Archive for Tax Policy

Understand The Difference Between “Tax Home” And “Abode” In Order To Take The Housing Deduction

iStock_House RainbowXSmallUnited States taxpayers living overseas are usually somewhat familiar with the benefits of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Often I see many misconceptions with regard to the rules. Here is one of the most common. Not understanding the concept can mean losing the benefits that might otherwise be possible.

In order to qualify for any of the benefits, the taxpayer is required to have (among other things) a “tax home” in a foreign country. In defining what is meant by a “tax home” the law provides that the taxpayer shall not be treated as having a “tax home” in a foreign country “for any period for which his abode is within the United States.” What is the difference between one’s “tax home” and one’s “abode”?

What is a “Tax Home?”

Under the tax rules, one’s tax home” is defined generally as the main place of business, employment, or post of duty, regardless of where the individual maintains his family home. The tax home test focuses on the place of one’s vocation or employment. It is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. If you do not have either a regular or main place of business or a place where you regularly live, you are considered an “itinerant”. In that case, your tax home is wherever you work.

What is an “Abode”?

As mentioned, you are not considered to have a tax home in a foreign country for any period in which your abode is Read More

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Obamacare Provisions Postponed – And The IRS Has To Implement

iStock_usa umbrellaXSmallThe requirement that businesses provide their workers with health insurance or face fines – a key provision contained in President Barack Obama’s sweeping health care law – will be delayed by one year the Treasury Department said Tuesday.

The postponement came after business owners expressed concerns about the complexity of the law’s reporting requirements the agency said in its announcement. Under the Affordable Care Act, businesses employing fifty or more full-time workers that don’t provide them health insurance will be penalized.

We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so. We have listened to your feedback. And we are taking action,”

Mark J. Mazur, assistant secretary for tax policy wrote in a post on the website of the Treasury Department, which is tasked with implementing the employer mandate. Mazur said the extra year before the requirement goes into effect will allow the government time to assess ways to simplify the reporting process for businesses. Penalties for firms not providing health coverage to employees will now begin in 2015 – after next year’s congressional elections. Read More

Written by | Posted in Tax Policy • United States

VAT Changes In Ireland – Finance Act 2013 And Recent Case Law

VATFinance Act 2013 saw a number of changes to the VAT regime in Ireland.  The main changes are as follows:

1.  The threshold for Accounting for VAT on the money’s received basis has been increased from €1m to €1.25m with effect from 1st May 2013.
2.  The flat rate addition for unregistered farmers was reduced from 5.2% to 4.8% with effect from 1st January 2013.
3.  From 1st January 2013 the services threshold for VAT registration (i.e. if the turnover from the provision of services exceeds €37,500 there is an obligation to register for VAT) applies to the provision of sporting facilities and physical education facilities by public bodies.  This means that public authorities will not be obliged to register for VAT unless they exceed the threshold amount of €37,500 but they can elect to register for VAT if they so choose.
4.  Existing VAT legislation in relation to vouchers with a redeemable value provides that VAT arises at the time the voucher is supplied and not when the voucher is redeemed.  Anti Avoidance legislation was introduced in the 2013 Finance Act which confines this special rule to situations where vouchers are supplied to businesses that are established in the state.  For vouchers sold to businesses outside Ireland for onward supply they are not taxable on sale but when the redemption of the voucher takes place.
5.  The Finance Act brought in a number of changes with regard to receivers and liquidators in the context of supplies of services. 

a)      New provisions were introduced to clarify that a receiver or liquidator who supplies taxable services Read More

Written by | Posted in Europe, Middle East • Tax Policy • VAT

Foreign Housing Exclusion –IRS Announces Housing Cost Limits for Tax Year 2013

House and moneyOverview

A foreign housing exclusion is available for certain overseas housing expenses that exceed a “base housing amount”.  Generally, the allowable housing expenses are the reasonable expenses (such as rent, utilities other than telephone charges, and real and personal property insurance) paid or incurred during the year by the taxpayer, or on his behalf, for foreign housing.  The housing costs include those of the spouse and dependents if they lived with the taxpayer.  Allowable housing expenses do not include the cost of home purchase or other capital items, wages of domestic servants, or deductible interest and taxes.   Some taxpayers mistakenly believe if they use only a portion of the employer-provided housing amount, they can still deduct the full amount permitted under the foreign housing exclusion rules.  This is not so.  To be eligible for exclusion, the taxpayer must actually incur these amounts in rental payments (for example, paid to the landlord on his behalf by the employer or paid by the taxpayer to the landlord from his employer-provided housing amount).

