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FATCA Reporting on U.S. Accounts: Recent Legal Developments [September 7, 2016]
"Enacted in 2010, the Foreign Account Tax Compliance Act (FATCA) is intended to curb U.S. tax evasion occurring through the use of offshore accounts. Key among its provisions is the requirement that foreign financial institutions (FFIs), such as foreign banks and hedge funds, report information on their U.S. account holders to the Internal Revenue Service (IRS). FFIs that fail to comply will have tax withheld at a rate of 30% on many payments made to them from U.S. sources, including interest and dividends. Since FATCA's passage, there has been international criticism of the FFI provisions, generally focused on whether the United States was correct to take FATCA's unilateral approach. Questions have arisen about whether FATCA's requirements are inconsistent with existing U.S. treaty obligations; how to handle potential conflict of law issues arising when an FFI is faced with complying with FATCA or its home country's domestic (e.g., banking and privacy) laws; and whether the United States has intruded into other countries' sovereignty. [...] In July 2016, the IRS made a significant announcement regarding these countries: they will stop being treated as having an IGA [intergovernmental agreements] in effect in 2017 unless they comply with certain requirements by December 31, 2016. Among other things, the country must explain why the IGA is not yet in force and provide a step-by-step timeline for doing so. The Treasury Department and the IRS will then decide whether it is appropriate to continue to treat the country as having an IGA in effect."
Library of Congress. Congressional Research Service
Lunder, Erika; Pettit, Carol A.
2016-09-07
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Use of Modified Adjusted Gross Income (MAGI) in Federal Health Programs [February 25, 2016]
"The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) created Section 36(B) of the Internal Revenue Code (IRC) to define household income, based on modified adjusted gross income (MAGI). MAGI is used to determine (1) penalty amounts owed if a person does not comply with the individual mandate or whether an individual is exempt from the individual mandate; (2) eligibility for and the amount of a premium credit to purchase coverage through a health insurance exchange; and (3) Medicaid income eligibility for certain populations. MAGI is also used to determine which Medicare beneficiaries pay high-income premiums. However, MAGI has many different definitions, depending on the purpose for which it is being calculated. For these government health programs, MAGI begins with adjusted gross income (AGI) as calculated for tax purposes. From there, various types of income are included (or, in the case of Medicaid, subtracted) to calculate MAGI for each particular program. Although the different health programs use the word 'household,' they do not necessarily refer to the same groupings of people. For example, married couples living together are counted as the same Medicaid household regardless of whether they file a joint tax return. By contrast, married couples must file a joint tax return to be eligible for premium credits. This report explores the different MAGI definitions across health programs, including Medicare, the health insurance exchanges under the ACA, and Medicaid. It also addresses why MAGI is used, and how it is applied, specific to each program."
Library of Congress. Congressional Research Service
Baumrucker, Evelyne P.; Davis, Patricia A.; Fernandez, Bernadette . . .
2016-02-25
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Federal Tax Treatment of Married Same-Sex Couples [July 30, 2015]
"This report provides an overview of the federal tax treatment of same-sex married couples, with a focus on the federal income tax. Estate tax issues are also discussed. The administration of federal tax laws for married same-sex couples changed as a result of the U.S. Supreme Court ruling in 'United States v. Windsor' in 2013, striking down Section 3 of the Defense of Marriage Act. The administration of federal tax laws was not affected by the June 26, 2015, ruling in 'Obergefell v. Hodges'. 'Obergefell' struck down state bans on same-sex marriage, holding that all states must both permit same-sex couples to marry in their states and recognize same-sex marriages that were formed in other states. While it did not change the administration of federal income tax laws, the 'Obergefell' decision may affect the number of same-sex couples who decide to marry (and hence the number of federal and state tax returns filed by married couples). Analysis of changes to individuals' state tax liabilities resulting from the 'Obergefell' decision is beyond the scope of this report; however, state tax changes may ultimately affect federal tax liabilities for those couples who itemize deductions on their federal returns. This report focuses on changes in the 'interpretation and administration' of federal tax law resulting from the Court's 'Windsor' decision. The decision itself did not amend federal tax law. This report is not intended to address all tax-related issues that may arise as a result of the federal recognition of same-sex marriages for tax purposes. Such discussion is beyond the scope of this report."
Library of Congress. Congressional Research Service
Crandall-Hollick, Margot L.; Pettit, Carol A.; Sherlock, Molly F.
