1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

Tax Reform is Here

Dentons is covering all of the latest news on the various tax reform plans that the United States Congress is currently considering.

The latest about the Senate’s plan can be found here.

Check back for more updates.

IRS Won’t Shut Down

It appears both the House and Senate will pass H.R. 244, to appropriate funds for the IRS sometime later this week.  The IRS is slated to receive $11.2 billion in new funding through next September 30.  This  funding is at a level about equal to the last full year appropriations bill.

The IRS will need to slate sufficient funds for enforcement while balancing compliance and customer service.  The latter receiving criticism on a number of fronts over the past year.  We will comment on the appropriation specifics once released.

The Destination Based Cash Flow Tax – Is it a VAT?

As tax reform proposals are considered over the next few months, the concept of a destination based cash flow tax remains in the GOP proposal.  This type of corporate tax acts like a VAT, but with some allowable deductions, such as payroll.  And the boarder adjustment is a driving feature of the proposal.

The boarder adjustment feature would exempt from tax sales of goods exported outside of the U.S.  However, the cost of goods purchased by a U.S. company from foreign sources would not be deductible against the the corporate tax.  So, the tax would be imposed on goods produced and sold in the U.S.

The proposal also allows for full deductions of capital investments with no depreciation required (but does not allow interest payments to be deducted).  This is similar to most VAT systems and is touted as a provision that will spur investment.

A reconciliation between the current administration’s tax plan and the GOP plan is underway, and we won’t have wait too much longer to see if the corporate rate drops to 15% or 20% and whether we the destination based cash flow tax survives.

Tax Regulations on Hold-The New Regulatory Freeze

According to a memorandum issued to all agency heads, no federal agency may send regulations to the Federal Register for publishing until advised by the appropriate OMB personnel or designee.   For those regulations that have already been submitted to the Federal Register the agency heads must seek to withdraw them.  Any regulation that has been published in the Federal Register, but aren’t yet effective, those regulations will be postponed a minimum of 60 days with the ability of the agency heads to request a longer suspension.

The only exception are regulations needed for “urgent circumstances relating to health, safety, financial, or national security matters, or otherwise.”  The memorandum explains that the department heads and newly appointed personnel need time to review the regulations and the memorandum is particularly clear that those regulations addressing “questions of fact, law, or policy” could be subject to “further notice-and-comment rule making,” thus further delaying implementation.

There is no carve out in the memorandum for regulations addressing tax matters.  Which tax regulations will become promulgated is not known.  We will keep you posted on any new developments.

2014 Will Ring in Uncertainty for Many US Taxpayers

When 2013 ends, so will more than 50 US tax provisions. Nearly all of these expiring tax provisions have suffered this fate before, only to be extended retroactively after months of uncertainty for affected taxpayers.

Included among the list of expiring tax provisions are some widely used incentives, such as the research and experimentation tax credit and 50 percent “bonus” depreciation. The list of expiring tax provisions also contains a raft of energy incentives, including the production tax credit for wind energy, incentives for alternative and renewable fuels and credits for energy-efficient appliances and houses. Provisions important to individuals—such as the deduction for out-of-pocket expenses for teachers, higher exclusions for mass-transit benefits and the deduction for state and local sales taxes—will sunset at the end of this year. The same is true for provisions important to US companies with cross-border activities (for example, the “active financing exception” and the subpart F exception for dividends, interest, rents and royalties paid between related controlled foreign corporations) and businesses operating in certain designated or distressed areas. Despite their diversity, these expiring tax provisions have one thing in common: Taxpayers who use them are about to enter months of uncertainty as to their availability.

Read more

Sander Lurie, a member of Dentons’ Public Policy and Regulation practice, co-authored this article.

US Treasury Department Releases Latest Round of FATCA Guidance

Notice 2013-69, released on October 29, 2013, is the latest effort by the US Treasury Department to provide guidance to US and foreign entities that will be subject to the new reporting and withholding rules imposed by the so-called Foreign Account Tax Compliance Act, or “FATCA.” For information on previous guidance issued by the US Treasury Department and background on FATCA, please see our previous alerts titled US Government Announces 6-Month Delay in Certain FATCA Rules and US Issues Final FATCA Regulations.

Notice 2013-69 basically does three things:

  1. publishes the draft Foreign Financial Institution (“FFI”) agreement with which participating FFIs and Model 2 FFIs must comply,
  2. provides updated information about the responsibilities of participating FFIs and Reporting Model 2 FFIs and the FATCA registration process, and
  3. announces the intent to make limited changes to the recently issued FATCA regulations and to other reporting regulations to coordinate with FATCA reporting.

Read more

Jerome Walker, a member of Dentons’ Corporate practice, co-authored this article.

Scuffling at the Edge of the Fiscal Cliff

On December 31, 2012, a host of tax and spending provisions were scheduled to expire. On January 2, 2013, substantial cuts to defense programs and to domestic discretionary spending also were scheduled to commence. Negotiations in Washington regarding these provisions had been taking place for weeks without resolution, with a sequence of different negotiating partners seeking, and failing, to reach agreement. Finally, on New Year’s Eve, Senate Minority Leader McConnell and Vice President Biden were able to work out a compromise package, and in an unusual New Year’s Eve session that stretched well into New Year’s Day, the Senate overwhelmingly passed the package. In an even more unusual New Year’s Day session, the House of Representatives passed the Senate package unchanged, with House Democrats voting overwhelmingly for it while a majority of House Republicans voted against it. The package, entitled the “American Taxpayer Relief Act of 2012,” now goes to the President who has stated that he will sign the bill.

Read more

Michael E. Zolandz and Gary L. Goldberg, members of Dentons’ Public Policy and Regulation practice, co-authored this article.

IRS Updates FATCA Guidance

On October 24, 2012, the US Internal Revenue Service (“IRS”) issued Announcement 2012-42 along with a table (reproduced below) that summarizes certain Foreign Account Tax Compliance Act (“FATCA”) due diligence deadlines. The changes announced are limited, but they demonstrate that the IRS and the US Treasury Department continue to make modifications to the FATCA withholding and reporting rules in response to comments, especially comments focused on practical problems encountered by entities trying to implement and comply with FATCA.

Read more

Jerome Walker, a member of Dentons’ Corporate practice, co-authored this article.

Looming Tax and Spending Changes Cause Mounting Uncertainty

It has been given different names: “fiscal cliff,” “taxmageddon,” all of which sound like the name of bad screenplays written by a tax lawyer or accountant.

However, the pending expiration of tax and spending provisions, implementation of across-the-board spending cuts, and need to raise the federal debt limit are real and will come to a head in the United States within the next several months.

This alert summarizes the possible consequences of these issues, especially the effect of their confluence, and analyzes possible outcomes.

Read more

Mike McNamara and Michael E. Zolandz, members of Dentons’ Public Policy and Regulation practice, co-authored this article.