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Welcome to the Worldwide ERC® Mobility LawBlog, where Tax Counsel Pete Scott and Government Relations Adviser Tristan North share breaking tax and legal news, as well as compliance and risk management information of interest to global workforce mobility professionals concerned with U.S. domestic and worldwide assignments. Sign up to receive e-mail alerts so you don't miss an entry, or subscribe to the RSS feed for immediate delivery.

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IRS Provides 2015 Foreign Housing Cost Limits

In Short:

In Notice 2015-33, April 14, 2015, the Internal Revenue Service has provided adjustments to the limits on excludable foreign housing costs for a large number of high-cost foreign locations. Allowable costs for those locations are higher than the generally applicable maximum housing allowance exclusion.


The Full Story:

U.S. workers stationed overseas remain taxable in the U.S. on all income received, whether it comes from the U.S. or a foreign country. However, if certain conditions are satisfied section 911 of the Internal Revenue Code allows those workers an election to exclude from their U.S. income some of their "foreign earned income," and some of their reimbursed expenses for foreign housing. 


To qualify for the foreign earned income exclusion (section 911(a)(1)) and the foreign housing exclusion (section 911(a)(2)) the worker must have income received for working in a foreign country, have a tax home in a foreign country, and meet a bona fide residence or physical presence test in that country. 


Assuming that those requirements are met, the law also limits the amount of income excludable, and the amount of the excludable housing expense.  Those limits are indexed for inflation.  For 2015, the amount of foreign earned income that is excludable is $100,800.


Prior to 2006, the housing exclusion was unlimited to the extent it exceeded a base amount. The base amount was 16% of the salary of a federal employee at salary grade GS-14, step 1, or about $12,500 in 2005. So, if housing costs were $40,000 in 2005, then $27,500 would generally have been excludable (the amount by which actual costs exceeded the base amount). 


However, the 2006 law amended these provisions to change the calculation of the base amount, and to limit the maximum amount of the exclusion. The new law changed the calculation of the base to 16% of the foreign earned income exclusion amount.  For 2015, that is $16,128 ($100,800 x .16).  The new law then imposed a maximum on the costs that may be taken into account in computing the exclusion. The maximum is 30% of the earned income exclusion, or $30,240 for 2015 ($100,800 x .30).  The result is that in general the maximum housing exclusion for any location is $14,112 for 2015 ($30,240 minus $16,128).


The new law, however, also gave the Treasury Department the authority to provide higher maximum housing cost limits for areas in which it determined housing costs to be high. IRS has regularly exercised that authority in a series of publications, of which Notice 2015-33 is the latest.


The Notice provides a lengthy table of foreign locations, and replaces the $30,240 general limitation with one specific to the locale.  Beginning with Luanda, Angola at $84,000, and ending with Ho Chi Minh City in Vietnam at $42,000, the table visits nearly every country in the world, and should always be consulted by Worldwide ERC members calculating the foreign housing exclusion. 


A few highlights: Hong Kong remains the highest cost city at $114,300, followed, as usual, by Moscow at $108,000.  However, allowances for some traditionally high-cost cities have been reduced.  For example, Geneva has declined from $100,800 to $95,200, and Tokyo goes from $96,000 to $83,500.  Allowable costs for European capitals such as Paris and London have declined as well, from $86,000 to $73,800 for Paris and from $88,700 to $85,300 for London.  Although Worldwide ERC® has not compared the allowance for each location in the Notice to the allowances for 2014, it appears that a significant number have declined, presumably as a result of the recent strong performance of the dollar relative to foreign currencies.


Finally, as it did last year, the IRS provides an option for taxpayers in any locations where housing costs are higher in Notice 2015-33 than they were in Notice 2014-29 applicable to 2014.  If the taxpayer resided in one of those locations in 2014, he or she is allowed to use the higher 2015 amount in calculating the 2014 exclusion.


