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Friday March 6, 2015

Washington News

Washington Hotline

$6.3 Billion in Direct Pay Taxes

In IR-2015-34 the IRS reminded taxpayers that they may use Direct Pay to make their tax payments this year. Direct Pay is a free online tool that may be used either for tax payments or quarterly tax amounts.

The IRS suggested that taxpayers should go to and learn about this method. The tax payments may be scheduled from your bank or savings account up to 30 days in advance.

As of February 26, the IRS reports that it has received over 50 million returns. There are 40 million refunds that add up to approximately $125 billion.

There were over 158 million visits during tax season to The use of the IRS website is up over 10% this year.

Are taxpayers using professionals or preparing their own returns with software? Over 25 million returns have been filed through tax professionals. Twenty-two million taxpayers chose to prepare the return themselves –most of these taxpayers used commercially-available tax preparation software.

House Passes Expanded College Savings Accounts

The popular “529” college savings accounts enable parents and grandparents to deposit funds that grow tax-free. You may transfer up to five times the $14,000 annual gift exclusion to a Sec. 529 account for one person. A couple could therefore transfer up to 10 gift exclusions or $140,000 this year into a Sec. 529 account. These funds then grow tax-free until the child or grandchild needs to use them for college expenses.

In addition to tax-free growth, Sec. 529 fund distributions for tuition and other approved expenses are also tax-free.

In an effort to enhance the benefits of these college savings plans, the House passed H.R. 529 on February 25 with a strong bipartisan 401-20 margin. It was cosponsored by Reps. Lynn Jenkins (R-KS) and Ron Kind (D-WI).

Rep. Jenkins noted, “This is a good, sensible bill to improve a critical college savings tool to help more hardworking Kansans and Americans save for their children’s education. Today we sent a clear message to all families that Congress supports 529s, we’ll keep them tax-free, and we’ll work together to strengthen them so parents can secure a better future for their children.”

Rep. Kind also spoke approvingly of the passage and stated, “I am pleased to see the House pass this commonsense, bipartisan legislation that will help keep college affordable for families in Wisconsin and across the nation.”

H.R. 529 has three main provisions. The account may be used for acquisition of a computer for a college student. The bill also eliminates an unnecessary aggregation rule. In addition, there are provisions that allow redeposit of 529 funds without taxes or penalties.

Editor’s Note: This bill is a modest expansion of Sec. 529 plans. The comment by Rep. Jenkins is in response to a White House budget proposal to limit tax-free distributions from 529 plans. Because there is strong popular support for the college savings plan, the White House withdrew that proposal. Passage of this bill demonstrates strong bipartisan support for both 529 plans and college education. It also highlights the basic challenge of tax reform – there is a strong constituency or support base for all tax benefits. That support base will mobilize when any benefit is perceived to be threatened.

Democratic Leaders Propose Permanent Tax Extenders

In response to House Republican efforts to make certain tax extenders permanent, Democratic leaders announced on February 25 that they will also seek to make some tax extenders permanent.

The preferred Democratic tax extenders include the Earned Income Tax Credit (EITC), the American Opportunity Tax Credit (AOTC), the Child Tax Credit and the Child and Dependent Care Tax Credit.

The bills will be cosponsored in the House by Reps. Sander Levin (D-MI), Lloyd Doggett (D-TX) and Richard Neal (D-MA). The Senate versions of the bill will be cosponsored by Sens. Charles Schumer (D-NY) and Sherrod Brown (D-OH).

The bills are not expected to include offsets or other tax increases. Rep. Levin indicated that there is a goal to find a future method for payment. He stated, “Our view on overall tax reform is, we will pay for them.”

The House previously had passed two permanent tax extenders bill. The America’s Small Business Tax Relief Act of 2015 (H.R. 636) permanently expands the small business expensing, allows conversion of C corporations to Subchapter S corporations with a five-year built-in gain rule and has favorable basis rules to encourage gifts of appreciated property from Subchapter S corporations.

The America Gives More Act of 2015 (H.R. 644) permanently expands the deduction for gifts of food inventory, allows IRA owners over age 70½ to make transfers of up to $100,000 per year directly from the IRA custodian to charity, includes enhanced deductions for gifts of conservation easements and simplifies the private foundation excise tax.

Editor’s Note: This is a significant legislative action. There now are members of both parties in the House and Senate who agree that some of the 55 tax extenders should be made permanent. While there are different opinions on which provisions qualify for permanent status, Senate Finance Committee Chair Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) now have the potential components for a compromise bill. If they can bring both parties together with a compromise, the Senate may be able to pass a bill with 10 to 15 permanent extenders. While it would also need to be accepted by the House and the White House, this compromise bill has significant potential for 2015.

Applicable Federal Rate of 1.8% for March -- Rev. Rul. 2015-4: 2015-10 IRB 1 (18 Feb 2015)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2015. The AFR under Section 7520 for the month of March will be 1.8%. The rates for February of 2.0% or January of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published February 27, 2015
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