In IR-2016-146, the IRS encouraged employers to promote leave-based donation programs for victims of Hurricane Matthew.

Hurricane Matthew devastated coastal sections of Florida, Georgia, South Carolina and North Carolina from October 5-9 of 2016. It caused over $5 billion in property damage and 49 Americans lost their lives during this storm.

When Hurricane Matthew passed the Kennedy Space Center on the east coast of Florida, the winds were clocked at 80 miles per hour. A 500-foot tower at the Space Center recorded a gust of 136 miles per hour. Several million dollars of damage was done to buildings in Launch Complex 39. The storm delayed launch of the NASA Satellite GOES-R.

The IRS permits employees to make gifts of vacation, sick or personal leave under the program. Their employer corporations may then determine the value of the leave gifts and make cash transfers to Sec. 170(c) relief organizations.

The payments must be used by the relief nonprofits to assist victims of Hurricane Matthew. All payments must be made before January 1, 2018.

Lame Duck Session of Congress

Following the election on November 8, Congressional leaders are planning a lame duck session to commence next Monday.

The primary order of business will be to pass a continuing resolution to keep the Federal Government operating. The current continuing resolution expires in early December. The extended resolution is expected to be of sufficient length so the new Congress may take action in 2017.

The PATH Act in December of 2015 made many tax extenders permanent. However, 34 provisions were extended only for 2015 and 2016. Sens. Ron Wyden (D-OR) and Thomas Carper (D-DE) have expressed interest in a tax extenders bill for many of these provisions.

During the lame duck session, Congress may pass a temporary extension for some or all of these provisions. Alternatively, they may allow them to lapse. Even if they do lapse, it may be possible in 2017 to enact extensions retroactively.

Americans for Prosperity sent a letter on October 26, 2016 to oppose extending these provisions. The letter was sent to Sen. Majority Leader Mitch McConnell (R-KY) and Speaker of the House Paul Ryan (R-WI). The letter suggested that the PATH Act plan was to make some energy provisions permanent and allow others to lapse after two years. This decision “wisely” did not include these 34 extenders in the permanent provisions.

The letter points out, “Government subsidies, loans, mandates, and tax policies regarding renewables have consistently failed to deliver on their promises of long-term job creation and economic liability. Americans deserve access to energy solutions that are affordable and reliable – ones that should be able to stand on their own in the marketplace.”

In early 2016, Sen. McConnell made a handshake deal with Sen. Minority Leader Harry Reid (D-NV). Under that agreement, McConnell promised to take up the extenders bill during a lame duck session. Senate Finance Committee Chairman Orrin Hatch (R-UT) indicated that he will consider legislation. Hatch plans to advance legislation if it has broad-based support.

Editor’s Note: The 34 extenders include several energy provisions. If there is no further bill, the energy credits and benefits for geothermal, fuel-cell, combined heat and power systems and small wind turbines may lapse. House Ways and Means Committee Chairman Kevin Brady (R-TX) generally opposes renewal of any extenders. He prefers to pass only those provisions that have sufficient support to be made permanent.

Tax Reform in 2017

Following the election on November 8, taxwriters from both the House and Senate were asked by the media about their plans for tax reform in 2017.

House Ways and Means Committee Chairman Kevin Brady was interviewed on a major media program on November 9. He noted that during much of 2016 his staff and the members of the committee have been planning for major tax reform. Brady indicated that major legislation could be passed by the House within the first 100 days of the new administration.

Senate Majority Leader Mitch McConnell plans to meet with administration officials to discuss tax reform. He supports a revenue-neutral reform with a broader tax base and lower rates. The lower rates could apply to both C corporations and other types of business pass-through entities.

McConnell stated, “If we want to make America truly competitive, the goal ought to be, when revenue is produced by the elimination of preferences, use that to buy down the rates. We have a particularly acute problem with the corporate tax rate, as everyone admits, thereby creating the opportunity for inversions and the like.”

Speaker of the House Paul Ryan previously published his “A Better Way” tax reform plan. Ryan, Brady and their staff plan to work with White House representatives to develop a comprehensive reform proposal for 2017.

Editor’s Note: Tax reform is always very difficult. However, the tax reform plans previously offered by Ryan and Brady would simplify the rates to just three personal rates, eliminate most itemized deductions except mortgage interest and charitable giving and lower corporate tax rates through elimination of various corporate deductions. With the potential for passage in the House, the focus will be on the Senate. The Senate has the option of passing a ten-year tax reform bill through a process described as reconciliation. Given the current climate for tax reform, there now is a realistic chance for major tax legislation by the middle of 2017.

Applicable Federal Rate of 1.6% for November—Rev. Rul. 2016-26; 2016-45 IRB 1 (18 Oct 2016)

The IRS has announced the Applicable Federal Rate (AFR) for November of 2016. The AFR under Section 7520 for the month of November will be 1.6%. The rates for October of 1.6% or September of 1.4% 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 2016, 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.