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Stay informed on key tax legislative developments with Tax Watch. From time-to-time, articles will also include commentary by distinguished practitioners on various aspects of proposed and potential tax legislation. Get the latest tax news & developments from Thomson Reuters.

Tax Watch Archive

6/18/13 —White House announces action plan to prevent abusive misuse of companies.
On June 18, the White House announced its "National Action Plan on Preventing the Misuse of Companies and Legal Arrangements," which along with an agreement on a set of G-8 principles to enhance transparency of company ownership and control, is a key deliverable of the G-8 summit. The U.S. has been working closely with partners around the world to combat the criminal misuse of businesses, shell companies, and front companies that are used to access the international financial system and facilitate financial crime, while masking the true identity of illicit actors. These legal entities are also used by individuals and companies to shelter assets and evade taxes.

As part of the Action Plan, the U.S. will continue to forcefully advocate for comprehensive legislation to require the disclosure of beneficial ownership information, including a requirement to identify and verify beneficial ownership information at the time a company is formed. In particular, the U.S. has committed to:

Draft a national risk assessment to identify major money laundering threats and vulnerabilities, including an analysis of vulnerabilities posed by corporate entities and how criminal use them to launder funds;
Advocate for comprehensive legislation on beneficial ownership, including a requirement that law enforcement authorities (including tax authorities) be able to access beneficial ownership information upon appropriate request through a central registry at the state level;
Clarify and strengthen customer due diligence standards for U.S. financial institutions, including a requirement to identify the beneficial owners of legal entity customers; and
Work to enhance international cooperation.

The White Houses's Fact Sheet: "U.S. National Action Plan on Preventing the Misuse of Companies and Legal Arrangements" can be found on Checkpoint.

6/14/13 — Senate Finance Committee releases tax reform option paper on tax-exempt organizations and charitable giving.
On June 13, the Senate Finance Committee released a document titled "Tax-Exempt Organizations and Charitable Giving." It is the ninth in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper provided an overview of current law and noted several concerns about the tax rules associated with tax-exempt issues. Issues raised in the paper include fairness, low "bang for the buck" (i.e., that tax incentives in this area could potentially achieve more at a lower cost), political activity of tax-exempt organizations, sufficient charitable benefit of tax-exempt organizations, commercial activity of tax-exempt organizations, and accountability and oversight.

The reform options, which were grouped by category, include the following:

Charitable contribution deduction: Repeal the deduction; fundamentally reform it (e.g., by converting it to a credit or allowing it to be claimed by non-itemizers); attempt to increase the effect of charitable incentives on charitable giving; and incrementally reform the deduction (e.g., by simplifying it or reforming the reporting and valuation rules).
Taxation of business activities of nonprofits: Tax all commercial activities of tax-exempt organizations; revise the requirements for tax-exempt status for organizations engaged in commercial activity; revise the unrelated business income tax (UBIT) rules for organizations engaged in commercial activity; tighten rules on conversion from tax-exempt to for-profit status; and make general reforms to tax-exempt entities, such as eliminating the tax-exempt status of professional sports leagues.
Political activity and lobbying of tax-exempts: Limit the political activity of Code Sec. 501(c)(4) 5, Code Sec. 501(c)(5), and Code Sec. 501(c)(6) organizations; change the categories of tax-exempt organizations that may engage in political activities; reform the reporting and disclosure rules; clarify that payments to Code Sec. 501(c)(4) organizations are excluded from the gift tax; and expand the prohibition on Code Sec. 501(c)(4) organizations engaging in lobbying from receiving any federal funds to include contracts.
Broad tax-exempt issues. Reform the taxation of private foundations; reform the taxation of endowments; ensure that donor-advised funds and supporting organizations are directing resources for charitable purposes in a timely fashion; limit executive compensation by tax-exempt organizations; reform reporting requirements; and develop enforcement methods other than revocation of tax-exempt status as the only penalty for noncompliance.

The Senate Finance Committee's reform paper, "Tax-Exempt Organizations and Charitable Giving" can be found on Checkpoint.

6/7/13 — Senate Finance Committee releases tax reform option paper on types of income and business entities.
On June 6, the Senate Finance Committee released a document titled "Types of Income and Business Entities." It is the eighth in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper provided an overview of current law and noted several concerns about the "patchwork of inconsistent rules regarding the taxation of income, investments, and tax structures." Issues raised in the paper include the complexity of the current system, differences in the treatment of different types of business entities, a tax bias on debt or equity financing, lock-in incentives (i.e., for a corporation to retain rather than distribute earnings), fairness, distinguishing service income from capital income, and differences in the treatment of economically-similar financial instruments.

