Tax Legislative Activity
Senate Finance to Release Tax Reform Proposals
Last week, Senate Finance Committee Chairman Max Baucus (D-MT) announced that he intends to release tax reform discussion drafts in the coming weeks. Despite a considerable amount of speculation, the focus and level of specificity of the drafts remain unclear.
Chairman Baucus has indicated that “anything’s possible” on whether a tax code rewrite would raise additional revenue and that tax reform is on a “parallel track” to the upcoming budget conference.
Republicans are committed to revenue neutral tax reform, arguing that Congress has already raised taxes through the fiscal cliff deal agreed to earlier this year.
The release of discussion drafts raises a question as to whether a markup will be delayed until 2014. Chairman Baucus previously said a markup would appear this fall. Work continues in both the Senate Finance and House Ways and Means Committees on tax reform legislation.
Retirement Legislative Activity
House Passes Bill to Delay Fiduciary Rule
Last Tuesday, the House passed legislation, H.R. 2374, that would delay both the Securities and Exchange Commission (SEC) and Department of Labor’s (DOL) work on a fiduciary rule. The legislation, sponsored by Rep. Ann Wagner (R-MO) and Rep. Patrick Murphy (D-FL), would prohibit DOL from proposing a rule to expand the definition of fiduciary under retirement law until 60 days after the SEC adopts its own rule that raises standards for brokers providing retail investment advice.
It would also require the SEC, before promulgating a uniform fiduciary standard for investment advisors and broker-dealers, to conduct an additional study to determine whether retail investors are truly harmed by the current difference in standards governing investment advisers and brokers-dealers. An investment advisers’ first obligation is their clients’ interests whereas brokers are governed by a suitability standard. The legislation also requires the SEC to publish a cost-benefit analysis of its findings.
Although not yet introduced in the Senate, ten Democratic senators sent a letter urging the DOL to wait to issue its rule until the SEC has completed its work. They wrote that Congress “clearly intended that a single standard apply to retail accounts, including retirement accounts” and expressed concern that the DOL could issue a regulation that conflicts with the SEC’s.
Sen. Jon Tester (D-MT) has also expressed interest in introducing legislation similar to H.R. 2374 in the Senate, but has cautioned that his primary focus has remained on housing reform at this time.
Before the House vote, OMB released a statement that President Obama’s top advisors would recommend a veto of H.R. 2374. OMB’s statement added that the administration opposes H.R. 2374 because “it would derail important rulemakings” ongoing in the SEC and DOL.
Despite the House vote to delay action on the fiduciary rules, Phyllis Borzi, Assistant Secretary of Labor for the Employee Benefits Security Administration, announced that the DOL is nearing the end of its work on a fiduciary rule. She stated that the conflicts of interest rule is the agency’s highest priority.
A DOL spokesman added the agency could send the Office of Management and Budget (OMB) a proposal by year’s end. OMB would then have 90 to review the proposal, after which DOL would provide time for public comments.
Social Security Changes to Come in 2014
Our nation’s Social Security recipients will receive a 1.5 percent cost of living increase in 2014, while the amount of wages subject to Social Security tax will rise by 2.9 percent, the government announced last Wednesday.
Currently, a 12.4 percent tax on the first $113,700 of income funds Social Security, half paid by the employee and half paid by the employer. This cap will now rise from $113,700 to $117,000 in 2014 and therefore income earned above $117,000 will not be subject to Social Security taxes. This stands in contrast to the 1.45 percent Medicare tax that employers and employees each pay, which applies without an income cap.
Tax Regulatory Activity
IRS Issues Draft FATCA Agreement
On October 29, 2013, the Internal Revenue Service (IRS) issued guidance to foreign institutions, relating to their compliance with the Foreign Account Tax Compliance Act (FATCA). Notice 2013-69 provides guidance to foreign financial institutions (FFIs) entering into an FFI agreement with the United States and also provides guidance to FFIs and branches of FFIs treated as reporting financial institutions under a Model 2 intergovernmental agreement (IGA) on complying with an FFI agreement as modified by the Model 2 IGA.
This past week’s guidance includes a draft agreement to enable FFIs who agree to its contents to become participating FFIs, thus avoiding a 30 percent withholding charge. The general requirements of the FFI agreement are described in Treasury Regulation §1.1471-4, released earlier this year. The draft FFI agreement in last weeks’ notice incorporates and expands on these requirements.