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Saturday November 22, 2014

Washington News

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Baucus Tackles Identity Theft

Senate Finance Committee Chair Max Baucus (D-MT) published three “discussion drafts” this week.  The three drafts and others that will be forthcoming are designed to prepare the way for a comprehensive tax reform bill in 2014.  The first discussion draft covered tax administration and identity theft. 
The key provisions on identity theft are designed to provide “the IRS with new tools to combat tax-related identity theft and assist the victims of this crime.” 
  1. Death Master Files – In order to reduce the ability of identity thieves to obtain Social Security numbers of deceased persons and then use those to file for a tax refund, access to the death master file will be restricted for three years.
  2. Social Security Numbers – As is common in many other types of publications, the W-2 Form will use a truncated or shortened Social Security number.  This will reduce the risk of disclosure of that number to an identity thief. 
  3. Employment – The IRS will have access to the Department of Health and Human Services National Directory of New Hires to verify employment. 
  4. Tax Fraud and Identity Theft – The use of fraudulent information to file a tax return claiming to be another person will be a felony with a potential $250,000 fine and a five year prison sentence. 
  5. Identity Theft Victims – The IRS will be required to give notice to victims and provide a specific contact person. 
  6. Personal Identification Number (PIN) – The IRS has issued a PIN to many identity theft victims.  The IRS is instructed to evaluate the effectiveness of this program and report to Congress.  
The second discussion draft related to cost recovery and accounting.  Senator Baucus indicated that a number of changes in the depreciation schedules and an accounting method termed last-in-first-out (LIFO) must be changed.  These modifications would reduce depreciation deductions for corporations and permit a lower corporate rate.  Baucus stated, “America today is using a bloated tax code that was built for businesses close to 30 years ago.  The code is completely outdated and acting as a break on economic growth.  More must be done to simplify tax rules, lessen the burden on small businesses and jumpstart job growth.” 
The third discussion guide involves international tax reform.  Baucus proposes allowing the taxation of earnings that are currently accumulated overseas at a reduced rate.  Companies would pay this tax over a period of eight years.  There also would be a new minimum corporate tax that would particularly impact multinational corporations. 
The three objectives of the discussion draft include the following:
  1. Shifting Profits – There would be less incentive to move profits overseas, particularly for multinational corporations. 
  2. Moving Businesses – The draft attempts to reduce the incentives that have led many American corporations to move their headquarters to a tax-favored overseas location.
  3. Competitiveness – The changes are designed to make American corporations more competitive with the rest of the world.  
Because the international changes would be likely to increase taxes on multinational corporations, the Business Roundtable expressed opposition.  The Business Roundtable is an association of Chief Executive Officers of many large American companies.
It stated that “Comprehensive tax reform is the single-most important issue to get the U.S. economy growing.”  However, because the Baucus proposals for international tax reform will increase corporate taxes in the next few years, the Business Roundtable continued, “Unfortunately, we do not believe that the staff’s international discussion draft supports that goal because it would make many American companies even less competitive than their non-U.S. counterparts.”
Editor’s Note:  Sen. Baucus deserves credit for moving forward on the tax reform road.  He has not been successful in creating a fully bipartisan plan, but is now placing concrete proposals on the table for discussion.  This will continue to be a necessary step in the tax reform process.
Wyden and Thune Support Charitable Deduction
As the Senate Finance Committee staff continues to develop draft proposals for a major tax reform bill, there still has been no “discussion draft” on personal income taxation and changes in itemized deductions.  Because tax reform at a personal level must include changes in itemized deductions, Sen. Ron Wyden (D-OR) and Sen. John Thune (R-SD) sent a letter this week to Senate Finance Committee Chair Max Baucus (D-MT) and to Ranking Member Orrin Hatch (R-UT). 
Sens. Wyden and Thune are both key leaders in Congress.  Following the retirement of Senator Baucus and Senator Rockefeller (D-WV) in 2014, Sen. Wyden will be the senior Democrat on the Senate Finance Committee.  If the Democratic majority continues in the Senate, he is a strong candidate to chair the committee.  Sen. Thune has had various leadership positions among the Republicans in the Senate. 
Wyden and Thune stated, “The charitable deduction is unique.  It is the only provision that encourages taxpayers to give away a portion of their income for the benefit of others.  For this reason, it is not a loophole, but a lifeline for millions of Americans in need.”  They continued to point out that weakening the charitable deduction could “cause charitable donations to decline by billions of dollars annually.  Worse yet, weakening the charitable deduction would most hurt the adults and children who receive vital charitable services from organizations like soup kitchens, after-school programs, and medical research projects.” 
Editor’s Note:  The letter by two influential Senators shows that there now are serious discussions taking place on limiting itemized deductions.  Because the primary itemized deductions are for medical expenses, mortgage interest, charitable deductions and state and local taxes, a change of the rules for any of these will produce a dramatic and volatile political response.  Wyden and Thune are clearly attempting to position the charitable deduction in a special category.  All supporters of philanthropy should note their specific categories on the needy, children and medical research.  These politically-savvy Senators provide an excellent road map for philanthropy advocates.

Published November 22, 2013
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