The Democratic and Republican nominating conventions triggered an early recess for Congress. Before recessing, the House voted to undo part of the Affordable Care Act (ACA) and approved a reduced budget for the Internal Revenue Service (IRS). Leading tax writers in the Senate addressed tax-related identity theft and home buying incentives. Key legislation initiatives include:

  1. ACA
    Before passage of the ACA, taxpayers could use health flexible spending arrangement (health FSA) dollars to pay for over-the-counter medications. The ACA abolished this treatment, leaving health FSA funds for the purchase prescribed medications with some exceptions. Regularly, bills have been introduced in Congress to go back to the pre-ACA rules for health FSAs but the bills have failed to pass.
    This year was different. The House approved in July the Restoring Access to Medication and Improving Health Savings Bill of 2016. The bill would repeal the prohibition on using health FSA dollars to pay for over-the-counter medication. Repeal would apply to qualified expenditures incurred after December 31, 2016. The Senate did not take up the bill before recessing.
  2. Tax-Related Identity Theft
    Tax-related identity theft continues to plague the IRS. The agency has spent significant sums on identifying false returns before fraudulent refunds are paid. In July, Sen. Orrin Hatch, R-Utah, chair of the Senate Finance Committee (SFC), introduced the Stolen Identity Refund Fraud Prevention Bill. The bill would provide guidelines for the IRS in handling stolen identity refund fraud cases and would increase the criminal penalty for tax-related identity theft.
  3. Homebuyers
    Hatch’s colleague on the SFC, Sen. Ron Wyden, D-Oregon, has introduced a bill to create a first-time homebuyer tax credit bill. Several years ago, Congress passed a similar bill to encourage home sales. Wyden’s bill would reward qualified first-time homebuyers with a refundable credit. The credit would phase-out for higher income taxpayers.
  4. IRS budget
    The IRS’s operating budget continues to be a source of friction in Congress. President Obama and Congressional Democrats have called for increased funding for the agency for Fiscal Year (FY) 2017. Congressional Republicans have proposed budget cuts to bring about greater efficiency at the agency. The House approved in July a $10.9 billion IRS budget for FY 2017, more than $1 billion below President Obama’s proposal. The Senate, however, did not take up the IRS’s budget before recessing, although members of the Senate Appropriations Committee proposed keeping the agency’s FY 2017 budget at current levels. In recent years, lawmakers have waited till year-end to approve a budget for the IRS and they may do the same this year, possibly in a year-end tax bill.

If you have any questions about these bills or other tax legislation, please contact Doeren Mayhew’s tax advisors.