AICPA News- What’s new with Affordable Care Act..!

About the AICPA

The American Institute of CPAs is the world’s largest member association representing the accounting profession, with more than 412,000 members in 144 countries, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting.

The AICPA sets ethical standards for the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, and offers specialty credentials for CPAs who concentrate on personal financial planning; forensic accounting; business valuation; and information management and technology assurance.

Through a joint venture with the Chartered Institute of Management Accountants, it has established the Chartered Global Management Accountant designation, which sets a new standard for global recognition of management accounting.

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Tax Reform Resource Center

 

Tax reform has been a topic of discussion in Congress for more than six years. The recent election has aligned the House, Senate and White House in accomplishing that goal, making the possibility of tax reform likely in the 2017-2018 timeframe.

The Tax Reform Resource Center will keep you informed of what has been proposed or passed in Congress, and will be updated frequently with news, analysis, resources and the information you need to understand how coming changes will affect you and your clients. With news likely to overlap your tax busy season, bookmark this page and visit often for updates. The AICPA is dedicated to being your home for comprehensive coverage of tax reform as it unfolds.

This resource center is sponsored by the AICPA Tax Section.

I’ve heard about tax reform for many years with no results. Is it really going to happen?

Congress has discussed a fundamental approach to tax reform for about the last six years. Hearings, discussions, a tax reform proposal released by then-chair of the House Ways and Means Committee Dave Camp, five working groups set up by the Senate Finance Committee, and last June, a tax reform blueprint released by the House Republican leadership. So what has changed to suggest that CPAs should really focus on the possibility that tax reform could actually happen?

A new Republican administration, together with Republicans holding the majority in both the House and Senate, has created the best opportunity for enactment of fundamental reform since 1986.


What is the potential timing for the enactment of a tax reform bill?

The political environment changes almost daily; however, here is the timing as we know it today: ACA repeal and replacement has been the first order of business. House Speaker Paul Ryan (R-WI) has indicated that he’d like to see a publicly-released tax reform bill by the end of April or early May, and pass the House by the summer recess in August. Senate Finance Committee chair Orrin Hatch (R-UT) has said the Senate should not be expected “. . . to simply take up and pass a House tax reform bill . . .” A separate Senate process will take time and likely involve budget reconciliation.


What is AICPA’s philosophy regarding fundamental tax reform?

The proliferation of new income tax provisions since the 1986 tax reform effort has led to compliance hurdles for taxpayers, administrative complexity, and enforcement challenges for the Internal Revenue Service. The AICPA encourages Congress to examine all aspects of the tax code to improve the current rules. We stand for a code that is simple, practical, and administrable. The AICPA has consistently supported tax reform simplification efforts because we are convinced such actions will significantly reduce taxpayers’ compliance costs and encourage voluntary compliance through an understanding of the rules.


What are the political forces impacting tax reform?

The three major focuses for the Republicans in the first 100 days of the new Administration are: (1) the repeal of the Affordable Care Act (Obamacare); (2) de-regulation in Washington; and (3) tax reform. At the GOP bicameral conference retreat in Philadelphia at the end of January, Republicans expanded their agenda timeframe to 200 days to accommodate the Senate’s responsibility to confirm 1,200 presidential appointments.

The Republican leadership has been debating the process of moving a tax reform bill in the Senate. One mechanism – budget reconciliation – is often used in the Senate to limit debate and amendments but can only be used once a year. Early in January, the Senate passed a budget resolution that will allow Republican lawmakers to pass a budget reconciliation measure enabling the repeal of the ACA with only 51 votes in the Senate. The House supported the measure.

What does this mean for tax reform?  Since the Senate used fiscal year 2017 reconciliation for ACA, tax reform could be considered under regular order, which means it would require a 60-vote supermajority in the Senate. Eight Democrats would have to vote for the proposal, assuming all Republicans also approve it. That may be a significant challenge, although there clearly is bipartisan support for tax reform.


What are the barriers to passage of tax reform?

The level of partisanship in Washington is extreme, nevertheless, there is still bipartisan interest in tax reform. Notwithstanding that interest, crossing the finish line of signed legislation will not be easy due to challenges such as the ones listed below:

  • Creating a revenue-neutral bill. A focal point driving the current discussions of tax reform is lower individual and business rates. The House Republican Blueprint listed the following proposed rates:
    Individuals Investments Corporations Pass-Through Active Income
     12%  6%  20%  25%
     25%  12.5%    
     33%  16.5%

Broadening the base – read that to mean eliminating deductions – to make up for these low rates will be a challenge. The changes will be fundamental and uncomfortable for many – there will be winners and there will be losers.

 

  • Managing ACA repeal/replacement. A key priority for the Republican leadership and the Administration, repealing and replacing the Affordable Care Act (Obamacare) is proving to be more of a challenge than anticipated, and seems to be contributing to a delay in taking up tax reform. However, the timing for taking on ACA could very well slide.
  •  Regular order or budget reconciliation. We’ve mentioned that there is generally bipartisan support for tax reform; however, the Democrats in the Senate have indicated they would like to tie infrastructure spending with tax reform. If the Republican leadership believes it can’t reach a 60-vote supermajority, the Senate may choose instead to win a slim majority of Republican votes using the budget reconciliation process. However, gaining universal Republican support in the Senate is not assured at this time.
  • Possible Senate resistance to a House bill. Senate Finance Committee Chair Orrin G. Hatch (R-UT) has raised concerns with aspects of the House Republican Blueprint and has indicated that the Senate may not just take up and pass a House tax reform bill. Specifically, Hatch has questioned the Blueprint’s border adjustability proposal, calling it a “significant shift” in business tax policy. Other members of the chamber have raised concerns regarding the impact of a border tax on the agriculture sector. Yet others have questioned whether a border tax would survive World Trade Organization scrutiny.

 


I have a number of clients who own pass-through entities, but I hear the big changes are going to be in the C corporation area. Should I now convert these entities to C corporations even though there will be a second layer of tax?

Following developments to be able to react quickly on behalf of clients is important, but do not react or make decisions just yet. We only know the outlines of what is being considered – no details. There has been interest for years in lowering the corporate tax rate, but how to handle flow-through entities – which represent the vast majority of businesses in the US – has always been the question. You can see in FAQ No. 5 that there is consideration to provide a preferential flow-through tax rate but it would not be as low as the proposed corporate rate. A key issue in this discussion is how reasonable compensation will be handled. It makes sense to wait.


I have individual clients who are close to being subject to estate taxes. Is the estate tax going away?

Eliminating the estate tax has been high up on the Republican tax agenda and is part of the Republican Blueprint. President Trump’s position during the election was to eliminate the estate tax and instead, tax appreciated asset values at death as capital gains. How will basis issues be handled?  Or gift taxes?  Keep a close eye on the developments but don’t make any decisions just yet.



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