Posted by Peter K. Scott

Expiration of Anti-Flipping Waiver Creates Confusion
By Eric Arnold
Eric is a guest blogger and is Counsel at Steward Title Guaranty Company – Stewart Relocation Services as well as Chair of the Worldwide ERC® Government Affairs Real Estate and Mortgage Forum.
In Short:
The Federal Housing Administration (“FHA”) recently announced the end of its waiver of the FHA Anti-Flipping Rule’s 90-day resale restrictions. This waiver had allowed investors and others to rehabilitate and resell properties to FHA-insured borrowers. Worldwide ERC® has received reports that this has led some lenders to take the position that relocation properties are ineligible for FHA-insured financing if the relocation company has not owned the property for the required 90-day period. Since this overlooks the longstanding exemption for relocation transactions, this blog entry attempts to clarify the exemption, the waiver, and the potential source of this confusion.
The Full Story:
In 2003, The Department of Housing and Urban Development (“HUD”) adopted 24 § CFR 203.37a, commonly known as the FHA Anti-Flipping Regulation (the “Regulation”). HUD was concerned that the artificially inflated values of recently flipped properties would lead to higher default rates by borrowers using the FHA mortgage insurance program and threaten the financial soundness of the program. To limit exposure to these high risk properties, the Regulation introduced two new requirements for a property to be eligible for the FHA insurance program: (1) the property must be sold by the owner of record and (2) the seller must have owned the property for a certain period of time, generally 90 days.
The Regulation provided no exemption to the first requirement and as such, it is common for relocation companies to take title to properties when the outside buyer seeks FHA financing. Worldwide ERC® was successful in obtaining an exemption for relocation transactions from the second requirement. Pursuant to § 203.37a(c)(2) (as adopted in 2003 – currently § 203.37a(c)(5)), “sales of properties purchased by an employer or relocation agency in connection with the relocation of an employee” are exempt from the time restrictions on resales imposed by the Regulation.
In the midst of the real estate downturn, there was a common perception that the Regulation limited real estate investors from cleaning up abandoned or neglected properties and reselling them to families who could occupy and take care of them, in turn reducing neighborhood blight. In 2010, FHA responded by issuing a temporary waiver to the time restrictions, so long as certain underwriting requirements were met. To qualify for the waiver, the sale must be conducted at arm’s length, with no inappropriate collusion or agreements between the parties, and if the sales price increased twenty percent or more between acquisition and subsequent sale to the homebuyer, the lender would require additional documentation, such as receipts for any improvements made and a new inspection to confirm the quality of work performed. Originally set to expire after one year, the waiver was extended another year in 2011 and for two years in 2012, ultimately through December 31, 2014.
On September 30, 2014, HUD’s Office of Inspector General (“OIG”) published a report criticizing FHA’s oversight of the waiver program. The report recommended that FHA either discontinue the waiver or strengthen its controls and clarify requirements of the waiver. On December 10, 2014, FHA responded by issuing FHA INFO #14-73 (the “Notice”) which announced that the agency would not extend the waiver beyond December 31, 2014.
Worldwide ERC® has received reports from members that certain lenders have taken the position that due to the expiration of the waiver, effective January 1, 2015, relocation transactions are again subject to the time restrictions on resales. There are two potential explanations for this position:
  1. There may be confusion between the waiver and the exemptions. The waiver expired December 31, 2014. The exemptions, including for relocation transactions, were not impacted by expiration of the waiver. See FHA INFO #14-73 – “[t]he regulation, including its exemptions, is still in effect.”
  2. FHA INFO #14-70 could be a source of confusion since it provides an incomplete list of exempt transactions. It states that “exempt transactions include” and provides a number of transactions exempted under the Regulation. This list does not include relocation transactions. However, there is no reason to extrapolate from this that the relocation exemption no longer applies:
    1. “[E]xempt transactions include” does not indicate an exhaustive list. In addition to relocation transactions, FHA INFO #14-70 does not include properties acquired through inheritance, which are also exempt under the Regulation.
    2. FHA INFO #14-70 states that “[t]he regulation, including its exemptions, is still in effect” and provides a link to the current version of the Regulation, which includes the exemption for relocation transactions – see § 203.37a(c)(5)
    3. The exemptions for relocation transactions and inherited properties cannot be removed simply through a mortgagee letter and no information has been provided to Worldwide ERC® or the reporting members of any formal rulemaking to amend the Regulation.

The exemption for relocation transactions was one of the two original exemptions in the FHA Anti-Flipping Regulation (there are now eight). The agency clearly understood Worldwide ERC®’s concern that a ninety-day holding requirement would impede relocation transactions which pose no additional risk to the mortgage insurance program. However, our industry’s exemption remains a very small part of the general volume of FHA-insured mortgages, and it is very common to see confusion about its applicability. Hopefully this (somewhat) brief primer will assist in clarifying these issues going forward.


