Busy tax agenda awaits Congress’ return after August recess

Congress returns to work in September with a full agenda of tax legislation. Lawmakers will search for revenue to pay for a long-term federal highway and transportation bill, debate the fate of popular but temporary tax breaks, and decide on a funding level for the IRS. As passage of the Surface Transportation Act in late July showed, tax law changes can appear suddenly and can make significant changes.

Highway Bill

The Surface Transportation Act is merely a temporary extension of federal highway funding and is scheduled to sunset before year-end. To pay for the Surface Transportation Act, Congress revised some return due dates, imposed additional reporting requirements for mortgage servicers, and passed other new and expanded tax compliance measures. Now, lawmakers must find more revenue sources to pay for any longer extension or a multi-year highway and transportation bill. Among the revenue proposals are a one-time, 14-percent tax on untaxed foreign earnings of U.S. companies (supported by President Obama). Some lawmakers have endorsed a hike in the federal gas tax (currently at 18.4 cents per gallon).

Tax Extenders

The Senate Finance Committee (SFC) approved before the August recess a two-year extension of many expired tax breaks, known as tax extenders. These include the state and local sales tax deduction, teachers’ classroom expense deduction, incentives for biodiesel and alternative fuels, the Production Tax Credit, the Work Opportunity Tax Credit, and more. Unless extended, these incentives will be unavailable when taxpayers file their 2015 returns.

The House, however, has taken a different approach to the extenders. The House, unlike the SFC, has not grouped all of the extenders in one package. Since January, the House has approved several stand-alone bills extending or making permanent some of the extenders, such as the state and local sales tax deduction. These bills have been referred to the Senate where they have yet to be taken up; and the likelihood of the Senate ever taking them up is unclear. If the past is any guide, lawmakers are likely to defer action on the extenders until close to the end of the year.

IRS Budget

President Obama and the GOP-controlled Congress have very different proposals to fund the IRS for fiscal year (FY) 2016. The President has proposed to fund the IRS at more than $13 billion for FY 2016. The House Appropriations Committee, in contrast, approved a $10.1 billion budget and the Senate Appropriations Committee came in at $10.475 billion. Whatever level of funding the House and Senate agree on, it is expected to be below the President’s request, and lower than the IRS’s budget for FY 2015. The IRS struggled with customer and practitioner service during the 2015 filing season, which it attributed to budget cuts. How the agency will react to more budget cuts, and how they may impact the 2016 filing season, remains to be seen.

One area where the administration and Congress may find some agreement is funding for cybersecurity at the IRS. In August, the IRS reported that the May 2015 breach of its online Get Transcript app was larger than originally believed. According to the IRS, as many as 220,000 more taxpayers may have had their information compromised or stolen. In an update to his FY 2016 budget request, President Obama urged Congress to increase funding for IRS cybersecurity. The President called for an extra $242 million, reflecting a 72 percent increase over FY 2015.

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Content provided by CCH. If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
 

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