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Tax Reform 2017 – Will it Ever Come?

By:  Peter J. Kulick  For tax attorneys, tax reform is always a hot topic.  President Trump was elected with GOP majorities in both chambers of Congress, which would normally make the forecast for tax reform actually being enacted favorable.  While the early conventional wisdom suggested comprehensive tax reform was possible by Labor Day; the political reality makes 2018 more likely to see the light of tax reform. What will tax reform look like?  The answer is we do not really know because the details have been incredibly light.  The Trump Administration has released a “framework” for tax reform, but did not take the usual step of releasing a “Green Book”.  The Green Book provides a detailed discussion of tax policy proposals, including an explanation of each changes and the reason for the policy changes.  To analyze tax reform, it may be appropriate to consider the typical tax policy mantra: “broaden the base, lower the rates.”  The concept is quite simple — aim for revenue neutral law changes by eliminating numerous deductions and lower the marginal tax rates.  Sounds familiar?  The following is a summary of the Trump Administration’s tax reform framework: Reduce the corporate tax rate to 15%, from the current highest rate of 35%. Offer taxpayers a one-time opportunity to repatriate foreign earnings at no or a low tax cost. Eliminate the world-wide tax philosophy of the Internal...

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What Do You Do If You Receive A Notice From The IRS That Your Tax Return Is Under Audit?

By: James Mauro and Robin Miskell Depending on the amount that may be at issue, call a tax lawyer immediately.  A tax lawyer that has handled audits before is able to provide important strategy and structure to the audit that will present your case in the best light to the auditor.  If you have determined to do it yourself, two techniques a tax lawyer might use to limit the scope of the audit are the following.  One, always ask the auditor to provide you with a Form 4564, Information Document Request (“IDR”), to request information.    Requesting an IDR is useful for clarifying the issues, limiting the scope of the audit and providing a time frame for your response.  Two, if the auditor has requested an extension of time, you may agree to a limited extension as to the issue and request the auditor to identify the issues for which he or she needs more time for examination.  This provides you with the knowledge to assist you in addressing the issues that the auditor is investigating.  It also is evidence that you are cooperating because you are agreeable to an extension, but under specific circumstances that are within your control.       Please contact James Mauro in the Lansing, Michigan office at 517-487-4701, or Robin Miskell in the Phoenix, Arizona office at 602-889-5329 if you have any...

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Classifying Taxpayer Business Hours

By:  Jim Mauro The Internal Revenue Service has increased its audit activity in the area of deductible losses from real estate investments. A taxpayer who is classified as a “real estate professional” (or “REP”) is eligible for certain relief from the automatic passive rule regarding rental real estate.  A REP must satisfy one of seven tests to qualify his or her participation as “active” in order to currently deduct losses related to such activity.    Please contact Jim Mauro in the Lansing office at 517-487-4701 for further...

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Key Tax Changes in the American Health Care Act

By:  Cyndi Moore The American Health Care Act (“AHCA”), passed by the House of Representatives on May 4, 2017, repeals many of the taxes added by the Affordable Care Act (“ACA”) and makes changes to other tax rules.  Some of the notable changes proposed to be made to the Internal Revenue Code are:  1.         The individual mandate to maintain health insurance and the employer mandate to offer health insurance remain in the Code, but the taxes are “zeroed out” effective retroactively to 2016.   2.         The following taxes, fees, credits and limitations are repealed as of the year shown below:   ·         The net investment income tax (NIIT) (2017) ·         The 0.9% additional Medicare tax (2023) ·         The small employer health insurance credit (2020) ·         The $2500 limitation on contributions to a health flexible spending account (FSA) (2017) ·         The annual fee on branded prescription drug sales (2017) ·         The medical device excise tax (2017) ·         The annual fee on health insurance providers (2017) ·         The elimination of a deduction for expenses allocable to the Medicare Part D subsidy (2017) ·         The 10% tanning salon tax (June 30, 2017)  3.         The “Cadillac” tax on high cost health plans is delayed until 2026.   4.         Individuals may be reimbursed for over-the-counter medications under a health savings account (HSA), health FSA or a health reimbursement arrangement (HRA) (2017).  5.         The penalty tax on...

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New Cash Balance Retirement Plan Guidance

By: Roberta Granadier   On April 7, 2017, the IRS issued a memorandum relating to cash balance retirement plans.  A cash balance plan is a defined benefit pension plan which looks like a defined contribution plan because participants have individual “hypothetical” account balances.  The employer typically credits a flat percentage of compensation to each eligible employee, and the employee’s account balance grows based on specified interest credits.  The new IRS guidance addresses cash balance plans that calculate benefits using only a portion of annual compensation, a special bonus or pay over a certain threshold rather than annual compensation.  The IRS cautions that cash balance plans which give the employer discretion to determine what compensation is included for benefit contribution purposes may violate the Internal Revenue Code “definitely determinable” requirement that applies to all defined benefit pension plans, including cash balance plans.  The problem arises when the employer has discretionto determine which part of compensation is considered.  The plan terms may specify whether base compensation,  bonuses or specified pay credits are included in the plan benefit formula.  However, if the employer has discretion or the inherent ability to determine how much W-2 compensation is paid in a way that manipulates pay credits or compensation used in the benefit formula, then the plan may violate IRS rules.  Any operational defect would have to be corrected pursuant to IRS correction procedures.  Cash...

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Tax Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.