Bonner & Nevius: Congress Passes Fiscal Cliff Act

Paul Bonner and Alistair M. Nevius, Congress passes the fiscal cliff act, Journal of Accountancy:

Pulling back from the “fiscal cliff” at the 13th hour, Congress on Tuesday preserved most of the George W. Bush-era tax cuts and extended many other lapsed tax provisions.

Shortly before 2 a.m. Tuesday, the Senate passed a bill that had been heralded and, in some quarters, groused about throughout the preceding day. By a vote of 89 to 8, the chamber approved the American Taxpayer Relief Act, H.R. 8, which embodied an agreement that had been hammered out on Sunday and Monday between Vice President Joe Biden and Senate Minority Leader Sen. Mitch McConnell, R-Ky. The House of Representatives approved the bill by a vote of 257–167 late on Tuesday evening, after plans to amend the bill to include spending cuts were abandoned. The bill now goes to President Barack Obama for his signature.

“The AICPA is pleased that Congress has reached an agreement,” said Edward Karl, vice president–Tax for the AICPA. “The uncertainty of the tax law has unnecessarily impeded the long-term tax and cash flow planning for businesses and prevented taxpayers from making informed decisions. The agreement should also allow the IRS and commercial software vendors to revise or issue new tax forms and update software, and allow tax season to begin with minimal delay.”

With some modifications targeting the wealthiest Americans with higher taxes, the act permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16 (EGTRRA), and Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 (JGTRRA). It also permanently takes care of Congress’s perennial job of “patching” the alternative minimum tax (AMT). It  temporarily extends many other tax provisions that had lapsed at midnight on Dec. 31 and others that had expired a year earlier.

The act’s nontax features include one-year extensions of emergency unemployment insurance and agricultural programs and yet another “doc fix” postponement of automatic cuts in Medicare payments to physicians. In addition, it delays until March a broad range of automatic federal spending cuts known as sequestration that otherwise would have begun this month.

Among the tax items not addressed by the act was the temporary lower 4.2% rate for employees’ portion of the Social Security payroll tax, which was not extended and has reverted to 6.2%.

See full article by Paul Bonner and Alistair M. Nevius, Congress passes the fiscal cliff act, Journal of Accountancy, January 1, 2013.

ESOPs as a Plan to Help Business Owners Avoid "Taxmageddon"

Jerry L. Ripperger & Brian D. Hector: ESOPs: a plan to help business owners avoid "taxmageddon":

The potential massive tax increases looming in 2013 will be felt by many taxpayers, but they could take an especially hard toll on business owner clients who have plans to sell.  With nearly 80 percent of their net worth tied up in the value of the enterprise¹, such business owners could lose a significant amount of assets which they have spent a lifetime amassing.

On the horizon

If Congress allows the Bush-era tax cuts to expire in 2013, long-term capital gains rates will increase to 20 from 15 percent.  On top of that, the health care reform act will impose a new 3.8 percent tax on capital gains for certain individuals in 2013, bringing the capital gains tax to 23.8 percent.  The jump to 23.8 from 15 percent is a 60 percent increase.

Higher income taxpayers will also experience a reduced benefit from itemized deductions if these tax cuts expire. The net effect could boost their capital gains tax rate to 25 percent from 23.8 percent.  Further, Congress and President Obama are discussing reducing deductions in other ways.

Then there are state taxes. Some, like California or New York, already have high capital gains tax rates, some as much as 8-10 percent, which high income taxpayers would pay in addition to the increased Federal rates.   Consequently, for the business owner who sells his or her business in 2013 as part of a succession plan, the collective tax increases could wipe out as much as 30 to 35 percent of the wealth the owner worked for decades to build up in the business and accumulate for retirement regardless of whether the owner’s stock is redeemed or sold to a third party.

Enter the ESOP Advantage

There is a way to help business owner clients soften (and in some instances completely eliminate) the impending tax blow and unlock substantial assets by using an employee stock ownership plan. Because of their special tax features, ESOPs allow owners to sell their stock and diversify their wealth on a tax-favorable basis, while effectively retaining control of their business.

See full article by Jerry L. Ripperger & Brian D. Hector at ESOPs: A Plan to Help Business Owners Avoid "Taxmageddon", LifeHealthPro, Dec. 10, 2012.

Former IRS Commissioner Doug Shulman Gives Prepared Remarks Before the AICPA, Washington, DC

On November 7, 2012, Douglas H. Shulman, Commissioner of the Internal Revenue Service from March 24, 2008 through this past Sunday, November 11, 2012, in prepared remarks before the American Institute of Certified Public Accountants (AICPA) in Washington, DC, closed out his long tenure as IRS Commissioner with the following statement covering subjects including tax evasion, IRS efficiency, taxpayer improvements, corporate taxes, IRS technology, and more:

Side note:  In an interview with C-SPAN in January 2010, Commissioner Shulman stated, "I use a preparer... I've used one for years. I find it convenient. I find the tax code complex, so I use a preparer.”

IR-2012-89, Nov. 7, 2012

WASHINGTON — Today is the day after the elections and of course, political Washington is all abuzz…bloggers are blogging…commentators are commenting… folks on Twitter are tweeting… the pundits are dissecting last night’s results.

However, I am not here to wade into those political waters. Rather, I come before you today to talk about something entirely different.

In a few days time – November 11th to be precise – my term as the 47th Commissioner of the Internal Revenue Service officially comes to a close. And looking back, I can say it has been a true honor and one that I wouldn’t trade for anything.

I suppose it’s quite natural when one has completed a significant task like running the IRS for almost five years to pause ... to reflect on the journey taken … to mark the milestones met … and to ponder the lessons learned.

Standing before you today…standing on the shoulders of those who came before me…building on their work and achievements…it is gratifying to share with you the meaningful…and I believe, lasting progress that has been made to our nation’s tax system.

Waldon: The Fiscal Cliff: Recession Looms Without Compromise, Leaders in Arkansas Fear

George Waldon of Arkansas Business warns of upcoming tax crisis in his article, The Fiscal Cliff: Recession Looms Without Compromise, Leaders in Arkansas Fear:

If Congress fails to address the so-called fiscal cliff, the United States faces another recession, leaving Arkansas political and business leaders to hope the critical hour of decision will force the appearance of bipartisanship.

The fiscal cliff remains an icon of the hour: a metaphorical escarpment built on a mountain of national debt that stands at $16 trillion and growing.

Threatening to send the economy tumbling over the edge in 2013 is a convergence of possible tax increases and automatic spending cuts intended to reduce the federal government's budget deficit.