News & Events Listings

June 2012 was another relatively quiet month on the Tax front. The principal developments involved (1) an unexpected, but welcomed, relaxation of the rules that the IRS follows in evaluating Offers in Compromise, (2) ASPPA's opinion that any fundamental tax reform, or even tax reform aimed at taxing tax-qualified retirement contributions, will probably not happen in 2012, and (3) a proposal by the Republicans to make Health Care Flexible Spending Accounts more taxpayer friendly. These developments are discussed below:

IRS Announces Expansion of its "Fresh Start Initiative "With Changes to Offers-in-Compromise – On May 21, 2012, the IRS published IR 2012-53 in which it is expanding its "Fresh Start Initiative" first announced in IR 2011-20. IR 2012-53 makes several changes to the rules that the IRS follows in evaluating Offers in Compromise ("OIC"). These changes are designed to help financially distressed taxpayers resolve their past-due tax liabilities with the IRS. The IRS believes that the changes made to the OIC program should allow some taxpayers to resolve their tax problems in less time than in the past. The changes announced in IR 2012-53 include (1) revising the calculations of a taxpayer's future income, (2) allowing taxpayers to take into account their student loan obligations, (3) allowing taxpayers to take into account their delinquent state and local taxes, and (4) expanding the allowable living expense allowance category and amount.
Possible Income Tax Changes Affecting Employee Benefits Unlikely in 2012 – On May 21, 2012, Brian H. Graff, CEO of the American Society of Pension Professionals and Actuaries ("ASPPA"), noted that Congress will most likely postpone until 2013 any substantive tax reforms targeting income tax deferrals and deductions attributable to contributions to tax-qualified retirement plans. According to Mr. Graff, for the remainder of 2012, the only Congressional action in the tax and spending arena will involve an extension of the debt limit, a continuing resolution to keep the government operating for another year, and a one-year extension of the Bush-era tax cuts.
House Republicans To Offer Taxpayer-Friendly Legislation That Chips Away at the 2010 Health Care Reform Act – On June 7, 2012, the U.S. House of Representatives passed a bill (H.R. 436), the "Health Care Cost Reduction Act of 2012", that makes four significant changes to President Obama's 2010 Health Care Reform Act. The new bill (1) repeals the 2.3% medical device excise tax, (2) repeals the ban on the use of monies held in health care flexible spending accounts ("FSAs") to purchase over-the-counter medicines without a doctor's prescription, and (3) allows up to $500 of monies unspent in FSAs as of the end of the year to be returned to the account holder (a repeal of the so-called "use it-or- lose it" rule).

In addition, to pay for the changes, the bill changes the way that the recapture amount for overpayments of "premium assistance tax credits" is to be computed. The projected savings from such reduction is estimated to be approximately $37 billion.

Under the 2010 Health Care Reform Act, premium assistance tax credits are initially effective for 2014 and are to be provided to certain low-income taxpayers who acquire health insurance coverage by enrolling in a qualified health plan offered through an "American Health Benefit Exchange". Under the present recapture policy, if a taxpayer receives a credit greater than the credit amount to which he or she is ultimately determined to be entitled, only a portion of the overpayment is recaptured in some cases. Under the new bill, 100% of any overpayments are recaptured in every case.

On June 6, 2012, the White House released a statement in anticipation of the bill's passage by the House that President Obama would veto the bill if it made it to his desk on the grounds that the bill would ultimately result in a greater number of uninsured individuals. And, on June 7, 2012, an aide to Senate Majority Leader, Harry Reid (D-NV), stated that Mr. Reid would not even bring up the House-passed bill for a vote by the Senate.