Sources: Anti-Flipping Regulation -

OIG Report -

FHA INFO #14-73 -

Posted by Eric Arnold

Mortgage Debt Cancellation Exclusion and Other Tax Breaks Extended Through 2014
President Obama on December 19, 2014, signed into law a package extending some 40 expired or expiring tax breaks for one year, through the end of 2014.  H.R. 5771.  As a result, the provisions will be available for use on 2014 returns to be filed in 2015. 
Among the provisions extended were three items of importance to mobility. 
The first is the exclusion from income for cancelled mortgage debt on a principal residence.  The exclusion, in the tax code since 2007, protects homeowners from tax on the forgiveness of up to $2 million in mortgage debt incurred to acquire their home.  It expired at the end of 2013.  Worldwide ERC® had joined many others in urging Congress to extend the provision again, which is important in allowing employees whose homes are burdened with debt exceeding the value to engage in short sales and accept relocations.  For Worldwide ERC®’s letter to Congress urging action, go to
Although the extension was not for as long as Worldwide ERC® advocated, a one-year retroactive extension for all of the expiring provisions was all the Congress could agree to as it sought to wrap up business for the year.
Also included in the extenders package was a one-year extension of the deduction for mortgage insurance premiums, also in the tax code since 2007 but which expired at the end of 2013.  Although the deduction is subject to a number of restrictions, and must be allocated over the years to which a premium relates, it is nevertheless valuable to many transferees in purchasing homes.  For a full discussion of the deduction, go the Worldwide ERC® Tax  & Legal MasterSource at
Finally, HR. 5771 extended the deduction for state and local sales taxes, which also expired at the end of 2013.  The deduction is of use primarily to transferees in the nine states which have no or a very limited income tax.  For more on the deduction, go to
Although the extensions are welcome, Congress will again have to revisit all of these provisions in 2015.  It is hoped that some will finally be made permanent, thereby avoiding the annual uncertainty and confusion engendered by their periodic expiration.  Worldwide ERC® will continue to work toward preserving these important provisions.
Posted by Peter K. Scott
Mileage Allowances for 2015 Released by IRS
On December 10, 2014, the IRS released its annual optional standard mileage rates that may be used in computing automobile deductions during 2015.  See IR-2104-114,;-Business-Rate-to-Rise-in-2015, and Notice 2014-79.  The new rates, applicable for auto use after December 31, 2014, are 57.5 cents per mile for business use, 23 cents per mile for medical or moving use, and 14 cents per mile for charitable use.  The business rate is up 1.5 cents from the 56 cents per mile rate that has been in effect since January 1, 2014, while the rate for medical and moving is down a half cent from 23.5 cents.  The charitable rate of 14 cents per mile does not vary from year-to-year because it is fixed by statute. 
The rates are based on an annual study of fixed and variable costs of operating an automobile conducted for the IRS by an independent contractor.  The rates for business and moving differ because the rate for business use includes fixed costs such as depreciation, which are not allowed as medical or moving deductions.  Both rates include variable expenses such as fuel.  Taxpayers are also allowed to deduct items such as parking and tolls in addition to the standard mileage rate. 
Use of the standard deduction rates is optional; taxpayers are always free to determine their own actual costs of operating a vehicle.  However, such costs must be substantiated through detailed records, while the use of the standard rates avoids any need to substantiate the underlying costs incurred, although taxpayers must still maintain records of the miles driven and the purpose of each trip.  
Notice 2014-79 also provides amounts by which taxpayers using the standard business mileage rate must reduce the basis in their automobile for depreciation that is included in the standard mileage rate.  Those amounts are 22 cents per mile for 2011, 23 cents per mile for 2012 and 2013, 22 cents per mile for 2014, and 24 cents per mile for 2015. 
Some companies use mileage rates higher than the standard rates to reimburse business travelers or transferees.  In such cases, the excess amounts are treated as taxable wages, and are subject to withholding and payroll taxes.  Amounts up to the standard mileage rates are excluded from the income of the employee.  An employee cannot deduct moving expenses using the business travel rate.  See Adamson v. Commissioner, 32 T.C.M. 484 (1973). 
Generally, the rates the IRS announces in November or December remain in effect during the entire following year, regardless of changes in underlying costs.  However, in 2011 the IRS changed the rates in mid year due to a dramatic rise in fuel costs, the third time in six years in which it had done so.  With the current dramatic drop in fuel costs expected to continue during 2015, it is possible IRS will again opt to modify the allowance during the year, this time by reducing it. 

