1. ©2015 RSM US LLP. All Rights Reserved. CAPITOL HILL UPDATE Patti Burquest, Washington National Tax November 12, 2015

2. ©2015 RSM US LLP. All Rights Reserved. Congressional tax changes so far this year Highway Trust Fund Trade Preferences Extension Act Budget Act of 2015 2

3. ©2015 RSM US LLP. All Rights Reserved. Highway Trust Fund─Ten years of taxes to fund six months of construction Mortgage reporting Estate basis reporting Extended statute on overstated basis Return due dates for partnerships and C corporations 3 1 Based on Joint Committee on Taxation estimates (JCX-105-15)

4. ©2015 RSM US LLP. All Rights Reserved. Highway Trust Fund─Ten years of taxes to fund six months of construction (cont.) Mortgage lenders to report three new items annually − Already reporting Borrower’s name, address, SSN, mortgage interest paid, nondeductible points, nondeductible overpaid interest − Added Outstanding loan principal Loan origination date Address of financed property 4

5. ©2015 RSM US LLP. All Rights Reserved. Highway Trust Fund─Ten years of taxes to fund six months of construction (cont.) Consistent basis reporting between estates and beneficiaries − Estates filing returns must provide information statements to IRS and beneficiaries reflecting value of assets Six-year statute for basis overstatements that reduce taxes by more than 25 percent 5

6. ©2015 RSM US LLP. All Rights Reserved. Highway Trust Fund─Ten years of taxes to fund six months of construction (cont.) − Fiscal-year filers follow same number of months as calendar-year filers Exception: Returns for June 30 C corporations due Sept. 15, with a seven-month extension until 2026 6 C corporations S corporations Partnerships Extended: C corporations S corporations Partnerships S corporations C corporations Extended: C corporations S corporations Partnerships Current 2017 Mar 15April 15 Sept 15 Dec 31

7. ©2015 RSM US LLP. All Rights Reserved. Trade Preferences Extension Act Penalties for incorrect information returns 7 Pre-20112011-2015After 2015 Standard penalty per failure$50$100$250 Discounted penalty for correction within 30 days $15$30$50 Discounted penalty for correction before Aug. 1 $30$60$100 Intentional disregard penalty$100$250$500 Annual maximum$250,000$1,500,000$3,000,000 Annual maximum if gross receipts $5 million or less $100,000$500,000$1,000,000 Double these amounts if the IRS and recipient copies are both incorrect

8. ©2015 RSM US LLP. All Rights Reserved. Budget bill Partnership changes Consistency requirement Partnership audits Partnership initiated changes 8

9. ©2015 RSM US LLP. All Rights Reserved. Budget bill Partnership consistency Each partner must file their return in accordance with the K-1 received or notify the IRS of any differences Penalties apply for inconsistent filing IRS can treat inconsistencies as “math errors” 9

10. ©2015 RSM US LLP. All Rights Reserved. Budget bill Partnership audits For 2017 and later year returns, new audit rules apply to all entities treated as partnerships with one exception Exception: partnerships with less than 100 direct or indirect partners can elect out if all the partners are − Individuals − Estates of deceased partners − C corporations − S corporations 10

11. ©2015 RSM US LLP. All Rights Reserved. Budget bill Partnership audits – new rules Audit adjustments will now be determined solely at the partnership level Partnerships must designate a partner (or other person) with sole authority for the audit The partnership is liable for any tax resulting from the audit, with the assumption that all partners are taxable at top rates, unless an election is made 11

12. ©2015 RSM US LLP. All Rights Reserved. Budget bill Election out of payment of taxes by partnership Partnerships can elect out of entity level taxation by issuing “adjusted” K-1 statements The partners pay the tax in the year they receive the adjusted K-1 – no prior year amended return Tax change is calculated as if the adjusted items were included in the adjusted year If audit results in overpayment of tax, the partnership must follow adjusted K-1 procedure – there are no partnership level refunds 12

13. ©2015 RSM US LLP. All Rights Reserved. Budget bill Partnership initiated amendments Same procedure applies to adjustments initiated by the partnership Effect: Prior year partnership returns can be adjusted without requiring each partner to file an amended return for the adjusted year Election: Partnerships can elect to pay any increase in tax at the partnership level, thereby avoiding the issuance of amended K-1s to partners 13

14. ©2015 RSM US LLP. All Rights Reserved. WHAT’S NEXT?

