Category Archives: Legislation

Why You Probably Can Ignore President Trump’s Tax Proposal for Now

On Wednesday, President Trump released his tax proposal.

Take a look. It won’t take long. That’s it. One page of bullet points.

For comparison, now look at this discussion of then-candidate Trump’s tax proposals during the presidential election campaign last fall.

Anything new? Not really.

While restating campaign promises may initiate the legislative discussion, doing so tells us little about what might actually appear in legislation hammered out by competing factions in Congress.

So whether you are excited or disappointed about lower corporate tax rates or estate tax repeal, we suggest re-averting your attention to other matters for the time being.

To that end, this missive also ends without further elaboration.

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Does a Republican Sweep Augur Federal Tax Reform?

Amongst many things, the Republican sweep in yesterday’s election improves prospects for the most significant tax reforms since 1986.

While we instinctually focus on possible changes to our personal tax burdens, business income taxation may offer the most opportunities for structural reforms. Structural changes may or may not reduce the amount of tax revenue. They are, at least in theory, policy driven to encourage business behavior consistent with greater economic growth.

Changes on the table include taxing business income that is reinvested (rather than distributed to owners for their personal uses) at a lower rate, and changing the international tax regime to a territorial system that does not tax income earned in other countries when repatriated to the United States. The former may encourage business investment spending. The latter may reduce distortions in capital flows into the United States caused by the current tax regime. Both changes would bring the United States closer in line with the tax systems in other developed countries.

And, of course, our leaders will revisit Obamacare, including the new taxes it created.

President-Elect Donald Trump’s proposals do not exactly match those in Congress. Disagreement could impede reform. But with House Speaker Paul Ryan and President-Elect Trump both focusing on tax reform, we will see the most serious tax reform debate in many years.

Here are links to recent media discussion of possible tax reforms:

http://www.wsj.com/articles/donald-trump-win-gives-gop-fuel-to-slash-taxes-1478687402

http://www.forbes.com/sites/anthonynitti/2016/11/09/president-trump-what-does-it-mean-for-your-tax-bill/#53ec8be84b8b

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Has Congress Finally Given a Tax Extenders Holiday Gift That Keeps on Giving?

Congress has once again passed “Tax Extenders” legislation with only two weeks remaining in the year, but retroactively applicable to January 1.  As a result, few will take advantage of its tax breaks in 2015.  In past years Tax Extenders legislation expired at the end of the year, also making it useless in the following tax year.

This year’s bill, however, includes permanent extensions of many useful provisions. Amongst others, permanent extensions applicable now and in the future include:

·       allowing tax-free distributions from IRAs up to $100,000 per year to qualified charities for persons at least 70 and ½ year old,

·       shorting of the post-C-corporation-to-S-corporation-conversion “built-in gains tax” period from ten years to five years,

·       increasing the annual deduction threshold and carryforward years for certain conservation donations,

·       allowing an optional state sales tax deductions for federal income tax purposes, in lieu of a state income tax deduction (particularly useful for residents of Florida, which has no personal income tax),

·       liberalizing depreciation rules for qualified leasehold, restaurant and retail improvements, and

·       increasing first year expensing opportunities for certain capital expenditures.

The bill extends other recurring provisions more than one year, but not permanently.  For example, bonus depreciation now applies through 2019, though the bonus depreciation percentage decreases by ten percent each year from the 50% 2015 percentage, to encourage investment sooner rather than later.

It remains frustrating that by once against waiting until December to act, Congress wasted the opportunity to give taxpayers a better opportunity to use these tax breaks in 2015.  We can, however, at least be grateful for more planning certainty in the years ahead.

Here is a link to a complete summary of the legislation published by the House Committee on Ways and Means: http://waysandmeans.house.gov/wp-content/uploads/2015/12/SECTION-BY-SECTION-SUMMARY-OF-THE-PROPOSED-PATH-ACT.pdf

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

2015 Tax Extenders Thanksgiving Treat?

Once again we approach the end of a year following the so-called “Tax Extenders” legislation, which addresses federal tax incentives that expire on December 31 of each year, unless renewed by Congress.  The2014 bill was enacted with retroactive effect in mid-December 2014, and expired December 31, 2014.  Will Congress give us a 2015 Thanksgiving treat by enacting a similar bill before the end of November?

Unfortunately, replicating the pattern from 2014, it appears 2015 legislation will pass no earlier than mid-December. Several bills exist which could become law before the end of the year.  As in prior years, the potential Tax Extender laws include special depreciation rules for qualified leasehold, restaurant and retail improvements, 50% bonus depreciation provisions, and first year expensing opportunities for certain capital expenditures. Also included is a reduction in S corporation recognition period for the built-in gains tax from ten years, to five years, but only for transactions closing in the year in which the Tax Extender legislation is in effect.  Potential legislation also includes special incentives for conservation-oriented transactions and charitable donations from IRAs.

