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Spotlight

Congress returned to Washington for a lame duck session this week following the November elections, with an agenda that is likely to be diminished given the election outcome. The main priority during the session is expected to be a continuing resolution to extend government funding, which will expire on 9 December. Some tax legislation is possible during the short session, including a technical tax corrections bill which is currently being refined, although chances of tax extenders legislation before Congress adjourns in mid-December are diminishing.

The major buzz in Washington, however, is the greatly increased prospects for enactment of comprehensive US tax reform. President-elect Donald Trump has confirmed that the base-broadening, rate-lowering tax reform he proposed during the campaign is a top priority. Following a meeting with the President-elect, House Speaker Paul Ryan (R-WI) also said that he and the future president are "on the same page on reforming the tax code."

The House Republican Blueprint released 24 June, and its overlap with candidate Trump's proposals, will become the focal point for tax changes. During the campaign, Trump's plan proposed a 15% corporate tax rate and 15% pass-through rate, House Republicans proposed a 20% corporate tax rate, and a 25% rate for pass-through entities.

House Ways and Means Committee Chairman Kevin Brady (R-TX) reportedly will be focusing the rest of the year on preparing for a tax reform bill in 2017. The Chairman this week also reconfirmed his commitment to enacting revenue neutral tax reform. As for a timeline, Chairman Brady was quoted as saying that tax reform legislative language will be introduced when there is a unified Republican government.

Earlier in the week, a government official confirmed that notwithstanding the election, the Obama Administration will continue issuing regulations that are close to completion but suggested new guidance will wait for the new administration. The official added that the incoming Trump Administration could amend the Treasury / IRS priority guidance plan.

Topping the agenda, a Treasury official was quoted as saying the government will not allow the temporary passive foreign investment company regulations (which sunset 30 December 2016) or the 2014 temporary Section 7874 inversion regulations relating to surrogates (which sunset on 13 January 2017) to expire before they are finalized.

Other international regulatory projects on the front burner include finalization of the Section 367(d) foreign goodwill and going concern regulations, regulations under Section 721(c) covering transfers to partnerships with foreign partners, regulations under Section 901(m) on covered asset acquisitions, and final regulations under Section 987. Rounding out the government's list of priorities are regulations under Section 6038A for foreign-owned disregarded entity reporting.

And, a Treasury official this week said the government is working to develop a method that would allow funds to prove that more than 50% of their interests are beneficially owned by US residents, thereby making the funds eligible for tax treaty benefits. The problem is an increasing number of treaty countries are denying benefits to US investment vehicles such as mutual funds, private equity funds and hedge funds and over-withholding. The countries are taking the position that the funds are not qualified residents for tax treaty purposes.