The reform options, which were grouped by category, include the following:

Taxation of different types of income and entities: Treat all or most types of income the same while maintaining the two levels of tax on the earnings of C corporations; fully or partially integrate the corporate and individual income taxes; "redraw" the line between passthroughs and C corporations (in general, to either require more passthroughs to pay tax as C corporations or to allow more businesses to pay tax on a passthrough basis); and simplify other rules related to types of income and entities.
Corporate finance decisions: Expand thin capitalization rules to limit deductions attributable to excessive debt financing; further limit deductions associated with exempt or deferred income; create greater parity between debt and equity financing for C corporations; and create greater parity between retaining and distributing earnings for C corporations and reduce lock-in incentives.
Compensation: Reform treatment of carried interest and other partnership interests, as well as S corporation income, received in whole or in part in exchange for services.
Financial products. Harmonize the tax rules governing most or all derivatives; reform mark-to-market treatment under Code Sec. 475; reform the rules governing certain futures and other contracts under Code Sec. 1256; simplify and expand hedging treatment; reform treatment of debt; and reform the "wash sale" rules.
Other: Streamline partnership audits; modify or simplify the rules for mergers and acquisitions; permit S corporation elections to be made on the business's first federal tax return; and modify various rules relating to tax administration or the tax gap.

The Senate Finance Committee's reform paper, "Types of Income and Business Entities" can be found on Checkpoint.

6/6/13 — Senate votes against cloture on student loan bills; Democratic bill includes tax changes.
On June 6, the Senate, by a vote of 40 to 57, voted against cloture on the Republican student loan bill, S. 1003, the "Comprehensive Student Loan Protection Act." That bill would allow student loan interest rates to float--they would be pegged to the bond equivalent rate of 10-year T-bills plus 3%—and would not carry any revenue offsets.

Shortly afterwards, the Senate, by a vote of 51 to 46, voted against cloture on the Democratic student loan bill, S. 953, the "Student Loan Affordability Act." This bill would freeze current student loan interest rates for two years and offset the cost by: (1) amending the Code Sec. 401(a)(9) required minimum distribution rules to require a quicker five-year payout from qualified plans if an employee dies before his entire interest has been distributed; (2) limiting the deductibility of interest payments made by a corporation that is an expatriated entity to a related person; and (3) expanding the definition of &bq;crude oil&eq; for purposes of the excise tax on petroleum.

Without Congressional action, interest rates on student loans will double from 3.4% to 6.8% on July 1.

Week of 6/3/13

Reid sets cloture votes on bills addressing looming student loan interest rate hike; Democratic bill includes tax changes.

6/5/13 — Reid sets cloture votes on bills addressing looming student loan interest rate hike; Democratic bill includes tax changes.
On June 4, Senate Majority Leader Harry Reid (D-NV) filed cloture on the motion to proceed to the Senate Democratic and Republican bills to reset interest rates for student loans. Without Congressional action, interest rates on student loans will double from 3.4% to 6.8% on July 1. The Democratic bill would include sure-to-be-unpopular tax offsets. The Republican bill would not include offsets.

The Democratic bill (S. 953, the "Student Loan Affordability Act") would freeze current student loan interest rates for two years and offset the added cost by way of three offsets:

The required minimum distribution (RMD) rules of Code Sec. 401(a)(9) would be amended to require a quick, five-year payout from qualified plans if an employee dies before his entire interest has been distributed. (This rule also would presumably apply to regular IRAs.) There would be exceptions for "eligible designated beneficiaries" (including surviving spouses and disabled or chronically-ill individuals). The change would not apply to binding annuity contracts in effect on the enactment date.
RIA observation: Current rules allow for RMDs over longer periods of time. For example, if a plan participant dies before receiving any required plan distributions, his entire interest may be distributed over the life of a designated nonspouse beneficiary (or over a period not extending beyond the life expectancy of the beneficiary). Thus, the change would accelerate required payouts and result in an accelerated revenue stream for the government.
There would be a new limitation on the deductibility of interest payments made by a corporation that is an expatriated entity to a related person.
For purposes of the oil spill liability trust fund, the definition of "crude oil" for purposes of the excise tax on petroleum would be expanded to include crude oil condensates, natural gasoline, any bitumen or bituminous mixture, and any oil derived from a bitumen or bituminous mixture. The bill also would eliminate the requirement that the crude oil be produced in a well located in the United States, and make permanent the Oil Spill Liability Trust Fund financing rate.

