AICPA Briefs Media on Three Pressing Tax Issues
by Terri Eyden on
By Ken Berry
On November 15, the American Institute of CPAs (AICPA) held a conference call with various members of the media, including AccountingWEB. The briefing – which was monitored by AICPA Vice President of Taxation Ed Karl, AICPA Chair of the Tax Executive Committee Jeffrey Porter, and AICPA Director-Tax Advocacy Melissa Labant – focused on three critical areas: (1) expiring tax provisions, (2) the 2014 tax filing season, and (3) the IRS budget. The AICPA representatives also fielded questions on these three topics.
Expiring Tax Provisions
Karl began the briefing by explaining the problems facing tax practitioners, as dozens of key tax provisions reach their expiration date on January 1, 2014. He noted that this is becoming a near-annual ritual because Congress typically fails to address extenders in a timely fashion. The current provisions at risk range from tax breaks for businesses to individual deductions to special elections for taxpayers (see sidebar).
"The timing of transactions is especially difficult, with fifty-seven tax provisions expiring at the end of the year," said Karl. He referenced the Section 179 deduction for businesses as a prime example. Using a rough illustration, Karl pointed out that a business acquiring $1 million of property in 2014 would qualify for a Section 179 deduction of about $600,000 if the current rules are extended, but would otherwise be entitled to a deduction of only $200,000 – a $400,000 swing. The uncertain fate of this provision makes it difficult for business owners to decide what to do.
Karl acknowledged that such complications aren't limited to business-related provisions. He mentioned several tax breaks for individual taxpayers that are also set to expire after 2013, including the optional deduction for state sales taxes, the tuition deduction for higher education expenses, and the election for retirees to contribute to charity directly from an IRA. "The on-again, off-again nature creates uncertainty," said Karl.
In response to a question, Karl said that this year differs from last year when the "fiscal cliff" was approaching. Because certain two-year extenders were eventually reinstated retroactively, the emphasis was on tax filing complications. This time around, the uncertainty revolves around decision-making, which Karl believes is even more difficult to address.
List of Endangered Tax Species in 2014
Some of the most important tax provisions set to expire at the end of 2013 are:
- Deduction for certain expenses of educators.
- Deduction for state and local sales taxes.
- Deduction for qualified tuition and related expenses.
- Premiums for mortgage insurance deductible as qualified interest.
- Parity for exclusion for employer-provided mass transit and parking benefits.
- Tax credit for health insurance costs of eligible individuals.
- Tax credit for research and development expenses.
- Work Opportunity Tax Credit.
- Special rules for "Qualified Small Business Stock" (QSBS).
- Increase in Section 179 deduction to $500,000.
- Bonus depreciation.
- Fifteen-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements.
- Enhanced charitable deduction for contributions of food inventory.
- Tax-free distributions from IRAs for charitable purposes.
- Basis adjustment to stock of S-corporations making charitable donations of property.
- Special rules for charitable contributions of conservation property.
- Various energy-related tax incentives.
This list is by no means all-inclusive. In addition, extenders are subject to possible modifications.
2014 Tax Filing Season
The AICPA representatives were united in their disappointment in the decision to push back the start of the tax filing season due to the federal government shutdown in October. On October 22, the IRS announced that the delay would last for one or two weeks. Traditionally, the IRS kicks off the tax filing season on January 21 for tax returns due for the prior calendar year, although the critical tax filing deadlines remain April 15 for most taxpayers, or October 15 for those requesting an automatic six-month extension.
This means the IRS would start accepting and processing 2013 individual tax returns no earlier than January 28 and no later than February 4. The IRS says the additional time is needed for programming, testing, and deployment of the more than fifty IRS systems used to handle processing of nearly 150 million tax returns.
Labant strongly urged the IRS to start the tax filing season as soon as possible to alleviate a crunch for practitioners and taxpayers alike. She also noted that another shutdown by the government in 2014 could cause further damage. Labant stressed the need for the IRS to come up with a contingency plan in a worst-case scenario. "We don't want any surprises in January, especially as it comes to tax filing season," she said.
In addition, Labant hoped that the IRS would make any contingency plans public, so it would be possible for tax return preparers to plan ahead. She stated the AICPA will be holding meetings with other stakeholders in the near future to address these issues.
The IRS Budget
The briefing ended with a discussion about how projected budget cuts will affect the IRS' ability to effectively handle its responsibilities. Karl complained that current budgetary restraints, some of which were mandated by the federal sequester, were already having an adverse effect. He cited the following problems:
- Fewer resources for taxpayers.
- Increase in wait time on calls to IRS.
- Delay in issuing notices.
- Delays in receiving forms from IRS.
- Reduction in walk-in taxpayer assistance services.
- Less administrative guidance.
"Training budgets have been cut and that potentially could have a long-term impact," said Karl. He remains concerned that the IRS hasn't provided sufficient guidance with respect to the tax consequences resulting from the invalidation of the Defense of Marriage Act (DOMA) and the imposition of the new 3.8 percent Medicare surtax, among other issues. Karl doesn't paint a positive picture for the future. What's more, he referred to IRS efforts to thwart identity theft as yet another sore spot, noting it has already spent half a billion dollars on defensive measures.
The AICPA is promising to do its part to rally the troops. Karl noted that the organization previously sent a letter to Congress relating to the IRS' budget. If anything, he believes the nation's lawmakers should allocate more money, not less, to the IRS. "Indiscriminate cuts to the IRS budget are not necessarily the answer," he concluded.
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