Washington Hotline – July 19, 2016


Washington Hotline

No Tax on Olympic Medals

With a unanimous voice vote, the Senate on July 12 passed the United States Appreciation for Olympians and Paralympians Act (S. 2650). The bill was cosponsored by Sen. John Thune (R-SD) and Sen. Chuck Schumer (D-NY).

The bill excludes the value of Olympic medals and other prizes from federal taxation. It has been sent to the House of Representatives for passage.

Thune stated, “Our Olympic and Paralympic champions dedicate their lives to training to compete on the world stage, making numerous sacrifices for themselves and families along the way. They put in all of that time and hard work for the opportunity to earn a medal, and if they are successful, the pride of bringing it home. Having this bill signed into law would mean victorious athletes from Team USA won’t have to worry about a new tax burden and instead can focus on the warm welcome and congratulations from a grateful nation.”

Sen. Schumer continued, “Our Olympian and Paralympian medalists should be worried about breaking world records, not breaking the bank, when they earn a medal. After a successful and hard fought victory, it is just not right for the United States to welcome these athletes home with a victory tax. I am hopeful that this bill will earn strong bipartisan support and quickly become law.”

Editor’s Note: The Olympic gold, silver, and bronze medals that will be awarded this August may have very substantial collector’s value. In addition, the United States Olympic Committee also pays monetary awards to winning athletes. Both the value of the medals and the awards will be tax exempt under this bill. Passage in the House is expected to occur prior to the start of the Olympic Games on August 5.

Sec. 501(c)(4) Notice Requirements

In 2015, the Protecting Americans from Tax Hikes Act (PATH) created a new requirement for Sec. 501(c)(4) organizations to give notice to the IRS. The notice is required within 60 days of the organization of the nonprofit.

Sec. 501(c)(4) nonprofits are tax exempt and must annually file IRS Form 990, Form 990-EZ or Form 990N. Because gifts to these nonprofits are not deductible, they are not required to obtain exempt status from the IRS. Therefore, the PATH Act created a requirement for notice of operation to the IRS.

In Rev. Proc. 2016-41, 2016-30 IRB 1, the Service published specifics on IRS Form 8976, “Notice of Intent to Operate under Section 501(c)(4).” The IRS Form 8976 page on www.IRS.gov explains how to comply with this requirement.

The one-time notice must be filed electronically. Even though Sec. 501(c)(4) organizations must file IRS Form 990, Form 990-EZ or Form 990N and may also choose to apply for exempt status through IRS Form 1024, they still are subject to this notice requirement. All Sec. 501(c)(4) organizations must file Form 8976 within 60 days of organization.

To file, use the Form 8976 Electronic Notice Registration System on www.IRS.gov. Create an electronic account with your username and password. After creating an electronic account, enter the required information.

All Sec.501(c)(4) organizations must provide their business name, address, EIN, date of organization, state and county for organization, filing year and statement of purpose. The filing fee is $50.

After the nonprofit has filed Form 8976, the IRS will respond within 60 days. If any required information is missing, the nonprofit will need to update the information and resubmit the electronic form.

There is a transition rule for existing Sec. 501(c)(4) organizations. If a Sec. 501(c)(4) nonprofit has filed Form 990 or Form 1024 before July 8, 2016, the required Form 8976 due date is on or before September 6, 2016.

Rep. Renacci’s Tax Reform Plan

On July 14, House Ways and Means Member James Renacci (R-OH) released a white paper with a comprehensive tax reform plan. The “Simple American Tax System” (SATS) is designed to encourage economic growth and increase employment.

Individual, corporate, estate and excise taxes all are greatly changed. The individual income tax brackets will be 10% up to $50,000, 25% up to $750,000 and 35% over that amount. Each person has a $50,000 exclusion. Itemized deductions exist only for charitable giving and mortgage interest. The only two tax credits are the earned income tax credit (EITC) and the child credit.

Corporate income taxes are repealed, but there is a 7% goods and services tax. This is similar to other types of consumption or value added taxes.

Renacci, who is a CPA, commented, “It is clear to me that our nation cannot settle for middle of the pack. A simple corporate rate reduction around the OECD average won’t stop companies from relocation overseas or being acquired by foreign companies located in jurisdictions with more pro-growth tax regimes. We need to tear down the wall of corporate level taxation and jumpstart our economy with a much needed overhaul. SATS is a bold pro-growth solution to business tax reform that would make our tax system the most competitive in the world.”

Editor’s Note: The plans by Renacci, Sen. Ben Cardin (D-MD) and Sen. Ted Cruz (R-TX) all include variations of consumption taxes. While Members of Congress are reluctant to call these plans a value added tax (VAT), there are VAT elements in all plans. House Ways and Means Chairman Kevin Brady (R-TX) is asking Members for ideas to include in the potential 2017 tax reform bill. The level of activity suggests that he thinks there is a realistic chance for major tax reform next year.

Applicable Federal Rate of 1.8% for July — Rev. Rul. 2016-17; 2016-27 IRB 1 (17 June 2016)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2016. The AFR under Section 7520 for the month of July will be 1.8%. The rates for June of 1.8% or May of 1.8% 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 2016, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.