I n the last few weeks, there have been several noteworthy developments in the tax world that have broad practical and policy application and merit further discussion because of their impact on taxpayers and our tax system overall.
First, let’s start with the health care law and its raft of new taxes.
The recent announcement that over eight million people have signed up for coverage is telling. Irrespective of political persuasion, any program of this magnitude, further bolstered by popular provisions covering pre-existing health conditions and dependent coverage up to age 26, is likely here to stay.
Even if Republicans take over the Senate in November (possible) and retain the House (probable), then pass legislation to repeal the Affordable Care Act, the President will veto that bill, and there is nothing close to a two-thirds majority in either house to override a veto.
So, at that point, the law stays in existence until at least 2017, when a new president takes office. People will have more time to adapt to the changes and will not want to give up those aspects of the law that they deem beneficial.
The end result appears to be amendments and modifications versus outright repeal, but stay tuned for more political theatrics in the meantime.
There have already been numerous delays of key provisions. In particular, Mississippi businesses hovering just below 50 full-time equivalent employees and those with 50-99 employees should be closely monitoring these changes – and their near-term effect. All the related new taxes and penalties look likely to survive.
On another topic, Congress continues to struggle with an approach to pass “extenders” legislation. Remember, these are popular tax saving provisions that are not permanent to the tax code, and they have to be “extended” every year or two.
The Senate would like to pass all of these for two years. The House is more interested in evaluating them piecemeal. So, they are at an impasse right now.
The biggest issue, of course, is that these provisions, which include such items as small business expensing, bonus depreciation, various tax credits, deductions of state sales taxes in lieu of income taxes, etc., expired at the end of last year.
Right now, the best guess seems to be that they will all be voted on after November’s elections and reinstated retroactively to January 1, 2014. This complicates tax planning and certainly bears watching. In particular, 50% bonus depreciation appears at some risk of not being reenacted. Mississippi businesses need to stay aware.
Finally, two recent stories from decidedly different perspectives tell a conflicting tale about the state of the U.S. tax system. First came the news that the Treasury paid out at least $13 billion in bogus earned income tax credits last year. This program, well-intended as it is, annually is rife with abuse as dishonest filers and preparers continue to outwit the IRS using erroneous income, dependent, and citizenship information.
However, the other news was much better. After years of trying, the IRS and Justice Department got a guilty plea and $2.6 billion nondeductible fine from Credit Suisse. The Swiss bank had fostered U.S. tax evasion for decades with abusive structures designed to help wealthy U.S. citizens hide income from U.S. taxation. Others had paid smaller fines with deferred prosecution agreements where the charges were later quietly dropped. But, this is an outright felony conviction and huge fine – a strong statement that sends a message.
Let’s hope it is heard.
» John Scott, CPA, is a tax partner at HORNE LLP and has more than 25 years of public accounting