Washington Hotline – October 24, 2017



Washington Hotline

IRS Security Summit Highlights Progress

On October 17, the IRS held a Security Summit Conference in Washington. In his presentation, and in letter IR-2017-176, Commissioner John Koskinen highlighted the success of the Security Summit in reducing identity theft.

Koskinen stated, “We have made tremendous progress since the Security Summit Partnership held its first session in 2015. We have seen the number of identity theft-related tax returns fall by about two-thirds since 2015. This dramatic decline helped prevent hundreds of thousands of taxpayers from facing the challenges of dealing with identity theft issues. This reflects the unique collaboration between the tax industry, the states and the IRS. But we have much more work facing us. As we evolve, so do the cybercriminals here and abroad. We must constantly be on guard.”

The IRS reports broad-based progress. During 2016, the IRS discovered 883,000 identity theft tax returns, which was a 30% decline from 2015. The IRS stopped 124,000 improper tax refunds. The reduced number of fraudulent refunds was a 50% decline from 2015.

There also were fewer victims of identity theft in 2016. There were 376,000 victims in 2016. This is down 40% from the reported 699,000 victims in 2015.

Koskinen did warn about the 2018 tax season. He noted, “We know that cybercriminals are planning for the 2018 tax season just as we are. They are stockpiling the names and Social Security Numbers they have collected. They try to leverage that data to gather even more personal information. This coming filing season, more than ever, we all need to work diligently and together to combat this common enemy.”

When he was asked about a major data breach by a large public firm, Koskinen noted that there has been widespread previous theft of personal information. He counseled, “My advice to people is that you should assume your name, Social Security Number and address are already in the hands of criminals, and then act accordingly.”

The IRS will continue to conduct Security Summits and provide specific information to taxpayers to help them avoid becoming identity theft victims.

Senate Budget Permits Tax Reform

The evening of October 19, the Senate passed the fiscal year 2018 budget by a vote of 51 to 49. The Senate budget permits $1.5 trillion in tax cuts over the next decade.

Previously, the House passed a budget with $200 billion in tax cuts. Rather than setting up a conference committee to resolve differences between the bills, Speaker of the House Paul Ryan (R-WI) may decide to present the Senate bill for a vote by the House.

If the House passes the Senate bill, then the door is open for both the House and Senate to draft actual tax reform bills. Speaker Ryan welcomed passage of the bill. He stated, “We want Americans to wake up in the New Year with a new tax code, one that is simple and fair. Now it is time to meet this moment and deliver real relief to hard working people.”

The main Senate Finance Committee taxwriters are Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR).

Hatch supported the bill and stated, “Our current tax system subjects American business and job creators to the highest tax rates in the industrial world. Our current tax system creates incentives for business to move headquarters and operations offshore eroding our nation’s tax base. Our current tax system is obscenely complex, riddled with credits, exemptions, and deductions, many of which were designed to benefit special interests. Reform to this broken system is long overdue.”

Wyden voted no and called the budget “a right-wing fantasy document that paves the way for a hyper-partisan process.”

Editor’s Note: Both the Senate Finance Committee and the House Ways and Means Committee staff are diligently working on the text of actual tax reform bills. With $1.5 trillion in potential tax reductions, it will be much easier to draft the legislation. There will be a major battle over the White House proposal to double the standard deduction and eliminate all itemized deductions except for the mortgage interest and charitable gift deductions. The House and Senate bills are likely to made public by the middle of November. It may be possible to pass this tax legislation by December 25, but even President Trump this week acknowledged the tax bill may slip into 2018.

Estate Tax Regulations Withdrawn

In REG-163113-02, the IRS withdrew proposed regulations on estate, gift and generation skipping taxes. The proposed regulations could have greatly reduced discounts on family limited partnerships and other estate planning strategies.

The withdrawal was explained in Notice 2017-38. Under Executive Order 13789, the Department of Treasury determined the proposed regulations created an “undue financial burden on U.S. taxpayers.” They also created undue complexity for tax law.

The withdrawal of the proposed regulations is effective as of October 20, 2017.

Applicable Federal Rate of 2.4% for November — Rev. Rul. 2017-21; 2017-46 IRB 1 (17 Oct 2017)

The IRS has announced the Applicable Federal Rate (AFR) for November of 2017. The AFR under Section 7520 for the month of November will be 2.4%. The rates for October of 2.2% or September of 2.4% 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 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return.

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