On January 23, 2017, the IRS announced it is opening the 2017 tax filing
season. IRS Commissioner John Koskinen stated, "Getting to this point
is a year-round effort for the IRS and the nation's tax community.
The dedicated employees of the IRS look forward to serving taxpayers this
filing season, and I want to thank all the tax and payroll community for
their hard work that makes tax time smoother for the nation."
This week the IRS published two reminders on the Earned Income Tax Credit
(EITC). In IR-2017-8 the Service encouraged those in rural areas to file
and claim EITC.
Many employees and business or farm owners in rural areas have lower earned
income. For the 2016 tax year, those with incomes up to $53,505 may qualify
for the EITC. The maximum potential refund is $6,269 if you are a working
family with qualifying children. The average EITC is expected to be $2,400.
To benefit from the EITC, you must file a tax return. Even if you do not
owe tax, you may file a tax return and benefit from the refundable credit.
You can use the IRS Free File program to complete your return without any cost.
A second letter focused on EITC potential benefits for those persons with
disabilities. While the EITC is based on earned income, many taxpayers
retire on disability. If the employer's disability plan pays taxable
income, they still may qualify for the EITC.
A concern of individuals with disabilities is that they may be receiving
Social Security disability benefits, Medicaid or Food Stamps. The IRS
letter emphasizes that tax refunds, including EITC amounts, are not counted
as income for purposes of these programs. This rule protecting those on
disability applies to all federal programs and any state program with
There may be a delay in some refunds for taxpayers who claim the EITC.
Congress requires the IRS to hold all EITC refunds until the middle of
February to provide time for additional review. For tax returns with EITC
refunds, it is likely the payments will be made the week of February 27, 2017.
The IRS also has announced EITC Awareness Day on Friday, January 27, 2017.
The IRS will publicize EITC Awareness Day on
and social media.
Chairman Brady Explains 2017 Tax Reform Plan
On January 24, House Ways and Means Chairman Kevin Brady (R-TX) spoke
to the U.S. Chamber of Commerce in Washington, D.C. Brady was a Chamber
of Commerce executive in Texas before he ran for Congress.
Brady covered several specific aspects of the Tax Reform Act that is expected
to be passed this year. He indicated, "I was excited to announce
that we were working together to design a tax system that is built for
growth and would leapfrog America back into the lead of the most pro-growth
tax systems in the world for new jobs and new investment."
Staff for the Ways and Means Committee are diligently drafting the 2017
Tax Reform Act, expected to be 3,000 pages. Brady continued, "Our
members and staff are hard at work turning the ideas of our Blueprint
into tax reform legislation that delivers the 21st Century tax code our
nation needs. A tax code that is built for growth – the growth of
families' paychecks, the growth of local businesses and the growth
of our economy as a whole."
Brady summarized three specific decisions on 2017 tax reform. The bill
is being drafted with the "lowest tax rates on American job creators
in modern history." He did not specify the specific rate. Prior House
plans have suggested a rate of 25% for corporations and 33% for individuals.
The White House has proposed rates as low as 15%.
Second, he explained that there will be a full deduction for "new
capital investments." This provision is designed to encourage companies
to acquire new equipment, since it will be fully deductible.
Third, he resolutely claims that the plan will end the "Made in America"
tax. This provision will involve a border-adjusted tax that is designed
to remove taxes on exports and apply taxes to imports.
Brady noted, "More importantly, border adjusting our taxes helps
eliminate all tax incentives for U.S. companies to move their manufacturing,
technology, headquarters, and jobs overseas." The border-adjusted
tax is widely used by most other industrial nations worldwide.
Finally, Brady concluded, "Our goal is not simply to eliminate all
tax incentives to move overseas. Our goal is to establish America as a
magnet for 21st century investment and job creation."
The expected bill will be comprehensive and include massive revisions
to both individual and corporate taxes. Brady plans to repeal the alternative
minimum tax and estate tax. Most itemized deductions will be eliminated.
Brady has previously indicated that he will preserve the charitable deduction.
However, the White House plan suggested a cap of $200,000 on charitable
deductions. This could have serious impact on major gifts and capital
campaigns. The Charitable Giving Coalition is conducting a fly-in for
charitable organizations on February 16, 2017. Over a dozen charitable
associations and major organizations are supporting the fly-in. The tax
bill is projected to be scored by the Joint Committee on Taxation (JCT)
in March. Chairman Brady hopes to mark up the bill in May and pass the
bill in early June. Senate action is much more uncertain. Sen. McConnell
(R-KY) reports that the Senate is currently backlogged with 1,200 presidential
appointments requiring Senate confirmation.
Mulvaney – Nominee for Office of Management and Budget
One of the key financial positions in any administration is the Director
of the Office of Management and Budget (OMB). On January 24, OMB Nominee
Mick Mulvaney testified in confirmation hearings before the Senate Homeland
Security and Governmental Affairs Committees.
Many of the questions to Mulvaney were directed toward future economic
policy. When he was asked whether tax reform must be revenue-neutral,
Mulvaney indicated that his primary focus is on expanding the economy.
When asked for ways to increase revenue, Mulvaney observed that the IRS
each year has a "tax gap" and is failing to collect $500 billion
or more. When asked by Sen. Angus King Jr. (I-ME) whether he will restore
the IRS staff cuts to close the tax gap, Mulvaney responded that this
was an "excellent point." However, he did not commit to that
King also inquired about Social Security and the possibility of raising
the income cap on payroll taxes. Mulvaney noted that there were at least
three different options for addressing entitlement reform. He suggested
that his plan would be to try to address all three areas.
He was twice offered the opportunity to support the Taxpayer Protection
Pledge. During his time as a member of Congress, Mulvaney had signed that
pledge. He also declined to indicate he will support that pledge as Director
of the Office of Management and Budget.
Finally, the questioners addressed the debt ceiling. Treasury Secretary
Nominee Steven Mnuchin stated that the United States cannot default on
its debt. Mulvaney agreed that default was not a proper option.
Confirmation hearings are helpful in understanding the views of each nominee.
Mulvaney was very careful not to make specific commitments on taxes or
entitlement reform. His answers suggest that the White House may be willing
to enact comprehensive tax reform even if it is not revenue-neutral. However,
both Speaker Ryan and Majority Leader McConnell still are holding to a
plan for revenue-neutrality. If they pass a bill that is revenue-neutral,
the White House may be asked to accept the House or Senate top rates for
corporate and individual taxes.
Applicable Federal Rate of 2.6% for February -- Rev. Rul. 2017-4; 2017-6
IRB 1 (19 Jan 2017)
The IRS has announced the Applicable Federal Rate (AFR) for February of
2017. The AFR under Section 7520 for the month of February will be 2.6%.
The rates for January of 2.4% or December of 1.8% also may be used. The
highest AFR is beneficial for charitable deductions of remainder interests.
The lowest AFR is best for lead trusts and life estate reserved agreements.
With a gift annuity, if the annuitant desires greater tax-free payments
the lowest AFR is preferable. During 2017, pooled income funds in existence
less than three tax years must use a 1.2% deemed rate of return. Federal
rates are available by