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Wednesday January 23, 2019

Washington News

Washington Hotline

April 19 is Tax Freedom Day

Each year the nonpartisan Tax Foundation announces the date of Tax Freedom Day. Tax Freedom Day represents the day when taxpayers have earned enough to satisfy the nation's tax bill for the year. In 2018, Tax Freedom Day falls on April 19. This is 109 days into the 365 day year.

Tax Freedom Day is determined by a simple division of all federal state and local taxes by the nation's income. The government revenue is from individual, corporate, property, sales and excise taxes.

The total amount of federal tax that Americans will pay this year is $3.4 trillion. State and local taxes will total $1.8 trillion. The combined total is $5.2 trillion, which is 30% of national income. Federal taxes this year are $0.1 trillion lower due in part to passage of the Tax Cuts and Jobs Act. State and local taxes are up $0.2 trillion due to tax increases.

The $5.2 trillion in taxes that Americans will pay this year exceed the $4.4 trillion that Americans will spend on food, shelter and clothing. The estimates are $1.7 trillion for food, $300 billion for clothing and $2.4 trillion for housing.

If the federal deficit is included in the calculation, Tax Freedom Day is extended 17 days to May 6. This is 19 days earlier than the latest spending and deficit Tax Freedom Day, which was May 25, 1945. This day reflected the higher spending level during World War II.

Tax Freedom Day may also be calculated for high and low tax states. The high-tax states are New York on May 14, Connecticut and New Jersey on May 3 and Illinois on April 29. Four low-tax states are Louisiana on April 4 and Oklahoma, Alabama and Tennessee on April 5.

Editor's Note: Tax Freedom Day has been calculated each year for several decades. It provides a comparison of government spending for different years. Other Washington organizations have suggested an expanded calculation to determine Tax Freedom Day by taxpayer income levels. If other organizations report Tax Freedom Day by income levels, your editor will publish that data.

IRS Has a Very Bad, Awful Day

On the April 17 filing deadline, the IRS computers crashed. The last filing day is a maximum stress test as millions of taxpayers attempt to eFile their returns. Under the load of these millions of taxpayers, the IRS computers failed and the Service was forced to cease operation of for the day.

As a result, in IR-2018-100 the Service announced an extension of one day to April 18 for filing 2017 tax returns. The IRS reported that the shutdown lasted about eight hours and the computers were operational again the night of April 17.

The computer failure occurred just as Acting IRS Commissioner David Kautter appeared before the House Oversight Subcommittee on Government Operations. Kautter told the subcommittee members, "We are working to resolve this issue." Committee member Rep. Greg Gianforte (R-MT) responded, "This is game day for the IRS, and it seems the IRS cannot get out of the locker room."

Later that day, Kautter apologized for the failure. He noted, "This is the busiest tax day of the year, and the IRS apologizes for the inconvenience this system issue caused for taxpayers. The IRS appreciates everyone's patience during this period."

In an internal IRS memo, Kautter acknowledged the failure but thanked the IRS employees for their efforts during this tax season. He continued, "I hope yesterday's issue does not overshadow what was a remarkable tax season. We have received more than 119 million tax returns, answered more than 23 million taxpayer questions on our toll-free help lines and provided in-person assistance to more than 860,000 people. And has been visited more than 363 million times this year."

House Plans to Redesign the IRS

On April 19, the House passed the Taxpayer First Act (H.R. 5444) and the 21st Century IRS Act (H.R. 5445). Both bills had overwhelming bipartisan support.

Chairman of the House Ways and Means Committee Kevin Brady (R-TX) outlined the five goals of the two IRS reform bills.
  1. Restructure - The IRS agency will be restructured with the goals of improving efficiency and enhancing cybersecurity and taxpayer service.
  2. Quality Service - There will be standards that hold the IRS accountable for measureable improvements in service to taxpayers.
  3. Industry Standard Methods - The taxpayer service requirements for the IRS will be similar to the methods used to measure service in the general commercial world.
  4. Enforcement Actions - The IRS will continue to enforce the law, but there will be protections so that families and small businesses may not have properties seized without appropriate notice and due process.
  5. Identity Theft - There will be an enhanced ability to combat and reduce identity theft and tax refund fraud.
Rep. Lynn Jenkins (R-KS) is the Ways and Means Oversight Subcommittee Chair. Jenkins approved of the bill's passage and stated, "As a CPA, I have seen first-hand countless examples of the IRS being out of date with technology and out of touch with the needs of the taxpayer. At a time when Americans are increasingly frustrated by government and the apparent inability to get things done for the country, these bills are a welcome reminder that there are issues that unite both sides of the aisle and we can get things done that improve the lives of every American. The taxpayer deserves a better experience with the IRS and this bipartisan effort will seek to accomplish exactly that."

Editor's Note: These bills now proceed to the Senate. Senate Finance Committee Chair Orrin Hatch (R-UT) indicated that he will move forward with them. The near-unanimous bipartisan support in the House suggests that this reform has a reasonable prospect for passage this year.

Applicable Federal Rate of 3.2 for April -- Rev. Rul. 2018-9; 2018-13 IRB 1 (16 Mar 2018)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2018. The AFR under Section 7520 for the month of April is 3.2%. The rates for March of 3.0% or February of 2.8% 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 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.

Published April 20, 2018
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