Washington Hotline – September 26, 2017


Washington Hotline

Expanded Relief for Hurricane Irma Victims

As recovery efforts continue in Florida and Georgia for the devastated areas affected by Hurricane Irma, the IRS has expanded its relief plans. In IR-2017-155, 156 and 157, the Service authorized new tax relief for both Florida and Georgia.

IRS Letter 155 covers residents of Florida. Many are on extension to file their personal tax returns with the due date of October 16. Now all of the Florida areas designated by the Federal Emergency Management Agency (FEMA) qualify for relief.

Tax returns and payments may be filed by January 31, 2018. The relief also applies to business tax deadlines for quarterly payroll and excise taxes. The late deposit fees for payroll and excise taxes will also be waived.

Limited waivers are available even for residents outside the affected areas if there are necessary records located in a disaster zone. Taxpayers may call 1-866-562-5227 to see if the disaster relief applies. You also may be granted a filing delay if you are a worker directly involved in relief efforts. You should confirm your status with the IRS prior to changing your filing to the later date.

IRS Letter 156 grants similar relief to Irma victims in the entire state of Georgia. Many personal and business filing dates are now extended to January 31, 2018.

The disaster relief webpage on www.irs.gov has specific details. The IRS website explains who is qualified for relief and the filing dates that are delayed until next year.

Senate Stokes Tax-Reform Train

On September 19, the Senate Finance Committee held a hearing on comprehensive tax reform. This hearing covered the business and employment aspects of tax reform.

Senate Majority Leader Mitch McConnell (R-KY) was pleased with the hearing. He noted, “Chairman Hatch and the members of the committee are working to improve American competitiveness under a simplified tax code that works better for all Americans. Last week, the committee’s hearing examined how to make the tax code work better for American individuals and families. Today, the Finance Committee is discussing the consequences of our outdated tax code for American businesses and workers.”

The tax hearing opened with introductory comments by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR). Hatch stated, “Members of both parties recognize the need to reform the way we tax businesses in the United States. As former President Obama noted when discussing his own framework for business tax reform, the current system ‘does too little to encourage job creation and investment in the United States while allowing firms to benefit from incentives to locate production and shift profits overseas.'”

Sen. Wyden expressed concern about potential tax avoidance if the tax rates for LLCs, partnerships and other pass-throughs are lowered. He noted, “Pass-through status is supposed to be about helping small businesses, and there is no question that small businesses – who fuel local economies and hire the most workers – need a boost in tax reform. But any tax change that allows tax cheats to abuse pass-through status by ‘self-declaring’ to avoid paying their fair share and dodge Social Security taxes would be worse than what is on the books today. The day the pass-through loophole becomes law would be Christmas morning for tax cheats.”

Witnesses at the hearing included Scott Hodge, President of the Tax Foundation and Troy K. Lewis, Immediate Past Chair of the Tax Executive Committee of the American Institute of Certified Public Accountants (AICPA).

Hodge urged four principles for tax reform. He advocated full expensing, cutting the corporate tax rate to 20%, a territorial tax system and permanent tax changes.

Lewis discussed many changes and requested “a tax system that is fair, stimulates economic growth, has minimal compliance cost and allows taxpayers to understand their tax obligations.”

Editor’s Note: The “Big Six” tax leaders of the White House, Senate and House continue to meet to finalize their tax reform plan. They have promised to release a detailed plan next week. The hearings this week are an effort by Senate leaders to enable Senators from both parties to state their position with respect to tax reform. While there still is a slim chance to pass tax reform in 2017, the short legislative calendar will make that process challenging, particularly in the Senate.

Public Good IRA Rollover Act of 2017

On September 14, Sen. Debbie Stabenow (D-MI) and cosponsors Susan Collins (R-ME), Chuck Schumer (D-NY) and Kirsten Gillibrand (D-NY) introduced the Public Good IRA Rollover Act of 2017 (S. 1817).

This bill permits both direct and split-interest gift transfers from IRAs. The direct transfers are “Qualified Charitable Distributions (QCDs).”

Distributions may be made under the bill by IRA owners over the age 70½ directly to any Sec. 170(c) organization. This provision would also include supporting organizations and transfers to foundations for donor advised funds.

Split-interest transfers are permitted to charitable remainder annuity trusts and unitrusts, pooled income funds and charitable gift annuities. IRA owners must be 59½ or older for a QCD to a split-interest plan. Payouts from split-interest plans funded with QCDs will be ordinary income.

Editor’s Note: The Public Good IRA Rollover Act was first introduced in the Senate in 2007. The current bipartisan support for life-income IRA rollovers is encouraging. An updated version of the life income IRA rollover bill is the Legacy IRA Act (H.R. 1337). There are continuing efforts underway by the Charitable IRA Initiative to incorporate the Legacy IRA Act in the forthcoming tax reform bill. Attorney Conrad Teitell is the volunteer counsel for the Charitable IRA Initiative and regularly conducts meetings with key senators and representatives in Washington.

Applicable Federal Rate of 2.2% for October — Rev. Rul. 2017-20; 2017-41 IRB 1 (19 Sep 2017)

The IRS has announced the Applicable Federal Rate (AFR) for October of 2017. The AFR under Section 7520 for the month of October will be 2.2%. The rates for September of 2.4% or August 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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