We’ve been operating without a budget for the past year, and despite the budget proposal this week, it appears likely that we will continue to operate the government under a series of continuing resolutions.
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Nevertheless, the budget proposals, as detailed in the Treasury Department’s Green Book, reveal the direction the administration intends for its legislative agenda.
There are few provisions among the many proposed tax changes that are totally new. Most have been previously proposed in one form or another.
“The item that jumped out at me from the Green Book is the independent contractor proposal,” said Ed Karl, vice president for taxation at the American Institute of CPAs. “It’s been on the table for awhile, but Congress prohibited it.”
The proposal would permit the IRS to require prospective reclassification of workers who it deems are currently misclassified. The Revenue Act of 1978, Section 530 (currently on the books, but not a part of the Tax Code), provides a “safe harbor” for employers to treat a worker as an independent contractor if they have a “reasonable basis” to do so and certain other requirements are met. The section prohibits the IRS from reclassifying the worker as an employee, even prospectively and even as to newly hired workers in the same class.
Any reclassification changes would not be effective until the first calendar year beginning at least one year after the date of enactment, and the transition period could be up to two years for independent contractors with existing written contracts establishing their status.
“This is clearly an area where there is a lot of angst on the part of taxpayers and the IRS, and probably some noncompliance,” said Karl. ”The way it plays out will be interesting.” Tax simplification remains a work in progress, with only minor simplification measures among the proposals, according to Karl.
Among them are proposals to eliminate the minimum required distribution rules for IRA balances of $50,000 or less and repeal the preferential dividend rule for publicly traded real estate investment trusts.
“These are relatively obscure provisions,” Karl noted. “The AICPA has always been a proponent of trying to reduce the complexity of the code. Even though we don’t live in a simple world, we think it’s a worthwhile effort.”
The budget takes an interesting approach to the new Form 1099 reporting requirements, Karl noted. “They repeal the health care provision for Form 1099 reporting, but add back a modified version of it,’ he said.
The proposal would repeal the additional information reporting requirements imposed by the Affordable Care Act, but would require businesses to file an information return for payments for services or for “determinable gains” aggregating $600 or more in a calendar year to a corporation.
There is no provision to repeal the reporting requirements for owners of rental property by the Small Business Jobs Act of 2010, which are already in effect.
“There’s a growing recognition among those calling for repeal of the health care provision that we need to repeal both provisions,” said Karl. “The AICPA supports repeal of both.”
In fact, the House Ways and Means Committee yesterday approved repeal of both sets of Form 1099 reporting requirements.
Given the fact that the President’s own budget recognizes the burdensome aspects of the requirements, it is very likely that some measure of repeal will be enacted soon. Hopefully, this will include the provisions targeting owners of rental property that are already in effect.