Preparers looking for a wish list of provisions for the lame duck session of Congress to pass have a number of items to consider.
Proposals already on the table have the potential for both an immediate and long-term effect on tax preparation. The inability of the lame-duck session to address all of pending issues will make for either some significant legislation — or gridlock — in the upcoming Congress.
Highest on the list for Melissa Labant, technical manager at the American Institute of CPAs’ tax division, is the absence of uncertainty.
“Uncertainty is what I hope does not lie ahead,” she said. “Continued uncertainty is challenging for preparers, for taxpayers and even for the IRS. Clarity and certainty is in the best interest of all parties. Uncertainty encourages the ‘wait and see’ game, whether it’s in the area of estate planning or business, deciding whether to hire new employees. Everyone is sitting back waiting for Congress to make decisions.”
In an effort to allay the uncertainty caused by the lack of an AMT patch, IRS Commissioner Doug Shulman wrote this week to the tax-writing committees informing them that, based on their efforts to enact AMT legislation, and on their letter which urged him to take the steps necessary to plan for such changes, he has directed the technology team to program IRS computers with the assumption that there will be an AMT patch.
“Of course, if legislation has not passed by the end of the year, our computers will have been programmed incorrectly, and we will need to delay filing for these individuals as we re-program our computers to the actual law in effect,” he stated.
However, Shulman said that the IRS has programmed its computers in accordance with current law regarding the expired individual extenders, including the educator expense deduction, the additional deduction for real property taxes for individuals who claim the standard deduction, deductions for tuition fees and expenses, and deductions for state and local sales taxes.
“While I know you and your colleagues have a difficult challenge to enact legislation this year, I want to stress that it would be extremely detrimental to the entire tax filing season and to tens of millions of taxpayers if tax law changes affecting 2010 are deferred and then retroactively enacted in 2011,” he said.
Joseph Gulant, tax practice leader at the New York office of Blank Rome LLP, believes there will be an extension of the Bush tax cuts through the 2012 election period.
“The Republicans will be pushing to make those tax cuts permanent,” he said. “The Democrats are in a box. They have to do something based on the election results, and the economy is very delicate at the moment. I don’t know what’s going to happen on estate tax reform, but given the gridlock that exists, it doesn’t appear that there will be any major tax initiatives other than the potential extension of certain tax credits to spur business, but other than that, I see nothing dramatic in the next two years.”
Given the revenue shortfall that we have, Gulant believes that compliance and controversy issues in the tax area will jump. “The IRS is likely to expand its audit and collection function, because without new tax legislation or increased tax rates they need to spend a much greater amount of time collecting the low-hanging fruit that’s out there,” he said. “This means they need to audit more companies and they need to do a better job on enforcement. We expect to see more tax controversy work in the near future.”
Repeal of the recently enacted Form 1099 reporting requirements seems to be on everyone’s agenda, but is probably not likely in the lame duck session. And there are two different sets to deal with, one a part of the Patient Protection and Affordable Care Act, the other in the Small Business Jobs Act. Under the health care reform law, the first Form 1099s would be due in 2013, so businesses would need to keep records beginning in 2012. But the similar reporting requirements under the small business law are more immediate; they apply to owners of rental property for expenses related to the property, and would take effect in 2011 for reporting in 2012.
The AICPA has called for repeal of both provisions. It noted that this would be the first time that individual taxpayers who own rental property who are not engaged in a trade or business would have to provide the form. The business implementation costs associated with the likely generation and receipt of millions of forms, and the potentially challenging reconciliation processes for taxpayers, should be weighed against the uncertainty of the benefit to be derived by the government, the AICPA said.
“There’s no question that everyone realizes this was an overreach and doesn’t need to be there, but that’s not enough for Washington to do something,” said Roger Harris, president of Padgett Business Services. “The debate was about health care, not 1099s. Once it became the topic, everyone was against it. But it’s funny that they would pass the second set of rules affecting landlords at the same time that everyone was upset with the first set of rules.”
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