We remain hopeful another Tax Extenders bill will pass before December 31, 2015.  In the best case, Congress would make some provisions permanent or extend provisions more than one year to give taxpayers a longer time horizon to plan.

If you have a 2015 transaction dependent on the legislation, be ready in advance, because you might have only a short time to act once the legislation passes.  After that, you may be stuck hoping for another chance in 2016.

Here are links to our prior posts relating to Tax Extenders legislation: http://blog.williamsparker.com/businessandtax/2015/10/21/tax-extenders-redux-deja-vu-all-over-again/

http://blog.williamsparker.com/businessandtax/2014/12/17/with-only-two-weeks-left-for-taxpayers-to-act-2014-tax-extenders-bill-finally-to-become-law-should-you-celebrate-yawn-or-yell/

http://blog.williamsparker.com/businessandtax/2014/11/05/with-republican-election-gains-2014-tax-extenders-legislation-could-boost-capital-expenditures-business-merger-and-acquisition-activity/

http://blog.williamsparker.com/businessandtax/2014/04/30/2014-tax-extenders-legislation-uncertainty-impairs-capital-expenditure-planning-business-acquisitions/

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Legislation Creates Default Rule: All Partnerships to be Audited at Entity Level

On November 2, 2015, President Obama signed into law The Bipartisan Budget Act of 2015 (H.R. 1314) which, among other things, imposes a new audit regime on tax partnerships beginning in 2018. Under the new regime, unless a partnership is eligible to elect out and does so timely, IRS can now collect tax due on partnership adjustments at the entity level, which takes a fundamental premise of partnership taxation – that the entity pays no tax – and turns it on its head. The new regime has many significant impacts. Not the least of which is that the IRS can send a bill for a prior year tax underpayment to the partnership itself, and therefore the current year partners would bear this burden. Our initial analysis is that tax partnerships that are eligible will likely want to elect out of the new regime. A link to the full Act (Title XI – starting on page 42 – is the relevant portion of the Act) is here: www.congress.gov/114/bills/hr1314/BILLS-114hr1314enr.pdf

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

Tax Extenders Redux: Déjà Vu All Over Again

The great commentator—and occasional baseball player—Yogi Berra may have left us behind, but Congress continues to prove his words prophetic.   For yet another year, we are in the fourth calendar quarter awaiting federal tax legislation designed to spur economic activity as of the preceding January.

Last year we followed the saga of the so-called “Tax Extenders” legislation, which addresses tax incentives that expire on December 31 of each year, unless renewed by Congress.  The2014 bill was enacted in mid-December 2014, and expired December 31, 2014.  Although the law applied retroactively to January 1, 2014, taxpayers could not act during the first fifty weeks of the year because it was unclear whether the incentives would become law once again.  The mid-term Congressional elections provided a convenient scapegoat for the delayed enactment, but the bill still did little good.

2015 Tax Extenders legislation is playing out similarly, but the budget, debt ceiling, and Speaker of the House of Representatives vacancy are this year’s scapegoats. Several bills exist which could become law before the end of the year.  As in prior years, the potential Tax Extender laws include special depreciation rules for qualified leasehold, restaurant and retail improvements, 50% bonus depreciation provisions, and first year expensing opportunities for certain capital expenditures. Also included is a reduction in S corporation recognition period for the built-in gains tax from ten years, to five years, but only for transactions closing in the year in which the Tax Extender legislation is in effect.  Potential legislation also includes special incentives for conservation-oriented transactions and charitable donations from IRAs.

We aren’t holding our breath for legislation in the next few weeks, but are hopeful another Tax Extenders bill will pass before December 31, 2015.  If you have a transaction dependent on the legislation, be ready in advance, because you might have only a few weeks to act once the legislation passes.  It will be “late early out there” before you know it.  After that, you will be stuck hoping for another chance in 2016.

Here are links to our prior posts relating to Tax Extenders legislation:

http://blog.williamsparker.com/businessandtax/2014/12/17/with-only-two-weeks-left-for-taxpayers-to-act-2014-tax-extenders-bill-finally-to-become-law-should-you-celebrate-yawn-or-yell/

http://blog.williamsparker.com/businessandtax/2014/11/05/with-republican-election-gains-2014-tax-extenders-legislation-could-boost-capital-expenditures-business-merger-and-acquisition-activity/

http://blog.williamsparker.com/businessandtax/2014/04/30/2014-tax-extenders-legislation-uncertainty-impairs-capital-expenditure-planning-business-acquisitions/

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

With Only Two Weeks Left for Taxpayers to Act, 2014 Tax Extenders Bill Finally To Become Law: Should You Celebrate, Yawn, or Yell?

