Tax Extenders Take First Steps +
Preliminary Filing Season Stats +
Lawmakers Hear From Small Businesses +
FAQ: Can An
S Corporation Own? +
before Congress recessed for its August break, a package of
tax extenders was approved by the Senate Finance Committee (SFC).
The House and Senate both
struggled to find ways to pay for a multi-year federal highway
and transportation spending bill, and disagreed over the
extent of cuts to the IRS's fiscal year (FY) 2015 budget.
Congress did not, however, take action on proposals to allow
small businesses to reimburse employees for health insurance
Unless renewed, many tax incentives available in 2014 will
not be available in 2015. The list of these popular but
temporary tax breaks is long, numbering more than 50, and
impacting all types of taxpayers. For individuals, the
extenders include the state and local sales tax deduction,
higher education tuition deduction, teachers' classroom
expense deduction, transit benefits parity, and more. For
businesses, the expired extenders include the research tax
credit, Code Sec. 179 small business expensing, Work
Opportunity Tax Credit (WOTC), special expensing rules for
television and film productions, Production Tax Credit, and
Recently in USA Today I was quoted in 2 articles on tax
topics & if you missed it you can download the articles
9 Commonly Overlooked
Tax Breaks by Jeff Reeves - Special to USA Today (click
here to download)
9 Tax Tips For The Self
Employed by Jeff Reeves - Special to USA Today (click
here to download)
In July, the SFC voted to extend
the expired tax provisions for two years: retroactive to
January 1, 2015 and forward through 2016. That way, taxpayers
can take advantage of the incentives in 2015 and 2016.
The SFC also enhanced some of the extenders. The SFC voted to
increase the Code Sec. 179 expensing maximum amount and
phase-out threshold in 2015 and 2016 to $500,000 and $2
million respectively, indexed for inflation beginning after
2014. The proposal would also extend the definition of Code
Sec. 179 property to include computer software and $250,000 of
the cost of qualified leasehold improvement property,
qualified restaurant property, and qualified retail
improvement property for two years.
The SFC did not leave out another popular business incentive:
bonus depreciation. The SFC package would extend 50 percent
bonus depreciation to qualified property purchased and placed
in service before January 1, 2017, (before January 1, 2018,
for certain longer-lived and transportation assets).
Although the extenders have moved through the SFC, their
passage in the full Senate is uncertain. Many lawmakers want
the cost of the extenders (estimated at $95 billion over 10
years) to be offset by revenue raisers. The SFC bill includes
three revenue raisers, two related to energy and a proposal to
modify mortgage information reporting requirements for
lenders. Like past years, the fate of the extenders will
likely be decided late in the year. Our office will keep you
posted of developments.
At press time, Congress was still seeking a path to pass a
multi-year federal highway and transportation spending bill. A
temporary highway funding bill is scheduled to expire after
July 31, 2015. As with the extenders, much of the debate is on
how to pay for highway and transportation projects.
Senate Majority Leader Mitch McConnell, R-Ky., proposed a
six-year highway bill partially paid for with extensions of
current funding provisions and tax compliance measures. The
bill is funded for three years with revenue for the remaining
three years to be determined at a future date. McConnell
proposed to pay for his bill, among other revenue raisers, by
modifications to mortgage information reporting, revoking or
denying a U.S. passport to individuals with delinquent tax
obligations, and allowing employers to transfer excess
defined-benefit-plan assets to retiree medical accounts and
group-term life insurance.
Meanwhile, the House approved a short-term highway patch. The
House bill includes a provision similar to the Senate's
mortgage information reporting proposal. House Democrats have
reproposed the GROW AMERICA Act, which would pay for highway
and transportation spending by limiting tax-motivated
In June, the House Appropriations Committee voted to fund the
IRS at $10.1 billion for FY 2016, which represents a cut of
some $838 million compared to FY 2015. The full House did not
take up the bill before the August recess. The Senate
Appropriations Committee also approved a cut to the IRS's
budget, but not at the same amount. The Senate bill would
reduce the IRS's FY 2016 budget by $470 million.
The Affordable Care Act imposes a number of market reforms.
One consequence of these reforms has been to limit the use of
health reimbursement arrangements (HRAs) for small businesses
to reimburse employees for health insurance costs. Reform
legislation has been introduced in the House and Senate.
