CORPORATE INVERSIONS–FENCING IN U.S. BUSINESSES

The U.S. has a tax competitiveness problem – its effective corporate tax rates are among the highest in the world. Once upon a time the U.S. was on the low end, and attracted business and capital. Now that it is on the high end, new capital is repelled and existing businesses look to reorganize abroad to save taxes.

This is the story behind Pfizer’s attempt to acquire U.K pharmaceutical company AstraZeneca. While that transaction may or may not proceed, the tax policy discussion has heated up because of it.

There are two ways to address this problem. The first would be to reduce corporate tax rates, and otherwise make the U.S. a favorable tax jurisdiction. The second would be to impose punitive rules on U.S. businesses that seek to move abroad. Given today’s political environment, which one do you think is receiving more attention? I’ll give you a clue – the proposed legislation that has come out of the Pfizer attempt is entitled the “Stop Corporate Inversions Act of 2014.”

This legislation would expand the punitive provisions of existing Code §7874 to reach transactions not only where the U.S. entity’s shareholders acquire 80% or more of the foreign entity (as under existing law) but to lower that threshold to 50%, and to also apply the provisions to other transactions regardless of the 50% threshold. It would also expand its application to partnerships.

IRS REGULATION OF TAX RETURN PREPARERS IS DEAD (FOR NOW)

In 2011, the IRS sought to regulate tax return preparers, and issued regulations that required “registered tax return preparers” to pass a competency test, a tax compliance check, and a suitability check. They would also have to complete 15 hours of continuing education each year.

In 2014, the Court of Appeals for the District of Columbia found that no authority had been granted to the IRS by law to impose such regulations. The time for an appeal to the U.S. Supreme Court has no passed, so these regulations are now a dead letter. Congress may yet act in the future to grant authority to the IRS to regulate preparers.

Most of us are aware of the benefits of regulation. The Institute for Justice reminds us of some of the negatives, including (a) the forcing out of the market of longtime, trusted tax preparers by the out-of-pocket costs and opportunity costs imposed by the regulations, and (b) higher tax preparation costs to consumers as the regulatory costs imposed on preparers are passed on. The Institute notes that most, if not all, of the benefits of mandatory regulation can be obtained through a VOLUNTARY certification program, without unnecessarily imposing costs on those who don’t value the certification or license.

FLORIDA TAX CUTS SIGNED INTO LAW [FLORIDA]

Gov. Rick Scott signed tax and fee cuts into law on May 11, 2014. The key cuts are:

a. three sales tax holidays—one each for hurricane supplies, back to school supplies and energy efficient appliances;

b. sales tax exemptions on child car seats, youth bicycle helmets, college meal plans, therapeutic pet foods and cement mixers; and

c. a reduction in electricity taxes.

These cuts are expected to save Floridians more than $121 million in taxes. Last month, cuts in motor vehicle fees of $400 million were also enacted.