24 th Annual Health Sciences Tax Conference

Transcription

1 24 th Annual Health Sciences Tax Conference December 10, 2014

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the U.S. This presentation is 2014 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of U.S. and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2

3 Presenters Gary Gasper Ernst & Young LLP Washington, DC Helen Morrison Ernst & Young LLP Washington, DC Page 3

4 2014 Senate elections Seats up for reelection: 21 Democratic, 15 Republican Democrats Mark Begich (AK) Cory Booker (NJ) Chris Coons (DE) Richard Durbin (IL) Al Franken (MN) Kay Hagan (NC) Tom Harkin (IA)* Tim Johnson (SD)* Mary Landrieu (LA) Carl Levin (MI)* * Did not run for reelection Won election or seat retained by party Lost election or seat won by other party Undecided Ed Markey (MA) Jeff Merkley (OR) Mark Pryor (AR) Jack Reed (RI) Jay Rockefeller (WV)* Jeanne Shaheen (NH) Brian Schatz (HI) Mark Udall (CO) Tom Udall (NM) John Walsh (MT)* Mark Warner (VA) Republicans Lamar Alexander (TN) Saxby Chambliss (GA)* Tom Coburn (OK)* Thad Cochran (MS) Susan Collins (ME) John Cornyn (TX) Mike Enzi (WY) Lindsey Graham (SC) James Inhofe (OK) Mike Johanns (NE)* Mitch McConnell (KY) Jim Risch (ID) Pat Roberts (KS) Tim Scott (SC) Jeff Sessions (AL) Page 4

5 2014 election results 113 th Congress, th Congress, 2015 Senate 55 Democrats* 45 Republicans Senate 53 Republicans 46 Democrats * 1 Undecided Undecided: Louisiana House 233 Republicans 199 Democrats House 244 Republicans 184 Democrats Three vacancies: New Jersey, North Carolina, Virginia 7 undecided races (* Includes two Independents) Page 5

6 Tax committee landscape: Senate Finance Committee Current Chairman: Ron Wyden (D-OR) Assumed chairmanship from Sen. Baucus Has a history of partnering with Republicans on tax reform bills Judd Gregg (R-NH), Dan Coats (R-IN) Expected incoming Chairman: Orrin Hatch (R-UT) In the Senate since 1977, top Republican on Finance since 2011 Committee ratio: 13 Democrats, 11 Republicans In new Congress, if flip ratio: Dems lose two (Rockefeller Retired; Warner ) GOP gains two (Blunt, Coats, Heller?) Page 6

7 Tax committee landscape: House Ways and Means Committee Chairman: Dave Camp (R-MI), retiring New Chairman: Paul Ryan (R-WI), current Budget Committee Chairman, 2012 Republican VP nominee Ranking member: Sandy Levin (D-MI) In Congress since 1983, top Democrat on Ways and Means since 2010 New committee ratio: 24 Republicans, 15 Democrats New GOP members: Reps. Kristi Noem (R-SD), Patrick Meehan (R-PA), George Holding (R-NC) and Jason Smith (R-MO) Page 7

8 Congressional timeline November 4, 2014 Midterm elections November 12 House, Senate to return for lame-duck session December 11 Government funding expires Internet Tax Freedom Act moratorium expires March 15, 2015 Debt limit suspension ends March 31 Medicare doc fix expires May 31 Highway funding authorization expires June 30 Export-import bank charter expires Agenda for lame-duck session Tax extenders Government funding Internet tax moratorium, possibly with online sales tax bill Debate over Islamic State militants in Iraq and Syria Terrorism Risk Insurance Act Inversions? Page 8

9 55 Tax Provisions expired on 12/31/2013 Select list Source: JCX Provision Business Research and development (R&D) credit Active financing exception 15-year straight-line cost recovery for qualified leasehold, restaurant and retail improvements Bonus depreciation Controlled foreign corporation (CFC) look-through rule New markets tax credit Incentives for biodiesel, renewable diesel Tax credits for alternative fuels Individual Deduction for state, local sales taxes Tax-free Individual Retirement Account (IRA) distributions to charity 10-year cost $15 billion $10 billion $5 billion $3 billion $2.5 billion $2 billion $2.5 billion $1 billion $6.5 billion $2 billion Page 9

10 Tax extenders: Senate Finance Committee approved extenders package April 3 Retroactive two-year extension (2014, 2015) of most provisions that expired at the end of 2013 Two provisions dropped from traditional package: Credit for energy efficient appliances Expensing of refinery property Full Senate tried to vote in May; amendments are an issue An open process could yield many controversial amendments So far, no offsets or tax increases I know every Senator here would rather be marking up a broad-based plan to grow our entire economy [T]his will be the last tax extenders bill the committee takes up as long as I m chairman. Chairman Wyden, 04/03/14 Page 10

11 Tax extenders: House Chairman Camp, who is retiring, has focused on tax reform and is resistant to short-term extenders package Committee going policy by policy (provision by provision) Determine which should be made permanent or eliminated Establishes negotiating position with Senate and in baseline Process began with April 8 hearing on business tax provisions R&D credit, active financing exception, CFC look-through Free-standing, separate bills processed in committee and then by full House These policies must still be evaluated in the context of pro-growth tax reform and how making those permanent will help grow the economy, simplify the tax code and lower tax rates. Chairman Camp, 04/08/14 Page 11