The Republican bill (S. 1003, the "Comprehensive Student Loan Protection Act") would allow student loan interest rates to float--they would be pegged to the bond equivalent rate of 10-year T-bills plus 3%--and would not carry any revenue offsets.

Cloture votes on both bills are slated for Thursday, June 6.

Click here for the text of S. 953, the "Student Loan Affordability Act" can be found on Checkpoint.

5/23/13 — Senate Finance Committee releases tax reform option paper on economic security.
On May 23, the Senate Finance Committee released a document titled "Economic Security: Health, Retirement, Life Insurance, Fringe Benefits and Executive Compensation." It is the seventh in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper noted several concerns about the tax rules associated with individual economic security. Issues raised in the paper included the complexity of the current system, low bang-for-the-buck for tax initiatives (i.e., tax incentives could potentially achieve more at a lower cost), and the rapid increase of executive compensation and the role of tax laws in that increase.

The reform options, which were grouped by category, include the following:

Retirement: Limit or eliminate tax preferences for retirement saving; replace deductions, exclusions, and credits for retirement savings with a single refundable tax credit; increase retirement savings incentives; attempt to increase the effect of tax expenditures for retirement savings on retirement security; simplify the process of selecting and administering a plan for employers; establish new plan options for employers; reduce "leakage" from retirement plans (e.g., pre-retirement withdrawals); allow more flexibility in distributions from retirement savings accounts; and establish other long-term savings vehicles.
Health: Reduce tax expenditures for employer-provided health benefits; modify the Affordable Care Act; expand the tax benefits for health; expand long-term care benefits; and reform excise taxes and other tax provisions that may affect health.
Life insurance and annuities: Reduce tax expenditures for life insurance products; and reduce tax expenditures for annuities.
Other employee fringe benefits. Limit exclusions for other employee fringe benefits; expand tax preferences for other employee fringe benefits; and harmonize employee fringe benefit rules.
Executive compensation: Revise the limits on the deductibility of executive compensation; revise the rules related to nonqualified deferred compensation; revise the rules related to equity-based compensation; and revise the rules related to golden parachute payments to executives upon a change in control.

The Senate Finance Committee's reform paper, "Economic Security" can be found on Checkpoint.

5/20/13 — Senate Finance Committee requests extensive information from IRS on targeting of conservative Code Sec. 501(c)(4) tax exemption applications.
On May 20, Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) sent a letter to IRS Commissioner Miller requesting detailed information (41 separate requests, asking for names, dates, and documents, etc.) as part of the bipartisan Finance Committee investigation into targeting by IRS of conservative groups. The letter noted that the Senate Finance Committee has jurisdiction over revenue matters and that the Committee is responsible for conducting oversight of the administration of the federal tax system. The deadline for the materials to be turned over to Committee investigators is May 31.

The text of the letter to IRS from Senators Baucus and Hatch, dated May 20, 2013 can be found on Checkpoint.

5/15/13 — Senate Finance Committee releases tax reform option paper on economic and community development.
On May 15, the Senate Finance Committee released a document titled "Economic and Community Development." It is the sixth in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper noted several concerns about the taxation of housing, state, local and tribal finance, and community development. Issues raised in the paper included that existing tax expenditures may distort investment decisions, certain tax incentives provide low "bang-for-the-buck" (i.e., they could achieve more at a lower cost), the temporary nature of many expiring tax expenditures creates uncertainty, certain tax expenditures are inequitable, and businesses and individuals that are subject to tax in multiple states and localities face complexity and uncertainty created by multiple states' tax rules.

The reform options, which were grouped by category, include the following:

