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Friday March 23, 2018

Washington News

Washington Hotline

IRS Free File — Over 50 Million Users

In IR-2017-68, the Service reported passing the 50 million tax returns mark for the IRS Free File program. Since this tax filing system began in 2003, more than 50 million taxpayers have saved $1.5 billion in tax-filing costs. Each person saved approximately $30 by using the free software.

Free File is generally available if your income is less than $64,000. There are a dozen recognized software companies on www.irs.gov/freefile. There is also a web tool called the Free File Software Look Up.

IRS Commissioner John Koskinen expressed his approval of the Free File program. He stated, "Reaching 50 million users and achieving $1.5 billion in taxpayer savings mark important milestones for the Free File Initiative. The Free File effort shows how the public and private sectors can work together to provide a critical service to the nation's taxpayers. After fourteen years, this innovative program continues to break new ground as it evolves to meet people's needs."

Free File Software for this year is also responsive, meaning that it can be displayed on desktop computers, notebooks, tablets and smartphones.

Some of the 12 software companies offering the free program have limits that differ from the $64,000 income level. However, all Free File programs are available for active duty military members with incomes under $64,000.

The IRS also reported a reasonable level of success in stopping identity theft. The Service has identified 969,000 tax returns with potential identity theft. It stopped $6.6 billion dollars in refunds on those returns.

IRS Wage and Investment Division Program Manager Tamara Powell reported a 30% reduction in identity theft during 2016 when compared to the prior year. She indicated there is new software that is used by the IRS to combat identity theft.

Powell reports the IRS efforts have caused a "huge drop in the number of bad refunds going out the door, and it resulted in a significant decrease in the number of taxpayers who identified themselves as victims and contacted our taxpayer's victims assistance because they couldn't file an electronic return."

Chairman Brady Turns to Tax Reform

With the American Health Care Act now on hold, House Ways and Means Chairman Kevin Brady (R-TX) has pivoted back to tax reform. The Ways and Means staff have spent several months drafting legislative language for a comprehensive tax reform bill.

In a press briefing on March 27, Brady was asked whether the proposed bill will be acceptable to the White House. He explained that there are regular meetings involving himself and both Treasury and White House staff. Brady claimed "90% alignment" between the House and the White House tax plans.

The most controversial item in his bill is the border adjustable tax (BAT). Many retail companies oppose this tax on imports because it will increase the cost of their products for consumers.

Brady continues to meet with Treasury Secretary Steve Mnuchin and White House National Economic Council Director Gary Cohn. At a press conference, White House Press Secretary Sean Spicer indicated the tax reform process is still in "the initial stages." The White House also has not determined whether or not comprehensive tax reform must be revenue-neutral. Speaker of the House Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) have both advocated a revenue-neutral bill.

On March 24, Treasury Secretary Steve Mnuchin expressed his views in a national media interview. He was "concerned" about the BAT. Mnuchin suggested some potential "carve outs" or exceptions will be needed for various business entities.

When asked about the plan to complete tax reform by August, Mnuchin was optimistic but acknowledged this is an aggressive time schedule. He indicated that tax reform may be "a lot simpler" than the health care changes.

Editor's Note: Both Brady and Mnuchin are planning to offer a comprehensive tax reform bill of 2,000 to 3,000 pages. It will impact personal, corporate, estate and excise taxes. Given the complexity of this tax bill and the obvious diversity of opinion in Congress, this project will be delayed. It could easily slip to late 2017 or even 2018.

2017 Tax Filings Catching Up with 2016

The IRS reports 2017 tax filings are closing in on the numbers from 2016. Because Congress required refund delays this year for returns with an Earned Income Tax Credit or Added Child Tax Credit, fewer returns and refunds were processed during the month of February.

By March 24, the 2017 refunds were 96.6% of 2016 levels. In the middle of February, the IRS had lagged by over 50% when compared with last year, so it now is nearly caught up with refunds.

The IRS also published the 2016 tax data book. For fiscal year 2016, the IRS collected $3.3 trillion in taxes. It issued 122 million refunds for a total of $426 billion. The net tax revenue for fiscal year 2016 was $2.9 trillion.

The IRS report also highlighted improvements in customer service. In 2015, taxpayers waited an average of 30 minutes before talking to an IRS representative. By allocating $290 million to hiring 1,000 additional temporary employees for IRS call centers, the average delay in 2016 was reduced to 17.8 minutes.

The IRS continues to upgrade www.irs.gov to provide electronic service to taxpayers. The "Where's My Refund" app has been very popular with taxpayers. However, the IRS recognizes that some taxpayers simply need personal support. Total phone assistance increased 14.6% in 2016 to over 63 million answered phone calls.

Applicable Federal Rate of 2.6% for April -- Rev. Rul. 2017-8; 2017-14 IRB 1 (16 Mar 2017)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2017. The AFR under Section 7520 for the month of April will be 2.6%. The rates for March of 2.4% or February of 2.6% 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 31, 2017
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