News & Events Listings

With Congress back in session, the political rhetoric regarding the economic impact of "corporate inversions" (i.e., tax-driven foreign mergers), and the best way to prevent them, became more pronounced.  Discussions of reinstating certain tax deductions and credits that expired on December 31, 2013 also increased. These developments are discussed further below, but we lead off with a warning from the IRS about a current telephone scam.

1. Beware of Callers Claiming To Be From the IRS

According to the IRS, many individuals, especially immigrants, are the victims of a particularly aggressive telephone scam. This scam involves the caller claiming to be from the IRS. Potential victims are threatened with deportation, arrest, having their utilities shut off, and/or having their driver's license revoked. The callers are often insulting or hostile in an attempt to intimidate their victims into compliance. In most cases, the victims are told they owe money to the IRS that must be paid immediately to avoid the dire consequences noted above. In some cases, the victims are told that they are entitled to large tax refunds.

The scammers typically do one or more of the following:

  • They use fake names and IRS badge numbers to identify themselves.
  • They may be able to recite the last four digits of a victim's Social Security Number.
  • They spoof the IRS toll-free number on caller ID to make it appear that the call is really from the IRS.
  • They sometimes send follow up e-mails to victims to support their bogus phone calls.
  • After using threat such as  jail time or driver's license revocation for failure to comply, the scammers hang up and their associates soon call back pretending to be from the local police or DMV (often with a fake caller ID also supporting the authenticity of their call).
The IRS has advised individuals who get one of these calls to report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.

2. Recent Developments Regarding Corporate Inversions

A.  A New Study States That Presidential and Congressional Proposals To Prevent Corporate Inversions Would Hurt the U.S. Economy

According to a recently released study by the American Action Forum, many of the anti-inversion proposals now being proposed in Congress could potentially be harmful to the U.S. economy. Gordon Gray, the fiscal policy director of the Forum, believes that nearly $1 trillion in U.S. capital and about 42,000 U.S. jobs would be jeopardized if any of the new anti-inversion laws now being discussed are enacted. For example, simply raising the amount of foreign ownership needed in order to avoid running afoul of these proposed laws could increase the incentive to move abroad now, before new tax laws become effective.

B. The Obama Administration Threatens Anti-Inversion Measures in the "Very Near Future"

On September 8, 2014, in a speech given at the Urban Institute, Treasury Secretary Jacob J. Lew warned businesses that administrative action to limit "inversions" is coming soon. In the words of Secretary Lew - "the Treasury Department is completing an evaluation of what we can do to make these deals less economically appealing, and we plan to make a decision in the very near future".

C. Senator Charles Schumer's Legislative Fix Would Have a Retroactive Application

On September 10, 2014, Senator Charles Schumer (D-N.Y.) and Richard Durbin (D-Ill.) introduced their own bill aimed at slowing the recent rise in corporate inversions. Their bill would specifically target "earnings stripping", which Senator Schumer calls the number one incentive driving the recent spate of inversion transactions. In a news release, the two Senators said that their bill would:

  • Reduce permitted net interest expense deductions for U.S. income tax purposes to 25% from 50% of the payor's adjusted gross income;
  • Repeal the interest expense deduction carry forward; and
  • Require the payor to get annual IRS preapproval for all related-party transactions reflected in the payor's U.S. income tax returns for 10 years after an inversion.

This legislation is the latest Democratic effort to curb "corporate inversions". Republicans (as noted below) have criticized this approach, maintaining instead that the best deterrent to inversion transactions is a comprehensive overhaul of the corporate tax provisions in the Internal Revenue Code.

D. Senator Orin Hatch (R - UT) Objects to Senator Schumer's Proposal

In response to Senator Schumer's anti-inversion proposal, Senator Hatch has said that a better course to follow in slowing the trend of corporate inversions is to fundamentally reform the corporate tax code. Specifically, Senator Hatch wants to see a tax code that significantly lowers corporate tax rates and reduces the taxation of domestic corporations on their foreign earnings. This, he maintains, would provide corporate taxpayers with fewer incentives to invert.

3. The July 2014 Holding of the D.C. Circuit Court of Appeals In Halbig v. Burwell To Be Reconsidered

The full U.S. Court of Appeals for the District of Columbia Circuit will rehear a case on the availability of the health insurance premium tax credit under the Affordable Care Act (ACA) to individuals purchasing health insurance from a Federal Exchange. In a 2 to 1 decision in a case styled Halbig v. Burwell, a three judge panel of the D.C. Circuit Court of Appeals invalidated the Treasury Regulations under IRC Section 36B that permitted Individuals purchasing health insurance policies from Federal Exchanges created under the ACA to receive a health insurance premium tax credit under that provision. The Court of Appeals has scheduled new arguments from the parties to be heard on December 17, 2014.

4. Republicans in the House of Representatives Renew Push to Extend Special Tax Deductions and Tax Credits That Expired on December 31, 2013

House Republicans plan to wrap several tax-related bills into a broader jobs bill and deliver it to the Democratic-led Senate. Certain of the tax-related bills to be included include the renewal of various tax deductions and credits that expired on December 31, 2013. While proposing the extension of many tax breaks, Republicans are also pushing to make permanent the tax credit for research and experimentation, the expensing election under IRC Section 179, and the bonus depreciation election under IRC Section 168. Senator Ron Wyden (D - ORE), Chairman of the Senate's Finance Committee, is on record as supporting the revival of the many special tax deductions and credits that expired on December 31, 2013, but as yet does not favor making any of the extensions permanent. At this time, it does not appear, however, that Congress will seriously consider extending these special tax breaks until after the November elections.

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