Housing: Gradually repeal or limit the mortgage interest deduction; convert the mortgage interest deduction to an above-the-line deduction or a credit; phase out the exclusion for capital gains on sale of principal residence; make the deduction for mortgage insurance premium payments permanent; temporarily or permanently extend the exclusion from income for cancellation of certain home mortgage debt; repeal, reform, or expand the low-income housing tax credit, or replace it with an equivalent reduction in tax on rental income; and create a nonrefundable tax credit for low-income renters.
State and local financing: Limit or eliminate the deduction for state and local taxes; permanently extend the deduction for state and local use tax; repeal the tax exemption on all governmental and private activity bonds; modify existing tax-exempt bonds; create a new, permanent direct subsidy for bonds for financing governmental capital projects; and replace the exclusion for interest on state and local bonds with a direct subsidy for the issuer or a nonrefundable tax credit for the investor.
Tribal financing: Modify tribal tax-exempt bonds; exempt certain tribal activities from taxation; clarify the general welfare exclusion doctrine for certain benefits provided by tribes to members; make permanent or expand temporary provisions; conform the definitions of "Indian" and "reservation" for tax purposes; and modify the adoption tax credit to allow Tribal Governments to determine whether a child has special needs.
Community development. Repeal, modify, or extend the New Markets Tax Credit; modify or eliminate the Historic Preservation Tax Credit; and create a permanent tax relief package for individuals and businesses in Presidentially-declared national disaster areas.
State and local tax uniformity: Exercise Federal authority to establish uniform rules among the states; authorize states to require out-of-state vendors to collect sales tax; and reform prohibitions on certain state or local taxes.

The Senate Finance Committee's reform paper, "Economic and Community Development" can be found on Checkpoint.

5/10/13 — Senate Finance Committee releases tax reform option paper on international competitiveness.
On May 9, the Senate Finance Committee released a document titled "International Competitiveness." It is the fifth in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper noted several concerns about the current international tax rules including the fact that, despite the increasingly global nature of the economy, they haven't been substantially reformed since '62. The paper also raised concerns about whether the current system puts U.S. multinationals at a competitive disadvantage relative to their foreign counterparts, base erosion and profit shifting, the "lockout effect" (i.e., the existing incentive for U.S. multinationals not to repatriate their foreign earnings), and a perceived reluctance of certain employers overseas to hire nonresident U.S. citizens because of the associated tax burden and compliance costs.

The reform options, which were grouped by category, include the following:

Base erosion and deferral: Tighten anti-base-erosion rules and reform the treatment of non-subpart F earnings; strengthen the subpart F rules; repeal deferral for CFCs; strengthen thin-capitalization rules to limit base erosion through excessive debt financing; and strengthen rules against U.S. base erosion by foreign companies.
Foreign tax credit and sourcing rules: Further limit cross-crediting; and improve the sourcing-of-income rules.
Other international business reforms: Repeal the domestic international sales corporation (DISC) provision; reform the passive foreign investment company (PFIC) rules; and reform effectively connected income rules.
Non-resident U.S. citizens. Provide an election to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions; and repeal the foreign-earned income exclusion.

The Senate Finance Committee's reform paper, "International Competitiveness" can be found on Checkpoint.

5/7/13 — Senate passes bill allowing online sales tax.
Late on May 6, the Senate, by a vote of 69 to 27, passed S. 743, the "Marketplace Fairness Act of 2013," which would allow states to require that sellers collect and remit sales and use taxes for "remote" sales—i.e., online sales—where the seller doesn't have a physical presence in the state. Prior to final passage of the bill, the Senate voted 70 to 24 in favor of an amendment (Amdt. 741) to the bill by Senator Michael Enzi (R-WY) and Senator Richard Durbin (D-IL), which perfected the text of the legislation. Under the bill an online retailer would be subject to the same obligations imposed on a "brick and mortar" store within the state. This authority would be conditioned on states imposing certain minimum simplification requirements in the administration of the tax to ease the compliance burden on sellers. A small-seller exception would apply to sellers with annual gross receipts in total U.S. sales not exceeding $1 million. The measure will be sent to the House for consideration.

The text of the "Marketplace Fairness Act of 2013," as passed by the Senate can be found on Checkpoint.

4/26/13 — Senate to vote on state online sales tax bill.
On April 25, the Senate voted, 63 to 30, to cut off debate and move to a vote on S.743, the "Marketplace Fairness Act of 2013." Under a unanimous consent agreement, the Senate will vote on May 6 on the final passage of the bill.

As described by the Congressional Research Service, the bill would generally allow states to require that sellers collect and remit sales and use taxes for "remote" sales—i.e., online sales—under the multistate agreement for the administration and collection of sales and use taxes. This collection requirement would be conditioned on minimum simplification in the administration of the tax, audits, and streamlined filing. A "remote sale" would be defined as a sale of goods or services into a state in which the seller would not otherwise be legally required to pay, collect, or remit state or local sales and use taxes. A small-seller exception would apply to sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million.

