2015 federal tax update
TRANSCRIPT
JANUARY 2015
Federal Tax Update
Presented by
Bill Smith, Managing Director, CBIZ National Tax Office Email: [email protected] | Phone: (301) 951-3636, Ext. 6725
linkedin.com/in/cbizbillsmith
Topics
Post Year-End Tax Planning – Tangible Property Tax Planning Asset Issues
• Tangible Property Analysis, Protective 3115s, Depreciation Review
• Cost Segregation
• Depreciation: Potential Extender Legislation
Legislative Updates – Changes to Tax Writing Committees
– Comprehensive Tax Reform Proposals: Obama and Camp
– Extender Legislation
• H.R. 5771
• One Year Deal for 2014
Administrative – Bonus Accruals
2
Tangible Property Regulations
– Process to ensure compliance
– Protective 3115 Filings
– Depreciation review
Cost Segregation
Tangible Property Planning
3 Post Year-End Tax Planning
Senate Finance
– Orrin Hatch (R – Utah) taking over
– Favors revenue neutrality, geographic tax system (tax earnings
where earned)
– 14 Republicans; 12 Democrats
House Ways and Means – Camp (R- Mich) retired
– Paul Ryan (R – Wis) taking over
– Applauded Rep. Camp’s tax reform proposal
– Will use Camp proposal as a “Marker,” not necessarily as a starting point
– 35 Republicans; 15 Democrats (Van Hollen, D-Md, bumped)
Tax Writing Committees
4 Legislative Updates
Obama
– Wants a “serious attempt at tax reform” in 2015 – “The tax area is
one area where we can get things done.”
– Corporate reform must be offset by eliminating “unspecified”
loopholes
– Aware that some companies are paying “full freight” 35%
House Ways and Means – Paul Ryan (R – Wis)
– To lower rates, have to broaden base, meaning the closure of
loopholes
Both Committees plan to hold hearings on tax reform in
2015
Tax Reform Rhetoric
5 Legislative Updates
At the end of February 2014, Chairman of House Ways
and Means Committee Dave Camp (R-Mich.) released
discussion draft of a comprehensive tax reform bill
President Obama released his annual list of budget
proposals a week after Camp’s proposal (March 2014)
– Over 80% of the tax proposals are the same as in last year’s
budget proposal
Obama and Camp on Tax Reform
6 Legislative Updates
Obama vs. Camp: Comprehensive Tax Reform
7 Legislative Updates
Obama/Camp Agree Obama/Camp on Same Page Obama/Camp Disagree
R&E Credit made permanent Section 179 expensing (Obama $500,000; Camp $250,000)
Gain on Sale of Small Business Stock (Obama permanent exclusion; Camp repeal)
Repeal LIFO and LCM methods of accounting
Like Kind Exchanges (Obama $1 million per year limit; Camp repeal)
WOTC (Obama permanent; Camp repeal)
Taxing carried interests as ordinary income (Obama 100%; Camp “total capital invested in a fund multiplied by a rate of return”)
Energy Incentives (Obama renew and expand; Camp repeal)
Pass-through income of service organizations subject to self-employment tax (Obama 100%; Camp 70%)
Camp Comprehensive Tax Reform
Top corporate
tax rate of
25% (down
from 35%)
Effective
Actual
Corporate Tax
Rates By
Selected
Industry 2007-
2008*
8 Legislative Updates
Industry Tax Rate
Agriculture, forestry, Fishing and Hunting 22%
Mining 18%
Utilities 14%
Construction 31%
Manufacturing 26%
Wholesale and Retail Trade 31%
Transportation and Warehousing 19%
Information 25%
Insurance 25%
Finance & Holding Companies 28%
Real Estate 23%
Leasing 18%
All Services 29%
Average Effective Actual Tax Rate 26%
*Source: U.S. Treasury, Office of Tax Analysis
Camp Comprehensive Tax Reform: Other
Corporate NOL limited to 90% of taxable income
Software development / R&D amortized over 5 years
Most businesses with gross receipts > $10 million
required to use accrual basis
Income required to be recognized no later than when
recognized for financial statement purposes
9 Legislative Updates
Camp Comprehensive Tax Reform: Other
Repealed provisions would include (not all inclusive):
– Accelerated depreciation
– DPAD (phased out over several years)
– Corporate AMT
– Exception to $1 million compensation deduction limit for stock
options, commissions, etc.
