Washington Hotline – May 6, 2014

 

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Washington Hotline

ACA Premium Credit for Over 80%

Under the Affordable Care Act (ACA), individuals who have annual household income between 100% and 400% of the federal poverty rate are eligible for a premium tax credit. The credit may be claimed on a tax return or there is an advance credit option. Those who elect the advance credit option will benefit from a direct payment by the Department of Health and Human Services to the health insurance company.

The credit is based on estimated income reported by the individual. Taxpayers who receive a credit will reconcile that amount on their next annual tax return. If the individual has reported the wrong estimated income, it may be necessary to repay part of the premium tax credit.

The Department of Health and Human Services published a report on May 1 that outlined the results for 2014. The initial March 31 deadline for ACA enrollment was extended to April 19. In May of 2013, the Congressional Budget Office (CBO) estimated that there would be approximately six million individuals eligible for the credit. In February of 2014, the CBO changed that estimate to five million. Of the eight million who signed up by the April 1 deadline, 6.8 million are eligible for the credit.

There was a major increase in sign-ups during March and April. From March 1 through April 19, 3.8 million persons signed up. Those who signed up later exceeded the CBO estimate that 86% would be eligible for the premium credit.

Editor’s Note: The premium credits reduce the cost of health insurance for individuals with incomes in the 100% to 400% range of the federal poverty rate. There are four principal methods that will be used to offset the cost of the premium credit payments to health insurance companies. First, there is a 3.8% Medicare tax on passive income of upper-income persons. Second, there is a tax on medical devices. Third, there is a tax payable by health insurance companies. The second and third amounts are likely to be passed through to consumers through higher health insurance rates. Fourth, there are substantial reductions in Medicare spending. These four methods and other tax increases are designed to offset most of the cost of ACA credits.

IRS Directive – No Social Security Numbers on 990’s

In IR-2014-57 the IRS directed nonprofits to not include Social Security numbers or personal data on the Form 990 series.

Each year most nonprofits must file an information return. Public nonprofit charities with substantial assets or receipts will file IRS Form 990 or Form 990-EZ. Private foundations must file Form 990-PF. Smaller organizations with average annual receipts of $50,000 or less are permitted to file Form 990-N. This has been called the “electronic postcard” return. Churches and church-related organizations are not required to file.

Under the Pension Protection Act of 2006, organizations that do not file the appropriate return for three years will suffer an automatic revocation of their tax exempt status. For organizations on the calendar year, the return is due May 15 (the 15th day of the fifth month of the year). It is possible to obtain an extension if the organization is required to file Form 990, Form 990-EZ or Form 990-PF.

The IRS noted that there will be public disclosure of Form 990. It stated, “Most tax-exempt organizations are required to publicly disclose most parts of form filings, including schedules and attachments. Public release of SSNs and other personally identifiable information about donors, clients or benefactors could give rise to identity theft.”

Therefore, nonprofits should file the appropriate Form 990 series, but must be cautious to exclude Social Security numbers or other personally identifiable data on individuals.

The notice also encourages organizations to use the www.irs.gov “Exempt Organization Select Check” tool. This enables the organization to be certain that it’s currently qualified to receive deductible contributions.

Ways and Means Committee Passes Permanent Tax Extenders

House Ways and Means Chairman Dave Camp (R-MI) held a tax extenders markup session this week. He presented six business-related tax extenders. They passed on a generally party line vote and will be sent to the full House.

The six business extenders are the most popular of the 60 tax extenders that have been passed each year for the past decade.

1. Subchapter S Corporations – The five year rule for taxing “built-in gains” is made permanent.

2. Subchapter S Corporation Gifts – The favorable basis rules to facilitate appreciated property gifts by Subchapter S corporations was passed.

3. Expensing – The ability for small businesses to expense up to $500,000 in new equipment under Sec. 179 was passed.

4. Research and Development Credits – A simplified version of the credit is made permanent.

5. Active Financing – The subpart F exception for active financing passed.

6. Controlled Foreign Corporation – The look-through rule for foreign subsidiaries is made permanent.

There was a debate between the parties on whether or not it was essential to create offsets. Chairman Camp stated that tax extenders had been previously passed without offsets. However, Ranking Member Sander Levin (D-MI) objected to passing the estimated $310 billion in business tax benefits without any tax increases. He noted that the House leaders were not willing to pass unemployment insurance extensions without offsets.

Levin stated, “But the manner in which Republicans are proceeding — selecting six of the approximately 60 tax provisions that expired last year to make permanent, without any offsets – is both fiscally irresponsible and fundamentally hypocritical.”

The National Association of Manufacturers published a letter from Vice President Dorothy Coleman. She supported making the six extenders permanent and stated, “In particular, manufacturers support expedited action on the permanent extensions of the research and development (R&D) credit, Sec. 179 expensing, deferral for active financing and the ‘look-through’ rule.”

Editor’s Note: Chairman Camp has chosen a very different strategy than Senate Finance Committee Chair Ron Wyden (D-OR). The Senate Finance Committee passed a fairly traditional tax extenders bill. Most of the 60 extenders would be enacted for two years. The House has chosen to create a separate bill for each extender and make that provision permanent. It is expected that the House will address many of the other tax extender provisions in future meetings. However, many of the 60 previous extenders are not likely to pass. The nonprofit sector awaits the House decision on the IRA charitable rollover, enhanced conservation charitable deductions, enhanced deduction for gifts of food and other provisions. After the House has passed the permanent extenders, there will be a House-Senate Conference Committee to resolve these substantial differences.

Applicable Federal Rate of 2.4% for May — Rev. Rul. 2014-13: 2014-19 IRB 1 (21 Apr 2014)

The IRS has announced the Applicable Federal Rate (AFR) for May of 2014. The AFR under Section 7520 for the month of May will be 2.4%. The rates for April of 2.2% or March of 2.2% 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 2014, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.

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