On Dec. 19, President Obama signed into law the Tax Increase Prevention Act of 2014 (HR5771). The act was not really new legislation, but extended expired incentives for businesses, individuals and energy. The provisions have been extended for the most part year by year, the time during the year roughly related to the amount of political acrimony.
Briefly, the legislation extends for one year (2014) the temporary provisions related to items such as enhanced equipment expensing (Code Sec. 179), the research tax credit, 50 percent bonus depreciation, education and energy credits.
Of note, the act creates tax-favored savings accounts for individuals with disabilities.
This column will not address the Dec. 19 legislation. Rather, it will be covered in detail in January.
2015 standard mileage rate increases
Even as gas prices are at multi-year lows, the IRS has announced in an informational release (IR-2014-114) that the optional standard mileage rate will increase to 57.5 cents-per-mile for 2015, up from the 2014 amount of 56 cents.
Interestingly, the medical and moving mileage rate decreases slightly in 2015 to 23 cents-per-mile, down from the 23.5 cents-per-mile. It is hard to make sense of the increase in the optional standard mileage rate. The government uses independent contractors to establish the rates.
While it is possible that the government doesn’t expect rates to stay low for long, rather it is best to draw no conclusions and see how 2015 plays out. As has happened in the past, if there is a dramatic shift in the price of fuel during the year, the IRS reserves the right to change the standard mileage rate part way through the year.
2014 taxpayer attitude survey
The IRS Oversight Board issued its 2014 Taxpayer Attitude Survey, finding that while a significant majority of taxpayers (61 percent) “completely or mostly” trust the IRS to fairly enforce the tax laws and help them understand their tax obligations, the percentage of taxpayers who are satisfied with their personal interactions with the IRS has decreased from 78 percent to 74 percent in the current survey period.
Of note is that this is the lowest level for the personal interaction question since the survey was started in 2002. On a good note, in a voluntary compliance system, 86 percent say that it is not at all acceptable to cheat on taxes. The survey was conducted from telephone interviews with U.S. adults, including 700 interviews of land-line phone users and 300 interviews from cellphone users.
Interest rates on overpayments and underpayments
In IR-2014-111, the IRS has announced interest rates that will be in effect for tax underpayments and overpayments for the calendar quarter beginning Jan. 1, 2015, and continuing to March 31, 2015. For this period, the rates will be unchanged from the previous quarter ended Dec. 31. However, they will be summarized here as a point of reference.
For corporations, overpayments will be at 2 percent, except that the rate will be 0.5 percent for the portion of corporation overpayments exceeding $10,000. Underpayments will be 3 percent, except that they will be 5 percent for large corporate underpayments.
For individuals, overpayments will be 3 percent and underpayments will be 3 percent.
Payments to LLCs required to be reported
In a recent announcement by the IRS chief counsel, taxpayers that make payments to limited liability companies must be reported to the IRS under code Sec. 6041(a). Often referred to as the 1099 rules, Code Sec. 6041(a) requires that reporting be made of any payment to a person engaged in the course of a trade or business who pays $600 or more to another person.
Reportable payments often include dividends and interest, non-employee compensation and other specified payments. There are however, certain payments that are exempt from reporting-including those made to a corporation. In the matter at hand, the taxpayer attempted to assert that the LLC should be treated like a corporation and thus not be subject to the reporting rules.
The IRS chief counsel made its determination based upon the fact that the taxpayer never filed Form 8832, Entity Classification Election, to determine whether it wanted to be treated as a corporation, partnership or disregarded entity, and thus was subject to the reporting requirements.
2015 luxury car limits
Assuming that your newly purchased vehicle is subject to the luxury car limits in 2015, below is a summary of those amounts:
For autos: $3,160 for the first year placed in service and then subsequent year amounts of $5,100, $3,050 and $1,875.
For trucks and vans: $3,460 for the first year placed in service, $5,600 for the second year, $3,350 for the third year and $1,975 for each year thereafter.
AFR rates issued for December 2014
As it does each month the IRS issued a revenue ruling that summarizes the short-term, mid-term and long-term applicable interest rates for December 2014. As published in Rev. rul. 2014-31, below is a summary of those rates.
Short Mid Long
Term Term Term
Applicable Federal Rates (AFR) 0.34% 1.70% 2.70%
Adjusted AFRs 0.34% 1.28% 2.65%
James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at email@example.com.