On Tuesday, December 16 the Senate passed the “The Tax Increase Prevention Act of 2014,” popularly known as the 2014 Tax Extenders Bill. President Obama is expected to sign the bill into law. Unfortunately, even in its passage, the new law exemplifies political dysfunction and gridlock.

The bill temporarily extends popular personal and business tax breaks through 2014, but not beyond. Extended provisions include bonus depreciation, a shortening of the period corporate-level tax applies to S corporations that used to be C corporations, and a $100,000 Individual Retirement Account qualified charitable donation exemption from the normally applicable income tax deduction limitations. Past legislation has repeatedly temporarily extended these provisions, but only through 2013, necessitating a further extension through this bill.

Passage of the bill is more a cause for relief than celebration. Some might just yawn. Others will yell.  While some of its tax breaks are supposed to spur investment and business acquisition activity, passing the law with two weeks remaining in 2014 gives most businesses little time to buy equipment or close transactions. It also leaves a small window for Individual Retirement Account charitable donations. The law seems unlikely to significantly benefit the economy by influencing behavior before its tax benefits expire.

The law will not spur meaningful long-term planning or activity, because no one knows with certainty whether a similar bill will become law to further extend the favorable tax provisions into 2015 or beyond. Congress willfully failed to act on this bill through almost all of 2014.  It is not clear the political impetus exists for an earlier extension action–or better yet permanent adoption of the law allowing even longer-term planning—in 2015.

Here is a link to a more detailed summary and text of the bill: https://www.congress.gov/bill/113th-congress/house-bill/5771

Here are links to our prior posts concerning the 2014 Extenders Bill and similar bills: http://blog.williamsparker.com/businessandtax/category/legislation/

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

With Republican Election Gains, 2014 Tax Extenders Legislation Could Boost Capital Expenditures, Business Merger and Acquisition Activity

In April we wrote about the pending Tax Extenders legislation, the passage of which is necessary to revive temporary tax relief provisions for the 2014 tax year and for future tax years. The bill prominently features tax breaks that support capital expenditures and business merger and acquisition activity, as well as breaks for some individuals.

The Tax Extenders bills had been sidelined until this month’s election. With the election over and the Republicans taking control of Congress, Congress may take up the Tax Extenders package before the end of the year. If passed, the Tax Extenders legislation may have retroactive effect to the beginning of 2014. If you are affected by the Tax Extenders legislation, whether because you are planning for capital expenditures, you are considering a business sale, or otherwise, monitor the legislation closely so you can take action during 2014 if the legislation passes.

Here is a link to our prior discussion of the Tax Extenders legislation:
http://blog.williamsparker.com/businessandtax/2014/04/30/2014-tax-extenders-legislation-uncertainty-impairs-capital-expenditure-planning-business-acquisitions/

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

2014 Tax Extenders Legislation Uncertainty Impairs Capital Expenditure Planning and Business Acquisitions

On April 3, 2014, the Senate Finance Committee favorably reported out of Committee the “Expiring Provisions Improvement Reform and Efficiency Act.” The Act has bipartisan Senate Finance Committee support, but it is uncertain when and how the House Ways and Means Committee will deal with the subject. The Act would extend the effect of certain tax code provisions which expired on 12/31/2013. Included within the business provisions that would be extended, generally for 2 years, are special depreciation rules for qualified leasehold, restaurant and retail improvements, 50% bonus depreciation provisions and first year expensing opportunities for certain capital expenditures. Also included is a reduction in S corporation recognition period for the built-in gains tax.

Included within the individual provisions that would be extended for 2 years through 2015 are exclusions from gross income of certain discharged principal residence indebtedness, deduction for state and local taxes, and tax-free distributions from IRA’s of taxpayers aged 70 ½ or older for charitable purposes.

The full Senate is expected to take up the bill shortly. On the House Side, Ways and Means Committee Chairman Dave Camp (R-Mich.), who is retiring at the end of this year, released a draft bill in February that only included certain business tax extenders. The Committee began its review of the bill earlier this month. However, Camp has said that he favors a more permanent solution and wants to further explore through the Spring and into the Summer which expired provisions should be made permanent and which should expire for good. It remains to be seen which extenders will ultimately be considered by the House, and which provisions will be extended permanently, over some period of years or allowed to stay expired. Those provisions that are extended will hopefully be applied retroactively to January 1, 2014, but planning in this uncertain environment remains challenging. It is expected that final congressional action on an extenders package will be delayed until after November’s elections.

James L. Turner
jturner@williamsparker.com
941-329-6612