Washington Hotline – May 23, 2017


Washington Hotline

46% Reduction in IRS Identity Theft Reports

On May 18, IRS Commissioner John Koskinen spoke to the Council for Electronic Revenue Communication Advancement (CERCA). He called the 2017 filing season “the smoothest filing season since I became Commissioner.”

By May of 2017, the IRS received 139 million returns. Over 152 million are expected by the October 16 tax extension filing date. The IRS issued 101 million refunds, with an average payout of approximately $2,800.

Koskinen thanked the CERCA members for helping to support the IRS Security Summit. With the help of companies that provide tax-filing software and services, there has been major progress in “efforts to combat stolen identity refund fraud and protect taxpayer data.”

In Koskinen’s view, the new safeguards produced “stunning results.” There was a major decrease in fraudulent returns and bad refunds.

The number of taxpayers who reported identity theft crimes declined dramatically. There were 698,700 reports in 2015 and only 376,500 in 2016. This reduction reflects IRS success in “stopping criminals from filing false returns using someone else’s personal information.”

In the future, a combination of the support from CERCA members and the new Identity Theft Tax Refund Fraud Informaiton Sharing and Analysis Center (ISAC) will be critical to reducing fraud and identity theft.

Editor’s Note: The IRS has made major progress in reducing tax fraud and identity theft. Because the thieves are creative and continue to develop new strategies, it will still be important for CERCA and the IRS to educate and alert taxpayers about the latest tax fraud methods.

Sen. McConnell Supports Revenue-Neutral Tax Reform

In a national media interview on May 16, Senate Majority Leader Mitch McConnell (R-KY) was asked whether he continues to support a revenue-neutral tax reform bill. He responded, “Well, it will have to be revenue-neutral, we have a $21 trillion debt.”

McConnell, Speaker of the House Paul Ryan (R-WI) and House Ways and Means Committee Chariman Kevin Brady (R-TX) have all claimed their tax reform bill will be revenue-neutral.

However, the White House and Senate Finance Committee Chairman Orrin Hatch appear willing to consider a tax reform bill that is not revenue-neutral. Hatch spoke with reporters this week and called revenue neutrality a “good goal,” but suggested he was “not bound” to the concept.

The White House summary page of tax reform principles is too conceptual for detailed financial projections. With the substantial proposed personal and corporate rate reductions, the White House plan is likely to entail large costs over the next decade.

Tax reform in the House will proceed next week. There will be a general Ways and Means Committee hearing on May 18 and a second hearing on May 23 to discuss the controversial border adjustable tax (BAT). Brady and Ryan continue to support the BAT.

During his media interview, Sen. McConnell was asked if he also supported BAT. McConnell responded, “It probably would not pass the Senate.” He suggested that he is attempting to work with Speaker Ryan, Treasury Secretary Steven Mnuchin and Rep. Brady to come to a mutual agreement that would allow them to move forward.

Senator Hatch concluded by noting the border adjustable tax must be significantly modified or it will not have “the slightest chance in the Senate”

White House and Senators Support Bipartisan Tax Reform

On May 17, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn met with Republican and Democratic members of the Senate Finance Committee.

The White House representatives expressed hope for a bipartisan effort on tax reform. Sen. John Cornyn (R-TX) reported the White House was reaching out to democratic senators.

Sen. Clair McCaskill (D-MO) welcomed the effort to include Democratic senators in the process. She stated, “It is not going to happen if you do not have bipartisan and moderate Democrats as part of the equation.”

Sen. Thomas Carper (D-DE) outlined his tax reform priorities. He stated, “There is a common ground. I laid down four important questions to ask in doing tax reform. One, is it fair? Two, does it foster economic growth? Three, what is the impact on the deficit? And lastly, does it simplify the code or make it more complex?”

Editor’s Note: With the House now convening hearings and the meeting between the White House and senators from both parties, tax reform is moving forward. All parties recognize the negotiation process will be lengthy. However, Speaker Ryan opined this week that tax reform is possible by the end of 2017. The nonpartisan Tax Policy Center published an analysis this week of tax reform options. Over a decade, reducing the business rate to 15% costs $1.36 trillion. Reducing the rate to 25% with a narrower base can be done at a cost of $410 billion. The Senate and White House have not yet addressed the tax source to cover either cost.

Applicable Federal Rate of 2.4% for June — Rev. Rul. 2017-12; 2017-23 IRB 1 (17 May 2017)

The IRS has announced the Applicable Federal Rate (AFR) for June of 2017. The AFR under Section 7520 for the month of June will be 2.4%. The rates for May of 2.4% or April of 2.6% 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. Federal rates are available by clicking here.