Posted by Peter K. Scott
Worldwide ERC® Urges Congress to Extend Tax Relief for Forgiven Mortgage Debt
As Congress works to extend a group of around 50 expired or expiring tax provisions before adjourning for the year, Worldwide ERC® has written to Congressional leaders urging at least a two year extension of the tax provision that excludes some forgiven mortgage debt from income.
In letters dated December 2, 2014, Worldwide ERC® President and CEO Peggy Smith pointed out that the expiration of the provision will negatively impact the mobility of workers and ability of employers to move their workers to where they are needed.  Transferees who need to make a short sale to accept a transfer often will not be able to move if the amount of their mortgage that is written off becomes taxable to them. 
Worldwide ERC® joins a number of other organizations such as the National Association of Realtors and the Mortgage Bankers Association in pushing for Congress to extend the provision. 
The tax provision has been in the Code since 2007, and has been extended periodically, but expired at the end of 2013.  Under the provision, forgiven mortgage debt up to $2 million on a principal residence is not taxed.
The provision is one of some 50 tax breaks that periodically expire.  Both House and Senate have been working during the remaining Congressional session to either extend most of them, or extend some and make others permanent.  Unfortunately, efforts at the latter solution broke down and Congress is currently working on a simple one-year extension through 2014.  Worldwide ERC® believes a longer extension should be enacted, but even the currently contemplated one-year extension would be beneficial.
A copy of Worldwide ERC®’s letter is available here.
Posted by Peter K. Scott
Inflation Adjustments for 2015 Require Payroll and Gross Up Changes
There are a number of tax and Social Security items that are statutorily required to be adjusted for inflation each year.  Both the Internal Revenue Service and the Social Security Administration generally release the adjusted numbers in late October of the preceding year, and both have done so for 2015. 
The new Social Security Wage Base of $118,500 for 2015 was the subject of a LawBlog post on October 27, 2014.  Shortly thereafter, the Internal Revenue Service released its 2015 inflation adjustments, which are discussed below. 
On October 30, 2014, the Internal Revenue Service announced inflation adjustments for 2015 to a host of items that are subject to such adjustments.  There are about 40 provisions in the tax code that are adjusted annually for inflation.  For IRS Announcement IR-2014-104, go to,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments.
The most commonly utilized inflation-adjusted items are the standard deduction, and the personal exemption.  For 2015, personal and dependent exemptions will be worth $4,000, up $50 from 2014.  The standard deduction will rise to $12,600 for married couples, up $200, and to $6,300 for singles, up $100.  The tax brackets will also be adjusted.  For example, the 15% bracket will now end at $74,900 for married couples filing joint returns, and at $37,450 for singles.  In addition, the high-income brackets imposed by the 2012 “American Taxpayer Relief Act” will be adjusted.  In 2015, the 39.6% tax rate will apply to income exceeding $413,200 for singles and $464,850 for married couples, up from $406,700 and $457,600. 
Beginning in 2013, high income individuals also began to lose some of the benefit of itemized deductions at certain income thresholds.  For 2015, the income at which the loss begins is $258,250 for singles, and $309,900 for married couples filing joint returns.
The foreign earned income exclusion, which is utilized by many Worldwide ERC® member expats, will rise to $100,800, up from $99,200 in 2014 (and breaking the six-figure mark for the first time).
The Alternative Minimum Tax exemption amounts, which were first indexed for inflation by the 2012 law, and which keep many middle-income employees from owing this additional tax, rise to $53,600 for singles, and $83,400 for married couples, up from $$52,800 and $82,100, respectively. 
The full list of inflation adjustments is in Rev. Proc. 2014-61, available at
Unfortunately, the 3.8% Net Investment Income tax that also came into effect in 2013 begins at Adjusted Gross Income levels that Congress did not make subject to inflation adjustments.  Consequently, the tax will still begin to apply at Adjusted Gross Income of $200,000 for singles and $250,000 for married couples, and as incomes rise more transferees will be subject to the tax.  For a full explanation of the tax, refer to, in the Worldwide ERC® Tax & Legal MasterSource.  Also beginning in 2013, an additional 0.9% Medicare tax was imposed on “high income” employees making more than $200,000 in wages ($250,000 for married couples), so the employee share of the tax for these taxpayers is 2.35% (the employer share remains at 1.45%).  And like the Net Investment Income tax, Congress also did not index these wage thresholds, so employers should be aware that additional employees will also be subject to this additional tax as wages rise but the thresholds don’t. 
Finally, on October 23, 2014, IRS also announced inflation adjustments for pension plans and other retirement vehicles for 2015.  See IR-2014-99,;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401%28k%29-plans-in-2015.  After remaining unchanged in 2014, the amount an employee is allowed to contribute to a 401(k) plan in 2015 will rise from $17,500 to $18,000, and a number of other contribution limitations will also rise. 
All of these developments will affect gross-up calculations and other payroll calculations for Worldwide ERC® members, who should begin preparing to adjust their systems.

