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Friday March 23, 2018

Washington News

Washington Hotline

IRS Reports Improved Phone Services

At a March hearing before the House Oversight and Government Reform Committee, IRS Deputy Commissioner John Dalrymple noted, "Taxpayer service at the IRS has been improving."

Rep. Jim Jordan (R-OH) reminded Dalrymple that in the 2015 tax season, phone support was quite limited. Only 38% of the incoming calls were answered by IRS staff. Even IRS Commissioner John Koskinen called this result "abysmal."

In 2017, the IRS is reporting a much more successful program. The IRS has received 2.5 million calls. There is an average wait time of 7.1 minutes and 82% of the calls have been answered by the IRS.

Dalrymple was also asked about the filing process. He reported, "So far, the 2017 filing season has gone smoothly in terms of tax return processing and the operation of our information technology system." By February 24, the IRS received 52 million tax returns. It issued refunds to 41 million taxpayers with an amount of $127 billion. The average refund was over $3,000.

Dalrymple observed that IRS funding cutbacks have led to a backlog of taxpayer correspondence cases. Because more IRS staff are answering phones, there are fewer available to work on these cases. Over 1 million correspondence cases are over 45 days old. Dalrymple indicated that the IRS is attempting to get many of these cases resolved, even with their reduced staff. These correspondence cases may involve identity theft, various types of taxpayer notices and amended returns.

Editor's Note: The IRS is moving forward with a fairly smooth filing season. By March 3, the IRS had issued about 92% of the refunds as of this same date last year. The IRS points out that there are quite a few taxpayers who are claiming the Added Child Tax Credit or Earned Income Tax Credit. Because these refunds started the last week of February, many taxpayers have delayed their filings.

Major Healthcare Plan Released

On March 8, the House Ways and Means Committee and the House Energy and Commerce Committee held marathon markup sessions for the American Health Care Act (AHCA). The Ways and Means Committee hearing lasted 18 hours and the House Energy and Commerce Committee continued for a grueling 27 hours.

Both bills will be reviewed by the House Budget Committee and the House Rules Committee prior to a vote by the full House. It is anticipated that there will be a vote by the end of March. If the House passes the AHCA bill, it will then be sent to the Senate.

The bill retained three popular parts of the Affordable Care Act (ACA) passed in 2010, and changed seven provisions.

The retained healthcare provisions are:

1. Pre-existing conditions – Healthcare plans would be required to permit enrollment even if you have a pre-existing health condition.

2. Adult Children – Adult children would be able to stay on a parent's plan until they reach age 26.

3. High-Cost Plan Taxes – The excise tax on expensive, or "Cadillac," healthcare plans would be retained.

The substantial changes include the following:

1. Insurance Mandates – The ACA created mandates for employers and individuals to purchase healthcare, as well as substantial taxes if they did not do so. The AHCA does not have insurance mandates. Under AHCA, employers who offer insurance would also have lower cost plan options available.

2. Refundable Credits – The ACA subsidies would be replaced by AHCA refundable credits. These may be as much as $14,000 per family. Individuals would be able to use these credits to purchase healthcare insurance.

3. Expanded HSAs and FSAs – The health saving accounts (HSAs) and flexible spending accounts (FSAs) would be available with substantially higher limits. These accounts could also be used to cover some over-the-counter medications.

4. Taxes Repealed – Most of the ACA taxes on passive income, medical devices and prescription drug manufacturers would be repealed.

5. Medicaid Changes – AHCA plans for a gradual transition of some Medicaid recipients to new healthcare credits. This would take place over multiple years.

6. Lower Costs for Young Persons – The permitted cost for policies for younger individuals under ACA is 33% of the senior costs. The AHCA would permit insurance companies to have premiums for younger persons equal to 20% of the senior costs.

7. Coverage Incentives – Because there would be no healthcare mandate and pre-existing conditions would still be covered, insurance companies would be permitted to charge a 30% added premium if you have a coverage gap of over 63 days. This premium is intended to encourage individuals to maintain continuous health insurance coverage.

Editor's Note: ACA and AHCA are both complex bills that significantly impact every American. Your editor does not take a position on any of the above ten provisions. This factual explanation of AHCA is offered as a service to our readers.

Congress Debates Healthcare

At the March 8 hearing of the House Ways and Means Committee on the American Healthcare Act, both Chairman Kevin Brady (R-TX) and Ranking Member Richard Neal (D-MA) gave opening statements.

Chairman Brady highlighted four provisions. First, he noted that the tax bill will reduce taxes. He stated, "The legislation will provide relief from Obamacare's taxes and eliminate the tax penalties associated with the individual and employer mandates."

Second, he explained the expanded HSAs. Brady noted, "By enhancing and expanding health savings accounts, or HSAs, the bill nearly doubles the amount that Americans can contribute to an HSA. It also broadens HSAs so they can be used to cover more expenses, including over-the-counter medications."

Third, he described how the AHCA plan would cover low-income individuals. Brady continued, "It will preserve and protect health insurance for the more than 150 million Americans who receive coverage through their employers. And the bill also creates a monthly tax credit to help low- and middle-income Americans purchase coverage if they do not get it through work or a federal program."

Fourth, he discussed some concepts of the Affordable Care Act that are retained. Brady concluded, "Young Americans will be able to remain on their parent's health plans until they are 26 years old. Insurance companies will be prohibited from denying people with pre-existing conditions or charging them more."

Ranking Member Neal is leading the Democratic opposition to the bill. He highlighted several concerns with AHCA.

First, he suggests that coverage may decline. Neal states, "Healthy people won't bother with coverage or only buy bare-bones policies. Sick people who need coverage would buy a policy – if they are even available – that will undoubtedly become more and more expensive and unaffordable, especially in light of the inadequate tax credits."

Second, Neal is concerned about the Medicaid transition plan. He noted, "In addition, it would end the Medicaid expansion – a move that would have devastating consequences in my state of Massachusetts where it has been a critical tool for thousands of individuals and families with loved ones in long-term care facilities or who have dementia."

Third, Neal believes that hospitals will face higher costs. He continued, "Hospitals would face crippling debt as they face increased uncompensated care and lower reimbursement rates. In turn, this would lead to job loss in many hospitals and have a negative ripple effective in communities where hospitals are the largest employer."

Editor's Note: The AHCA will be amended multiple times in the House and Senate. If it passes this year, in a manner similar to ACA, there will be a transition over multiple years.

Applicable Federal Rate of 2.4% for March -- Rev. Rul. 2017-7; 2017-10 IRB 1 (17 Feb 2017)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2017. The AFR under Section 7520 for the month of March will be 2.4%. The rates for February of 2.6% or January of 2.4% 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 clicking here.

Published March 10, 2017
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