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Wednesday December 13, 2017

Washington News

Washington Hotline

Senate Pivots to Tax Reform

With the uncertain status of the health care debate, the Senate is now pivoting to potential tax reform. On July 18, the Senate Finance Committee held a hearing on tax reform.

Both Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) offered opening statements.

Hatch set forth the goals of tax reform as: "Fairness, efficiency, simplicity and American competiveness." He offered three reasons to move forward on tax reform. Hatch continued, "American families, individuals, and businesses collectively spend hundreds of billions of dollars a year—not to mention countless hours—simply trying to comply with the tax code. Tepid growth rates for the U.S. economy have seemingly become the new normal for some. America's multinational businesses find it difficult to compete abroad and are often targets for acquisition by foreign companies."

Wyden also set forth his hopes for tax reform. He noted, "What is needed is bipartisan tax reform that focuses on progressivity, helping the middle class, cleaning out flagrant tax loopholes, fiscal responsibility and giving everybody in America the chance to get ahead. In short, bipartisan tax reform would build on key principles that brought Democrats and Republicans together for major bipartisan tax reforms slightly more than three decades ago."

Witnesses before the Senate Finance Committee were four former Assistant Secretaries of the Treasury for Tax Policy. They held diverse opinions, but generally supported fairness for middle class taxpayers and strengthening the economy.

House Hearing on Tax Reform


On July 19 the House Ways and Means Tax Policy Subcommittee held a hearing on tax reform.

Subcommittee Chairman Peter Roskam (R-IL) opened the hearing and stated, "As a committee, we now have a choice. We can accept high tax rates and a confusing code or we can grow the economy, lower taxes for everyone and create a fair system that Americans can trust. I think the choice is clear."

Former Chairman of the House Ways and Means Committee Bill Archer highlighted the goals of tax simplification and improving the economy. Archer noted, "I commend the efforts of this committee and particularly Chairman Kevin Brady for taking the lead to advance the indisputable goal of simplifying the code and helping to make the United States a leader in the world in terms of having a tax code that gives our country a competitive edge in the marketplaces of the world."

Archer explained that when he was Chairman of the Ways and Means Committee, he felt that as the chief taxwriter in America he should also prepare his personal return. Archer explained that he prepared his tax returns, "Because I believed that I had to experience the same process as every other taxpayer. I would lock myself in my office to struggle through the entire effort—using paper and pencil—not a computer program. It was a multi-day effort!"

Archer concluded his testimony by approving the effort to enable "the vast majority of Americans" to file a tax return on a postcard.

The House Budget Committee also passed an appropriations bill this week that will be submitted to the full House. The bill creates an October 6 deadline for creation of a tax bill by the House Ways and Means Committee.

Chairman Kevin Brady (R-TX) indicated that this deadline will be met. He noted that they will prepare a bill with "permanent tax reform that balances within the budget so we can deliver the certainty and economic growth Americans deserve." The budget committee also envisioned a revenue neutral tax bill.

IRS Review of Syndicated Conservation Easements


On July 13 IRS Commissioner John Koskinen sent a report on syndicated conservation easements to Senate Finance Committee Ranking Member Ron Wyden (D-OR). In the letter, Koskinen explained the IRS analysis of 40 disclosures of syndicated conservation easement transactions.

These disclosures were in compliance with IRS Notice 2017-10. This Notice classified certain syndicated conservation easement transactions as "listed transactions."

Koskinen noted the 40 reported transactions included both the investment amounts and the claimed charitable deductions. The aggregate charitable deductions were $217 million and the investment amounts were approximately one-ninth this amount.

Executive Vice President Wendy Jackson of the Land Trust Alliance commented on the Koskinen letter. She noted, "The preliminary data show for 40 specific transactions that happened since 2010, people bought the equivalent of $9 of tax deductions for $1, on average. It is clear that in these instances, the deductions significantly exceeded the limit established by the IRS."

The Land Trust Alliance previously warned their 1,000 members to "steer clear" of syndicated conservation easement transactions. Jackson continued, "In the vast majority of cases, conservation easement donors are philanthropic heroes working with nonprofit land trusts that are above reproach, and we cannot let the actions of those focused on material greed undermine a program that benefits all Americans."

Editor's Note: The House Budget Committee passed a bill that directs the IRS to not regulate syndicated conservation easement transactions. Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) are researching and reviewing IRS actions with respect to syndicated conservation easements. The Land Trust Alliance's support of the IRS may be a factor in their future decisions.

Applicable Federal Rate of 2.4% for August -- Rev. Rul. 2017-15; 2017-32 IRB 1 (19 July 2017)


The IRS has announced the Applicable Federal Rate (AFR) for August of 2017. The AFR under Section 7520 for the month of August will be 2.4%. The rates for July of 2.2% or June of 2.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published July 21, 2017
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