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Around this time of year, key inflation-adjusted amounts are set for the coming year. For some of these amounts, there are “hints” at what final numbers may look like. Such is the case for predicting for 2018 to Social Security wage base limit; as well as per-diem allowances for travel acceptable to the IRS. These predictions have been dead-on accurate in the past and, likely, will prove to be the same (or a very close) for 2018 amounts.
Social Security wage base. The Social Security Administration's Board of Trustees recently released its annual report. The Board estimated that the Social Security wage base for 2018 will be $130,500. The Social Security wage base for 2017 is $127,200.
Comment. Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. This limit changes each year with changes in the national average wage index. The Social Security Administration will announce the official wage base for 2018 before year-end.
Per-diem travel rates. The General Services Administration (GSA) has announced its 2018 Continental U.S. (CONUS) per diem reimbursement rates. These rates are used by federal government employees on official travel and business.
The CONUS per diem rate is made up of three allowances: the standard lodging allowance, the meals allowance, and the incidental expense allowance. The standard lodging rate will increase to $93 (up from $91). The GSA made no changes to the meals and incidental expense (M&IE) rate currently set at $51.
For FY 2018, there are more than 300 Nonstandard Areas (NSAs) that have per diem rates higher than the standard CONUS rate. The 2018 rates will apply to government travel on or after October 1, 2017, and through September 30, 2018.
The IRS has announced that it will amend the so-called controversial "documentation regulations" so they apply only to interests issued or deemed issued on or after January 1, 2019. Such delay also gives opponents time to revisit these controversial regulations in their entirety.
The "documentation regulations," contained in Treas. Reg. §1.385-2, relate to the documentation necessary to determine whether an interest in a corporation is treated as stock or indebtedness for all purposes of the Internal Revenue Code. Those rules have two principal purposes:
to provide guidance regarding the documentation and other information that must be prepared, maintained and used when determining whether an instrument subject to the regulations will be treated as indebtedness for federal tax purposes; and to establish certain operating rules, presumptions and factors to be taken into account when making such determination.
The documentation regulations, once applicable, implement these purposes by generally requiring taxpayers to prepare and maintain documentation that evidences specified "indebtedness factors" with respect to purported debt instruments subject to the general “Section 385 debt-equity” regulations issued toward the end of the Obama Administration.
Comment. Alone, compliance with the documentation regulations does not establish that an interest is indebtedness; it serves only to satisfy the minimum documentation for the determination to be made under general federal tax principles. Nevertheless, there is also speculation that complaints about the documentation burdens are being used as a general delaying tactic to buy time until the Trump Administration makes a more sweeping decision over whether to roll back the Section 385 regulations in general.
In a recent post on the Taxpayer Advocate Service (TAS) site, National Taxpayer Advocate Nina Olson made the case that the IRS’s standards for assessing a taxpayer’s ability to pay an outstanding deficiency is significantly out of date just as the IRS’s Allowable Living Expense (ALE) standards now play a larger role in many types of collection cases. ALEs cover common expenses such as food, clothing, transportation, housing, and utilities.
The National Taxpayer Advocate makes several points in the case that current ALE standards are unrealistic when measured against contemporary needs:
"Taxpayer averages" used for ALEs do not reflect what any particular taxpayer may be facing in terms of expenses;
ALEs need to be more weighted toward income levels, recognizing for example that higher income taxpayers pay less of a percentage of their income on housing than do lower-income taxpayers;
ALE standards are outdated in not recognizing certain additional expenses that have become family necessity, including digital technology access, child care, and retirement savings;
ALE standards do not reflect the decreasing cash reserves with which the typical household in the middle third finds themselves for emergencies, dropping from $17,000 in 2004 to $6,000 in 2014; and
ALE standards for 2016 and 2017 have decreased for some expense amounts based upon the IRS’s false belief that expenses are going down.
Comment. Olson reported that the IRS’s decrease in some expense categories over the past two years was done despite both the IRS’s general lack of available data and its agreement with the Taxpayer Advocate in 2007 that "the allowance amount for any ALE category cannot be decreased unless something economic changes significantly, such as a major sustained recession or depression.
