Looking back over 2011, the IRS, Congress and the courts made many tax
decisions impacting taxpayers of all types. Some tax developments were
taxpayer-friendly; others imposed new requirements on taxpayers. Here is a brief
rundown of the top 10 federal tax developments of 2011.
1. Bush-era tax cuts unresolved
Reduced individual income tax rates, marriage penalty relief, an enhanced
child tax credit, and much more are part of a package of tax breaks known as the
"Bush-era tax cuts." All of these incentives were renewed in 2010 and are
scheduled to expire after 2012. President Obama wants to allow the Bush-era tax
cuts to expire for higher income individuals, which the White House broadly
defines as single persons with incomes over $200,000 and families with incomes
over $250,000. In the summer of 2011, the White House and the GOP reportedly
came close to an agreement but nothing materialized. The fate of the Bush-era
tax cuts will likely be one of the major issues in the 2012 presidential
election.
2. Foreign account reporting oversight increases
Since passage of the Foreign Account Tax Compliance Act (FATCA) in 2010, the
Treasury Department and the IRS have ratcheted-up their oversight of foreign
accounts. In December 2011, the IRS issued final Form 8938, Statement of
Specified Foreign Assets, which taxpayers will file to report foreign accounts
(if they meet certain requirements). The IRS also issued guidance in 2011 for
foreign financial institutions about their reporting obligations under FATCA. In
related news, the Treasury Department issued final rules on Form TD-F 90-22.1,
Report of Foreign Bank and Financial Accounts (FBAR) in February 2011. Lastly,
the IRS launched a new campaign in 2011 to encourage taxpayers to voluntarily
disclose unreported offshore accounts. The 2011 Offshore Voluntary Disclosure
Initiative (OVDI) rewarded taxpayers who came forward voluntarily with a reduced
penalty framework (although not as generous as a similar program in 2009).
3. Payroll tax cut extended two months
President Obama signed the Temporary Payroll Tax Cut Continuation Act of 2011
in December 2011. The new law extends the employee-side payroll tax cut through
the end of February 2012. The two-month extension is intended to give Congress
additional time to negotiate a longer-term extension of the payroll tax cut to
cover all of calendar year 2012.
4. Cell phones removed from listed property category
The Small Business Jobs Act of 2010 removed cell phones from the definition
of "listed property." That category generally requires additional recordkeeping
by taxpayers. In September 2011, the IRS issued guidance on the treatment of
employer- provided cell phones as an excludible fringe benefit. When an employer
provides an employee with a cell phone primarily for noncompensatory business
reasons, the business and personal use of the cell phone is generally nontaxable
to the employee and the IRS will not require recordkeeping of business use to
receive this tax-free treatment.
5. IRS launches Voluntary Classification Settlement Program
In September 2011, the IRS launched a new program to enable employers to
voluntarily reclassify their workers for federal employment tax purposes and
take advantage of a reduced penalty framework. The Voluntary Classification
Settlement Program (VCSP) is open to employers currently treating their workers
as independent contractors and who want to prospectively treat the workers as
employees. The employer must not be under audit and satisfy other requirements.
The IRS has not announced an end-date to the VCSP.
6. IRS makes mid-year 2011 adjustment to business standard mileage rate
For the third time in six years, the IRS announced a mid-year adjustment to
the business standard mileage rate because of rising gasoline prices. The
business standard mileage rate increased from 51 cents-per-mile to 55.5
cents-per-mile for the second half of 2011. The medical/moving standard mileage
rate increased from 19 cents-per-mile to 23.5 cents-per-mile for the second half
of 2011. Congress did not make a mid-year adjustment to the charitable standard
mileage rate, which remained at 14 cents-per-mile for the second half of 2011.
For 2012, the business standard mileage rate is 55.5 cents-per-mile and the
medical/moving standard mileage rate is 23 cents-per-mile. The
statutorily-determined charitable standard mileage rate remains at 14
cents-per-mile for 2012.
7. FUTA surtax expires
In 1976, Congress enacted the 0.2 percent FUTA surtax to help repay federal
revenues paid in unemployment benefits. The Worker, Homeownership and Business
Assistance Act of 2009 extended the surtax through 2010 and the first six months
of 2011.The 0.2-percent FUTA surtax expired after June 30, 2011. In December
2011, the IRS released Form 940, Employer's Annual Federal Unemployment (FUTA)
Tax Return, and accompanying schedules, for 2011. Form 940 for 2011 reflects the
mid-year expiration of the FUTA surtax.
8. IRS continues Fresh Start Initiative
During 2011, the IRS continued its Fresh Start Initiative, which the agency
explains is its response to the economic slowdown. The Fresh Start Initiative
allows lien withdrawals for taxpayers entering into direct debit installment
agreements (and for taxpayers who convert from a regular installment agreement
to a direct debit agreement). The IRS also announced it would make streamlined
installment agreements available to more small businesses. Qualified small
businesses with $25,000 or less in unpaid taxes can participate in the
streamlined installment agreement program.
9. Basis overstatement regs
The Supreme Court agreed in September 2011 to resolve a split among the
federal courts of appeal over IRS regulations that impose a six-year limitations
period on assessments due to overstated basis. The IRS asked the Supreme Court
to decide, among other questions, whether an understatement of gross income
attributable to an overstatement of basis in sold property is an omission from
income that can trigger the six-year assessment period.
10. Congress bans tax strategy patents
In September 2011, President Obama signed the America Invents Act. The new
law is a comprehensive overhaul of the nation's patent laws. The new law treats
any strategy for reducing, avoiding or deferring tax liability as prior art
under patent law and therefore not patentable.
If you have any questions about these or any tax developments in 2011,
please contact our office.