News & Events Listings

As we get closer to January 1, 2013 and the looming "Fiscal Cliff", Congress and President Obama are stepping up their negotiations in an attempt to reach some sort of agreement. As of the date of this article, there is still no agreement. However, Congress has already decided to work through the week of December 17 in an effort to hammer out an agreement on the pressing tax and spending issues.

  1. Possible Signs of Progress as House Speaker John Boehner (R - Ohio) and President Obama Trade Proposals – As of this writing, many in Congress say there are signs of progress in talks to avoid $607 billion in tax increases and spending cuts, as President Obama and House Speaker Boehner continue to exchange counteroffers. But, while neither is willing to provide details of the offers, the basic framework for their initial offers remains intact. The Republicans are still pushing for a pledge by the President to cut entitlement spending and the President is demanding an increase in the top income tax rates. Many corporations have already issued special one-time or accelerated dividend payments in recent weeks to ensure that the dividend income falls under the favorable 2012 federal income tax rules for "qualified dividends" (instead of the possibly higher federal income tax rates for these dividends in 2013).
  2. President Obama Says Debt Limit Increase Must Be Part of Any Tax Cut Extension – President Obama has gone on record as warning Congressional Republicans that any effort to pass an extension of the 2001 and 2003 tax cuts (the so-called Bush-era tax cuts) without also increasing the nation's debt limit would be unacceptable to him. In remarks to the Business Roundtable, the President said that he is aware the House Republicans are considering a strategy that would extend only the portion of the tax cuts for individuals earning less than $200,000 and use the need for a debt-limit increase in early 2013 as leverage to get steep spending cuts. According to the President, ". . . [this] is not a game that I will play". 
  3. Republicans and Democrats Both Consider Limiting Charitable Deductions To Help Avoid the Fiscal Cliff – As part of the Fiscal Cliff negotiations, both political parties are looking at limiting the charitable deduction as a way of increasing tax revenues. Democrats seem to be especially interested in this approach, because they want to raise tax revenue from those individuals most likely to give charitable deductions - namely, those earning more than $200,000 per year.
  4. Republicans Reject President Obama's Promise to Work Only on Corporate Tax Reform in 2013 as Part of the Fiscal Cliff Negotiations – Republican leaders in the House of Representatives welcomed President Obama's offer to guarantee work in 2013 on corporate tax reform as part of the Fiscal Cliff negotiations. However, they insist that the President also pledge to work on reform of the individual tax code. The President included the offer in a proposal to House Speaker John Boehner (R-Ohio) that called for $1.4 trillion in new tax revenues and $600 billion in cuts to entitlement programs. House Speaker Boehner rejected the President's offer, however, because, in Representative Boehner's opinion, the offer called for too much in tax increases and not enough in spending cuts.
  5. Extension of Present Federal Estate Tax Provisions Seems Likely – Ron Aucutt, a partner with the law firm of McGuire Woods, has stated that it seems likely that the federal estate tax provisions in effect in 2012 will be extended by Congress before it leaves for the Christmas holiday break. Under the sunset legislation that governs the present estate tax law, if Congress does not act before January 1, 2013, commencing January 1, 2013,  the federal estate tax returns to the 2002 top tax rates (55%) and the 2002 exemption amount ($1,000,000). The length of the extension is, however, uncertain. According to Mr. Aucutt, if Congress does not extend the 2012 estate tax provisions for at least a few months into 2013 pending a "permanent" solution, then Congress will allow the sunset rates and exemptions to go into effect January 1, 2013 and Congress will presumably enact a so-called "permanent" solution after January 1, 2013 but retroactive to January 1, 2013.  In his view, either scenario would make rushing to do year-end gifting unnecessary, but, since practitioners would have no way of knowing for sure that the sunset scenario would not be the "permanent" solution arrived at by Congress, they must proceed as if December 31, 2012 were a hard deadline for estate planning purposes.
  6. IRS Issues New Regulations On the New 3.8% Net Investment Income Tax and the 0.9% Additional Medicare Tax – As a result of ObamaCare, a new 3.8% income tax on "net investment income" and a new 0.9% Medicare tax on wages goes into effect January 1, 2013. On November 30, 2012, the IRS issued new proposed regulations that are to become effective January 1, 2014, but which taxpayers can rely upon beginning January 1, 2013. The proposed regulations seek to address many of the questions tax practitioners raised as to application of these additional taxes.
  7. IRS to More Closely Review Partnership and Pass-through Entities – In remarks made on November 7, 2012 to the American Institute for Certified Public Accountants, Faris Fink, commissioner of the Small Business/Self-Employed division of the IRS, stated that partnerships and pass-through entities will receive much more attention by the IRS beginning in 2013. The IRS will attempt to address the inherent risks that exist with these types of business structures. According to Mr. Fink, over the first 6 to 9 months in 2013, the IRS will pilot methods to better identify its workload by looking at the right kind of partnership entities and returns to more closely scrutinize. The IRS will be especially interested in looking at loss limitations and distributions associated with these types of entities. It is anticipated that as a result of this focus, the IRS will increase its audits of these entities in 2014.   
  8. Standard Mileage Rates For Business, Medical and Moving Expenses Increase by 1₵ Per Mile for 2013 – The IRS has announced that the optional mileage allowance for owned or leased autos will  increase by 1₵ to 56.5₵ per mile for business travel in 2013. The rate for using a car to get medical care will also increase by 1₵ to 24₵ per mile in 2013.

For additional information regarding this topic, please contact your local UHY LLP professional.