Original air date: Feb. 9, 2017 Rebroadcast and recording information at http://www.mhmcpa.com Administrative, legislative and judicial updates emerge from Washington each quarter that may affect your business. Our free, quarterly webinars provide insight to help prepare you for the tax developments of the most interest to you, your business and other interested stakeholders. Our Eye on Washington webinars assist CEOs, CFOs, financial executives and advisors, and other interested parties in navigating the complex tax environment. From federal tax reform to IRS guidance and healthcare reform, topics covered will provide the up-to-date information you need to help you plan for the future.

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Eye on Washington: Quarterly Tax Update
(4th Quarter 2016)
Steve Henley and Bill Smith
February 9 and 14, 2017

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About Us
• Together, CBIZ & MHM are a Top Ten accounting provider
• Offices in most major markets
• Tax, audit and attest and advisory services
• Over 2,900 professionals nationwide
A member of Kreston International
A global network of independent
accounting firms
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting,
tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms.

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Disclaimer
The information in this Executive Education Series
course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further
discuss the impact on your business.

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Presenters
Steve has 30 years experience in serving the tax needs of clients in a
variety of industries including retail, distribution and manufacturing,
services, technology and communications. In serving as lead tax
engagement executive, Steve’s focus is identifying and executing value
creating strategies to meet the needs of his clients in a variety of
technical areas, such as revenue recognition, acceleration of deductions,
research and experimentation credits, state and local tax minimization,
M&A tax structures, international tax planning and tax implications of
compensation programs.
770.858.4443 • shenley@cbiz.com
Stephen C. Henley, CPA
National Tax Practice Leader

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Bill Smith is a managing director in the CBIZ National Tax Office. Bill
monitors federal tax legislation and consults nationally on a broad range
of foreign and domestic tax services for businesses and individuals. He is
frequently sought after by a myriad of media outlets to comment on the
changing tax environment and its effects on companies and individuals.
He has authored numerous tax articles, edits the CBIZ MHM InTouch
newsletter and federal Tax Alerts, and lectures on a broad range of tax
topics across the country.
301.907.2412 • billsmith@cbiz.com
William M. Smith, Esq.
Managing Director,
CBIZ National Tax Office
Presenters

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Agenda
Legislative
02
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03
04
Administrative
Judicial
Questions

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LEGISLATIVE UPDATE

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White House
Trump’s Tax Plan

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Trump’s Tax Proposals

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Trump’s Tax Proposals
Owners of pass-through
entities (sole proprietorships,
partnerships, and S
corporations) could elect to
be taxed at a flat rate of 15
percent on their pass-through
income rather than under
regular individual income tax
rates. However, distributions
from “large” pass-through
businesses received by
owners who elected the 15
percent flat rate would be
taxed as dividends
Source: Tax Policy Center: “An Analysis of Donald Trump’s Revised Tax Plan,” Oct. 18, 2016

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Average Effective Tax Rate By Industry (Washington Post Oct. 4)

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals
A one-time deemed
repatriation of corporate
cash held overseas at
10% rate. Originally
sought end of deferral of
taxes on corporate
income earned abroad,
but removed in revised
plan.

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Trump’s Tax Proposals
Under the House Republican
“border adjusted” plan,
corporations would no longer
be able to deduct costs of
goods purchased offshore,
but profits on exports would
be free of taxation. Trump
initially opposed idea as “too
complicated” but since has
reconsidered saying it is one
of many options being
discussed.

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Trump’s Tax Proposals

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Presidential Nominees’ Tax Proposals
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House “Blueprint” Deviations from Trump’s Tax Proposals
• Standard deduction increased to $12,000/$24,000 (with an
additional $6,000 single taxpayers with at least one child)
• Eliminates itemized deductions except mortgage interest and
charitable donations
• Lower the corporate tax rate to 20%
• Lower the top marginal rate on pass-through businesses to 25%
• Capital Gains: Tax capital gains, dividends and interest as ordinary
income with a 50% exclusion (16.5% maximum rate)
• Full expensing of capital investment
• No deduction for net interest
• Preserves LIFO
• Shifts to territorial tax system
• Deemed repatriation tax of 8.75% for cash and cash-equivalents
profits and 3.5% on other profits
• Eliminate the estate tax

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House “Blueprint” Deviations from Trump’s Tax Proposals
• Make federal income tax “border adjustable” (no tax on
exports; no deduction for imports)
• A border adjustment conforms to what is called
“destination-based” principle -- the tax is levied based on
where the good ends up (destination), rather than where it
was produced (origin).
• In order to make the corporate tax border adjustable, the
revenue from sales to nonresidents would not be taxable, and
the cost of goods purchased from nonresidents would not be
deductible. So if a business purchases $100 million in goods
from a supplier overseas, the cost of those goods would not
be deductible against the corporate income tax. Likewise, if a
business sells a good to a foreign person, the revenues
attributed to that sale would not be added to taxable income.