2015-07-30
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'Amazon Laws' and Taxation of Internet Sales: Constitutional Analysis [November 28, 2014]
"As more purchases are made over the Internet, states are looking for new ways to collect taxes on online sales. There is a common misperception that the U.S. Constitution prohibits states from taxing Internet sales. This is not true. States may impose sales and use taxes on such transactions, even when the retailer is outside the state. However, if the seller does not have a constitutionally sufficient connection ('nexus') to the state, then the seller is under no enforceable obligation to collect the tax and remit it to the state. The purchaser is still generally responsible for paying the tax, but few comply and the tax revenue goes uncollected. Nexus is required by two provisions of the U.S. Constitution: the Fourteenth Amendment's Due Process Clause and the Commerce Clause. […] Notably, under its power to regulate commerce, Congress may choose a different standard than physical presence, so long as it is consistent with other provisions of the Constitution, including due process. Congress has not used this authority to provide a different standard, although the Senate passed legislation to do so in May 2013 (S. 743, Marketplace Fairness Act). In recent years, some states have enacted laws, often called 'Amazon laws' in reference to the Internet retailer, to try to capture uncollected taxes on Internet sales and yet still comply with the Constitution's requirements. […] On December 8, 2014, the U.S. Supreme Court is scheduled to hear oral arguments on whether the Taxpayer Injunction Act applies in this case (Direct Marketing Association v. Brohl). If the Court rules that the act does apply, then constitutional challenges to Colorado's law, and likely other state 'Amazon laws,' could only be heard in state court."
Library of Congress. Congressional Research Service
Pettit, Carol A.; Lunder, Erika
2014-11-28
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Policy Issues in the General Motors Vehicle Recall [March 31, 2014]
"General Motors Co. (GM) has notified the National Highway Traffic Safety Administration (NHTSA) that it is recalling 2.2 million vehicles because of a faulty ignition switch, which can affect the operation of the airbag system. The defect that GM identified was a 'condition in which the ignition switch may unintentionally move from the 'run' position to the 'accessory' or 'off' position resulting in a loss of power.... In some cases, the timing of the ignition switch movement relative to the activation of the sensing algorithm of the crash event may result in the airbags not deploying.' […] GM has said it was aware of a problem with certain ignition switches as far back as 2001. This has raised a question regarding the timeliness of GM's 2014 recall notice, as well as the impact of the 2009 bankruptcy of General Motors Corporation, a predecessor company, on liability for injuries and deaths that may be related to this defect."
Library of Congress. Congressional Research Service
Canis, Bill; Peterman, David Randall; Pettit, Carol A.
2014-03-31
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Reporting Foreign Financial Assets Under Titles 26 and 31: FATCA and FBAR [March 27, 2014]
"All citizens of the United States as well as U.S. resident aliens are required to report their worldwide income for U.S. federal income tax purposes. However, where foreign assets are involved, this is an area in which taxpayers, knowingly or unknowingly, may fail to comply with the law. There are numerous information reporting requirements involving foreign assets that may assist the Internal Revenue Service (IRS) in recognizing a failure to report foreign income; however, both taxpayers and tax preparers may not be fully compliant with filing these forms. Again, this may be more a matter of ignorance of the requirements than any intent to skirt the law. Neither the reporting requirement imposed by the Foreign Account Tax Compliance Act (FATCA) nor the Foreign Bank Account Reporting (FBAR) imposed by the older Bank Secrecy Act directly involves reporting income for tax purposes. Instead, each involves reporting the existence of financial assets or accounts located outside of the United States. Although in some cases the same accounts or assets may be reported on each information-reporting form, both forms may be required. Failure to file either form if required may result in significant penalties, in some cases amounting to the entire balance of the unreported account or more."
Library of Congress. Congressional Research Service
Lunder, Erika; Pettit, Carol A.
2014-03-27
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Potential Federal Tax Implications of 'United States v. Windsor' (Striking Section 3 of the Defense of Marriage Act (DOMA)): Selected Issues [September 9, 2013]
"This report will provide an overview of the potential federal tax implications for same-sex married couples of the U.S. Supreme Court ruling in 'United States v. Windsor', with a focus on the federal income tax. Estate tax issues are also discussed. Importantly, this report focuses on changes in the 'interpretation and administration' of federal tax law resulting from the Court's decision. The decision itself did not amend federal tax law. This report is not intended to address 'all' tax-related issues that may arise as a result of the 'Windsor' decision. Such discussion is beyond the scope of this report."
Library of Congress. Congressional Research Service
Crandall-Hollick, Margot L.; Sherlock, Molly F.; Pettit, Carol A.
