News & Events Listings

Three notable developments to report on for the month of February, 2014 are as follows. First, In President Obama's State of the Union address, he announced his intention to direct the Department of the Treasury to create a more accessible version of the traditional IRA, to be known as the MyRA. Secondly, the Regulation recently proposed by the Treasury Department to regulate the permitted political activities of IRC Section 501(c)(4) organizations (referred to in the Internal Revenue Code as "social welfare organizations") has created a furor of opposition by conservatives and liberals alike. And, thirdly, the new Chairman of the Senate's Finance Committee is likely to push for reinstatement of at least some of the tax breaks that expired on January 1, 2014. In this regard, we offer the following:

1. MyRAs - A Much Ado About Nothing? - On February 12, 2014, President Obama signed a presidential memo directing the Department of the Treasury to create, by December 31, 2014, a "new retirement savings security that can be made available through employers to their employees". According to the White House, it will aggressively encourage employers to offer the program, noting that the employers will not have to administer or contribute to the accounts. The initially created MyRAs will be offered through a pilot program to workers whose employers sign on by December 31, 2014. Once the program reaches full implementation, anyone who works for an employer that agrees to participate in this new retirement program and who has direct deposit for their paycheck will be eligible to sign up. Specifically, the MyRA account would operate as follows:

    Who is Eligible? - All workers, as long as their household annual income is less than $129,000, if filing as a single taxpayer, or $191,000, if married, filing jointly.
    How Much Can a Worker Contribute Each Year? - To open a MyRA, a worker must contribute at least $25. Thereafter, the worker can contribute as little as $5 every pay day or as much as $5,500 during each calendar year.
    Are the Contributions Pre-Tax or Post-Tax? - Post-Tax.
    How Is the Money Contributed to the MyRA Account invested? - No fees will be charged to the MyRA. The money allocated to the account is automatically invested in U.S. Government Bonds and will earn the same rate of return as the Thrift Savings Plan Government Securities Investment Fund that the U.S. Government offers to federal workers enrolled in its retirement plan. This Fund had an average annual rate of return of 3.6% between 2003 and 2012. The earnings on the funds invested in the Account will not be subject to federal income tax if not taken out before the worker attains age 59 1/2.
    When Can a Worker Withdraw His MyRA Account Balance? - The worker can withdraw the funds at any time. However, if the funds are withdrawn before the worker attains age 59 1/2, he will have to report any earnings on the monies contributed to the Account as ordinary income in the year of distribution and may also be subject to an early withdrawal tax penalty.
    How Long Can a Worker Maintain His MyRA Account? - Once a worker's account balance equals $15,000, or the account has been open for 30 years, if earlier, the worker will have to roll-over the balance, tax-free, to a private sector Roth IRA. The worker can, however, choose to roll-over his MyRA account to a private sector Roth IRA at any earlier time.

The reaction among retirement plan professionals as to the wisdom of the MyRA is decidedly mixed. A typical reaction has been voiced by Justin Bonestroo, Executive Vice-President of Actuarial Consultants, Inc. In his view, "the effort is sincere, but somewhat misguided. Any effort to expand coverage and ensure more Americans are covered by a workplace plan is a good idea, but the focus should be on improving the system that we already have and addressing areas where it may fall short, rather than creating an entirely new, government run, system with limited options".

2. IRS Stirs Up a Hornet Nest of Opposition to its IRC Section 501(c)(4) Proposed Regulation - In November, 2013, the Treasury Department published a Proposed Regulation indicating when organizations seeking tax exemption under IRC Section 501(c)(4) could be treated as promoting social welfare in situations where the organization participates in political activity. The Proposed Regulation provides in part that "the promotion of social welfare does not include direct or indirect candidate-related political activity, as defined in paragraph (a)(2)(iii) of this section".

The Department of Treasury invited public comments to the Proposed Regulation before its finalization. To date, the IRS has received a record number of comments (over 23,000). A significant number of the comments have been vociferous complaints from both political conservatives (calling the Proposed Regulation a scheme to silence President Obama' critics) and political liberals (calling the Proposed Regulation an attempt to trample the First Amendment). In view of the unprecedented number of comments, John Koskinen, the new IRS Commissioner, has publicly stated that the Proposed Regulation will not be finalized anytime soon.

To ensure that the IRS does not try and jump start the finalization of this Regulation the House Ways and Means Committee approved on February 11, 2014 a bill sponsored by Representative Dave Camp (R - Mich.), entitled "The Stop Targeting of Political Beliefs by the IRS Act" (H.R. 3865). The immediate aim of the bill would be to delay for one year the finalization of the Proposed Regulation. The principal motivation behind H.R. 3865 is to allow Congressional committees time to finish their investigations of the recent scandal involving the IRS's handling of IRC Section 501(c)(4) applications by Tea Party groups. It will also allow for a thorough discussion of the public comments to the Proposed Regulation. According to Rep. Camp, the Proposed Regulation was not proposed out of taxpayer confusion over the interpretation of the existing IRC Section 501(c)(4) Regulation. Instead, he said, it arose from an attempt by the IRS to specifically target conservative groups applying for tax exemption under IRC Section 501(c)(4) because of their political beliefs.

3. Reinstatement of Expired Tax Breaks Is a Priority for Democrats - On February 12, Senator Ron Wyden (D - Ore.) was appointed chairman of the Senate Finance Committee, succeeding Senator Max Baucus. Senator Wyden is on record as stating that the Finance Committee's top policy priority is to address the nearly 60 lapsed deductions, credits, and other tax breaks that expired after December 31, 2013. Senator Wyden declined, however, to specifically comment on the possible reinstatement of the bonus depreciation deduction, or any of the other expired tax breaks.

For additional information regarding these topics, please contact your local UHY LLP professional.