The new chief of IRS Criminal Investigations (CI), Don Fort, has announced some enforcement priorities for his team. CI will organize a new nationally coordinated investigations unit, which will focus on employment tax enforcement, international tax enforcement, and other projects. CI also is organizing a dedicated international tax investigations group.
"This [nationally coordinated investigations unit] is really cutting edge for CI, and part of the future of IRS Criminal Investigation,"Fort told reporters at a news conference in Washington, D.C. "This particular unit is going to report directly to our frontline executives here in Washington, D.C. The goal of the unit is to really use all of the data that we have available to us to help identify and develop areas of noncompliance," he said. Fort took over as CI chief in June after the departure of Richard Weber.
International tax compliance has been a top priority of the IRS. CI has reported seeing certain trends involving offshore accounts and noncompliance with the U.S. tax laws. Taxpayers attempt to use foreign accounts, credit/debit cards, trusts, corporations, partnerships, and other entities to commit criminal violations of U.S. tax laws as well as narcotics, money laundering and Bank Secrecy Act (BSA) violations. CI coordinates with INTERPOL, the Terrorist Finance Working Group (TFWG), the Financial Action Task Force (FATF), and the Organisation for Economic Co-operation and Development (OECD).
Comment. "The international tax enforcement group will examine a wide range of data and see where the data leads us in terms of other countries, other jurisdictions, and other individuals to best focus our efforts from a criminal investigation standpoint," Fort said.
As of June 30, 2016 (the most recent year for which statistics are available), some $60 billion of federal employment taxes remained unpaid. The IRS also reported that employment tax evasion makes up some $90 billion of the total tax gap, the difference between what taxpayers owe and what they pay.
Employment tax evasion schemes can take a variety of forms. Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns.
Comment. The IRS reminds taxpayers that both employer and employee hold the responsibility for collecting and remitting withholding taxes. For the most part, the employer withholds these taxes on behalf of their employees, but in cases where an employer does not do this, or where an employee is self-employed, it is the responsibility of the employee to pay these withholding taxes.
The myRA savings program will be discontinued, the Treasury Department has announced. Treasury attributed the end of the program to low demand.
Treasury launched myRA as nationwide in 2015. Account holders could build savings for 30 years or until their myRA reached $15,000, whichever would come first. MyRAs carried no startup or annual fees, or minimum balance requirements. Earnings would be tax-free unless withdrawn before the saver is age 59 ½. Employers could, but were not required to, offer myRAs to employees. One distinct advantage of myRAs was that they carried no fees, in contrast with annual fees charged by banks and other financial institutions.
Winding down. "The myRA program was created to help low- to middle-income earners start saving for retirement. Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program," Jovita Carranza, U.S. Treasurer, said in a statement. Participants in the myRA program are being notified and will receive information on moving their myRA funds to another savings vehicle.
Article XIII C of the California Constitution, which in part limits the ability of local governments to impose, extend, or increase any general tax, does not restrict the ability of voters to impose taxes via statutory initiative. A contrary decision would require an unreasonably broad construction of the term "local government" at the expense of the people’s constitutional right to direct democracy, undermining the longstanding and consistent view that courts should protect and liberally construe that right.
At issue was a voter initiative proposal to repeal a city ordinance banning medical marijuana dispensaries that included a requirement that each dispensary pay the city a fee in the amount of $75,000, only $15,000 of which was determined to be necessary for licensing and inspection costs. The city council determined that the balance constituted a general tax and ordered that the initiative be voted on at the next general election, as would be required for a city tax proposal under Article XIII C, instead of at a special election, as requested by the petitioners and permitted by statute.
Article XIII C’s mandate that general taxes be submitted to the voters at a regularly scheduled general election applied to local governments, and there was no evidence that it was intended to apply to the electorate’s initiative power. Only by approving a measure that was unambiguous in its purpose to restrict the electorate’s own initiative power could the voters limit that power. California Cannabis Coalition v. City of Upland, California Supreme Court, No. S234148, August 28, 2017