The Senate Finance Committee on November 16, 2017, passed its version of the Tax Cuts and Jobs Act (TCJA) by a party-line vote of 14-12 after adopting a manager's amendment by Chairman Orrin Hatch (R-UT) (see Attachment) that addresses various issues. The vote follows House passage of its version of the TCJA earlier that day.

Key business provisions in the Senate Finance Committee version, some of which were modified by the manager's amendment, include:

— Permanently reducing the 35% corporate income tax rate to 20% beginning in 2019 (versus 2018 in the House bill) and repealing the corporate alternative minimum tax (AMT), beginning in 2018 (same as the House bill)

— Modifying the current worldwide taxation system to exempt dividends paid by foreign subsidiaries from foreign earnings from US tax

— Imposing a one-time 10% transition tax on deferred foreign earnings, reduced to 5% for illiquid assets (the House Bill proposes 14% and 7%, respectively)

— Imposing a new base erosion minimum tax that would be calculated by reference to all deductible payments made to a foreign affiliate for the year and apply to certain US corporations with average annual gross receipts of $500 million or more over three years

— Creating an incentive for US companies to sell goods and provide services abroad by effectively taxing income from those activities at 12.5%

— Allowing US companies generally to repatriate their intangible property tax-free

— Repealing the DISC and IC-DISC regimes

— Allowing businesses to expense the cost of certain property placed in service after September 27, 2017, and before January 1, 2023

— Limiting net interest deductions to the greater of 30% of "adjusted taxable income" excluding depreciation, amortization and depletion (does not apply to certain regulated public utilities and electric cooperatives) or the excess of US debt over 110% of proportionate worldwide group debt

— Limiting NOL deduction usage to 80% of taxable income for losses arising in tax years beginning after 2022, eliminating NOL carrybacks and allowing indefinite carryforwards (does not address whether NOL carryforwards would increase by an interest factor as proposed in the House Bill)

— Eliminating various deductions and credits, such as the Section 199 domestic production deduction

— Allowing certain pass-through business owners to deduct 17.4% of "domestic qualified business income" (House bill would limit the tax rate applied to a portion of a pass-through entity's business income to 25%)

— Expanding the $1 million deduction limit on compensation paid to certain top executives of publicly traded companies to include compensation paid to the CFO, as well as deferred compensation paid to individuals who previously held those top-level positions (does not apply to remuneration under a written binding contract that was in effect on November 2, 2017, and was not materially modified thereafter)

— Imposing a three-year holding period requirement for qualification as long-term capital gain with respect to certain partnership interests received in connection with the performance of services (similar to the House bill)

Key individual taxpayer provisions in the Senate bill, some of which were modified by the manager's amendment, include:

— Modifying the current seven income tax brackets for individual taxpayers to rates of 10, 12, 22, 24, 32, 35 and 38.5, but scheduling them to expire after 2025 (the House would replace the current rates with four permanent rates of 12%, 25%, 35% and 39.6%)

— Repealing the individual AMT

— Repealing the "individual mandate" under the Affordable Care Act, which requires individuals to purchase health insurance or pay a tax

— Retaining the current deduction for interest on mortgages of $1 million or less, (limited to interest on new home mortgages of $500,000 or less under the House bill)

— Eliminating the individual itemized deduction for state and local taxes (limited to $10,000 in property taxes under the House bill)

— Retaining the estate tax, which the House would repeal in 2025, but doubling the exclusion and adjusting it for inflation

The Senate version does not alter the current tax treatment of nonqualified deferred compensation. It also retains the work opportunity credit, among other things.

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ATTACHMENT

Hatch Modifications