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Sunday April 22, 2018

Washington News

Washington Hotline

April 23 is Tax Freedom Day

Each year the nonpartisan Tax Foundation publishes Tax Freedom Day. The day reflects the total tax burden of government for the year. For 2017, Tax Freedom Day falls on April 23. This is 113 days into the 365 day year.

Tax Freedom Day is a simple division of all taxes divided by average earnings per day. The government revenue is from individual, corporate, property, sales and excise taxes. Federal, state and local taxes are all included.

The total federal tax this year is $3.5 trillion. State taxes equal $1.6 trillion. The combined total is $5.1 trillion, which is 31% of our national income.

The total taxes of $5.1 trillion are greater than amounts Americans pay for food, shelter and clothing. The estimates are $1.7 trillion for food, $300 billion for clothing and $2.2 trillion for housing.

If the deficit of $612 billion is included in the calculation, Tax Freedom Day is extended 14 days to May 7. This is 18 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 Connecticut on May 21, New Jersey on May 13 and New York on May 11. Three low tax states are Mississippi on April 5, Tennessee on April 7 and South Dakota on April 8.

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.

Hello – I Am From the IRS

In FS-2017-07, the Service announced policies designed to enable identification of IRS agents. The IRS continues to pursue tax collections, but hopes to help taxpayers avoid tax scammers.

There are several guidelines for IRS contacts with taxpayers.

1. Normal and Routine – Contacts usually will be by mail through the U.S. Postal Service. Most taxpayers will receive multiple mailed tax collection notices.

2. IRS Agents Are Prohibited – IRS agents will not demand immediate payments with a debit card, gift card or wire transfer. They will not require payment with no right to appeal. IRS agents will not threaten you with immediate arrest by the local police, revocation of your drivers license or deportation.

3. Revenue Agent Visits – An IRS Revenue Agent may make a personal visit. You may ask him or her for IRS credentials. The two credentials are called a "Pocket Commission" or an "HSPD-12 Card." The visits may be unannounced, but often the IRS Revenue Agent will call to set up an appointment.

4. Private Debt Collector – After giving a taxpayer and his or her representative written notice, the IRS may assign cases to a private debt collector. The private debt collector will request payment by a check to the U.S Treasury. There will be an official IRS address for the envelope.

5. Audits – An IRS revenue agent must first give notice of the audit by U.S. Mail. Revenue agents may then call for an audit appointment.

6. Criminal Investigation – An IRS criminal investigator is a law enforcement officer. He or she may make an unannounced visit to a home or business. A criminal investigator will not demand payment of taxes. The purpose of the visit is to investigate tax issues.

7. IRS Contacts – You may contact the Treasury Inspector General for Tax Administration if you suspect a tax fraud or tax scammer. The Service makes available an "IRS Impersonator Scam Reporting" page on You also may call 800-366-4484. If you suspect an email scam, do not click on any links. Forward the email to

White House Tax Reform Plan "Coming Soon"

In a public appearance at a Wisconsin factory, President Trump stated he plans to release the White House tax reform plan "very soon." White House Press Secretary Sean Spicer reports the plan will be released in a number of days. Spicer continued that the White House is planning to "drive the train" on the tax bill. It continues to hope to pass health care prior to the tax act.

The White House plans to use dynamic scoring to produce a revenue-neutral bill. Treasury Secretary Steve Mnuchin said the plan "will pay for itself."

White House National Economic Council Director Gary Cohn supported Mnuchin's goal of revenue neutrality. He stated, "Running a big deficit in the tax code would potentially make tax reform not permanent." He continued and suggested dynamic scoring would "help us get to a permanent solution."

The White House plan does not mention the controversial border adjustable tax (BAT) that has been a favorite of House Ways and Means Committee Chairman Kevin Brady (R-TX). Brady announced a plan to conduct hearings the last week of April or first week of May on the controversial tax.

Editor's Note: Chairman Brady still needs Republican support for BAT. The basic problem the White House and Brady face is that a revenue-neutral bill must find approximately $1 trillion in new tax. The other suggested options include a carbon tax or a value added tax (VAT), but both are very unpopular. If tax reform is to be revenue-neutral, the White House will need to accept BAT or some other major tax increase. Senate Republicans continue to be very skeptical of any substantial tax increases.

Applicable Federal Rate of 2.4% for May -- Rev. Rul. 2017-11; 2017-19 IRB 1 (17 Apr 2017)

The IRS has announced the Applicable Federal Rate (AFR) for May of 2017. The AFR under Section 7520 for the month of May will be 2.4%. The rates for April of 2.6% or March 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 April 21, 2017
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