10 Legislative Updates
Rep. Devin Nunes (R – Calif) Proposal (Jan 8)
Comprehensive Tax Reform:
– All businesses taxed at 25%
o Includes corporations and pass-through entities
– Individual tax rates not changed
– No business credits or deductions – replaced with 100%
expensing regime
– Rate reduction would occur over a decade, but eliminating
deductions and credits would be immediate
– Credits work of Camp and Ryan
11 Legislative Updates
Other Activity in Opening Days of the 114th
House adopts dynamic scoring of tax legislative
proposals
– Intended to take into account the projected macroeconomic
effects the legislation will have on the economy
– CBO and JCT will be required to estimate changes to
o Employment
o Available capital
o “Other economic variables”
– Applies only to “large” bills – must affect ¼ of a percentage point of GDP
– Senate has not signaled whether it will follow suit
– Potentially two sets of rules for same legislation
12 Legislative Updates
Other Activity in Opening Days of the 114th
ACA Changes
– House passes bill to define “Full time” under ACA as 40 hours per
week instead of 30
• 12 Democrats joined all House Republicans
– Repeal of “medical device excise tax” high on Republicans list of
priorities, although Hatch says it may not be among the first
matters addressed
Obama says he will veto changes
Neither House nor Senate had enough Republican votes
to override veto
13
Legislative Updates
Resistance to Accrual Method Proposal for
Businesses with Revenue over $10 million
Camp’s (R-Mich) comprehensive tax reform package includes
a requirement that businesses with average annual gross
receipts of more than $10 million would be required to use the
accrual method
The proposed change would preclude the use of cash
accounting by pass-through entities, professional services
firms, family farms and other businesses
223 Representatives and 46 Senators have sent letters
opposing the change
14 Legislative Updates
House and Senate passed one year Extender Package, signed by Obama Dec. 16
All provisions expired again on Dec. 31
Will cost approx. $41.6B through 2024
Summary: – Extends tax benefits retroactively through end of 2014
– Bonus Depreciation at 50%
– Sec. 179 expensing election: $500,000/$2,000,000
– 15 year recovery period: qualified leasehold improvements/certain retail and restaurant improvements
House Bill H.R. 5771: One Year Extender
15 Legislative Updates
Business tax provisions that expired at end of 2013 and
were extended through 2014 include:
– Research and experimentation credit;
– Work opportunity tax credit;
– Increase in expensing to $500,000/$2,000,000 and expanded definition of §179 property;
– Bonus depreciation;
– Exceptions under Subpart F for active financing income;
“Tax Extenders” - Expired Tax Provisions
16 Legislative Updates
Business tax provisions that expired at end of 2013 and
were extended through 2014 (continued):
– Look-through treatment of payments between controlled
foreign corporations (“CFC ”);
– Special rules for qualified small business stock;
– Reduction in S corporation recognition period for built-in
gains tax;
– 15-year straight line cost recovery for qualified leasehold,
restaurant, and retail improvements
“Tax Extenders” - Expired Tax Provisions
17 Legislative Updates
Employers have been lured into a false sense of security,
believing that any compensation paid within 2 ½ months
of year end for services provided in the prior year were
deductible in the year the services were provided
IRS attacks on bonus accrual examples:
– Forfeited Bonuses Revert Back to Taxpayer
– Forfeited Bonuses Allocated to Other Employees
– Bonuses Forfeited After a Certain Date Revert Back to
Taxpayer
IRS Attacks Year-End Bonuses
18 Administrative – Bonus