4/25/13 — Senate Finance Committee releases tax reform option paper on infrastructure, energy, and natural resources.
On April 25, the Senate Finance Committee released a document titled "Infrastructure, Energy, and Natural Resources." It is the fourth in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper noted several concerns about the taxation of infrastructure, including the mismatch between authorized and trust fund revenues, the deterioration of the user-fee model, declining revenue from existing sources, inadequate funding to meet additional needs, and uncertainty created by temporary extensions. With respect to energy and natural resources, specific concerns include the distortion of investment decisions from tax subsidies, duplication with spending programs, lack of neutrality across different technologies, overall complexity, and the temporary nature of certain tax expenditures.

The reform options, which are grouped by category, include the following.

Infrastructure: Limit infrastructure spending to trust fund revenues; devolve federal revenues to states; maintain the user fee model but increase existing fees and taxes; establish new user fees to replace or supplement the current system; designate other sources of revenue for the Highway Trust Fund; and provide additional financing options for states.
Energy and Natural Resources: Eliminate some or all of the existing tax expenditures for the energy sector; replace existing energy tax expenditures with technology-neutral tax expenditures; modify and consolidate some incentives while eliminating others; equalize tax treatment of master limited partnerships (MLPs) in the energy sector; establish a carbon tax or cap and dividend approach while eliminating most or all other existing energy tax expenditures; and modify conservation easements.

the Senate Finance Committee's "Infrastructure, Energy, and Natural Resources" can be found on Checkpoint.

4/24/13 — Senate moves forward on state online sales tax bill.
On April 24, 2013, the Senate, by a vote of 75 to 22, voted in favor of a motion to proceed to H.R. 743, the "Marketplace Fairness Act of 2013," and began debating the measure. Senate Majority Leader Harry Reid (D-NV) has indicated to members that he wants to complete consideration of the bill before the Senate leaves for a one-week recess scheduled to begin on Monday, Apr. 29.

This tax is often referred to as the "Amazon tax," after the massive online retailer which currently only collects sales tax on items shipped to nine states.

The Obama Administration has announced its support for the bill as a measure that would level the playing field for local small business retailers that must compete with large out-of-state online companies. On the other hand, Senate Finance Committee chairman Max Baucus (D-MT) has gone on record as opposing the measure. Senate Finance Committee ranking minority member Orrin Hatch (R-UT) has also weighed in on the issue, stating that it should be debated by the Finance Committee instead of pushed through as it has been.

4/24/13 — Senate takes action on state online sales tax bill.
On April 22, the Senate, by a vote of 74 to 20, approved the motion to invoke cloture (i.e., cut off debate) on a motion to proceed to H.R.743, the "Marketplace Fairness Act of 2013." A vote on the motion to proceed to the bill was to take place on April 23.

This tax is often referred to as the "Amazon tax," after the massive online retailer which currently only collects sales tax on items shipped to nine states.

4/24/13 — Baucus to retire from Senate.
Senate Finance Committee chairman Max Baucus (D-MT) has announced that he will retire at the end of 2014. Baucus said that after much consideration and many conversations with his wife and family, he decided not to seek reelection in 2014. He will serve out his term, and for the next year and a half "will continue to work on simplifying and improving the tax code, tackling the nation's debt, pushing important job-creating trade agreements through the Senate, and implementing and expanding affordable health care for more Americans." If Democrats retain the Senate in next year's election, Democratic Senator Ron Wyden (D-OR) is next in line in party seniority to replace Baucus as Finance Committee chair.

4/19/13 — Bowles & Simpson's deficit reduction plan calls for budget cuts and tax reform.
On April 19, Erskine Bowles, former chief of staff to President Bill Clinton, and Alan Simpson, former Republican Senate Whip, released a detailed plan to control the mounting deficit and grow the economy, the "Bipartisan Path Forward to Securing America's Future." It fleshes out the framework of their earlier plan, released in February, and proposes roughly $2.5 trillion of specific new deficit reduction measures to add to the $2.7 trillion already enacted (with more than 70% of savings from lower spending; and less than 30% from revenue).

Bowles and Simpson were co-chairs of the National Commission on Fiscal Responsibility and Reform, set up by President Obama in 2010. The plan they came up with in 2010 failed to get the necessary 14 votes from the National Commission's 18 members to send to Congress for consideration.

The tax package envisioned by Bowles and Simpson calls for enactment of comprehensive tax reform with: much lower rates and a broadened base; dramatic reduction in the size and number of tax expenditures; maintained or increased progressivity; and a move to a territorial system. The tax reform, enforced by a "fail-safe trigger," would result in $585 billion in savings.