15. ©2015 RSM US LLP. All Rights Reserved. Remaining Congressional tax-related agenda items TAX EXTENDERS? 15

16. ©2015 RSM US LLP. All Rights Reserved. Tax extenders Over 50 tax provisions expired on Dec. 31, 2014 Plan: Extend all through 2016 Major business provisions: − Research and development (R&D) tax credit − Bonus depreciation − Section 179 ($500,000) − Subpart F active financing − S corporations (charitable deductions/built-in gains tax) Major individual provisions: − State and local sales tax deduction − IRA charitable contributions − Mass transit parity 16

17. ©2015 RSM US LLP. All Rights Reserved. Here’s the deal Tax extenders At some point Most likely through 2016 No tax reform Highway Trust Fund maybe 17

18. ©2015 RSM US LLP. All Rights Reserved. TAX REFORM: CHALLENGES, GOALS, PROSPECTS

19. ©2015 RSM US LLP. All Rights Reserved. Tax return 2015 tax revenue 19

20. ©2015 RSM US LLP. All Rights Reserved. Federal tax receipts Fiscal years 1950 – 2015 20 Tax type1950 % 1980 % 2015 Estimated % Change 1950 – 2015 Individual income4047466 Corporate income261311 Social insurance11303423 Excise1953 Estate and gift21>1 Other2464

21. ©2015 RSM US LLP. All Rights Reserved. TAX REFORM: CHALLENGES

22. ©2015 RSM US LLP. All Rights Reserved. 1.Deficit down 2.Medicare solvency up 3.Social Security solvency up 4.Unwillingness to compromise 5.Philosophy Revenue-neutral Revenue-raising Key Inhibitors Tax reform 22 Key Drivers 1.Economy and job growth 2.Business taxes 3.International tax structure 4.Complexity 5.Permanency 6.Legacy

23. ©2015 RSM US LLP. All Rights Reserved. TAX REFORM: KEY ISSUES

24. ©2015 RSM US LLP. All Rights Reserved. Tax reform Three main areas of focus 24 Corporate General consensus is that some tax expenditures should be eliminated in favor of lower rate International Republicans pushing for territorial system Democrats skeptical of territorial system over base erosion concerns Individual Republicans propose lowering top individual rate and eliminating tax expenditures Democrats oppose a lower top rate  Republicans: revenue-neutral  Democrats: revenue increase

25. ©2015 RSM US LLP. All Rights Reserved. Tax reform─Corporate Key issues Can the corporate rate be lowered enough to make losing tax expenditures worth it? What is the rate? What tax expenditures get eliminated? Will the full deductibility of certain business expenses be limited (e.g., interest and marketing expenses) Will large pass-through entities be taxed as corporations? 25

26. ©2015 RSM US LLP. All Rights Reserved. Mid-term exam The statutory corporate tax rate is 35 percent. However, according to the Tax Foundation and the IRS, the effective tax rates (taking into account tax preferences) of the mining industry, the manufacturing industry, and the accommodation and food services industries are each lower than the 35 percent statutory rate. Do you think they are each lower than... 1.32% 2.27% 3.22% 4.16% 26

27. ©2015 RSM US LLP. All Rights Reserved. But U.S. effective corporate tax rates are lower, and vary by industry 27

28. ©2015 RSM US LLP. All Rights Reserved. Challenge: The vast bulk of corporate tax preferences are used widely─not just by a small minority of businesses 28

29. ©2015 RSM US LLP. All Rights Reserved. Tax reform─Flow-throughs Key issues Am I included? If I am, is lowering the rate worth it? What is the rate? What tax expenditures get eliminated? 29

30. ©2015 RSM US LLP. All Rights Reserved. Tax reform─International Key issues Territorial versus worldwide system − Base erosion Taxation of existing foreign earnings U.S. corporate rate Taxation of income from innovation Note: Split in corporate community on rates versus international changes 30

31. ©2015 RSM US LLP. All Rights Reserved. TAX REFORM: WHAT WILL HAPPEN?

32. ©2015 RSM US LLP. All Rights Reserved. Final exam What do you think is the likelihood of tax reform passing in 2017? 100% 75% 50% 0 32

33. ©2015 RSM US LLP. All Rights Reserved. What will happen? ANSWER IT ALL DEPENDS ON THE 2016 ELECTION REALLY! 33

34. ©2015 RSM US LLP. All Rights Reserved. 34

35. ©2015 RSM US LLP. All Rights Reserved. RSM US LLP, an Iowa limited liability partnership, is doing business as McGladrey LLP in the state of North Carolina and is a CPA firm registered with the North Carolina State Board of Certified Public Accountants under the name McGladrey LLP. Rules permitting the use of RSM US LLP have been published in the North Carolina Register and are pending final approval. This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. RSM® and the RSM logo are registered trademarks of RSM International Association. The power of being understood® is a registered trademark of RSM US LLP. © 2015 RSM US LLP. All Rights Reserved. McGladrey LLP 1501 M Street NW Washington, DC 22102 +1 800 274 3978 www.rsmus.com