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Budget Reconciliation
• Republicans don’t have filibuster-proof 60 Senate votes
• Reconciliation allows majority vote (51) for spending, tax, debt limit bills
(or combination), under two-step process
• House and Senate need to pass a concurrent Budget Resolution
with reconciliation instructions (directions to committees to change
spending or revenue numbers)
• Also must pass reconciliation bills that adhere to the instructions
• Possibility for two sets of reconciliation instructions in 2017
• January processing of FY 2017 budget
• Not considered earlier due to a dispute over discretionary spending
• Reconciliation instructions designed for committees with ACA
jurisdiction
• FY 2018 budget would include second set of instructions
• Could address issues like entitlement reform, ACA replacement,
and tax reform

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ACA Repeal
• On January 12, the Senate approved a budget resolution to
start the reconciliation process to repeal the ACA.
• The House approved the budget resolution on January 13.
• The resolution does not specify what will replace the ACA.
• The resolution also does not describe the future of the ACA’s
related taxes, such as the net investment income tax (NIIT) , the
Additional Medicare Tax and the excise tax on high dollar health
insurance plans (often referred to as "Cadillac plans").
• House Ways and Means Chairman Kevin Brady (R-Texas) is
hoping to move an Affordable Care Act bill out of his committee
by March, a timeline that aligns with House Speaker Paul D. Ryan
(R-Wis.), Brady told reporters February 2.

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Small Business Health Reimbursements
• Many small businesses elect to reimburse employees or their
non-employer sponsored health insurance provider for the
employees’ health care coverage and exclude the reimbursement
payments from the employees’ gross income.
• The IRS previously determined that these arrangements
constitute employer payment plans and subject to the health
care reform provisions enacted by the ACA. These reforms
mandate that employees’ health care coverage must cover
preventive care services without out-of-pocket expenses to the
employee. Plans also would not be able to limit essential health
care benefits.
• The ACA penalizes the employer if the employees’ plans do
not meet these ACA requirements by levying an excise tax of
$100 per day per affected employee.

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Small Business Health Reimbursements
• Now small businesses will not be subject to the excise tax if
they meet certain conditions:
• Employees must not pay more than $4,950 per year for
their coverage ($10,000 for families) and must demonstrate
their plan provides minimum essential coverage.
• The employer cannot be an applicable large employer (an
employer with 50 or more full-time employees or equivalents
during a calendar year).
• The 21st Century Cures Act applies to small businesses for
tax years beginning after Dec. 31, 2016, but extends prior
interim relief, as well.

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ADMINISTRATIVE UPDATE

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Trump Executive Order Regarding New Regulations Jan. 30
• “Sec. 2. Regulatory Cap for Fiscal Year 2017. (a) Unless
prohibited by law, whenever an executive department or
agency (agency) publicly proposes for notice and comment or
otherwise promulgates a new regulation, it shall identify at
least two existing regulations to be repealed.”
• “(d) During the Presidential budget process, the Director shall
identify to agencies a total amount of incremental costs that
will be allowed for each agency in issuing new regulations and
repealing regulations for the next fiscal year. No regulations
exceeding the agency's total incremental cost allowance will be
permitted in that fiscal year, unless required by law or
approved in writing by the Director. The total incremental cost
allowance may allow an increase or require a reduction in total
regulatory cost.”

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Trump Executive Order Regarding New Regulations Jan. 30
• “Sec. 4. Definition. For purposes of this order the term
"regulation" or "rule" means an agency statement of general
or particular applicability and future effect designed to
implement, interpret, or prescribe law or policy or to describe
the procedure or practice requirements of an agency, but does
not include:
• (a) regulations issued with respect to a military, national security,
or foreign affairs function of the United States;
• (b) regulations related to agency organization, management, or
personnel; or
• (c) any other category of regulations exempted by the Director. ”

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Partnership Audit Rules Withdrawn
• The recently published partnership audit regulations face an
uncertain future after being withdrawn by the IRS in response
to a White House Executive Order (EO) mandating a freeze of
all regulations.
• The IRS issued a statement indicating that the proposed
regulations have been withdrawn in response to questions
about why other guidance was published in the Federal
Register January 24 despite the EO.
• According to Ossie Borosh, senior counsel, Treasury Office of
Tax Legislative Counsel, the memo will not cause the proposed
regulations to "self-destruct.”
• Borosh noted on January 24 that the new rules “kick in in less
than a year” and are statutory.

