The Surface Transportation Act was passed in 1982 to address concerns about the surface transportation infrastructure (highways and bridges) across the United States. For the fiscal year 2016 budget, the government proposed to allocate a significant amount towards this Surface Transportation Act of 2015. Unfortunately, the government failed to arrive at a conclusion regarding the funding for the projected number of years. With the August recess about to start, the President had to sign an immediate stopgap bill on the 30th of July into law, to continue the funding of the ongoing highway projects until the House could arrive at a decision regarding the Bill after the recess.
This stoppage bill with the objective of funding highway projects brings in some tax reforms to assist with the funding. Here is a brief overview of the Act, and the tax changes brought in by the bill.
Surface Transportation Act 2015, GROW AMERICA Act, DRIVE Act
For 2016, the President passed a budget of $478 billion toward a 6-year surface transportation project to modernize the existing infrastructure. This covers constructing more bridges, roads, railways, and other transit systems, improving road safety, important infrastructure projects, along with creating jobs in the process. Also known as the ‘GROW AMERICA Act’, this projected investment is 45% more than the previous investment made towards transportation.
The government intends to use the existing ‘Highway Trust Fund’ revenue to fund this project. However, this fund can only support the project for the next three years of the estimated 6 year period.
Proving to be an expensive project with no surety about the funding, and the final decision yet to be made, the House and Senate passed the Stopgap Bill to keep the transportation projects funded for the upcoming three months. An estimated sum of $8-billion through this bill will be allocated towards the federal transportation projects until October 29, 2015, when the bill expired.
In order to offset the cost of the short-term highway bill, the government is relying on ‘tax compliance measures’ for revenue which is projected to generate close to $5 billion in revenue in the next decade.
Tax Compliance Measures
The following tax compliance measures would help generate revenue for the funding of the Surface Transportation:
- Deadline & Extension Dates Change for Few Tax Forms: One of the measures taken by the government is the change in filing deadline for a few forms, such as: FBAR, Form 1065, Form 1120. (For more details read: https://agtax.ca/corporate/current-updated-deadlines-for-irs-forms
- Additional Reporting for Mortgage: Currently only interest (above $600) received on a mortgage from an individual or business needs to be reported by someone running a mortgage providing trade or business. However, for tax returns filed after 31st December, 2016 onwards, the business owner/mortgage servicer would need to provide additional information related to outstanding mortgage balance, address of the mortgaged property, and loan origination date. Not only that, in June of 2015, President Obama also signed the Trade Preferences Extension Act of 2015, which increased the penalties for filing Form 1098 (Mortgage & Interest Statement) with incorrect information from $100 to $250.
- Stepped-Up Basis Conformity: Generally, while a lower valuation of an asset reduces estate taxes; a higher value helps the beneficiary claim a higher stepped-up cost basis, thus reducing the taxable capital gain when the asset is sold. With the passage of the Stopgap bill, large estate executors will be required to disclose the value of each interest received as reported on the estate tax return (filed after July 31, 2015) to the IRS. This will prevent both the beneficiaries from overstating an inherited asset’s value/basis in the future years when the asset is sold or understating the asset basis to pay lower taxes, which could subject the taxpayer to an accuracy-related penalty of 20%.
- Alternative Fuel Tax: The stopgap bill cuts excise fuel taxes on liquefied natural gas (LNG) and liquefied petroleum gas (LPG) used as highway motor fuels. From 2016 onwards, taxes will be imposed on LNG and LPG on an energy-equivalent basis, which will lower taxes on LPG from 18.3 cents to 13.2 cents/gallon and on LNG from 24.2 cents to 14.1 cents/gallon.
- Employer Veteran ACA Requirement: As per the stopgap bill, employers with 50 to 100 full-time employees may make a shared responsibility payments for their employees if they are unable to provide the minimum required healthcare coverage as per the Affordable Care Act (Read: IRS-Issued Health Care Tax Tips for Taxpayers, Affordable Care Act Penalty on Individuals with Less Than Required Health Insurance Coverage), while employers with less than 50 employees are permanently exempted from the employer-mandate. Additionally, an employee who is a member of the U.S. Armed Forces or a Veterans Affairs (VA) health care program is not to be taken into consideration while determining the businesses’ number of employees. This provision applies retrospectively to months beginning after 31st December, 2013.
- Overstatement of Basis Limitation: Under IRC §6501(a), the IRS assesses a deficiency against a taxpayer if they fail to report a reportable income (equal to or more than 25% of the income reported on the tax return) within three years of earning that income. With the stopgap bill, however, Code Sec. 6501(e)(1)(A) extends this three-year limitation period to six years, effective for all returns in which the normal assessment period remained open as of July 31, 2015, and for returns filed after this date.
Other than the above mentioned changes, the bill extends the MAP-21 Act’s (Moving Ahead for Progress in the 21st Century Act) measure which allowed employers to transfer excess pension assets to fund retiree health benefits and retiree life insurance for four more years (through 2025). Thus, picking up an additional $172 million in revenue for the Surface Transport Act; and the bill also confirms that a veteran’s eligibility to contribute on a pre-tax basis to a health savings account (HSA) is not affected by receipt of medical care from the VA for a service-connected disability.
AG Tax LLP Can Help
That being said, if you have any questions regarding the stopgap bill, the Surface Transportation Act, Budget 2016, any tax-related queries, or simply need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
