’s return. Wyden added, “There are ways for Congress to help in this arena. For example, I’m a firm believer that comprehensive tax reform can simplify the code and make filing an easier process.

IRS Commissioner John Koskinen said, “Given the crucial role that return preparers play in our tax system, the IRS believes it is critical to ensure a basic competency level for tax return preparers and to focus our enforcement efforts on identifying and stopping unscrupulous preparers.” The Commissioner added, “While the preparer registration requirement is an important advance in our ability to ensure that all return preparers provide the proper level of service to taxpayers, the testing and continuing education components of our return preparer initiative are critical to making even more progress in this area. I again urge Congress to quickly approve the Administration’s proposal granting the IRS explicit statutory authority to regulate all paid tax return preparers, which will allow us to resume implementation of testing and continuing education requirements for certain return preparers.”

Testimony can be accessed via: http://www.finance.senate.gov/hearings/hearing/?id=331dea1b-5056-a032-5215-1df389f40a67

Notice 2014-27 provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in effect for plan years beginning before 2008. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007. The rates in this notice reflect certain changes implemented by the Moving Ahead for Progress in the 21st Century Act, Public Law 112-141 (MAP-21).