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Accumulated Earnings Tax on C corp holding Ptp Interest
• In Chief Counsel Advice 201653017, the IRS determined that a
corporation, whose only assets were partnership interests and
whose only income was pass-through income from the
partnerships, was a holding or investment company and was
liable for the accumulated earnings tax despite the fact that it
had no liquid assets and didn't control the partnerships.
• The accumulated earnings penalty tax is only imposed on a
corporation whose earnings and profits (E&P) were
accumulated with the purpose of avoiding income tax on its
shareholders.
• A corporation that accumulates E&P beyond the reasonable
needs of its business is considered to have done so to avoid tax
on its shareholders unless it proves the contrary by a
preponderance of the evidence.

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Accumulated Earnings Tax on C corp holding Ptp Interest
• Accumulated taxable income is taxable income with a number
of adjustments, one of which is a deduction for dividends paid.
• If a corporation is a mere holding or investment company, that
fact will be prima facie evidence of the purpose to avoid
income tax with respect to the corporation's shareholders.
• A “holding company” is a corporation having practically no
activities except holding property and collecting the income
therefrom or investing therein.
• Each of the partnership agreements contained a provision
allowing the partnership to make distributions to its partners
sufficient to pay the respective partner's federal and state tax
liability with respect to partnership income, but the remainder
of the respective partner's distributive share of the partnership
income was retained in the partnership.

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Accumulated Earnings Tax on C corp holding Ptp Interest
• Since its inception and during the years at issue, Taxpayer
conducted no business activity other than holding and
maintaining the various partnership interests contributed to it
by Shareholder.
• Taxpayer had no employees and paid no wages or expenses,
other than a minimal amount for accounting and other fees.
• Taxpayer neither declared any dividends nor did it otherwise
make any distributions to Shareholder.
• And, taxpayer reported a receivable from Shareholder for all
three years at issue.

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Accumulated Earnings Tax on C corp holding Ptp Interest
• Taxpayer argued that accumulated surplus must be
represented by cash that is available for distribution. However,
IRS said, the Code computes the accumulated earnings tax
based on accumulated taxable income, and at least with
respect to a mere holding company for which reasonable
needs of a business are not relevant, it is not concerned with
the liquid assets of the corporation.
• The IRS's principal argument was that the consent dividend
procedures were enacted to address situations where a
corporation that accumulated earnings beyond its reasonable
needs may lack the ability to pay dividends because of a lack of
liquidity or for other reasons.

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Micro-Captives Now Transactions of Interest
• On November 1, 2016 the IRS released Notice 2016-66 ,
creating a new obligation to disclose information pertaining to
certain transactions involving captive insurance companies
that have made the election under Code Section 831(b) to
exempt premiums earned from income (“micro-captives”).
• The disclosure requirement applies to all parties who have
“participated” in these transactions, as well as material
advisors.
• In most cases, reporting is required if a participant entered into
a transaction after November 2, 2006, but as of November 1,
2016, reporting is limited to years for which the statute of
limitation for assessment remains open.

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Micro-Captives Now Transactions of Interest
• Disclosure is completed on Form 8886, Reportable Transaction
Disclosure Statement, to the IRS Office of Tax Shelter Analysis
(“OTSA”).
• For transactions involving prior years that are within the scope
of reporting, Form 8886 must be filed on or before May 1,
2017.
• For current year and prospective participation, a properly
completed Form 8886 must be attached to the tax return, and
a duplicate copy must be sent to OTSA if the transaction is
being disclosed for the first time. If a first time participant files
its income tax return prior to May 1, 2017, however, the due
date for filing the Form 8886 is still extended to May 1, 2017.

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Micro-Captives Now Transactions of Interest
• If the taxpayer extends the filing and the extended due date is
after May 1, 2017, the disclosure should be attached to the
return with the copy sent to OTSA.
• A taxpayer who does not comply with the disclosure rules is
subject to a penalty equal to 75 percent of the tax benefits
obtained from reporting the transaction on the taxpayer’s
return (capped at $50,000 for entities and $10,000 for
individuals), where the minimum penalty is $10,000 for
entities and $5,000 for individuals.

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Promoter Sponsored Conservations Easements Now Listed Transactions
• The IRS issued Notice 2017-10 on December 23, 2016, which
added Promoter-Sponsored Conservation Easements as a
“listed transaction”.
• A promoter offers prospective investors in a partnership (or
other pass-through entity) the opportunity to obtain charitable
contribution deductions for conservation easements in
amounts that significantly exceed the amount invested. After
the syndication, the pass-through entity donates a
conservation easement encumbering the property to a tax-
exempt entity, using an appraised value that the IRS believes to
be inflated.

