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Barack ObamaWithin a few hours after my January 17, 2014 blog post (read here), as we suspected, President Barack Obama signed the Consolidated Appropriations Act, 2014 (“2014 Act”) into law.  Now, at least until September 30, 2014, our federal government may operate without interruption.

Each year, our government must pass bills that appropriate funds for all discretionary spending.  In most years, a bill is passed by each of the twelve subcommittees in the House Committee on Appropriations and each of the twelve subcommittees in the Senate Committee on Appropriations.

When Congress cannot pass separate bills, it rolls the bills into one omnibus bill like the 2014 Act.  This has become the norm rather than the exception over the past several years.  You may be asking yourself why would Congress roll the bills into one single act rather than pass several smaller bills which will be easier for our lawmakers to review and debate.  There may be many reasons, including:

  • Too much party disagreement to pass individual specific bills;
  • Too many issues pending before lawmakers to deal with several pieces of legislation;
  • Time constraints that may prevent dealing with appropriations in a piece meal fashion; and/or
  • The desire to bury in a single massive act some controversial spending provisions.

In the case of the 2014 Act, the answer is likely “all of the above.”  In recent years, party disharmony appears to have heightened the difficulty of passing separate bills.  With our government’s fiscal year being October 1 to September 30, timing is always a critical issue, making passing separate bills cumbersome.  Not wanting to repeat the disastrous “fiscal cliff” historic event, however, lawmakers were likely especially anxious to get the 2014 Act passed as soon as possible.  It is also the case that lawmakers currently have many other legislative matters on their plates, including tax reform and health care.  With these pressures, an omnibus bill results.

The combined piece of legislation usually has buried in its 1000 plus pages some spending provisions that may be considered by some to be controversial.  Given the size of the 2014 Act, over 1500 pages, lawmakers had little time to debate, let alone study, the entire bill and its nuances.  Regardless of your party affiliation, you can find some provisions in the 2014 Act that you believe are troublesome.  Maybe that is what compromise is all about.  The 2014 Act includes many provisions that could have, standing alone, stalled or prevented the passing of individual smaller bills, including:

  • $90 billion of funding for the war in Afghanistan;
  • $1 billion of funding cuts to the Affordable Care Act’s Prevention & Public Health fund;
  • 1% increase in federal workers’ pay;
  • Cutting the IRS budget by over $500 million when the Tax Gap seems to keep growing;
  • Prohibition against the US Postal Service from eliminating Saturday delivery service; and
  • Prohibition against the US government transporting military prisoners in Guantanamo Bay, Cuba to the United States.

If you find none of these provisions the least bit troublesome, hopefully you will find humor in the provision in the 2014 Act that bans the funding of new portraits for our government officials.  I guess lawmaking is akin to sausage making in that you throw all the contents in one end and a finished product comes out the other end.

 

On January 15, 2014, the House, by a vote of 359-67, passed an appropriations bill to fund our federal government through September 30, 2014.  The next day, January 16, 2014, the Senate passed the bill by a vote of 72-26.  The bill will now make its way to President Obama for signature.

 Once signed by President Obama, the bill, commonly known as the “Consolidated Appropriations Act, 2014,” will become law (the “Act”).  The Act spans 1,524 pages and contains some interesting provisions.  Title I of Division E of the Act focuses on the Department of Treasury. 

  • The Act provides the IRS with a 2014 budget of $11.3 billion.  This represents a budget decrease of $526 million or 4.4% from its 2013 budget. 

The $11.3 billion budget is primarily allocated among four areas: 

1.   Taxpayer Assistance -- $2.123 billion

  • tax counseling for elderly
  • low-income taxpayer clinics
  • community volunteer income tax assistance programs
  • taxpayer advocate service

2.   Enforcement -- $5.022 billion

3.   Operation Support -- $3.741 billion

  • rent
  • facilities services
  • printing
  • postage
  • administration
  • security
  • technology

4.   Business Systems Modernization -- $313 million

The Service has some flexibility in spending its budget.  For example, it may allocate 5% or less of any specific appropriation or 3% or less of its “enforcement” appropriation to other IRS budget items.  Advance approval, however, of the Committees for Appropriations is necessary.

  • The IRS is directed to maintain an employee training program which includes education about taxpayer rights, “dealing courteously” with taxpayers, ethics, and the impartial application of tax law.

 

  •  The IRS is directed to use funds from its budget to improve taxpayer service, including its 1-800 helpline services. 

 

  • None of the IRS’s budget may be available to target taxpayers for “regulatory scrutiny based on ideological beliefs,” or “for exercising any right guaranteed under the First Amendment.” 

 

  • $92 million of additional funds will be made available to the Service (through September 15, 2015) to be used “solely to improve the delivery of services to taxpayers, to improve identification and prevention of refund fraud and identity theft, and to address international and offshore compliance issues.” 

Tax practitioners should be asking themselves a few questions about the Act as it pertains to the Service, including:

  •  With the budget cuts, how will the enforcement side of the Service be impacted from the taxpayer and/or practitioner perspective? 

 

  • With over $2 billion allocated to taxpayer assistance, will taxpayers and practitioners actually feel any positive impact?

It is expected President Obama will sign the Act into law.  Time will tell how the Service’s budget under the Act will actually impact taxpayers and tax practitioners.  

 

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Larry J. Brant
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Larry J. Brant is a Shareholder in Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.

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