Associated Equipment Distributors

AED Urges IRS to Clarify Obamacare Rental Income Tax

On March 3, AED submitted comments urging the Internal Revenue Service (IRS) to provide an exception to the Affordable Care Act’s 3.8 percent Medicare tax (Sec. 1411 of the Internal Revenue Code) for equipment rental income earned by taxpayers actively participating in an equipment distribution trade or business.

In its comments to an IRS notice of proposed rulemaking regarding Sec. 1411, the association made clear that equipment distributors are victims of unintended consequences and the provision was never intended to ensnare companies engaged in equipment rental as part of their everyday business. The letter states, “Due to the complexity of the tax code and related regulations, companies that rent equipment have fallen into a trap and will be forced to pay a tax that was not meant for them.”

AED, working closely with the American Rental Association, has been ringing alarm bells about the issue for more than a year. In creating the new tax, Congress sought to limit its applicability to a select group of individuals (those deriving income from passive activities and financial traders). Congress did not intend the law to apply to companies like equipment distributors.

In a letter to Treasury Secretary Jack Lew sent Dec. 2, Reps. Peter Roskam (R-Ill.) and Danny Davis (D-Ill.) said that Congress intended this new 3.8 percent tax to apply to unearned income from investment activity, such as capital gains and dividends. In its response to Reps. Roskam and Davis, Treasury urged industry to submit comments as it considers fixture guidance to implement Sec. 1411.

Unfortunately, with tax season heating up, the issue is unlikely to be resolved in the immediate-term despite the tax affecting  the 2013 tax year. Stay tuned to AED for breaking developments on the passive income issue.