The Small Business Healthcare Relief Act would allow many
small businesses to use pre-tax dollars to give employees a
defined contribution; and permit employees to use these funds
as an HRA to purchase health coverage on the individual
market, as well as for qualified out-of-pocket medical
expenses. The bill has bipartisan support and could come up
for a vote after the August recess.
If you have any questions about the tax proposals making their
way through Congress, please contact our office.
Filing Season Stats Show Successes And Challenges For IRS
information from the 2015 filing season shows a mixed bag of
success and failures for the IRS. The IRS successfully
processed returns and issued refunds, taking into account new
requirements under the Affordable Care Act. At the same time,
taxpayers experienced significant difficulties in contacting
the IRS and tax-related identity theft increased compared to
Returns and refunds
So far this year, the IRS has processed 126 million individual
tax returns, compared with 125.6 million last year. The IRS
has issued 91.8 million refunds, compared with 94.8 million
last year. According to the IRS, the average refund is $2,711,
up from $2,686 last year. The IRS also reported that visits to
its website jumped 12 percent this year compared to 2014.
Affordable Care Act
Effective January 1, 2014, individuals must carry minimum
essential health coverage or make a shared responsibility
payment, unless exempt. At the start of the filing season, the
IRS launched a campaign to educate taxpayers about the
individual shared responsibility requirement. At that time,
the IRS estimated that at least two-thirds of filers would
report having minimum essential health coverage, such as
employer-provided coverage. Many other taxpayers would be
exempt; and others would be required to make a shared
Looking at the preliminary data, the IRS reported that 76
percent of filers checked a box on their returns to report
they had minimum essential coverage in 2014. Approximately 12
million taxpayers claimed an exemption from the individual
mandate. Some 7.5 million taxpayers made a shared
responsibility payment. However, according to the IRS, some
300,000 individuals overpaid their shared responsibility
The IRS also processed some 2.6 million claims for the Code
Sec. 36B premium assistance tax credit. The credit helps
offset the cost of health insurance through the ACA
Marketplace. The average Code Sec. 36B credit amount was
The IRS cautioned taxpayers that budget cuts would negatively
impact customer service during the filing season and the
filing season reflected its prediction. In 2014, the IRS
answered 71 percent of all calls from taxpayers. This year,
the percentage fell to 37 percent and wait times increased.
The IRS also expanded its use of so-called courtesy holds
(which automatically disconnect a caller after a certain
amount of time). The IRS made 8.8 million courtesy disconnects
during the 2015 filing season.
Note. National Taxpayer Advocate Nina Olson recently told
Congress that the decline in customer service has consequences
beyond long wait times. "For a tax system that relies on
voluntary self-assessment by its taxpayers, none of this bodes
well," Olson said. "In fact, there is a real risk that the
inability of taxpayers to obtain assistance from the
government, and their consequent frustration, will lead to
less voluntary compliance and more enforced compliance."
Tax-related identity theft continues to grow as criminals find
new ways to scam unsuspecting taxpayers. In 2014, the IRS
reported discovering some 700,000 fraudulent returns. So far
this year, the IRS has identified some 1.5 million fraudulent
returns. The IRS also received approximately 1.6 million calls
to its Identity Protection Specialized Unit (IPSU).
The IRS also has had to deal with fallout from the May 2015
breach of its Get Transcript app. Criminals were able to
access more than 100,000 taxpayer accounts, including names,
Social Security numbers and dates of birth of dependents.
If you have any questions about the 2015 filing season, please
contact our office. All of these statistics are preliminary
and could change as the IRS continues to process data. The IRS
typically publishes tax return statistics about 15- to 18
months after the close of the tax year in order to provide
time for all returns to be filed.
Lawmakers Hear From Small Businesses About Tax Complexity,
business tax reform was the topic of two Congressional
hearings in July. House and Senate lawmakers heard from small
business owners and leaders in the tax and accounting area
about concerns over tax complexity, compliance, and penalties.
After the hearings, the chair of the Senate Small Business
Committee said that he is moving forward with a small business
tax compliance reform bill.
Complexity and compliance
The owner of a small manufacturing business told the Senate
Small Business Committee that "small businesses operate from
the intent to stay in compliance, but confusing regulations
coupled with limited resources can lead to businesses
inadvertently falling out of compliance." A representative of
a business association added that tax regulations cause the
greatest difficulties for small employers. "The current tax
code has become a confusing and unpredictable challenge for
the vast majority of small business owners. Small business
owners continue to be excessively burdened by direct,
indirect, complicated and ever changing taxes related to
operating their business," the representative testified.
