Federal Tax News – June

By Team HRH | July 18, 2017

U.S. Senate releases new version of its health care plan. On July 13, Senate Republicans released a revised bill to repeal and replace the Affordable Care Act (ACA). Among the provisions of the Better Care Reconciliation Act of 2017: It would eliminate the individual and employer mandates but retain the ACA’s premium tax credit in a modified form. The 3.8% net investment income tax and the 0.9% additional Medicare tax would be retained. There would be more options to buy low-premium “catastrophic” plans and a new provision would allow people to use health savings accounts to pay for health insurance premiums. Republican leaders say they plan to bring the bill to the Senate floor for a vote the week of July 17.

Meanwhile, two senators offered another option. The day the Senate released its ACA overhaul bill, Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) announced an alternative. Under their proposal, federal dollars now spent on ACA insurance would be block granted to states. The funds could be distributed as tax credits, subsidies and other ways the states see fit. The individual and employer mandates would be repealed and pre-existing conditions would be covered. Most ACA taxes would remain. Medicaid funding to states would continue to grow.

No division of early distribution penalty. If taxpayers under age 59½ take early distributions from traditional IRAs, the IRS generally imposes a 10% penalty. One married couple decided to divorce without involving lawyers and agreed to equally split the husband’s IRA and the penalty. But before filing divorce papers, he emptied the IRA and gave half to his wife. When divorce papers were later filed, the IRA wasn’t on the couple’s property statement and the IRS imposed the full penalty on the husband, stating the distribution wasn’t made “pursuant to a qualified domestic relations order.” He argued his ex-wife was liable for the penalty on her portion of the IRA proceeds. However, the U.S. Tax Court ruled the husband was liable for the entire penalty amount. (Summers, TC Memo 2017-125)

Pro hockey team’s away game team meals are a de minimis fringe. The U.S. Tax Court held that the Boston Bruins hockey team’s provision of pregame meals to Bruins’ players and personnel at out-of-town hotels qualifies as a de minimis fringe under the tax code, so the cost of such meals isn’t subject to the 50% limitation. Meals can be counted as a de minimis fringe if, among other factors, they’re provided during, or immediately before or after, the employee’s workday, and are available to all group members — not just the highest paid. In this case, the meals were mandatory for players and team personnel. During them, the team discussed strategies for the game, reviewed game film and discussed media inquiries with public relations staff members. (Jacobs, 148 TC No. 24)

Audit finds IRS processes aren’t sufficient to identify employment identity theft victims. Employment-related identity theft occurs when an identity thief uses another person’s identity to gain employment. A Treasury Inspector General for Tax Administration (TIGTA) audit discovered more than 497,000 victims “who did not have a tax account in Processing Year 2015” and “were not identified even though…thieves electronically filed tax returns with evidence that they used the victims’ Social Security Numbers…to gain employment.” TIGTA provides recommendations to help fight the problem. See the full report at: www.treasury.gov

Court rules settlement payment was taxable. If a taxpayer receives damages for a physical injury or physical illness, the payments can be excludable from gross income, but damages for emotional distress are generally taxable. One taxpayer suffered injuries from a car accident unrelated to his job and went on short-term disability. When he couldn’t return to the same job, he was fired and filed a complaint accusing the employer of failing to accommodate his disability. Later he dropped the dispute in exchange for monetary payment. He argued that the payment should be excluded from his taxable income. However, the U.S. Tax Court deemed the payment taxable because it was based on emotional distress. (Rajcoomar, TC Memo 2017-129)

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