2013-09-09
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Potential Federal Tax Implications of 'United States v. Windsor' (Striking Section 3 of the Defense of Marriage Act (DOMA)): Selected Issues [July 18, 2013]
"This report will provide an overview of the potential federal tax implications for same-sex married couples of the U.S. Supreme Court (SCOTUS) ruling in 'United States v. Windsor', with a focus on the federal income tax. Estate tax issues are also discussed. Importantly, this report focuses on changes in the 'interpretation and administration' of federal tax law that may result from the SCOTUS decision. This decision did not amend federal tax law. This report is not intended to address 'all' tax-related issues that may arise as a result of the 'Windsor' decision. Such discussion is beyond the scope of this report."
Library of Congress. Congressional Research Service
Crandall-Hollick, Margot L.; Sherlock, Molly F.; Pettit, Carol A.
2013-07-18
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'Amazon Laws' and Taxation of Internet Sales: Constitutional Analysis [April 3, 2013]
"As more and more purchases are made over the Internet and states experience more and more fiscal distress, states are looking for new ways to collect taxes for sales generated online. There is a common misperception that states cannot tax Internet sales; however, the reality is that they may impose sales and use taxes on such transactions, even when the retailer is outside of the state. However, if the seller does not have a constitutionally sufficient connection ('nexus') to the state, then the seller is under no enforceable obligation to collect a use tax. The purchaser, on the other hand, is still generally responsible for paying the use tax, but the rate of compliance is low. Recent laws, often called 'Amazon laws' in reference to the large Internet retailer, represent fresh attempts by the states to capture taxes on Internet sales. States enacting these laws have used two basic approaches. The first is to impose the responsibility for collecting use tax on those retailers who compensate state residents for placing links to the retailer's website on the state residents' websites (i.e., online referrals or 'click-throughs'). The other is to require remote sellers to provide information about sales and taxes to the state and/or the in-state customers. New York was the first state to enact click-through legislation. Colorado was the first to pass a notification law. These laws have received significant publicity, in part due to questions about whether they impermissibly impose duties on remote sellers who do not have a sufficient nexus to the state."
Library of Congress. Congressional Research Service
Lunder, Erika; Pettit, Carol A.
2013-04-03
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Exemptions for Firearms in Bankruptcy [February 15, 2013]
"The U.S. Supreme Court's decisions regarding the nature of the people's right to 'keep and bear arms,' as guaranteed in the Second Amendment to the U.S. Constitution, has focused some interest in the extent to which firearms are protected from the reach of creditors under either federal or state laws. State laws that protect certain property from creditors' claims generally are designed to apply in non-bankruptcy contexts, but may also be used in bankruptcy. Federal law also protects certain property from creditors' claims in bankruptcy. Additionally, a debtor in bankruptcy may be able to avoid liens against exempt property if a lien impairs the exemption and is either a judicial lien or a nonpossessory, nonpurchase-money security interest. Legislation introduced in the 112th Congress, similar to legislation passed by the House in the 111th Congress, would have allowed a specific federal exemption for firearms and would include firearms in the definition of household goods whose exemptions could be protected from impairment by liens. A number of states provide their own exemptions for firearms. The provisions of these states are provided in Table 1."
Library of Congress. Congressional Research Service
Platte, Vastine D.; Pettit, Carol A.
2013-02-15
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Tax Provisions to Assist with Disaster Recovery [February 6, 2013]
"Relief after a natural or man-made disaster may come from what many might consider an unlikely source: the Internal Revenue Code (IRC). The IRC includes several tax relief provisions that apply to affected taxpayers. Some of these provisions are permanent. The following are among the permanent provisions discussed in this report: [1] casualty loss deductions, IRC Section 165; [2] exemption from taxation for disaster relief payments to individuals, IRC Section 139; [3] exemption from taxation for certain insurance payments, IRC Section 123; and [4] deferral of gain from the involuntary conversion of homes destroyed or damaged by a disaster, IRC Section 1033. […] This report provides a basic overview of existing, permanent provisions that benefit victims of disasters, as well as past, targeted legislative responses to particular disasters. The relief is discussed without examining either the qualifications for or the limitation on claiming the provisions' benefits. In light of Hurricane Sandy, this report is designed to help Congress identify previous legislative responses to recent disasters."