12 Potential outcomes on extenders Two-year (retroactive) extension plus some permanent extensions (combination of Senate and House bills) Two-year (retroactive) extension with no permanent extensions (Senate bill) One-year extension For 2014 retroactive only For 2015 prospective only No action taken in lame-duck session Action pushed into 2015 What is in and what is out? Page 12

13 Implications of King v. Burwell If Supreme Court rules that premium tax credits are available only to residents of states that established an exchange Health insurance issuers Individuals Employers Potential administrative action What federal action is available to provide relief to states and individuals? How will states react? Potential legislative action Key questions Will the political environment allow for legislative remedies? Would legislative changes be limited or does this open the door to substantial Medicare and Affordable Care Act (ACA) tax changes? Key ACA provisions that could be considered Eliminating or substantially changing the employer and individual mandates Repealing the medical device excise tax Strengthening wellness incentives and treatment for purposes of minimum value and affordability Page 13

14 Three main buckets of tax reform Corporate General consensus that many tax expenditures should be eliminated in favor of lower rate Republicans target 25% Democrats aim for 28% International Republicans pushing for territorial system Democrats skeptical of territorial system over base erosion and job migration concerns Republicans support antibase erosion provisions Individual Republicans propose lowering top individual rate to 25%; only one other bracket of 10% Rescinding individual tax expenditures among most politically risky elements of tax reform Issues Will each bucket be revenue neutral? Can the corporate rate be lowered enough to make losing tax expenditures worth it? Must additional revenue raisers be found to lower the corporate rate sufficiently? Can reform be limited to corporate and international? Page 14

15 What does it take to release a tax reform plan? 3 years in the making 30 hearings 11 bipartisan working groups 14,000 public comments 4-stop 2013 tour with Baucus Green light from GOP leadership 3 discussion drafts 979 pages of statutory language 200-plus current provisions eliminated Page 15

16 Overview of Chairman Camp s proposal Designed to be: Revenue neutral Distributionally neutral Lowers corporate and individual income tax rates 25% top corporate rate (phased-in over five years) 10% and 25% individual rates, with a 10-percentage point surtax imposed on high-income individuals Eliminates individual and corporate Alternative Minimum Tax (AMT) (credits refundable) Modifies or eliminates over 200 current tax expenditures, such as: Accelerated depreciation; phases-out Sec. 199 deduction Deductions for research, advertising expenses Last-in-first-out (LIFO) inventory method, like-kind exchanges Individual deduction for state and local taxes Page 16

17 Information reporting rules: Sections 6055 and 6056 Section 6055 Section 6056 Provide report to individuals and Internal Revenue Service (IRS) with evidence of minimum essential coverage; used by IRS to administer individual mandate Insurance providers, government agencies, multiemployer plans, employers that sponsor self-insured plans Employer- and employee-specific data such as name, address, Taxpayer Identification Number (TIN) for individuals covered by minimum essential coverage Each month during which individual is covered January 31 reports to employees March 31 report to IRS Provide report to individuals and IRS with evidence of offer of coverage; used by IRS to administer employer mandate, excise taxes and premium tax credit Large employers subject to ACA Employer identifying information Identifying information for all fulltime employees Plan data including employee cost, time offered, etc on a monthby-month basis January 31 reports to employees March 31 report to IRS New Forms 1094-B (combined 6055/6056 reporting) and 1095-B New Forms 1094-C (combined 6055/6056 reporting) and 1095-C Page 17

18 Premiums are expected to grow faster than the excise tax threshold $60,000 Projected single and family premiums versus projected excise tax thresholds $53,399 $50,000 $40,000 $30,000 $20,000 $10,000 $0 $16,000 $5,400 $27,500 $10,200 Median single plan premium Single plan excise tax threshold Median family plan premium $41,558 Family plan excise tax threshold $18,022 $15, Source: Ernst & Young LLP projections based on premiums from Medical Expenditure Panel Survey-Insurance Component (AHRQ), 2013, with growth rates based on Congressional Budget Office and Centers for Medicaid & Medicare Services (CMS) Office of the Actuary forecasts Page 18

19 Premium differences by industry 110% Projected average 2025 premiums as a percent of excise tax threshold 100% 90% 80% 70% 60% 50% Single Family Source: Ernst & Young LLP projections based on Medical Expenditure Panel Survey-Insurance Component (AHRQ), 2013, with growth rates based on Congressional Budget Office and CMS Office of the Actuary forecasts Page 19

20 Premium differences by geographic area 110% Projected average 2025 premium as a percent of excise tax threshold 105% 100% 95% 90% 85% Single Family 80% 75% TN NC MI AZ GA FL TX VA CA PA OH WA IL IN NY NJ MA State Source: Ernst & Young LLP projections based on Medical Expenditure Panel Survey-Insurance Component (AHRQ), 2013, with growth rates based on Congressional Budget Office and CMS Office of the Actuary forecasts Page 20

21 Premium differences by geographic area for manufacturing industry 120% 115% 110% 105% 100% 95% 90% 85% 80% 75% 70% Projected average 2025 premium as a percent of excise tax threshold for Manufacturing NC WA TX TN OH MI GA PA AZ CA VA NY FL MA IL IN NJ State Single Family Source: Ernst & Young LLP projections based on Medical Expenditure Panel Survey-Insurance Component (AHRQ), 2013, with growth rates based on Congressional Budget Office and CMS Office of the Actuary forecasts Page 21

22 Questions? Page 22

23 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved