A copy of the Federal Tax Update presentation given at the Annual Business Update Seminar in Bethesda, MD.

1. JANUARY 2015
Federal Tax Update
Presented by
Bill Smith, Managing Director, CBIZ National Tax Office
Email: billsmith@cbiz.com | Phone: (301) 951-3636, Ext. 6725
linkedin.com/in/cbizbillsmith

2. Topics
 Post Year-End Tax Planning
– Tangible Property Tax Planning Asset Issues
• Tangible Property Analysis, Protective 3115s, Depreciation Review
• Cost Segregation
• Depreciation: Potential Extender Legislation
 Legislative Updates
– Changes to Tax Writing Committees
– Comprehensive Tax Reform Proposals: Obama and Camp
– Extender Legislation
• H.R. 5771
• One Year Deal for 2014
 Administrative
– Bonus Accruals
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3.  Tangible Property Regulations
– Process to ensure compliance
– Protective 3115 Filings
– Depreciation review
 Cost Segregation
Tangible Property Planning
3Post Year-End Tax Planning

4.  Senate Finance
– Orrin Hatch (R – Utah) taking over
– Favors revenue neutrality, geographic tax system (tax earnings
where earned)
– 14 Republicans; 12 Democrats
 House Ways and Means
– Camp (R- Mich) retired
– Paul Ryan (R – Wis) taking over
– Applauded Rep. Camp’s tax reform proposal
– Will use Camp proposal as a “Marker,” not necessarily as a starting point
– 35 Republicans; 15 Democrats (Van Hollen, D-Md, bumped)
Tax Writing Committees
4Legislative Updates

5.  Obama
– Wants a “serious attempt at tax reform” in 2015 – “The tax area is
one area where we can get things done.”
– Corporate reform must be offset by eliminating “unspecified”
loopholes
– Aware that some companies are paying “full freight” 35%
 House Ways and Means – Paul Ryan (R – Wis)
– To lower rates, have to broaden base, meaning the closure of
loopholes
 Both Committees plan to hold hearings on tax reform in
2015
Tax Reform Rhetoric
5Legislative Updates

6.  At the end of February 2014, Chairman of House Ways
and Means Committee Dave Camp (R-Mich.) released
discussion draft of a comprehensive tax reform bill
 President Obama released his annual list of budget
proposals a week after Camp’s proposal (March 2014)
– Over 80% of the tax proposals are the same as in last year’s
budget proposal
Obama and Camp on Tax Reform
6Legislative Updates

7. Obama vs. Camp: Comprehensive Tax Reform
7Legislative Updates
Obama/Camp Agree Obama/Camp on Same Page Obama/Camp Disagree
R&E Credit made permanent Section 179 expensing (Obama $500,000; Camp
$250,000)
Gain on Sale of Small Business Stock
(Obama permanent exclusion; Camp
repeal)
Repeal LIFO and LCM methods of
accounting
Like Kind Exchanges (Obama $1 million per year
limit; Camp repeal)
WOTC (Obama permanent; Camp
repeal)
Taxing carried interests as ordinary income
(Obama 100%; Camp “total capital invested in a
fund multiplied by a rate of return”)
Energy Incentives (Obama renew and
expand; Camp repeal)
Pass-through income of service organizations
subject to self-employment tax (Obama 100%;
Camp 70%)

8. Camp Comprehensive Tax Reform
 Top corporate
tax rate of
25% (down
from 35%)
 Effective
Actual
Corporate Tax
Rates By
Selected
Industry 2007-
2008*
8Legislative Updates
Industry Tax Rate
Agriculture, forestry, Fishing and Hunting 22%
Mining 18%
Utilities 14%
Construction 31%
Manufacturing 26%
Wholesale and Retail Trade 31%
Transportation and Warehousing 19%
Information 25%
Insurance 25%
Finance & Holding Companies 28%
Real Estate 23%
Leasing 18%
All Services 29%
Average Effective Actual Tax Rate 26%
*Source: U.S. Treasury, Office of Tax Analysis

9. Camp Comprehensive Tax Reform: Other
 Corporate NOL limited to 90% of taxable income
 Software development / R&D amortized over 5 years
 Most businesses with gross receipts > $10 million
required to use accrual basis
 Income required to be recognized no later than when
recognized for financial statement purposes
9Legislative Updates

10. Camp Comprehensive Tax Reform: Other
 Repealed provisions would include (not all inclusive):
– Accelerated depreciation
– DPAD (phased out over several years)
– Corporate AMT
– Exception to $1 million compensation deduction limit for stock
options, commissions, etc.
10Legislative Updates

11. Rep. Devin Nunes (R – Calif) Proposal (Jan 8)
 Comprehensive Tax Reform:
– All businesses taxed at 25%
o Includes corporations and pass-through entities
– Individual tax rates not changed
– No business credits or deductions – replaced with 100%
expensing regime
– Rate reduction would occur over a decade, but eliminating
deductions and credits would be immediate
– Credits work of Camp and Ryan
11Legislative Updates

12. Other Activity in Opening Days of the 114th
 House adopts dynamic scoring of tax legislative
proposals
– Intended to take into account the projected macroeconomic
effects the legislation will have on the economy
– CBO and JCT will be required to estimate changes to
o Employment
o Available capital
o “Other economic variables”
– Applies only to “large” bills – must affect ¼ of a percentage point of GDP
– Senate has not signaled whether it will follow suit
– Potentially two sets of rules for same legislation
12Legislative Updates

13. Other Activity in Opening Days of the 114th
 ACA Changes
– House passes bill to define “Full time” under ACA as 40 hours per
week instead of 30
• 12 Democrats joined all House Republicans
– Repeal of “medical device excise tax” high on Republicans list of
priorities, although Hatch says it may not be among the first
matters addressed
 Obama says he will veto changes
 Neither House nor Senate had enough Republican votes
to override veto
13Legislative Updates

14. Resistance to Accrual Method Proposal for
Businesses with Revenue over $10 million
 Camp’s (R-Mich) comprehensive tax reform package includes
a requirement that businesses with average annual gross
receipts of more than $10 million would be required to use the
accrual method
 The proposed change would preclude the use of cash
accounting by pass-through entities, professional services
firms, family farms and other businesses
 223 Representatives and 46 Senators have sent letters
opposing the change
14Legislative Updates

15.  House and Senate passed one year Extender Package,
signed by Obama Dec. 16
 All provisions expired again on Dec. 31
 Will cost approx. $41.6B through 2024
 Summary:
– Extends tax benefits retroactively through end of 2014
– Bonus Depreciation at 50%
– Sec. 179 expensing election: $500,000/$2,000,000
– 15 year recovery period: qualified leasehold
improvements/certain retail and restaurant improvements
House Bill H.R. 5771: One Year Extender
15Legislative Updates

16.  Business tax provisions that expired at end of 2013 and
were extended through 2014 include:
– Research and experimentation credit;
– Work opportunity tax credit;
– Increase in expensing to $500,000/$2,000,000 and
expanded definition of §179 property;
– Bonus depreciation;
– Exceptions under Subpart F for active financing income;
“Tax Extenders” - Expired Tax Provisions
16Legislative Updates

17.  Business tax provisions that expired at end of 2013 and
were extended through 2014 (continued):
– Look-through treatment of payments between controlled
foreign corporations (“CFC ”);
– Special rules for qualified small business stock;
– Reduction in S corporation recognition period for built-in
gains tax;
– 15-year straight line cost recovery for qualified leasehold,
restaurant, and retail improvements
“Tax Extenders” - Expired Tax Provisions
17Legislative Updates

18.  Employers have been lured into a false sense of security,
believing that any compensation paid within 2 ½ months
of year end for services provided in the prior year were
deductible in the year the services were provided
 IRS attacks on bonus accrual examples:
– Forfeited Bonuses Revert Back to Taxpayer
– Forfeited Bonuses Allocated to Other Employees
– Bonuses Forfeited After a Certain Date Revert Back to
Taxpayer
IRS Attacks Year-End Bonuses
18Administrative – Bonus

19. You may also be interested in the
State and Local Taxes Update
by Craig Williams
Managing Director - CBIZ MHM, LLC
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