4/18/13 — Senate Finance Committee releases tax reform option paper on families, education and opportunities.
On April 18, the Senate Finance Committee released a document titled "Families, Education and Opportunities." It is the third in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper noted several concerns about the taxation of families and education today, including complexity, work disincentives (including for primary caregivers and secondary earners), marriage incentives and disincentives, low "bang-for-the-buck" tax incentives, whether federal subsidies and tax incentives drive up the cost of college and post-graduate education, duplication with spending programs, and fairness.

The reform options, which are grouped by category, include the following.

Children and work: Repeal all tax expenditures for children and work; simplify tax provisions relating to children and work; consolidated existing tax expenditures; simplify and better target tax benefits for child care; and/or reduce work disincentives.
Marriage: Reduce marriage penalties and/or marriage bonuses for all; create parity for non-traditional households; and/or provide targeted marriage penalty relief.
Education: Repeal all tax expenditures except the exclusion for scholarships, fellowships, and grants; expand tax expenditures for higher education; consolidate and simplify tax expenditures for education; conform thresholds and revise definitions; attempt to increase effect of higher education tax expenditures on college enrollment and completion; provide tax credit to help pay for some private school and post-secondary school costs; and expand educational access through tax credit for certain K-12 teachers.

The Senate Finance Committee's "Families, Education and Opportunities" can be found on Checkpoint.

4/16/13 — House approves bill barring federal contracts with delinquent contractors.
On April 15, the House, by a vote of 407 to 0, passed H.R. 882, the "Contracting and Tax Accountability Act of 2013," which would mandate tax compliance as a prerequisite for receiving federal contracts. The bill bar would bar contractors with a "seriously delinquent" tax debt--i.e., an outstanding tax debt for which a notice of lien has been filed in public records--from acquiring federal contracts. The measure would exempt contractors with tax debts that are being timely paid under an approved installment agreement with IRS. Also exempt would be debts for which the contractor has requested a collection due process hearing or for which one is pending. H.R.882 will be sent to the Senate for consideration.

4/11/13 — Senate Finance Committee released a document titled Business Investment and Innovation.
On April 11, the Senate Finance Committee released a document titled "Business Investment and Innovation." It is the second in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The paper described challenges currently faced by businesses and stated that tax reform options should aim to simplify the law and reduce compliance costs, eliminate or reduce the large differences in effective tax rates across industries, ensure that any incentives in the Code are effective and efficient, and provide businesses with greater certainty.

The reform options, which are grouped by category, include the following.

Small businesses: Allow an unlimited amount of qualified property to be expensed under Code Sec. 179; simplify accounting rules; make the research and development (R&D) credit partially refundable; make 100% exclusion permanent and/or expand eligibility for Code Sec. 1202 (regarding qualified small business stock).
Depreciation and amortization: Revise the depreciation rules for tangible assets, and the amortization rules for intangible assets, to more closely track their economic lives.
Manufacturing: Repeal, target, or simplify the domestic production activities deduction.
Innovation: Make permanent and simplify and/or better target the R&D credit; allow the R&D credit to expire; adopt a "patent box" that taxes business income from the sale of patented products developed in the U.S. at lower rates.
Other tax accounting: Repeal last-in, first-out (LIFO) inventory accounting; repeal the lower of cost or market inventory rules; repeal, tighten, or simplify the like-kind exchange rules.

The Senate Finance Committee's "Business Investment and Innovation can be found on Checkpoint.

4/10/13 — President Obama releases 2014 budget proposal.
On April 10, President Obama released his Fiscal Year (FY) 2014 federal budget proposals, which included $1.8 trillion of additional deficit reduction over 10 years. It contained many of the provisions proposed in his 2013 budget, along with several new ones, such as the use of a chained consumer price index, a $3 million limit on tax-preferred retirement accounts, including individual retirement accounts (IRAs), and an increase on the excise tax on tobacco. Among the budget provisions, are provisions that would:

require that households with incomes over $1 million pay at least 30% of their income (after charitable giving) in taxes (the so called "Buffett Rule");
limit the value of tax deductions and other tax benefits for the top 2% of families to 28%;
provide a 10% tax credit for small businesses that hire new employees or increase wages;
provide a new tax credit to encourage employers to offer retirement savings plans and expands the tax credit for affordable child care.
make permanent the American Opportunity Tax Credit;
make permanent the increased refundability of the child tax credit;
make permanent the earned income tax credit (EITC) for larger families and married couples;
eliminate the capital gain treatment of carried interest;
make permanent and enhance the research credit;
provide incentives for manufacturing and clean energy;
allow small businesses to write-off up to $500,000 of new investment;
eliminate tax benefits for oil and gas companies and special tax rules for corporate jets; and
implement reforms to prevent companies from shifting profits overseas to avoid U.S. taxes and to encourage "insourcing" and job creation in the U.S.