Posted by Peter K. Scott
Social Security Announces Higher Wage Base, and Benefit Increase, for 2015
In Short:
The Social Security Administration announced October 22, 2014, a 1.7% benefit increase for 2015, and an increase from $117,000 to $118,500 in the maximum amount subject to Social Security taxes.
The Full Story:
Today’s tax quote: “I want to find out who this FICA guy is and how come he’s taking so much of my money.” Nick Kypreos.
The Federal Insurance Contributions Act (FICA) tax (otherwise known as the Social Security tax) is 12.4%, split equally between employer and employee, but unlike the 2.9% Medicare tax is collected on wages only up to a limit, called the “Social Security Contribution and Benefit Base,” or the Social Security wage base. Social Security benefits are adjusted each year for inflation. That adjustment also leads to an increase in the taxable wage base.
In an October 22 news release, the Social Security Administration announced a benefit increase of 1.7% for 2015, slightly higher than last year’s increase of 1.5%. At the same time, the SSA also announced that the maximum amount of wages subject to FICA taxes will increase from 117,000 to $118,500. For the SSA Press Release go to!/post/10-2014-2.
About 10 million workers will pay more taxes as a result of the wage limit increase, and employers will also owe additional taxes for the employer share of FICA for such workers. The 2.9% Medicare tax (1.45% each for worker and employer) is not subject to any wage limit.
On October 31, 2013, the Internal Revenue Service announced inflation adjustments for 2014 to a number of items that are subject to such adjustments. There are about 40 provisions in the tax code that are adjusted annually for inflation. For IRS Announcement IR-2013-87, go to
This will affect gross-up calculations and other payroll calculations for Worldwide ERC® members.
Posted by Peter K. Scott
IRS Simplifies Reporting Requirements for Canadian Retirement Plans
In Short:
Canadians who are working in the United States for long enough to be considered “residents” under U.S. tax law, and U.S. citizens, are taxed on the earnings of Canadian retirement plans unless they make an election to defer tax on the earnings until the earnings are actually distributed.  Elections were previously made on Form 8891, which was required to be filed with the U.S. tax return.  However, in Announcement IR-2014-97, October 6, 2014,, the IRS has eliminated Form 8891 and simplified the required reporting. Companies with Canadian employees in the U.S. should make sure those employees understand the revised requirements, as failure to comply can result in substantial tax liabilities and penalties.
The Full Story:
Canadians who are resident workers in the U.S. need to be very careful in dealing with their Canadian retirement plans if they wish to avoid running afoul of the U.S. tax rules.
As discussed in detail in a Mobility LawBlog post on March 12, 2012 (available at Canada treats Registered Retirement Income Funds (RRIF’s) and Registered Retirement Savings Plans (RRSP’s) the same as IRA’s and 401k plans are treated in the United States.  That is, tax on the earnings is deferred until the earnings are withdrawn or the beneficiary reaches a certain age.  Unfortunately, U.S. tax law does not allow for this deferral for U.S. citizens or residents who maintain RRIF’s or RRSP’s.   Owners of those accounts would be taxed on the earnings without some form of relief.
Relief is provided under the United States-Canada Income Tax Convention (“Treaty”).  Under the Treaty, an individual who is a beneficiary of a Canadian retirement plan that is exempt from Canadian income tax may elect to defer U.S. tax on the accrued but undistributed income of the plan until the income is actually distributed. 
Since 2004, the required election has been made on Form 8891, which must be filed by any U.S. citizen or resident who is a beneficiary of a Canadian retirement plan.  A separate Form 8891 must be filed for each retirement plan, and attached to the Form 1040 U.S. income tax return.
Canadians moving to the United States to work, and who remain in the United States long enough to be considered a “resident,” (ordinarily, more than 183 days during the year), were required to file Form 8891 to report any Canadian retirement plans they still owned, and unless they wanted to pay U.S. tax on the accrued income, had to make the election to defer tax.  Unfortunately, sometimes these workers were not aware of the requirements, and that lack of awareness could create major problems. 
If the Form 8891 was not filed, and no election made, the deferred income from the retirement plan should have been reported on the Form 1040, and tax paid.  Failure to do so could lead to an underpayment of tax, interest on the underpayment, and potential penalties for negligence and failure to pay.  Moreover, if the Canadian had been a resident for several years without the required filing and election, IRS could go back and assert tax for at least three of those prior years under the normal statute of limitations on assessment of tax, or six of them if the omission of income was substantial, or all of them if the omission was due to fraud. 