Calculation Rules

To be eligible for exclusion from tax, the allowable housing expenses must exceed a so-called “base housing amount”.  The base housing amount is 16 % of the maximum Foreign Earned Income Exclusion amount (FEIE). For 2013, this “base housing amount” is US$15,616 (computed as follows: 16% x US$97,600 – the 2013 FEIE amount). Reasonable foreign housing expenses in excess of the ”base housing amount” are eligible for the exclusion, but such Read More

Written by | Posted in Europe, Middle East • Expatriate • International • IRS • North America • Real Estate • State And Local Tax (SALT) • Tax Policy

Section 501(c)(4) Background

Climbing a Pile of FilesThe drama surrounding Section 501(c)(4) – the IRS reviews of applications, congressional investigation and hearings, and news stories are likely not over yet. The Senate Finance Committee asked the IRS for lots of documents and information in May (Forty one questions seeking what must be thousands of pages of information). The House asked TIGTA to further explore possible improper disclosure by the IRS.

I’ve got a short article with background on this controversy and Section 501(c)(4). I’ve also created a resource site you might find of interest.  I will post it in sections during the week.

Perhaps tax reform will take a look at 501(c) and its 20+ different types of non-profit entities. Can this be simplified? Does the list still make sense? Should the 501(c)(4) regulations be modified to tie to the statute (the statute uses exclusive and the regs use primary purpose – two different terms!).

What do you think?

Social welfare, inappropriateness, resignations, hearings, and complexity—the Sec. 501(c)(4) story has it all…

This blog post is written in five parts:

1.  The Sec. 501(c)(4) Story: Program Notes – Part 1
2.  The Sec. 501(c)(4) Story: Program Notes – Part 2-Plot and Controversy #1
3.  The Sec. 501(c)(4) Story: Program Notes – Part 3-Controversy #2
4.  The Sec. 501(c)(4) Story: Program Notes – Part 4-Controversy #3
5.  The Sec. 501(c)(4) Story: Program Notes – Part 5-Controversy #4 & Resolution
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IRS, FATCA, NSA, And The International Banking Conspiracy

IRS?  CIA?  FBI? Most kids in school know what these acronyms mean.   But NSA? What’s that? National Security Agency?  What do they do? Although it has been an 800 pound gorilla in the room for quite some time, it is only now, with the recent disclosure and intimation of extensive domestic spying on Americans, that the pundits are now talking about yet another vast government institution which inspires fear and fantasies about Big Brother.

Washington assures us we have no reason to worry because all NSA cares about is keeping track of the mere fact that your computer has received an email from Kandahar. It doesn’t matter what it says, as long as the government knows you got it. Also if your search engine happened to land on a web site for a few seconds which offers recipes on how to blow people up with a few ingredients from under the kitchen sink or the garage, we need to know about that too.  No one in our government is thuggish enough to presume to read the content of a private e mail message but it’s good to know at least that a few people in the States have pen pals in the quaint, ethnic hamlets in the Swat Valley in Northern Pakistan.

The timing of this latest bombshell could not be worse for Big Government.  Just about the time the NSA Scandal is about to gather a real good head of steam, the IRS is going to be back on the front pages yet again,  with the opening in July of the much anticipated IRS FATCA PORTAL TO MORDOR. Read More

Written by | Posted in Federal • International • Tax Policy

How You As A Tax Professional Can Help Influence The Internet Sales Tax Law

As a Tax Professional, you have the opportunity to influence the Internet Sales Tax Law. While Congress is on track to pass a nationwide Internet Sales Tax, you can make a significant contribution to improve it before it becomes law! The Open Government Foundation has designed an innovative platform for making line-by-line suggestions for improvements in the internet sales tax law.

TechCrunch has created a version of the “Project Madison” crowdsourcing legislative platform that enables readers to add, delete and amend specific passages in the upcoming tax law. Suggestions by tax professionals will receive the attention of Congressional Staffers. TaxConnections in support of TechCrunch needs your help to make a difference in this law – NOW!

Senate Bill S.743, the “Marketplace Fairness Act of 2013,” passed the Senate with overwhelming support and is on to the House of Representatives. TechCrunch launched a news civic channel to source and promote the most insightful ideas to pass on to government. This is a real opportunity to improve the Internet Sales Tax Laws while it has left the Senate and is on its way to the House of Representatives.