Library of Congress. Congressional Research Service
Lunder, Erika; Pettit, Carol A.; Teefy, Jennifer
2013-02-06
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Tax Provisions to Assist with Disaster Recovery [November 29, 2012]
"Relief after a natural or man-made disaster may come from what many might consider an unlikely source: the Internal Revenue Code (IRC). The IRC includes several tax relief provisions that apply to affected taxpayers. Some of these provisions are permanent. The following are among the permanent provisions discussed in this report: [1] casualty loss deductions, IRC Section 165; [2] exemption from taxation for disaster relief payments to individuals, IRC Section 139; [3] exemption from taxation for certain insurance payments, IRC Section 123; and [3] deferral of gain from the involuntary conversion of homes destroyed or damaged by a disaster, IRC Section 1033. In recent years, Congress has enacted tax legislation generally intended to assist victims of specific disasters; as a result, these laws were temporary in nature. […] This report provides a basic overview of existing, permanent provisions that benefit victims of disasters, as well as past, targeted legislative responses to particular disasters. The relief is discussed without examining either the qualifications for or the limitation on claiming the provisions' benefits. In light of Hurricane Sandy, this report is designed to help Congress identify previous legislative responses to recent disasters."
Library of Congress. Congressional Research Service
Lunder, Erika; Pettit, Carol A.; Teefy, Jennifer
2012-11-29
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Homestead Exemptions in Bankruptcy After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) [August 25, 2011]
"When debtors file for bankruptcy protection under Title 11 of the U.S. Code, they may exempt the value of certain property; in many cases, this includes their homestead. In practical terms, to the extent that the property's value does not exceed the allowed exemption amount, the debtor may keep the property rather than its becoming part of the bankruptcy estate and thereby being available to satisfy creditors. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced additional limitations on the extent to which debtors could exempt value in their residences when filing for bankruptcy protection. This report surveys the homestead exemption laws of the 50 states and the District of Columbia with an emphasis on the amount of the exemptions and the extent to which debtors may choose between federal and state exemptions. It also describes the limitations on state homestead exemptions in 11 U.S.C. § 522(o)-(q) that were imposed by BAPCPA."
Library of Congress. Congressional Research Service
Pettit, Carol A.; Platte, Vastine D.
2011-08-25
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Exemptions for Firearms in Bankruptcy [May 2, 2011]
"The U.S. Supreme Court's decisions regarding the nature of the people's right to 'keep and bear arms,' as guaranteed in the Second Amendment to the U.S. Constitution, has focused some interest on the extent to which firearms are protected from the reach of creditors under either federal or state laws. State laws protecting certain property from creditors' claims may be used both in and outside of the bankruptcy context. Federal law may also protect certain property from creditors' claims in bankruptcy. Although a number of states have provisions explicitly shielding firearms from the claims of creditors, there is currently no such provision in the U.S. Bankruptcy Code (title 11). In the 111th Congress, legislation was passed in the House (H.R. 5827) that would have provided an explicit federal exemption in bankruptcy for a debtor's aggregate interest, up to $3,000, 'in a single rifle, shotgun, or pistol, or any combination thereof.' The bill also included the means for protecting firearms by including them subject to the same value and type restrictions in the definition of 'household goods' for which nonpossessory, nonpurchase-money security interest liens could be avoided in bankruptcy. Similar legislation has been introduced in the 112th Congress: the Protecting Gun Owners in Bankruptcy Act of 2011 (H.R. 1181)."
Library of Congress. Congressional Research Service
Pettit, Carol A.; Platte, Vastine D.
2011-05-02
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U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring [January 30, 2009]
"This report focuses on the current situation faced by the Detroit 3, key aspects of their current crisis, including possible consequences of a failure of one or more companies, and some aspects of legislative actions that have been considered to bridge their financial conditions to a more stable situation. The subjects covered are: The impact of the automotive industry on the broader U.S. economy and of potential failure of the Detroit 3 companies; (2) Financial issues, including the present conditions affecting credit for automotive consumers and dealers, and legal and financial aspects of government-offered loans to the industry; (3) The current situation in the U.S. automotive market, including efforts in 2007 by the Detroit 3 and the United Auto Workers union (UAW) to address problems of long-term competitiveness; (4) Issues related to government assistance, and various forms of bankruptcy, should this assistance fail to lead to longer term recovery; (5) Legacy issues, specifically pension and health care responsibilities of the Detroit 3; and (6) Stipulations that have been imposed on auto manufacturers as conditions of assisting in their restructuring. Before reviewing these aspects of the situation and specific policy questions, the report will summarize the developments of December 2008. During the month, Congress considered aiding the Detroit 3, but was unable to agree on a plan to assist the companies. Deciding it was necessary to avoid a 'disorderly collapse' of the Detroit 3, President Bush announced on December 18, 2008, a plan to aid the two companies closest to immediate bankruptcy, GM [General Motors] and Chrysler, using TARP [Troubled Assets Relief Program] funds already appropriated by Congress."