Nor was the taxpayer ordinarily permitted to go back and make a retroactive election, unless the taxpayer obtained specific permission to do so from the IRS by filing a private letter ruling request asking for relief under section 301.9100-1(c).  Doing so was difficult, costly, and would not be successful unless done before IRS itself discovered the failure to report and elect. 
However, in Rev. Proc. 2014-55, ( and the Announcement cited above, the IRS has eliminated the requirement to elect deferral by filing Form 8891.  The form is obsolete as of December 31, 2014.  Rather, any individual who has satisfied the requirements for filing a U.S. tax return for each year the individual was a citizen or resident and who has reported any distributions from a Canadian retirement plan as income but has not reported as income the accrued but undistributed balance in the plan will be considered to have validly elected deferral, regardless of whether Form 8891 was ever filed.  These are referred to as “eligible individuals.” 
If a taxpayer does not meet the requirements for an eligible individual, the taxpayer must continue to report and pay tax on accrued but undistributed income of the plan, and can elect not to do so only by seeking the consent of the IRS Commissioner, by way of a private letter ruling, as in the past.
Nor is there any relief for U.S. citizens or residents who simply did not file U.S. returns, or failed to report the Canadian plan at all, either by filing Form 8891, or by reporting and paying tax either on the distributed or undistributed income.  And other reporting requirements, discussed below, remain in place.
There are two reporting requirements for beneficiaries of Canadian retirement plans, with substantial penalties for failure to comply. 
Owners of foreign financial accounts exceeding $10,000 in value during the year must file a Foreign Bank Account Report (FBAR), Form 114 which must be filed electronically with the Treasury Department by June 30 of each year.  Generally, a Canadian RRIF or RRSP worth $10,000 or more would require such a report.  There are substantial penalties even for an inadvertent failure to file the FBAR.  Such accounts also require that a box be checked on Schedule B of Form 1040, revealing that the taxpayer has foreign accounts, even if the accounts do not exceed the $10,000 FBAR reporting threshold.  And, beginning for the 2011 tax year, a new Form 8938 is required to be filed with the U.S. tax return reporting foreign assets whose value exceeded $75,000 at any time during the year, or $50,000 at the end of the year, which is a threshold that many existing Canadian retirement accounts would no doubt exceed. 
Consequently, although the procedure for electing to defer tax on undistributed income from Canadian retirement plans has been made considerably simpler, a number of traps remain.  For companies moving a Canadian to the U.S. to work, the U.S. requirements concerning retained Canadian retirement plans simply must be a part of the instruction and planning for that assignment.  The employees should be informed and counseled as to the requirements to make sure that they do not incur costly U.S. tax liabilities and penalties for failing to report the accounts. 
Posted by Peter K. Scott
Alabama Proposes to Move W-2 Filing Deadline
In a notice filed September 15, 2014, the state of Alabama is proposing to move the date copies of Form W-2 must be filed with the state from the end of February to the end of January.  See Rule No. 810-3-39-09, at
This new rule would be effective for 2014 Forms W-2, which would now be due to the state by January 31, 2015. 
The proposed change will put Alabama in a very small group of similar states that have departed from the federal rule.  Under federal law, the government copy of the W-2 is not due to the IRS until the end of February each year, although the copy for the employee is due to the employee by January 31.  
Other jurisdictions requiring an earlier W-2 filing with the government are the District of Columbia, Kentucky, Pennsylvania, and Wisconsin.
The stated reason for the change is to combat refund identity fraud.  With an earlier due date, the Department of Revenue can verify refunds for e-filed returns before issuing the refund.  Refund fraud typically relies upon the fact that both federal and state systems are programmed to issue immediate refunds when returns are filed, with verification of the identity of the filer and entitlement to the claimed refund done after later receipt of the official W-2’s from employers. Scammers include a bogus W-2 with early-filed returns, before the official government copy is received by the IRS or the state.
