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Congress Takes up Tax Bills Before Breaking for Extended Recess

August 17, 2016

John P. Thomas, CPA, MST
Manager

The Democratic and Republican nominating conventions triggered an early recess for Congress. Before recessing, the House voted to undo part of the Affordable Care Act (ACA) and approved a reduced budget for the IRS. Leading tax writers in the Senate addressed tax-related identity theft and home buying incentives.

Flexible Spending Arrangement

Before passage of the ACA, taxpayers could use health flexible spending arrangement (health FSA) dollars to pay for over-the-counter medications. The ACA abolished this treatment, leaving health FSA funds for the purchase of prescribed medications, with some exceptions.

In July, the House approved the Restoring Access to Medication and Improving Health Savings Bill which would repeal the prohibition on using health FSA dollars to pay for over-the-counter medication. Repeal would apply to qualified expenditures incurred after December 31, 2016. The Senate did not take up the bill before recessing.

Tax-related identity theft

Tax-related identity theft continues to plague the IRS. The agency has spent significant sums on identifying false returns before fraudulent refunds are paid. The Stolen Identity Refund Fraud Prevention Bill would provide guidelines for the IRS in handling stolen identity refund fraud cases and would increase the criminal penalty for tax-related identity theft.

Homebuyers

A bill was introduced to create a first-time homebuyer tax credit bill. Several years ago, Congress passed a similar bill to encourage home sales. The bill would reward qualified first-time homebuyers with a refundable credit. The credit would equal 2.5 percent of the home purchase with the maximum credit reached at homes selling for $400,000. The credit would phase out for higher income taxpayers.

IRS budget

The IRS’s operating budget continues to be a source of friction in Congress. President Obama and Congressional Democrats have called for increased funding for the agency for FY 2017 while Congressional Republicans have proposed budget cuts. In July, the House approved a $10.9 billion IRS budget for FY 2017, more than $1 billion below President Obama’s proposal. The Senate, however, did not take up the IRS’s budget before recessing, although members of the Senate Appropriations Committee proposed keeping the agency’s FY 2017 budget at current levels. In recent years, lawmakers have waited till year-end to approve a budget for the IRS and they may do the same this year, possibly in a year-end tax bill.

Olympic winners

America’s Olympic and Paralympic winners may benefit from a special tax break, if enacted into law. Before recessing, the Senate approved the Olympians and Paralympians Bill. The bill provides that the value of any medals awarded in, or any prize money received from, competition in the Olympic or Paralympic Games would be exempt from income tax, beginning with the 2016 games.

If you have any questions about these bills or other tax legislation, please contact our office.

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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

 

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