May 2018 / United States

May 2 2018

Foreign housing costs limitations for 2018

On 1 May 2018, the US Treasury Department and the Internal Revenue Service (IRS) issued Notice 2018-44 with the amounts to be used by US citizens and residents who are working abroad to compute their exclusion or deduction for excessive foreign housing costs. Notice 2018–44 is issued pursuant to section 911 of the US Internal Revenue Code (IRC). This section permits qualified individuals to exclude foreign earned income from US taxation up to an annual exclusion amount (USD 103,900 for 2018, and to claim an exclusion or deduction for excessive foreign housing costs. The threshold amount for determining whether foreign housing costs are considered excessive is 16% of the limitation for the foreign earned income exclusion. In addition, a limitation applies to the maximum amount allowed, which cannot exceed 30% of the annual foreign earned income exclusion. The Treasury Department and the IRS are authorized to adjust the maximum limitation based on geographic differences in foreign housing costs relative to housing costs in the United States. Notice 2018–44 sets out the threshold amounts, the limitation amounts, and the adjusted per-city amounts that are permitted for specified world cities, including both daily and annual amounts. For 2018, the threshold amount over which foreign housing costs are considered excessive is USD 16,624 (USD 103,900 x.16). The 30% maximum limitation amount is USD 331,170 (USD 103,900 x.30). The adjusted amounts for specified world cities are given in a table included in the notice. Notice 2018-44 is effective for tax years beginning on or after 1 January 2018. Notice 2018-44 provides, however, that taxpayers may elect to use the 2018 amount for a particular city for taxable years beginning in 2017 if it is higher than the amount published for 2017 in Notice 2017-21. Notice 2018-44 revokes Notice 2018-33, issued on 23 April 2018, which used an incorrect amount (i.e. USD 104,100) for the maximum foreign earned income exclusion to calculate the housing cost amount for 2018. Notice 2018-44 will appear in the IRS Internal Revenue Bulletin (IRB) as part of IRB 2018-21 dated 21 May 2018.
May 4 2018

Cryptocurrency Bill Offers Certainty but Struggles for Buy-In

Compliance and consumerism are two key components of legislation aimed at assisting taxpayers who exchange and buy goods with cryptocurrencies, but lawmakers have yet to crack the code for moving the bill.
The Cryptocurrency Tax Fairness Act ( H.R. 3708 ), introduced by House Ways and Means Committee member David Schweikert, R-Ariz., and Rep. Jared Polis, D-Colo., would create an exclusion for de minimis gains for exchanges or purchases using virtual currencies up to $600, indexed for inflation, beginning in 2019. The legislation would also allow Treasury to issue guidance on reporting requirements for virtual currency transactions with recognized gains or losses, a provision that could raise revenue, one lobbyist suggested.
“The goal is to make it easier for people to use cryptocurrency by removing any threat or reporting requirements for transactions under $600, which should cover the vast majority” of transactions, Polis recently told Tax Analysts. “It’s likely that many of those are not reported, but anyone that uses cryptocurrency for purchasing, say, coffee or a book, could potentially be at risk. Generally, people are not filing paperwork for a $3 bagel or coffee,” Polis said.
Taxpayers have been contacting Schweikert’s office with concerns about how difficult it is to comply with their virtual currency portfolio without clear guidance, an aide for the congressman said. Schweikert received a letter from then-IRS Commissioner John Koskinen in June 2017 stating that uncertainty over how to comply with the law when conducting transactions with cryptocurrency was a primary concern at the agency, the aide said.
The IRS has been relatively quiet on the issue, having issued only one guidance document on it, a 2014 notice (IR-2014-36) that classifies virtual currencies as property. Under those rules, any transaction using virtual currencies could be subject to capital gains taxes, depending on the value and whether the currency is held as a capital asset. Accuracy-related penalties under section 6662 and information reporting penalties under sections 6721 and 6722 could also apply.
Ideally, the IRS would create a new asset class for virtual currencies, but the current classification as property was settled on to comport with existing laws, said Jerry Brito, executive director for Coin Center, a think tank focused on cryptocurrency public policy.
Brito called the proposed legislation a “win-win-win,” explaining that consumers would have certainty that small, typical transactions using cryptocurrencies would not be subject to additional capital gains taxes, businesses would be able to offer more payment options via virtual currencies, and virtual currency exchanges would eventually have a set of reporting requirements to work with and could worry less about noncompliance.
Giving Treasury the authority to issue reporting requirements could have broader implications than just improving compliance. Traditionally, the Joint Committee on Taxation has estimated that implementing stricter reporting requirements would raise revenue, and the language included in the Cryptocurrency Tax Fairness Act is “potentially very powerful,” Mary Burke Baker of K&L Gates LLP told Tax Analysts.
There are many questions about what data would be required under potential Treasury guidance, including possibly the basis value of digital currency and what kind of activity could be considered a taxable event, Baker said. Cryptocurrency miners, those individuals whose systems verify virtual currency transactions, present another host of questions about how they should be treated and regulated, Baker added.
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Coin Center worked with Polis’s and Schweikert’s offices to develop the legislation, and Brito said his group would focus on educating legislators on the bill this year after the language was not included in the Tax Cuts and Jobs Act (P.L. 115-97). “We made a big push last year during the tax bill passage to include it in there, but the amendment failed in the Rules Committee,” Brito said.
Polis offered the legislation again in the Rules Committee as an amendment to a series of IRS-related bills that passed the House in April, but it was struck down on a party-line vote. Polis said whenever a Ways and Means Committee bill is sent to the Rules Committee, he will try to offer the legislation as an amendment, calling the cryptocurrency bill “fairly noncontroversial.” But Rep. Rob Woodall, R-Ga., told Polis during the Rules Committee meeting that Ways and Means legislation is rarely amended in the Rules Committee, especially with a larger bipartisan package like the IRS legislation.
With a tight legislative schedule in Congress and election season nearing, opportunities to move the Schweikert-Polis legislation will be few, Baker said. But she said issues dealing with the tax treatment of digital currency will persist, and IRS officials have begun to recognize the potential for related compliance issues.
Although it’s unlikely, Schweikert would ideally like a markup on the Cryptocurrency Tax Fairness Act, but like Polis he is looking for opportunities to attach the legislation to related tax measures or to a must-pass bill, a spokesperson for Schweikert told Tax Analysts.
Ways and Means Committee Chair Kevin Brady, R-Texas, was noncommittal when asked whether the cryptocurrency bill could be included in a potential major tax bill this year, but suggested he would work with Schweikert to consider the legislation.