As the year races toward December 31st, the IRS offered helpful tips to taxpayers in IR-2016-150. Good planning in November and December will facilitate filing your 2016 tax return next April.

1. Documents – You can expect your W-2’s and 1099’s early in 2017. You should retain a copy of your 2015 tax return. This may be helpful if you use tax preparation software for your 2016 return. The software may use data from 2015 to verify your identity and permit you to use the electronic signature option.

2. Individual Tax Identification Numbers (ITIN) – If you obtained an ITIN prior to 2013 and did not use it in 2013, 2014 or 2015, it will expire and no longer be valid. You may need to obtain a new ITIN. You should plan to submit your ITIN request through the information on www.irs.gov about nine to 11 weeks before you file. If you do not have an ITIN and have previously been a victim of identity theft, the IRS may delay your refund.

3. Earned Income Tax Credit (EITC) – If you claim an EITC or An Additional Child Tax Credit (ACTC) on your tax return this year, the IRS is now required by Congress to hold your refund until at least February 15. The intent of the new requirement is to permit the IRS additional time to make certain that the EITC or ACTC refund is proper.

4. eFiling – Each year a higher percentage of all tax returns are filed electronically. You may plan to use the IRS Free File, be assisted in electronic filing by the Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs or may use an electronic option in your commercial tax software.

5. Direct Deposit – The option to have your refund electronically transferred directly to your bank account is a fast and easy solution. The federal government already uses direct deposit for 98% of Social Security and Veteran Affairs benefit checks. It costs the federal government approximately $1 to process a paper check, but only 10 cents to process a direct deposit to your bank account.

Repatriation to Fund Tax Reform?

In the “A Better Way” tax reform plan proposed by House Republicans, funding for lower rates is provided in part by taxes on the massive assets held overseas by U.S. companies. If Congress passes a low rate on repatriation of these funds, Congress hopes that $1 trillion to $3 trillion may be returned to the U.S. Taxes on these repatriated funds may cover a large portion of the cost of lowering individual and corporate tax rates.

House Ways and Means Committee Chairman Kevin Brady (R-TX) sees this funding source as essential for tax reform. He stated, “This is all about growth, and so one, it is very important that those $2.5 trillion and growing stranded U.S. profits be brought back to America to grow research jobs, manufacturing jobs, our local economy – not temporarily, but permanently. We use applied revenues from the blueprint to lower those business rates and redesign the code so we create more Main Street jobs.”

On November 14, House Majority Leader Kevin McCarthy (R-CA) supported the forthcoming proposal from Chairman Brady. McCarthy stated, “We put a lot of work into this tax plan, and we would like to see overall tax reform.”

The White House Transition Team has not publically responded to “A Better Way” with specifics of their tax reform proposals. The White House team is discussing potentially large infrastructure funding. The revenue for large-scale infrastructure projects will come in part from repatriation.

In 2016, there were ongoing negotiations between Speaker of the House Paul Ryan (R-WI) and incoming Senate Minority Leader Chuck Schumer (D-NY). The two leaders were not able to come to agreement at that time, but demonstrated bipartisan interest in infrastructure.

Chairman Brady continues to advocate a “revenue-neutral” tax reform plan in 2017.

Editor’s Note: The House and Senate are likely to try to combine both individual and corporate tax reform in 2017. The funds for tax reform will be available from two primary sources – repatriation of overseas corporate funds and dynamic scoring. Both will be needed if the target rate reductions are to be accomplished with revenue neutrality. However, given the White House Transition Team preference for infrastructure spending, it is quite possible there will be a compromise that involves using some of the taxes on repatriated funds for infrastructure and some for tax reform.

Major Donor Names Need Not Be Disclosed

In Thomas More Law Center v. Harris, 2:15-ov-03048 (16 Nov 2016), the U.S. District Court for the Central District of California held that the California Attorney General requirement for nonprofits to disclose names of their major donors was unconstitutional. The California Attorney General was enforcing a requirement that nonprofits disclose major donor names by filing IRS Form 990 with Schedule B.

Thomas More Law Center (TMLC) is a Sec. 501(c)(3) organization. The court explained the claim of the California Attorney General that it was charged with ensuring appropriate conduct by TMLC and other nonprofits. The Attorney General stated the Schedule B information was necessary to determine whether charities had violated various “laws against self-dealing, improper loans, interested persons, or illegal or unfair business practices.” The Attorney General maintained that only through the disclosure of major donors would it be fully able to exercise the appropriate level of review of nonprofits.

The court determined that the Attorney General would not need to obtain major donor information from Schedule B. It is potentially available through other sources and only a small percentage of the previous investigations benefited from Schedule B.

In addition, disclosure of major donor names was determined “more burdensome than necessary.” The plaintiff noted it had demonstrated evidence of donor harassment. The court noted, “The evidence of harassment, opposition, and threats directed at TMLC, its donors, and those supporting the very same issues as the Law Center is sufficient to establish ‘a reasonable probability’ that the compelled disclosure of the identity of TMLC donors would burden the donors’ First Amendment Rights.”

Furthermore, the Attorney General was not able to provide a certainty of confidentiality. Therefore, the court granted the injunction. Nonprofits are not required to disclose Schedule B major donors to the California Attorney General.

Applicable Federal Rate of 1.8% for December—Rev. Rul. 2016-27; 2016-47 IRB 1 (18 Nov 2016)

The IRS has announced the Applicable Federal Rate (AFR) for December of 2016. The AFR under Section 7520 for the month of December will be 1.8%. The rates for November of 1.6% or October of 1.6% 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.