For a detailed description of the tax provision in the President's budget, see Article #8.

The Treasury Department's "General Explanations of the Administration's Fiscal Year 2014 Revenue Proposals" (the so-called "Green Book") was released later that day.

The following material can also be found on Checkpoint:

the President's Fiscal Year 2014 Budget; and
the Treasury Department's "General Explanations of the Administration's Fiscal Year 2014 Revenue Proposals."

4/5/13 — Preview of Obama's budget includes chained CPI and cap on tax-preferred retirement accounts.
Although President Obama's 2014 budget isn't scheduled to be officially released until April 10, a preview indicates that it includes the use of the controversial chained consumer price index (CPI, see below) in computing Social Security benefits, which would produce smaller cost-of-living increases than the current measure (raising $100 billion over 10 years). The preview also indicates that the budget includes a $3 million limit on tax-preferred retirement accounts, including individual retirement accounts (IRAs) (raising $9 billion over 10 years), as well an increase in the excise tax on tobacco to fund pre-school education programs. The budget is projected to reduce the deficit by $1.8 trillion over a 10-year period.

CPI measures the changes in the prices of a wide variety of goods and services. Proponents of the use of chained CPI say that the traditional CPI overstates increases in the cost of living because it doesn't take into account the fact that consumers generally adjust their buying patterns when prices go up, rather than simply buying an item at a higher price. Chained CPI reflects the effect of substitution that consumers make in response to changes in relative prices. On the other hand, those who oppose the use of chained CPI characterize it as a politically safe way to cut Social Security benefits for the elderly, who often live on a tight budget and depend on their Social Security benefits. The revised computation method is also seen by some as a taking of benefits that the recipients earned through a lifetime of contribution to the Social Security system.

3/27/13 — Temporary funding bill for Treasury and IRS assigned Public Law Number.
The Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act of 2013 (H.R.933), which was signed into law by President Obama on March 26, has been assigned a Public Law Number--P.L. 113-6. The Act funds the Treasury and IRS through Sept. 30, 2013.

3/26/13 — President signs into law bill providing temporary funding for Treasury and IRS.
On March 26, President Obama signed into law H.R. 933, the Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act of 2013. The bill had been approved by the House in a 318 to 109 vote on March 21, and by the Senate on March 20 by a vote of 73 to 26.

Among other things, the bill will fund the Treasury and IRS through Sept. 30, 2013.

3/25/13 — Senate passes budget resolution.
On March 23, the Senate, by a vote of 50 to 49, passed its FY 2014 budget resolution, S.Con.Res.8--its first federal budget in four years. The Democratic budget, which was arrived at after the Senate considered about 100 amendments in a marathon voting session, seeks to raise $975 billion over 10 years. Among the many amendments were ones allowing States more authority to collect sales taxes on Internet purchases (remote sales), voicing approval of the Keystone XL oil pipeline, and repealing the tax on medical devices that was enacted to help pay for the Patient Protection and Affordable Act. In addition, the Senate, by a vote of 80 to 19, supported a revenue-neutral repeal of the estate tax.

H.Con.Res. 25, the House-passed FY 2014 budget resolution, has already been rejected by the Senate, and it is highly unlikely that the Senate budget will receive much support in the House.

3/22/13 — Senate rejects House-passed budget resolution & considers amendments to its bill.
On March 21, the Senate by a vote of 40 to 59 voted against the House-passed FY 2014 budget resolution (see Article #2133), and began consideration of its own FY 2014 budget resolution, S.Con.Res.8 (see Article #2129). That same day, the Senate by a vote of 79 to 20 approved an amendment to its bill to repeal the 2.3% excise tax on post-2012 medical device sales, which was enacted as a revenue raiser to help pay for the Patient Protection and Affordable Act. The amendment was offered by Senate Finance Committee ranking minority member Orrin Hatch (R-UT) and received broad bipartisan support.

The Senate was scheduled to hold votes throughout the day on March 22 in advance of a scheduled two-week recess. 70 amendments, including tax-related amendments, are expected to be offered to the bill.

