Monday November 20, 2017
Tax Reform 'Blueprint' Promised
In a media appearance on August 31, Munchin stated the plan is "not a 100-page bill with every single detail," but it is a specific and extensive description of tax reform.
President Trump discussed tax reform on August 30 in Springfield, Missouri. He outlined four tax reform principles.
- Fair and Simple - Since the last comprehensive tax reform in 1986, the tax code has tripled to 2,600 pages. Over 90% of taxpayers need professional help to complete their return. The tax reform goal is to provide a return "on a simple, single page."
- Competitive for Jobs - The 1986 tax code reduced the top corporate rate to 34%, which was one of the lowest rates at that time in the first world. The U.S. corporate rate now is the highest among industrial nations because all of the others have lowered their rates. As a result, companies and jobs are moving to China and other nations. The tax reform bill must lower business tax rates in order to compete for jobs.
- Middle Class Tax Relief - Tax reform will be intended to reduce taxes "for middle-income Americans."
- Overseas Corporate Cash - With high U.S. corporate tax rates, over three trillion dollars in cash is held overseas by American corporations. Tax reform is designed to encourage the American companies to return cash to America and invest to increase employment.
Editor's Note: The Senate Finance Committee and House Ways and Means Committee are both expected to have tax reform hearings during September. However, the House and Senate legislative calendar is limited. An independent poll of American business leaders indicated that only 10% expect tax reform to be completed in 2017.
Hurricane Harvey Tax Relief
The National Weather Service (NWS) officially reported Hurricane Harvey rainfall of 49.32 inches in the southeast Houston area. This is a record for a storm in the continental United States.
The storm caused widespread flooding in both Texas and Louisiana. Over 14 NWS reporting stations had 40 or more inches of rain.
In response to the natural disaster, the IRS published letters with two types of tax relief. IRS Commissioner John Koskinen stated, "This has been a devastating storm, and the IRS will move quickly to provide tax relief to hurricane victims. The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."
In IR-2017-135, the Service granted an additional extension for taxpayers and business. Many individual taxpayers had previously extended their 2016 filing date to October 16. Some businesses were on extension to September 15. Texas residents in the 18 affected counties may now file by January 31, 2018.
In IR-2017-138 and Announcement 2017-11; 2017-39 IRB 1, the Service relaxed rules on hardship loans or distributions from retirement plans.
The IRS has streamlined loan procedures for retirement plans under Sec. 401(k), Sec. 403(b) and Sec. 457(b). The streamlined rules enable plan participants to access funds more quickly.
While IRAs do not permit loans, there also will be streamlined plans for hardship distributions from IRAs.
The IRS cautions that the income tax treatment will remain unchanged. The IRS stated, "Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10% early-withdrawal tax."
Signed Deed is Contemporaneous Written Acknowledgment
In Big River Development LP et al. v. Commissioner; No. 16767-14; T.C. Mcmo. 2017-166 (27 Aug 2017), the Tax Court held an easement deed with signatures by both donor and charity constituted a contemporaneous written acknowledgment under Sec. 170(f)(8)(A). Big River Development, L.P. (LP) acquired a Pittsburgh historic property originally named the Armstrong Cork Building. LP planned to develop the property into luxury apartments.
On January 12, 2005, LP deeded a historic preservation easement to the Pittsburgh History Landmark Foundation (PHLF). The PHLF president also signed the deed and had it recorded in January 2005.
LP promised a gift of $93,500 to cover the oversight responsibility of PHLF. The deed included the standard "ten dollars and other good and valuable consideration" language.
LP obtained a qualified appraisal and reported a $7.14 million charitable deduction. In March 2007, PHLF also sent a contemporaneous written acknowledgment letter to LP. The letter stated that no goods or services had been provided and acknowledged the receipt of the $93,500 as a gift to cover the cost of monitoring services.
The IRS denied the deduction and claimed there was no contemporaneous written acknowledgement. It issued a final partnership administrative adjustment (FPAA) and assessed a 40% penalty for a gross valuation misstatement.
The Tax Court noted Sec. 170 (f)(8)(B) has specific requirements. The contemporaneous written acknowledgment must list the cash or property given, explain any goods or services provided by the donee organization and, if applicable, estimate a good faith value of the provided goods or services.
While PHLF did provide a contemporaneous written acknowledgment two years after the gift, this did not qualify and therefore was disregarded. However, the deed of easement described the transfer, the $93,500 gift for monitoring services and emphasized that this was the "entire agreement" between the parties.
Therefore, the deed that was acknowledged by the PHLF president did substantially comply with the Sec. 170(f)(8)(A) contemporaneous written acknowledgment requirements.
Applicable Federal Rate of 2.4% for September -- Rev. Rul. 2017-17; 2017-36 IRB 1 (18 Aug 2017)
The IRS has announced the Applicable Federal Rate (AFR) for September of 2017. The AFR under Section 7520 for the month of September will be 2.4%. The rates for August of 2.4% or July of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return.