CCH Weekly Report from Washington, D.C.,(Sep. 29, 2014)
The Chairman of the White House Council of Economic Advisers noted that the U.S. business tax system does a poor job when measured against the ideal of a neutral tax system. Meanwhile, senate lawmakers announced a pro-family, pro-growth tax reform plan. Meanwhile, the Treasury and IRS announced a proposal on corporate inversions. The Treasury Inspector General for Tax Administration (TIGTA) urged the IRS to improve its oversight of the Voluntary Classification Settlement Program (VCSP). In a separate report, TIGTA reviewed the Service’s recognition of taxpayer rights to designate a representative to act on their behalf. IRS Commissioner John Koskinen highlighted the Service’s work to curb identity theft and the Service warned financial institutions about Foreign Account Tax Compliance Act (FATCA) (P.L. 111-147)-related fraud.
Sens. Marco Rubio, R-Fla., and Mike Lee, R-Utah, are proposing a federal tax reform plan that they say will remove obstacles to investment, innovation, growth and opportunity (TAXDAY, 2014/09/25, C.2). In a Wall Street Journal opinion piece published on September 23, the lawmakers said their reforms seek to simplify the structure and lower rates by consolidating the many existing income tax brackets into two simple brackets—15 percent and 35 percent—and eliminating or reforming deductions, especially those that disproportionately benefit the wealthy. The plan would eliminate the "marriage penalty" and augment the current child tax credit of $1,000 with an additional $2,500 credit, applicable against income taxes and payroll taxes.
Senate Finance Committee (SFC) member Charles E. Grassley, R-Iowa, on September 23, warned that the Obama administration’s limited action on inversions might take the pressure off for tax reform (TAXDAY, 2014/09/25, C.1). The former SFC chairman said that Obama’s approach might give the president a short-term gain but it is "bad" for the country in the long term. Grassley acknowledged that, while it is important for the president to "use his bully pulpit" to work with Congress on tax reform and help build a consensus on the right approach, he faulted Obama for failing to do so.
VCSP. TIGTA on September 24 encouraged the IRS to beef-up its oversight of the Voluntary Classification Settlement Program (VCSP) (Ref. No. 2014-40-065; TAXDAY, 2014/09/25, T.1). According to TIGTA, the Service fails to obtain the information it needs to ensure that employers are eligible for and comply with the VCSP. TIGTA reported that the IRS accepted 86 percent of applicants into the VCSP as of April 25, 2014. The Service approved 1,303 applicants out of a total applicant pool of 1,508. More than 25,000 workers were reclassified, TIGTA added.
Taxpayer Representatives. TIGTA gave the IRS generally good marks for ensuring that taxpayers have the right to designate a representative to act on their behalf with the Service (Ref. No. 2014-30-079; TAXDAY, 2014/09/24, T.1). TIGTA found that IRS examiners are in compliance with requirements to consult with taxpayer representatives in cases where a taxpayer has designated a representative. Identification of a taxpayer’s representative is critical during an examination, TIGTA emphasized.
Corporate Inversions. The Treasury Department and the IRS announced that they will be taking targeted action against corporate inversions (Notice 2014-52, TDNR JL-2645, TDNR JL-2647; TAXDAY, 2014/09/23, I.1). The Treasury Department issued a Fact Sheet and the IRS released a Notice.
Identity Theft. The IRS is diligently working to stop fraud perpetrated by persons who buy or steal Social Security numbers, Koskinen said on September 21 (TAXDAY, 2014/09/25, I.2). Tax identity theft is a growing problem that affects millions of Americans, Koskinen said. Contributing to the problem is the use of prepaid debt cards.
The IRS must take "bold and innovative" action to combat more than $5 billion in fraudulent identity theft (IDT) tax refunds, according to a new report by the Government Accountability Office (GAO) (TAXDAY, 2014/09/23, M.1). The report, requested by leaders on the Senate Finance and Aging Committees, and the House Ways and Means Committee, said the IRS should take additional steps to strengthen its pre-refund and antifraud efforts to effectively stop tax refund fraud before it starts. The "IRS estimates it issued at least $5.2 billion in fraudulent IDT refunds in filing season 2013," according to the report. The GAO recommended that Congress provide the Treasury Secretary with the regulatory authority to lower the threshold for electronic filing of Forms W-2 from 250 returns annually to between five to 10 returns, as appropriate.
By Jeff Carlson and George Yaksick, Jr., CCH News Staff