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Promoter Sponsored Conservations Easements Now Listed Transactions
• By designating the arrangement a listed transaction the IRS
created new reporting and disclosure requirements for these
Promoter-Sponsored Conservation Easements.
• Under Notice 2017-10, persons entering into these
transactions (which exclude the charity), as well as Material
Advisors to these transactions, each have until May 1, 2017 to
meet their respective reporting and disclosure
requirements. Penalties for failure to disclose or maintain lists
are as high as $50,000 per reportable transaction.

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Proposed Regs on Valuation Discounts – Aug. 4
• The proposed regulations address restrictions on the
liquidation or redemption of interests in family-controlled
entities.
• The proposed regulations would treat the lapse of voting or
liquidation rights as an additional transfer and disregard
certain restrictions on liquidation in determining the fair
market value of a transferred interest, thereby eliminating
“lack of control/minority interest” discounts for the vast
majority of family-controlled entities.
• They add a new class of “disregarded restrictions” that will be
ignored if, after the transfer, the restriction will lapse or may be
removed—without regard to certain interests held by
nonfamily members—by the transferor or the transferor's
family.

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Proposed Regs on Valuation Discounts – Aug. 4
• The future of the regulations is tied to two things—what
happens to the rules themselves and what happens to the
estate tax as a whole. Neither aspect bodes well for the
guidance.
• House Ways and Means Committee Chairman Kevin Brady (R-
Texas) said in a Nov. 21 interview with CNBC that the new
Treasury secretary could stop the rules from moving forward
on “Day One.”
• And President Trump made repealing the estate tax—which
would essentially make the rules unnecessary—one of his core
campaign promises.
• Finally, any final regulations would have to comply with the
new EO on regulation issuance.

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JUDICIAL UPDATE

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Hardy v. Commissioner, T.C. Memo. 2017-16
• Previously reported on Renkemeyer, Campbell & Weaver v.
Commissioner, in which law firm partners were held liable to pay self
employment tax on 100% of their distributive share of LLC profits.
• Section 1402(a)(3) exempts limited partner income (other than for
services to the partnership) from self employment tax as limited
partner is considered an investor
• Renkemeyer held that revenue was derived from legal services
performed by partners in their capacity as partners, they were not
acting as investors
• Dr. Hardy was an investor in MBJ, LLC surgical center. He and other
doctors performed surgeries there. He did not manage MBJ. He was
paid separately for his surgical fees, and MBJ charged clients for the
use of the facility, similar to a hospital.
• Held: Dr. Hardy received his MBJ income in his capacity as an
investor so amounts not subject to self employment tax.

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15 W. 17th St. LLC v. Commissioner, 147 T.C. No. 19
• On December 20, 2007, the 15 W. 17th St. LLC (“LLC”) executed
a historic preservation deed of easement in favor of the Trust
for Architectural Easements (“Trust”).
• On May 14, 2008, the Trust sent the LLC a letter acknowledging
receipt of the easement. This letter did not state whether the
Trust had provided any goods or services to the LLC, or
whether the Trust had otherwise given the LLC anything of
value, in exchange for the easement.
• The LLC secured an appraisal concluding that, as of February 8,
2008, the property had a fair market value of $69,230,000
before placement of the easement. Opining that the property
was worth only $4,740,000 after the donation, the appraisal
concluded that the easement had reduced the property's value
by $64,490,000.

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15 W. 17th St. LLC v. Commissioner, 147 T.C. No. 19
• The LLC included with its return a copy of the appraisal report,
a copy of the Trust's May 14, 2008, letter, and Form 8283,
Noncash Charitable Contributions, executed by the appraiser
and by a representative of the Trust.
• Section 170(f)(8)(A) provides: “No deduction shall be allowed *
* * for any contribution of $250 or more unless the taxpayer
substantiates the contribution by a contemporaneous written
acknowledgment of the contribution by the donee
organization that meets the requirements of subparagraph
(B).”
• The requirement that a CWA be obtained for charitable
contributions of $250 or more is a strict one. In the absence of
a CWA meeting the statute's demands, “[n]o deduction shall
be allowed.”

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?
QUESTIONS

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If You Enjoyed This Webcast…
Upcoming Courses:
• 2/15: New Partnership Audit Rules: Planning Ideas and Practical Observations
Recent Publications:
• Your Presence May No Longer Be Needed: Implications of the DMA Litigation
• New York Reduces Unclaimed Property Look-Back Period for Voluntary
Compliance Program
• Lay of the Accounting Landscape: Definition of a Business and Other Topics
• Changes in the Tax Code Could Affect Not-for-Profits

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