This week (April 11-15)

Congress: The House and Senate are in session. A focus on tax issues is expected ahead of the April 18 individual income tax filing deadline.

FAA bill: The Senate will continue consideration of a bill (H.R. 636) to reauthorize the Federal Aviation Administration (FAA) through September 30, 2017. A tax title is expected to be added to the bill that, as one of the only revenue bills with any urgency to come before Congress this year, is being eyed as a vehicle for provisions unrelated to aviation. These include renewable energy provisions inadvertently left out of the 2015 year-end tax bill, which include tax code Section 48 credits for geothermal heat pump property, small wind property, combined heat and power property, and qualified fuel cell and stationary microturbine power plant property. There may be efforts to attach other tax provisions outside of the scope of renewable energy. FAA programs and revenue provisions are currently in effect through July 15, 2016.

Lew at CFR: On April 11 (at 8:30 a.m.), Secretary Lew will participate in a Council on Foreign Relations event, "The Case for U.S. Economic Leadership: A Conversation with Jacob J. Lew."

Finance cybersecurity hearing: On April 12 (at 10 a.m.), the Senate Finance Committee will hold a hearing to examine how the IRS is safeguarding private taxpayer information and determine what improvements may be necessary for the agency to fully protect taxpayers from cybercriminals. Witnesses:

— IRS Commissioner John Koskinen, Washington, DC

— Terence V. Milholland, Chief Technology Officer, IRS, Washington, DC

— The Honorable J. Russell George, Treasury Inspector General for Tax Administration,

United States Department of the Treasury, Washington, DC

— Michael McKenney, Deputy Inspector General for Audit, Treasury Inspector General for Tax Administration, United States Department of the Treasury, Washington, DC

— The Honorable Gene L. Dodaro, Comptroller General of the United States, United States Government Accountability Office, Washington , DC

— Gregory C. Wilshusen, Director, Information Security Issues, United States Government Accountability Office, Washington, DC

Ways and Means hearings: On April 13 (at 3:30 p.m.), the House Ways and Means Tax Policy Subcommittee will hold a hearing on Member proposals relating to fundamental reform of the income tax system. It follows a Members' Day hearing last month on consumption tax proposals.

On April 14 (at 10 a.m.), the full Ways and Means Committee will hold a hearing on "The Tax Treatment of Health Care."

House Small Business hearings: On April 13, the House Small Business Committee will hold a pair of tax hearings. At 2 p.m., the Committee will hold a hearing titled, "Keep It Simple: Small Business Tax Simplification and Reform, the Commissioner Responds," featuring Commissioner Koskinen. Earlier, at 11 a.m., the Subcommittee on Economic Growth, Tax and Capital Access will hold a hearing titled, "Keep It Simple: Small Business Tax Simplification and Reform, Main Street Speaks."

Witnesses for the Subcommittee hearing are:

— Troy K. Lewis, Managing Member, Lewis & Associates, CPAs, LLC, Draper, UT, testifying on behalf of the American Institute of CPAs and the Mobile Workforce Coalition

— Mel Schwarz, Partner and Director of Tax Legislative Affairs, Grant Thornton LLP, Washington, DC

— Robert M. Russell, Attorney — International Tax Controversy, Planning and Policy, Alliantgroup, Washington, DC

— Julie Verratti, Director of Business Development/Founder, Denizens Brewing, Silver Spring, MD

Last week (April 4-8)

Update of President's Framework: In conjunction with the rollout of anti-inversion guidance April 4, the Treasury Department released an update of The President's Framework for Business Tax Reform that highlights inversions as a "prominent symptom of a broken tax system" and reflects changes in the law and Administration proposals since the document was first released in 2012. These include a 19% minimum tax on foreign earnings and a mandatory one-time 14% tax on CFCs' previously untaxed earnings as a transition to a reformed international tax system. Consistent with comments by Administration officials, the updated Framework is critical of the innovation box concept and also asserts that temporary revenue from mandatory repatriation should not be applied toward a reduction in the corporate rate. Echoing comments from House Democrats, the Framework also says the tax provisions enacted in December 2015 should be paid for. The Framework continues to call for cutting the corporate tax rate to 28% (25% for manufacturing income) to be paid for through base broadening, changes to depreciation schedules, and changes to reduce the bias in the law toward debt financing.