3/22/13 — Baucus speaks out against proposed state online sales tax amendment.
On March 21, Senate Finance Committee chairman Max Baucus (D-MT) voiced his opposition to a proposed (but as-yet unfiled) amendment to the Senate's FY 2014 Budget Resolution (Article #2133) that would let states collect sales tax from online retailers in other states. This tax is often referred to as the "Amazon tax," after the massive online retailer which currently only collects sales tax on items shipped to nine states. Baucus's home state of Montana has no sales tax and he objected to the notion of forcing Montana businesses to "play tax collector for other states," calling it "an aberration of states' rights."

According to the proponents of the amendment, Senators Mike Enzi (R-WY) and Richard Durbin (D-IL), traditional "brick and mortar" stores currently suffer a disadvantage as compared to online retailers in other states. Since these online retailers generally don't have to collect sales tax, they can offer items for sale at lower prices than their competitors. The amendment would even the playing field by giving states a mechanism for collecting this tax.

Senate Finance Committee ranking minority member Orrin Hatch (R-UT) also weighed in on the issue, stating that it should be debated by the Finance Committee instead of pushed through in a budget resolution.

3/21/13 — Congress passes bill providing temporary funding for Treasury and IRS.
On March 21, the House by a vote of 318 to 109 approved H.R. 933, the Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act of 2013, as amended. Previously, on March 20, the Senate had approved the bill by a vote of 73 to 26. The bill would fund the Treasury and the IRS through Sept. 30, 2013. The bill awaits the President's expected signature.

3/21/13 — House passes one budget resolution; Senate begins consideration of another.
On March 21, the House of Representatives by a vote of 221 to 207 approved H.Con.Res. 25, the Republicans' FY 2014 budget resolution (see Article #2128). Among other things, the budget would:

consolidate the existing seven individual income tax brackets to two, with a 10% rate for the first bracket and a "goal of achieving a top individual rate of 25%" for the second bracket;
simplify the Code to make it fairer and less complex;
reduce the corporate tax rate to 25%;
repeal the alternative minimum tax; and
shift from a worldwide tax system to a territorial regime.

On March 212, the Senate began consideration of S.Con.Res. 8, the Senate budget resolution for FY 2014 (the Democrats' FY 2014 budget resolution), which calls for an equal mix of spending cuts and targeted tax increases, and an overhaul of the Code (see Article #2129).

3/21/13 — House Committee approves bills punishing delinquent federal employees and contractors.
On March 20, the House Oversight and Government Reform Committee favorably reported out of Committee two bills—H.R. 249, the Federal Employee Tax Accountability Act of 2013, which would terminate the employment of current tax delinquent federal employees and prohibit the hiring of individuals who already have a serious delinquent tax debt, and H.R. 882, the Contracting and Tax Accountability Act of 2013, which would mandate tax compliance as a prerequisite for receiving federal contracts.

3/21/13 — Senate Finance Committee releases draft of tax simplification options.
On March 21, the Senate Finance Committee released a document titled "Simplifying the Tax System for Families and Businesses." It is the first in a series of papers on tax reform options being considered by the Committee, including options suggested by witnesses at the 30 tax reform hearings that have been held, bipartisan commissions, tax policy experts, and members of Congress. The document emphasized that the list was non-exhaustive and that placement on the list doesn't imply endorsement of any particular option by either Committee Chairman Max Baucus (D-MT) or Ranking Member Orrin Hatch (R-UT).

The reform options included the following:

Reduce tax fraud and taxpayer identity theft by limiting access to personal identifying information, partnering with third parties to share successful practices to combat identity theft and tax fraud, and improving information sharing with federal, state, and local law enforcement.
Reduce the tax gap by, among other things, restructuring and simplifying the penalty system to improve voluntary compliance and ease administrative burdens, improving and enhancing third-party information reporting, and enhancing privacy protections in IRS whistleblower programs.
Improve the taxpayer experience in IRS audit and collection procedures.
Enable IRS to verify information on taxpayer's returns against third-party information as returns are processed.
Reduce compliance costs by having IRS fill out simple returns for taxpayers (i.e., by pre-filling returns with third-party information and preliminarily calculating tax liability, similar to California's "Ready Return" program).
Repeal provisions that require taxpayers to calculate their tax liability multiple times (e.g., the alternative minimum tax).
Simplify and conform definitions in the Code.
Improve government transparency by providing taxpayers with a receipt for taxes paid, which would show the taxpayer's average tax rate, marginal tax rate, the value of the tax expenditures they claim, and/or an allocation of their tax payments to the major spending categories in the federal budget.

The Senate Finance Committee's "Simplifying the Tax System for Families and Businesses" can be found on Checkpoint.

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