Highway Bill Motors Through Congress

After 35 short-term Highway Bill extensions, the Fixing America’s Surface Transportation Act (FAST) was passed on December 3, 2015. The House voted 359 to 65 and the Senate approved the bill with a vote of 83 to 16. President Obama is expected to sign the five-year transportation bill.

The FAST Act will provide funding for highways, bridges and transportation infrastructure until September 30, 2020. The House and Senate transportation leaders of both parties issued a joint statement. They stated, “This legislation is a vital investment in our country. A safe, efficient surface transportation network is fundamentally necessary to our quality of life and our economy, and this conference report provides long-term certainty for states and local governments, and good reforms and improvements to the programs that sustain our roads, bridges, transit, and passenger rail system.”

The five-year bill implements a compromise revenue solution. First, there is continuation of the current 18.3 cents per gallon federal excise tax. A new provision permits private collection of IRS tax bills. Over a decade, this system is expected to raise $2.3 billion. Another provision denies the right to hold a passport for individuals who have substantial unpaid taxes. There are also increases in other highway-related taxes.

Senate Finance Committee Chairman Orrin Hatch (R-UT) was very pleased with the passage. He stated, “Today Congress is making significant headway toward implementing the longest highway reauthorization bill in more than 15 years. We have heard time and again that a long-term highway bill would only be possible if we included a big tax increase. Yet we have been able to defy the odds and provide much-needed funding for America’s bridges, highways, and roads for the next five years. This marks a watershed moment for our transportation community, who will now have the security and stability they need to plan, implement, and complete critical infrastructure projects.”

Hatch Hopeful on Tax Extenders

Negotiations continue on crafting a tax extenders bill. The basic plan sought by members of both parties would make permanent four or five business tax extenders, three charitable tax extenders and four or five personal tax extenders. The personal tax extenders include the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).

The bill is estimated to cost over $700 billion during the next decade. If there are 10 to 12 permanent provisions, the remaining 40 tax extenders are expected to be passed for years 2015 and 2016.

A key issue remains the “integrity provisions” designed to reduce errors in the use of EITC and CTC. The House Republican Study Committee published a release with their expectation that the bill will include new integrity provisions. Chairman Bill Flores (R-TX) stated, “We must also improve the integrity and accountability for tax extenders that we may renew. We should not renew stimulus legacy items like the expanded EITC and the additional CTC without making significant improvements to the programs’ verification and oversight.”

Senate Finance Committee ranking member Ron Wyden (D-OR) was positive about the potential bill. He suggests that there is a growing agreement by Senators of both parties behind the general compromise. However, the specifics of the integrity provisions have yet to be negotiated.

Senate Finance Committee Chair Orrin Hatch (R-UT) indicated that a compromise bill may be included in the December 11 omnibus appropriation bill. Another option is to create a standalone bill for the tax extenders. House Majority leader Kevin McCarthy (R-CA) suggested that a standalone bill may not receive a House vote until the final scheduled Congressional day of December 18.

Editor’s Note: Passage of the Highway Bill is favorable news for a potential compromise on tax extenders. Congress now has demonstrated that the House and Senate can agree on a bipartisan solution. With the tax extenders bill, the IRA Rollover will be retroactive to January 1, but Leader McCarthy is now suggesting that final passage may not occur until December 18, 2015.

IRS Evaluation of Form 1023-EZ

In January of 2014 the IRS Exempt Organizations Department had a backlog of 75,000 applications. Many had been waiting for a full year before an IRS staff member started a review. After discussions, the IRS decided to clear the backlog by offering a very simple form with minimal information to obtain exempt status.

On July 1, 2014, the IRS released Form 1023-EZ. Using this simplified form, over 43,000 organizations applied for exempt status during the first 12 months. This represented 52% of the total applications during that period.

The IRS reports that 77% of the EZ applications have been approved. Processing time is reduced from 191 days to 13 days. User satisfaction has increased from 44% to 77%.

To encourage better compliance by applicants, the IRS reviews 3% of the applications. In addition, if there is a need for further information, the IRS requests that from the applicants.

The top five categories of applicants using IRS Form 1023-EZ are:

Editor’s Note: Many commentators express concern that the new “EZ” process makes it too “easy” to obtain tax-exempt status. The IRS has promised to implement compliance measures to reduce improper use of Sec. 501(c)(3) status.

Applicable Federal Rate of 2.0% for December—Rev. Rul. 2015-25; 2015-49 IRB 1 (20 Nov 2015)

The IRS has announced the Applicable Federal Rate (AFR) for December of 2015. The AFR under Section 7520 for the month of December will be 2.0%. The rates for November of 2.0% or October of 2.0% 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.