Here is exactly what you need to do: Read More

Written by | Posted in Tax Policy • TaxConnections

Credibility And The Voluntary Tax System

Our tax system is, at its core, a voluntary system. Since World War II we have had mandatory payroll withholding and quarterly estimated tax payments for the self-employed but it must be remembered this is not the payment of taxes. It is only a down payment on what we voluntarily self-assess ourselves when we file a tax return. We all know that some people voluntarily self-assess themselves large credits at the expense of other taxpayers.

A voluntary tax system is dependent on the credibility of the agency that is collecting the self-assessed taxes and making sure that the self-assessments are correct. In the 1960s the Internal Revenue Service was held up as a model government agency, a place you wanted to work. The credibility of the IRS has sunk to new lows due to the latest scandal to rock the Obama administration.

Today morale in the IRS is very low. Some of the reasons are that the IRS is under-staffed, under-funded and watching the revolving door as senior, experienced, people retire. The agency is grossly underfunded to handle its current workload, let alone the addition of the astounding amount of additional requirements imposed on it by Obamacare. Read More

Written by | Posted in Federal • Tax Policy

Nexus Oddities of the Marketplace Fairness Proposal

On May 6, 2013, the Senate passed S. 743, the Marketplace Fairness Act (69-27). That is the farthest this bill has gotten in the past almost 20 years. President Obama has indicated he supports it, but it’s not clear if the House will act upon it or pass it.

Basically, this bill provides a mechanism where states can become authorized to collect sales tax from remote (non-present) vendors.

A “remote sale” is one where the vendor “would not legally be required to pay, collect, or remit State or local sales and use taxes unless provided by this Act.” A small seller exception applies for vendors with remote sales of $1 million or less in the prior calendar year.

S. 743 does not eliminate the longstanding, difficult issues of determining whether a vendor has sales tax nexus in a state. For example, if an employee is in the state for two days to help a customer, is nexus created? If yes, the vendor has sales tax collection obligations even without S. 743. If nexus is not created, sales into that state are used to determine if the vendor meets the small seller exception. Errors in knowing if a vendor has nexus may become more significant with S. 743. Read More

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Preparing Returns For Disabled Veterans

With an increasing number of Veterans returning from serving our country and the previous generation getting old the Veterans Administration (VA) is granting more and more disability ratings for our service members and former service members.  If you are a Tax Professional who prepares returns for people who served or are serving in the U.S. Armed Services or you are a Veteran please take a few minutes to look at this step-by-step guide to the best way to make sure Veterans get the full amount of their tax refunds.

Preparing A Return For A Disabled Veteran
Written by | Posted in Federal • Individual • Military • Tax Policy • TaxConnections

Will Tax Reform Dollars Come From Increased Rate On Capital Gains And Dividends?

A 4/3/13 article in Politico, “Investment tax rate poses dilemma for the GOP,” raises the issue of whether lawmakers will increase the tax rate on capital gains and qualified dividends to help pay for tax reform that lowers the overall tax rates for individuals and corporations. They note that this could generate “gobs of money.” I think that is a good way to put it.

If you look at where funds could be generated to pay for lower tax rates in a revenue neutral tax reform bill, there are some obvious choices. These choices are the larger tax expenditures – exclusions such as for employer-provided health insurance, the mortgage interest deduction, and the lower rate on capital gains and dividends. For example, repeal of LIFO is estimated to generate about $7 billion per year. In contrast, a higher capital gains rate might generate $3 billion and a higher rate on dividends $7 billion. I’m estimating these amounts based on some figures in President Obama’s FY2013 Greenbook. He had also proposed capping itemized deductions and some exclusions at 28% which using 2001/2003 rates, would have generated $58 billion per year.  And there is another factor to consider. Repeal of LIFO or slowing down depreciation are changes that are just timing. Over the long term, they really don’t generate revenue. However, raising the rate on capital gains and dividends and capping the benefit of deductions and exclusions are permanent dollars.

I think Congress will have to look at revenue that can be generated from individual tax changes to help pay for a corporate rate reduction. Some of that change should also help fund a lower individual tax rate.

What do you think?

Original post at 21st Century Taxation blog.  Connect with me at:  Annette Nellen on TaxConnections. 

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