The Consolidated Appropriations Act, 2018, posted by the House on March 21, 2018, to fund the government through the remainder of the fiscal year (i.e. September 30, 2018) contains several tax provisions, including tax technical corrections for bills other than the Tax Cuts and Jobs Act (TCJA) and a fix for the Section 199A cooperative issue. Congress must approve the consolidated appropriations bill or a short-term continuing resolution to avoid a government shutdown after current government funding expires on March 23.

Defense and non-defense discretionary spending levels for FY 2018 had been decided in the February Bipartisan Budget Act of 2018, which extended government funding through March 23 while detailed appropriations were completed. The consolidated appropriations bill provides $1.3 trillion in discretionary funding for all 12 annual appropriations bills. A number of controversial issues were under discussion for the bill, pushing back the timeline for its release and raising questions over how Congress can process the measure before current funding runs out.

The bill also extends the authorization and funding for the FAA — expenditure authority from the Airport and Airway Trust fund and aviation taxes directed to the Airport and Airway Trust Fund — through September 30, 2018, and includes more than $21 billion for infrastructure projects, including transportation, energy, water, and cyber. Thus, Congress will have to pass additional FAA legislation on or before September 30th. This could serve as a possible vehicle for tax provisions not included in this omnibus appropriations bill.

The consolidated appropriations bill addresses the TCJA's more favorable treatment of sales by farmers to cooperatives than sales to grain operators that are not cooperatives, which has been the subject of concern of many members. Under the Section 199A 20% deduction for pass-through business income, farmers can apply the deduction against the gross income from sales to cooperatives, but can only apply the deduction against net income from sales to non-cooperatives.

According to a Senate Finance Committee Democratic staff summary (attached), under the consolidated appropriations language:

— Farmers selling their products to independent buyers would continue to determine their deduction based net income

— Agricultural cooperatives would determine their deduction based on rules similar to the old section 199 (effectively equal to 9% of gross agricultural sales), which the cooperatives can pass through to their farmer patrons

— Farmers selling products to agricultural cooperatives would be allowed a combination of deductions based on (1) their modified net business income, and (2) the amount of the deduction passed-through from the cooperative

In addition, the proposal reinstates certain wage, capital, and trade or business limitations on the deduction amount.

In what was reported to be a demand of Democrats in exchange for supporting inclusion of the cooperative language, the consolidated appropriations bill includes provisions related to the Low-Income Housing Tax Credit. The bill would increase the annual per capita Housing Credit allocation for the states and the small state minimum by 12.5% for 2018, 2019, 2020, and 2021, and would create a new income eligibility test for housing credit apartments.

The consolidated appropriations bill would not provide tax technical corrections for the TCJA, but would provide various corrections for the:

— Protecting Americans from Tax Hikes Act of 2015;
— Consolidated Appropriations Act, 2016
— Fixing America's Surface Transportation Act of 2015
— Surface Transportation and Veterans Health Care Choice Improvement Act of 2015
— Stephen Beck, Jr., ABLE Act of 2014
— American Taxpayer Relief Act of 2012
— United States-Korea Free Trade Agreement Implementation Act
— SAFETEA-LU 2005 surface transportation bill
— American Jobs Creation Act of 2004
— Bipartisan Budget Act of 2015
— Energy Policy Act of 2005

In addition, the bill includes an extensive set of technical corrections related to the partnership audit rules, addressing issues that include: — Scope of adjustments subject to partnership audit rules
— Determination of imputed underpayments
— Alternative procedure to filing amended returns for purposes of modifying imputed underpayment
— Treatment of passthrough partners in tiered structures
— Treatment of failure of partnership to pay imputed underpayment

IRS funding. Of the $11.4 billion appropriated for the IRS for fiscal year 2018 under the bill, $320 million must be used for implementation of tax reform. The bill also continues language that prohibits the Department from finalizing any regulation related to the standards used to determine the tax-exempt status of a 501(c)(4) organization.

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ATTACHMENT

Summary of Omni Tax Provisions