Economic Legislative & Policy Summit: Summary of Agenda

• Research & Experimentation Credit - relaxing the ability for start-ups to obtain R&D credits (which at present are limited due to Venture Capital funding and NOL positions)
  
  
• 3.8% and .9 % Medicare Surcharges – Depending on the results of the presidential election in 106, if Republicans take the Oval Office a strong movement exists to repeal the 3.8% and .9% surcharges.  Mr. Brady indicated that the 3.8% was almost certain to go away if Republicans take office; the .9% he only said, may go away.
  
  
• W-2 & 1099 Penalties Doubled – Reminder was made that under the Trade Preferences Extension Act signed into law in June 2015, penalties for incorrect or failed reporting of Forms W-2 and 1099 (series) more than doubled from $100 for a single incorrect return to $250 per offense. The annual cap also doubled to $3 million from $1.5 million. For intentionally failing to file a return, the amount rose from $250 to $500. Of course, because there are two filing requirements for employers—returns must be filed with the Internal Revenue Service pursuant to Section 6721 while Section 6722 applies to returns that must be provided to employees—the actual cost of a single incorrect form will cost an employer $500. Employers should ensure that their filings are on time and accurate or face a steep price.
  
  
• Capital Gains and Dividend Tax Rates – the word was that these rates would likely go UP, NOT down. The intent of current proposals are to close the gap between the highest marginal individual rate and the preferential capital gains and dividend rates.  Rates suggested were an individual rate of 38% and cap gains and dividends at 28%
  
  
• Section 1031 Like Kind Exchanges – certain current availability for LKEs for art and coins to go away while real estate LKEs WILL survive
  
  
• Audits of TEFRA and “Electing” Large Partnerships – proposal includes that for years after 2017, IRS adjustments for these to be made at partnership level and would be levied upon, and paid by, the partnership (not by individual partners on their amended Forms 1040).  The partnership TMP agreement with IRS will thus bind all partners for same. [TEFRA partnerships are those with more than 10 partners; “electing:” large partnerships are those with over 100 partners.]  In addition, partnerships with 100 or fewer partners would be able to elect out of these new rules.  Consideration is also being given to how to treat S corp. foreign, and not-for-profit partners under this proposal. 
  
  
• LB&I Reorganized (yet again!)  –  IRS’s large Business and International Audit Division (which impacts corporations, subchapter S corporations, and partnerships with assets greater than $10 million) is again being revamped again with emphasis on efficiency by removing permanently embedded auditors from large taxpayer’s offices who typically canvass all items on returns to instead focus on more specific and targeted “issues-based” examinations. (i.e. “campaigns” see below) 
  
  
• Increased attention to treaty based positions and transfer pricing matters. 
  
  
• Campaigns Oriented Audits & increased Exam Transparency – IRS is restructuring examinations to be more “campaign” oriented such as they have done on Captive Insurance audits; this includes using a more focused and coordinated approach targeting specific subject matters from the start as opposed to blanket Information Document Requests (‘fishing trips”).  IRS encourages taxpayers and their CPA representatives to understand this new IDR process, come to early agreements as to scope of interviews during the exam process, and be more responsive to agents while also holding them accountable to quickly close areas of focus that have been resolved (Editor’s Note: From my hearing of the changes, however, the impression  got was that many inefficiencies will still exist including multiple decision making channels at IRS for certain specific examination issues thereby resulting in multiple contacts and decision makers depending on the item being examined, especially if it involves one or more IRS Subject Matter Expert or Industry Specialist.)
  
  
• IRS Internal Issues and Feedback from Live Examinations:
  
  
• IRS payroll and manpower depleted – Older agents are retiring and new agents are much less experienced. But this can be used to taxpayer and CPA representative advantage
  
  
• Understanding how the exam process works – this will continue to be advantageous to taxpayers and their CPA representatives and help improve and speed the process
   
• Identity Theft – IRS has progressively increased from none in prior years to now over 200 internal control check mechanisms to prevent abuse of taxpayer payments and refunds and stolen identity
  
  
• Trans Pacific Partnership Agreement – Mr. Brady ‘s view [and those like-minded with him in Congress] was that “a full review of the TPPA be made by the entire country” and it should only pass “only if it’s good for America.” Concerns include undue advantages reaped by other countries in terms of import tariffs etc. (e.g., “they can import freely here but we cannot do so over there”.)
  
  
• Medicare & Welfare Reform – Medicare just celebrated its 50th anniversary and Congress is looking at ways to reduce costs and eliminate abuses while still providing the so-called “safety nets”.

Internal Proposals

• Additional Code Provisions  – VERY serious consideration is being given to add Code provisions over the next 14 months to allow for repatriation of profits held by US multinationals overseas. Some prefer to do so “tax-free”.  Mr. Brady said this would be difficult to do over the next 14 months of Obama’s term, but look for it if Republicans take the Oval office in ‘16. In either case, the most likely scenario is that this will take the form of an initial tiered “toll” charge (tax) with a different rate for liquid vs illiquid asset repatriation. The purported benefits include an immediate infusion of cash into the system which a least in theory “help offset some of the national debt.  (Yes I know….I know…  ).
  
  
• FBAR/FATCA – For the 2016 reporting period due in 2017, reporting by individuals of interests in or signature authority over a foreign financial interest or account will move to the April 15th filing season (instead of the long standing June 30th filing deadline). The 2016 report will thus be due on April 15th 2017. Treasury still reviewing the fact that many individuals are still becoming aware of the exposure in this area and are contemplating additional relaxation of rules for offshore individuals. Example, if a foreign financial institution is complying with its US reporting obligations then no issue; if not, then a 30% withholding tax on all its payments to US individuals would apply.