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Sunday March 29, 2015

Washington News

Washington Hotline

IRS 'Treat Taxpayers Nice' Rules

In 1998, Congress passed the IRS Restructuring and Reform Act, which included a list of ten guidelines to require IRS employees to treat taxpayers fairly. A failure of an IRS employee to follow these rules could lead to loss of his or her position. The ten current rules for “Treating Taxpayers Nicely” include the following:

  1. Willful failure to obtain required approval signatures to authorize seizure of a taxpayer’s home, personal belongings or business assets.
  2. Providing a false statement under oath on a material matter involving a taxpayer or taxpayer representative.
  3. Violating the rights protected under the Constitution or the civil rights of a taxpayer or taxpayer representative.
  4. Falsifying or destroying documents to conceal mistakes made by any employee with respect to a taxpayer or taxpayer representative.
  5. Assault or battery of a taxpayer or taxpayer representative if there is a criminal conviction or a final judgment by a court in a civil case.
  6. Violating the Internal Revenue Code, Department of the Treasury regulations or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating against or harassing a taxpayer or taxpayer representative.
  7. Willful misuse of the provisions of Section 6103 of the Internal Revenue Code for the purpose of concealing information from Congress.
  8. Willful failure to file a personal tax return, unless such failure is due to reasonable cause and not to willful neglect.
  9. Willful understatement of federal tax liability, unless such failure is due to reasonable cause and not to willful neglect.
  10. Threatening to audit a taxpayer for the purpose of extracting personal gain or benefit.

On March 26 the House Ways and Means Committee passed the Prevent Targeting at the IRS Act. This bill instructs the IRS not to target a taxpayer based upon political beliefs. Sponsor Jim Renacci (R-OH) stated, “If someone at the IRS targets taxpayers based on their political beliefs, he or she should be held accountable. It’s that simple. I was proud to see the Ways & Means Committee unanimously approve this commonsense legislation as it is a step in the right direction to restoring a federal government that is accountable to the American people – and not the other way around.”

Estate Tax Repeal Bill Passes Ways and Means Committee

On March 26 the House Ways and Means Committee passed a bill to repeal the estate tax. The party-line vote on the Death Tax Repeal Act (H.R. 1105) was 22-10. The bill also repeals generation-skipping transfer tax and lowers the gift tax rate to 35%. The Joint Committee on Taxation (JCT) estimates the ten year cost to be $269 billion.

Sen. John Thune (R-SD) is expected to introduce a similar bill for consideration by the Senate Finance Committee within the next week.

In his opening statement, House Ways and Means Chairman Paul Ryan (R-WI) highlighted the “unfairness and frustration” associated with the tax system. Ryan continued, “Sometimes it even punishes people from beyond the grave. That's why today we're here to repeal the death tax. People work hard and pay taxes all their lives. They've earned the right to leave something for their kids—often a family business—without being penalized for it. And this tax doesn't just hit the big guy. It hits the little guy—like the small business and the family farm. It is both unwise and unfair, and it needs to go.”

Ways and Means Ranking Member Sander Levin (D-MI) pointed to the JCT claim that the tax savings from estate tax repeal would benefit only 5,500 households per year. In addition, 75% of the tax savings would go to estates over $20 million. Levin noted, “Americans already overwhelmingly believe that the tax code is stacked in favor of a select few. This irresponsible legislation simply reinforces that perception. This amounts to a massive tax cut for a tiny number of the wealthiest households. This isn’t middle class economics, it is estate economics.”

Editor’s Note: The Senate bill will normally require 60 votes for passage. Sen. Thune will attempt to reach that number through persuading farm belt Senators to support his bill. If the White House continues to oppose repeal of estate taxes, the bill will require 67 Senate votes for passage.

Gift Tax Not Applicable to Sec. 501(c)(4) Transfers

On March 26, Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-IL) presented for markup the Fair Treatment for All Gifts Act (H.R. 1104). The bill excludes gifts to Sec. 501(c)(4), (c)(5) and (c)(6) nonprofits from the federal gift tax.

While gifts over the $14,000 annual exclusion are subject to gift taxes, most donors and professional advisors have considered gifts to these nonprofits to be tax-free. In the past two years, the IRS has suggested that these gifts may be subject to gift tax.

Many organizations with diverse viewpoints supported the bill. The Hispanic Leadership Fund stated, “We applaud your efforts to make sure that the Internal Revenue Service is barred from selectively and erroneously applying the gift tax to contributions made to nonprofit organizations organized under sections 501(c)(4), (c)(5), and (c)(6) of the IRS code. Misuse of the tax code is a serious violation of the public trust, especially as it applies to activities protected under the First Amendment of the United States Constitution.”

The 60 Plus Association noted, “This important legislation is urgently needed to guarantee the protection of every American’s cherished right to freedom of speech, along with a full and free exercise of expression in the political process. Only a law can ensure the IRS be stopped from arbitrarily imposing gift tax liability on donations to non-profit organizations for political reasons.”

Chairman Roskam stated, “Americans who donate to tax-exempt organizations should always be treated fairly and equally by the IRS—an agency with an infamous track record of targeting individuals for their religious and political beliefs. The Fair Treatment for All Gifts Act, which will codify the longstanding practice of exempting these contributions from the gift tax, marks an important step in shielding Americans from further burdensome taxes and intrusive scrutiny by the IRS.”

Editor’s Note: Major gifts from wealthy donors have flowed to Sec. 501(c)(4) organizations on both the right and left of the political spectrum. The Fair Treatment for All Gifts Act will permit the current system to continue without exposing donors to the risk of an IRS gift tax deficiency.

Applicable Federal Rate of 2.0% for April -- Rev. Rul. 2015-7 (18 March 2015)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2015. The AFR under Section 7520 for the month of Arpil will be 2.0%. The rates for March of 1.8% or February of 2.0% 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 2015, 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.

Published March 27, 2015

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