Although the Internal Revenue Service, and some state governments, have put in place systems designed to identify fraudulent refund returns before issuance of the refund (IRS reported preventing some $24.2 billion of such refunds in fiscal 2013), many such refunds escape the filters ($5.2 billion federal in fiscal 2013).  IRS and Treasury do not have the authority to advance the required filing date for the federal copy of the W-2, which is statutorily mandated as the end of February.  Although legislation has been sought to do so, it is not likely to be addressed any time soon.
Alabama, however, has the authority to advance the due date by regulation, and is proceeding in that direction.  Comments on the proposal are due by November 5, 2014.
States that require the state copy of the W-2 earlier that the federal government and other states do create some additional burden for company payroll processing, which must accommodate the earlier deadline for those states.  However, the significance of the additional burden is not clear, inasmuch as the W-2 process for employees must already be completed by the end of January, and gross-up reconciliation and other such items must be done by then. 
Posted by Peter K. Scott
CBO Releases Cost Estimate on Freddie and Fannie Dismantle Bill
In Short:
The CBO has estimated a net savings of $58 billion to the federal government from legislation (S. 1217) passed by the Senate Banking Committee to dismantle Freddie Mac and Fannie Mae and move the secondary mortgage market closer toward privatization. The score by CBO is significant because it bolsters the case of supporters for passage of the legislation. The likelihood Congress will further address S. 1217 this year still remains low.
The Full Story:
On September 5, the Congressional Budget Office (CBO) released its score or cost estimate on the Housing Finance Reform and Taxpayer Protection Act (S. 1217). The CBO determined the bill would reduce federal spending by $60 billion between 2015 and 2024 and federal revenue would decrease by $1.5 billion between 2020 and 2024.
The Housing Finance Reform and Taxpayer Protection Act would repeal the government sponsored enterprise (GSE) charters for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and establish in their place the Federal Mortgage Insurance Company (FMIC). The FMIC would be an independent federal agency responsible for establishing the standards, oversight and partial guarantee through the Mortgage Insurance Fund of the secondary mortgage market.
The Congressional Budget Office in its estimate anticipates the new fees charged by the FMIC on issuers of mortgage-backed securities would be more than the costs of the guarantees as calculated under the Federal Credit Reform Act. Under the bill, Fannie Mae and Freddie Mac would no longer offer guarantees on mortgage-backed securities and private capital would absorb some of any losses prior to payments from the FMIC. The changes and less risk under the FMIC would result in the savings of $60 billion over ten years.
CBO also estimates a reduction in revenue to the Federal Housing Finance Agency, the federal regulator overseeing Fannie Mae and Freddie Mac, from no longer assessing fees of the two GSEs to cover administrative costs. This would result in the $1.5 billion over ten years in reduced federal revenue netting a total savings of $58 billion for the bill. CBO also estimated the “fair-value” of the bill that yielded a lower $7 billion net savings to the federal government. Several economists believe “fair-value” to be the more accurate approach to estimating the cost or savings of changes in federal spending. The CBO also noted interest rates would likely increase 10 to 20 basis points.
The Senate Banking Committee had approved S. 1217 on May 15 of this year with bipartisan support by a vote of 13 to 9. The bill also has the support of the Obama Administration. Senator Lamar Alexander (R-TN) introduced the bill in June 2013. The Senate Banking Committee held several hearings on the legislation between September and December of last year with an initial mark-up held on April 29 and then approval on May 15. During mark-up of the bill, the legislation was amended with a substitute proposal authored by Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID).
The bill faces an uncertain future as several Senate Democrats are concerned about ending the current system and some Senate Republicans believe the federal government would still have too large of a role. While Congress is unlikely to enact S. 1217 this year, the passage of the bill by the Senate Banking Committee is the furthest a proposal to restructure the housing finance system has made it through the legislative process.
Efforts to restructure the current system stem from the collapse of the housing finance system and the placement of Fannie Mae and Freddie Mac into receivership in September 2008. The federal government made an infusion of $187.5 billion into Fannie and Freddie Mac. With the improvement in the housing market, Fannie Mae and Freddie Mac have repaid the funds as well as additional returns and thus decreased the pressure on Congress to act. The net savings estimated by CBO from the bill could, however, alter that dynamic.
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