Small Business Tax Compliance Act
The Small Business Tax Compliance Relief Bill, introduced by
Sen. David Vitter, R-La., in July, addresses a number of
issues raised by speakers at the hearings. Among other
provisions, the bill would reform some penalty provisions for
small businesses and require the IRS to expand its outreach to
small businesses. "Unlike many previous small business tax
bills, this legislation does not seek to alter tax rates or
pursue wholesale reform. Instead, it provides relief from
those provisions most often cited as overly restrictive for a
small business," Vitter said.
"The Small Business Tax Compliance Act of 2015 can ease
compliance costs and improve the overall tax system for small
businesses across the country," Jeffrey Porter, CPA, chair of
the AICPA Tax Reform Task Force, testified before the Senate
Small Business Committee. "Targeted, proportionate penalties
that are administered in a reasonable manner encourage
voluntary compliance with the tax laws, Porter said.
Businesses that act in good faith should not be subject to the
same rules as businesses trying to scam the system," he added.
Testifying before the House Small Business Committee, Troy
Lewis, CPA, chair of the Tax Executive Committee of the
American Institute of Certified Public Accountants (AICPA),
recommended changes to the tangible property regulations
("repair regulations") that address how businesses should
report the acquisition and improvement of tangible property to
reduce complexity. "The $500 de minimis safe harbor threshold
for taxpayers without an applicable financial statement should
be increased to $2,500 and should provide for annual inflation
adjustments. In addition, the definition of applicable
financial statement should be expanded to include a reviewed
set of financial statements so more businesses could benefit
from the higher $5,000 threshold," Lewis told lawmakers.
If you have any questions about pending small business tax
legislation, please contact our office.
FAQ: Can An S
Corporation Own An Interest In Another Business Entity?
S corporation may own an interest in another business entity.
An S corporation can be a member of an affiliated group by
owning 80 percent or more of the stock of a C corporation. The
group then can elect to file on a consolidated basis, if other
affiliated group rules are met. But the S corporation itself
cannot join the consolidated group.
Although in general only individuals can be shareholders in an
S corporation, an S corporation can own an S corporation if
the subsidiary corporation would otherwise qualify as an S
corporation if the parent's shareholders held the subsidiary's
shares directly, and the taxpayer elects qualified S
corporation status for the subsidiary. Generally, for federal
tax purposes a corporation that is a qualified S corporation
subsidiary is not treated as a separate corporation, and all
assets, liabilities, and items of income, deduction, and
credit of a qualified S corporation subsidiary are treated as
assets, liabilities, and items of income, deduction, and
credit of the S corporation.
An S corporation can also be a partner in a partnership or a
member of an LLC.
For further information on how an S corporation may hold or
acquire interests in another business, please contact our
I Compute Withholding Using The Part-Year Employment Method?
Employers generally withhold from wages by way of the
wage-bracket or percentage method (Code Sec. 3402(b) and Code
Sec. 3402(c)). However, an employee may request that the
amount of tax withheld by the employer from the employee's
wages be computed on the basis of the part-year employment
method (Reg. §31.3402(h)(4)-1(c)(1)). Under this method, an
individual who is employed no more than 245 days in the
aggregate during a calendar year may request that the employer
withhold on the basis of the part-year employment method to
prevent overwithholding. Under this method, the amount of tax
to be withheld is determined as if the wages paid to a
part-year employee were spread evenly over the calendar year,
whether or not the employee actually was employed during all
of that period.
An employee's request that withholding be based on the
part-year employment method must be in writing and in the form
that the employer requires. The request must be sworn and must
contain the following information:
- the last day of employment, if any, by any employer prior to
the current term of continuous employment during the calendar
year in which that term commenced;
- a statement that the employee reasonably anticipates being
employed for an aggregate of not more than 245 days in all
terms of continuous employment during the current calendar
- a statement that the employee uses a calendar-year
There is no specified due date for an employee's election to
withhold using the part-year method. A request by the employee
furnished to the employer in proper form may be acted upon by
the employer for wages paid after the furnishing of the
request. It is effective only for the calendar year in which
it is furnished to the employer. The request is not effective
for wages paid on or after the beginning of the payroll period
during which the current calendar year will end.
To read this & my other articles online go to
and click on the Newsletter section.
always you can call me at 714-619-0667 if you have any
questions about investing, retirement or any other tax &
accounting related issues.
Regards, Monica Rebella, CPA/IAR
President, Rebella Accountancy