Here we go again. We know from bitter experience that Congress might cause tax season delays by passing an election-year “extenders” bill at the last minute. IRS Commissioner Koskinen gave official warning yesterday in a letter to the head of the Senate Finance Committee:
This uncertainty, if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season and delay the processing of tax refunds for millions of taxpayers. Moreover, if Congress enacts any policy changes to the existing extenders or adds new provisions, the IRS would have to reprogram systems and make processing changes, which would result in longer delays. If Congress waits until 2015 and then enacts retroactive tax law changes affecting 2014, the operational and compliance challenges would be even more severe — likely resulting in service disruptions, millions of taxpayers needing to file amended returns, and substantially delayed refunds.
It was just such retroactive changes that made the 2013 filing season so awful. Add the first go round for Obamacare penalty computations on tax returns, and we can look forward to an even more wonderful tax season in 2015.
I predict that we will get a last-minute passage of the Lazarus provisions that keep dying and being resurrected, sometime in December. Of course, it could drag into January again. I expect pretty much all of the expiring provisions, including bonus depreciation, to be included. But I never rule out Congress dropping the ball entirely.
Other coverage: Richard Rubin, IRS Warns of Tax-Filing Season Delays If Congress Stalls
Joint Committee on Taxation, list of expiring provisions 2013-2024 (pdf).
Taxpayer Advocate: FATCA “Tormenting” Taxpayers. Taxpayer Advocate Nina Olson doesn’t seem to be a fan of FATCA. She spoke to the Financial Markets Association yesterday, and it sounds like she foresees bad things ($link, my emphasis.):
“This is a piece of legislation that is so big and so far-reaching, and [has] so many different moving pieces, and is rolling out in an incremental fashion . . . that you really won’t be able to know what its consequences are, intended or otherwise,” Olson said. “I don’t think we’ll know that for years. And by that point we’ll actually be a little too late to go, ‘Oops, my bad, we shouldn’t have done this,’ and then try to unwind it.”
Wait, this was passed by our duly elected representatives. What could possibly go wrong?
Olson also questioned the penalty regime underlying FATCA. The law provides for a $10,000 penalty for failing to disclose a foreign bank account, and up to $50,000 for failing to disclose after IRS notification, she said. For someone with a $51,000 unreported foreign bank account, that could be a $60,000 penalty.
IRS policy states that penalties should be objectively proportioned to the offense, Olson said. “Putting a $60,000 penalty on someone for failing to report a $51,000 account does not seem to me like a penalty that is proportioned objectively to the offense,” she said.
Olson observed that a similar disproportionality emerged in recent IRS offshore voluntary disclosure initiatives, when the highest proportionate fines fell on the smallest accounts. In 2009 the median unreported balance for the smallest accounts was $44,000, she said. The lowest-balance account holders paid an FBAR penalty almost six times the actual tax due, she said. Yet the top 10 percent, with a median unreported balance of $7 million, paid a penalty roughly half the amount of tax owed, she said.
This is actually in keeping with the longstanding IRS policy of shooting jaywalkers while slapping the real international tax evaders on the wrist.
How could our legislative supergeniuses have come up with such an insane and unfair system? Look at the name of the legislation — “FATCA.” For fat cats, get it? They passed it claiming to be going after fat cats, but drafted it in a way that beats up on everybody working or living abroad attempting to commit personal finance. But because they “intended” to go after fat cats, they absolve themselves of guilt for the collateral damage, the financial devastation of the innocent and unwary, the retirements ruined. And they smear the rare politician who points out the insanity of FATCA with accusations of being soft on tax evasion.
There was some rare good news on the offshore tax compliance front yesterday when the IRS made it easier to get favored tax treatment on Canadian retirement accounts: IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements:
The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.
In the past, however, taxpayers generally would get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.
Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.
But in case you think the risk of fiscal catastrophe related to Canadian accounts is past, the IRS warns:
The revenue procedure does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. See FinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D.
In other words, you can still be assessed a penalty of 50% of the account balance for not filing an FBAR report on the accounts, or a $10,000 penalty for not disclosing a balance on Form 8938 foreign financial asset form. But if you get ruined by these penalties, consider it a sacrifice on the altar of “an improved set of global rules,” you fat cat.
Russ Fox has more: IRS Simplifies Reporting for RRSPs and RRIFs.
William Perez, Missed the Tax Deadline? Here’s what penalties might apply
Donnie Johnson, Liz Malm, What Does Yesterday’s Supreme Court Same-Sex Marriage Appeal Denial Mean for Same-Sex Couple Tax Filers? (Tax Policy Blog). Maybe taxpayers in Indiana, Oklahoma, Utah, Virginia and Wisconsin could learn from Jason Dinesen’s work here in Iowa.
Jason Dinesen, Glossary of Tax Terms: IRA
KCCI, Pharmacist’s trial has been moved to next year. The owner of Bauder’s Pharmacy, facing tax and other charges arising out of alleged illegal sales of painkillers, is now set to go on trial in February.
Howard Gleckman, How Asset Building Tax Subsidies Miss Their Targets (TaxVox):
Nearly one-third of all federal tax expenditures–$384 billion in 2013 alone– is aimed at various forms of asset building, such as retirement savings, higher education, and home ownership. Yet, according to research by several of my Tax Policy Center and Urban Institute colleagues, these tax breaks do little to help low-and middle-income households build wealth.
Gee, you might conclude that maybe not every problem is a tax problem.
Two more TaxGrrrl Guest Posts: The IRS’s Uncharitable Treatment Of Charitable Contributions (Andrew VanSingel) and Roadways And Taxes (Charles Horn III).
David Brunori, Last Stand for Soda Taxes — Hopefully (Tax Analysts Blog). “If they can’t get folks in uber-liberal San Francisco and Berkeley to vote for soda taxes, they should just hang up their hats.”
Sebastian Johnson rounds up some more Tax Proposals on the Ballot this Election Season at Tax Justice Blog.
TaxProf, The IRS Scandal, Day 517
Jeremy Scott, Will the EU Commission Crack Down on Irish Tax Deals? (Tax Analysts Blog).
News from the Profession. Some Big 4 Alumni Just Can’t Quit Their Old Firms. (Caleb Newquist, Going Concern). No problem for me.