Library of Congress. Congressional Research Service
Cooney, Stephen; Bickley, James M.; Chaikind, H. R. . . .
2009-01-30
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U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring [December 3, 2008]
"This report reviews the U.S. automotive industry at present, aspects of the industry's financial situation, and relief options. It includes an analysis of the current situation in the U.S. automotive market, including efforts to address problems of long-term competitiveness and the impact of the industry on the broader U.S. economy. It focuses on financial issues, including credit questions, and legal and financial aspects of government-offered loans or loan guarantees. This further includes consideration of legacy issues, specifically pension and health care responsibilities of the Detroit 3. It also reviews potential solutions to the financial crisis, including options of government receivership and participation management, and various forms of bankruptcy. Finally, the report reviews stipulations that Congress might impose on auto manufacturers as conditions of providing assistance."
Library of Congress. Congressional Research Service
Shorter, Gary W.; Rapaport, Carol; Purcell, Patrick J. . . .
2008-12-03
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2008 Farm Bill: Analysis of Tax-Related Conservation Reserve Program Proposals [Updated July 3, 2008]
"The 2008 Farm Bill contained two tax-related proposals for the Conservation Reserve Program [CRP]. One of these proposals, which excludes the payments from selfemployment tax, was included in the final bill that became P.L. [Public Law] 110-246. The other, which would have allowed participants in the program to choose to receive a tax credit in lieu of the contracted annual payments, was deleted in the conference committee. The Conservation Reserve Program began in 1985 as a program designed to remove highly erodible croplands from current crop production. It was established by the Food Security Act of 1985 and has been expanded and extended by subsequent legislation. The program provides for 'annual rental payments' to land owners or operators who agree to enroll their qualifying land in the program. Enrollment requires them to remove land from production and, generally, refrain from using the land commercially. They must also follow an approved conservation plan. In return, they receive annual payments. These payments are referred to as 'rent' in the statute, regulations, and contracts. However, from the beginning, the Internal Revenue Service (IRS) has treated this income as self-employment income for those who continued to farm other land connected to the CRP land. Although the IRS initially treated the payments as rental income for those not otherwise engaged in farming, and, therefore, not subject to self-employment tax, that treatment has changed over the years. In 2006, the IRS issued a proposed revenue ruling that would treat virtually all CRP annual payments as self-employment income."
Library of Congress. Congressional Research Service
Pettit, Carol A.
2008-07-03
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Conservation Reserve Program: Legal Analysis of Proposed Legislation to Change the Structure and Taxation of Benefits Received [Updated April 22, 2008]
"The Internal Revenue Service considers payments received under the Conservation Reserve Program (CRP) self-employment income even though they are called 'annual rental payments,' and rental income from real property is generally excluded from selfemployment income. Bills have been repeatedly introduced before Congress to statutorily exclude the CRP payments from self-employment tax, but these bills generally have died in committee. In the 110th Congress, the Senate passed H.R. 2419, which contains a provision that would exclude the payments from self-employment income in some, but not all, cases. Unlike most previously introduced legislation, it would also provide a tax credit as an optional alternative to the current annual rental payments. This credit would be subject to neither income tax nor self-employment tax."
Library of Congress. Congressional Research Service
Pettit, Carol A.
2008-04-22
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Conservation Reserve Program Payments: Self-Employment Income, Rental Income, or Something Else? [April 14, 2008]
"Under the Conservation Reserve Program (CRP), owners and operators of eligible land may enter into a contract with the Secretary of Agriculture to enroll land in the program and convert it to less intensive use under an approved conservation plan. In return, participants receive an annual payment that the statute refers to as 'rent.' Legislation establishing and extending the program has been silent as to the appropriate tax treatment of these payments. For many years, the Internal Revenue Service (IRS) generally treated the payments as farming income when received by someone who was engaged in the trade or business of farming, but as rental income when received by others. The IRS's position appears to have changed to one that would treat all Conservation Reserve Program payments as farming income and, thus, subject to self-employment tax. Recently, the IRS published a proposed revenue ruling that explains its treatment of CRP payments as income from the trade or business of farming and, thus, subject to self-employment tax."
Library of Congress. Congressional Research Service
Pettit, Carol A.
2008-04-14
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