Anti-inversion, earnings stripping regulations: On April 4, Treasury issued final, temporary (TD 9761) and proposed (REG-135734-14) regulations modifying the application of Sections 7874 and 367 to inversion transactions and limiting the US tax benefits of certain post-inversion planning; and Section 385 proposed regulations (REG-108060-15) that would, among other changes, treat certain related-party corporate interests as stock, rather than debt, for federal tax purposes. The inversion-specific guidance adopts with some modifications rules described in the 2014 and 2015 notices on inversions, and includes new rules such as excluding, for purposes of calculating the ownership percentage under Section 7874, stock of the foreign company attributable to assets acquired from an American company within three years prior to the signing date of the latest acquisition. "Some companies are serial inverters … Today's action takes away a significant amount of the tax benefits of these serial inversions," Treasury Secretary Jack Lew said. The Section 385 guidance"makes it more difficult for foreign-parented groups to quickly load up their [US] subsidiaries with related-party debt following an inversion or foreign takeover, by treating as stock the instruments issued to a related corporation in a dividend or a limited class of economically similar transactions," Treasury said in a fact sheet. EY Alerts 2016-0630 and 2016-0632 have additional details.

Reaction to Treasury guidance: The release of the substantial regulation package reinvigorated the debate over the best approach to addressing the wave of inversions in recent years. The Administration and Democrats in Congress maintain that business tax reform is the best approach, but that Congress should address inversions directly while working toward tax reform legislation. In a rare appearance at the regular White House press briefing April 5 to highlight the regulations, President Obama said, "While the Treasury Department actions will make it more difficult and less lucrative for companies to exploit this particular corporate inversions loophole, only Congress can close it for good, and only Congress can make sure that all the other loopholes that are being taken advantage of are closed." Senate Finance Committee Ranking Member Ron Wyden (D-OR) issued a statement saying, "Treasury's actions today to address the inversion virus are another step in the right direction, but only Congress can cure the disease. I'm working on a proposal that cracks down on inversions and tax games as we work towards a broader cure." Republicans continue to say tax reform is the only approach. "While I will carefully scrutinize this latest proposal from the [A]dministration, if we want to make our tax system globally competitive, we need a strong partner in the White House that is more interested in creating real bipartisan results to address the disease of inversions than issuing unilateral band-aids that only attempt to alleviate the symptoms," said Finance Committee Chairman Orrin Hatch (R-UT) . House Ways and Means Committee Chairman Kevin Brady (R-TX) said the regulations "will make it even harder for American companies to compete and will further discourage businesses from locating and investing in the United States." Tax Policy Subcommittee Chairman Charles Boustany (R-LA) questioned the legality of Treasury's action, saying, "Even after Secretary Lew's admission that Treasury has no authority to stop inversions on its own, this Administration has reverted to its default stance: attempting to make law by executive action. Our country doesn't need more regulation."

'Panama Papers': In his April 5 remarks, President Obama also said that, "in the news over the last couple of days, we've had another reminder in this big dump of data coming out of Panama that tax avoidance is a big, global problem." Referring to the so-called "Panama Papers" detailing the use of shell companies for tax avoidance, the President said, "It's not unique to other countries because, frankly, there are folks here in America who are taking advantage of the same stuff. A lot of it is legal, but that's exactly the problem. It's not that they're breaking the laws, it's that the laws are so poorly designed that they allow people, if they've got enough lawyers and enough accountants, to wiggle out of responsibilities that ordinary citizens are having to abide by." Senator Wyden, who has asked Treasury to act to stop abuses by anonymous shell companies, told reporters April 8 that he is opening an investigation into tax evasion based on the leak of the documents. "The disclosures coming out of Panama shine a light on a core problem both here and overseas which is abuse by these anonymous shell companies," he said in a statement. Treasury wrote to Wyden a day earlier saying, in part, that they want to work with Congress on an ownership disclosure requirement and are working to finalize rules on customer due diligence obligations of financial institutions. Senators Sherrod Brown (D-OH), a member of the Finance Committee, and Elizabeth Warren (D-MA) wrote to Lew April 7 urging Treasury to investigate whether US or US-linked entities were involved with the Panamanian firm whose records were leaked.

Quote of the Week

"Rather than protect wasteful tax loopholes for the few at the top, we should be investing more in things like education and job creation and job training that we know grow the economy for everybody. And rather than lock in tax breaks for millionaires, or make it harder to actually enforce existing laws, let's give tax breaks to help working families pay for child care or for college. And let's stop rewarding companies that are shipping jobs overseas and profit overseas, and start rewarding companies that create jobs right here at home and are good corporate citizens. That's how we're going to build America together. That's how we battled back from this Great Recession. That's the story of these past seven years. That can be the story for the next several decades if we make the right decisions right now. And so I hope this topic ends up being introduced into the broader political debate that we're going to be having leading up to election season." — President Obama, April 5

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