April 8, 2018
EY Center for Tax Policy: This Week in Tax Policy News for April 6
This week (April 9-13)
Congress: The House and Senate are back in session. The Senate may consider judicial nominations as well as well as nominations for Labor and EPA officials. The House may vote on a balanced budget amendment.
CBO outlook: The Congressional Budget Office (CBO) will release its annual Budget and Economic Outlook on April 9. CBO previously announced the release of this year's report was delayed to incorporate the effects of recently enacted major legislation.
Ways & Means hearing: On April 12 (at 10:00 a.m.), the House Ways and Means Committee will hold a hearing on the effects of tariff increases on the US economy and jobs.
Finance hearing: On April 12 (at 10 a.m.), the Senate Finance Committee will hold a hearing on the 2018 Tax Filing Season and Future IRS Challenges. Assistant Treasury Secretary for Tax Policy and Acting IRS Commissioner David Kautter is the sole witness. "The hearing will focus on making certain the agency is well staffed and has the technology it needs to serve taxpayers, reduce fraud and keep taxpayer information secure," Chairman Orrin Hatch (R-UT) said.
TPC event: On April 9 (at 9:30 a.m.), the Urban-Brookings Tax Policy Center will host an event, "The Tax Cuts and Jobs Act: Tax Administration Challenges." Speakers include:
— William Gale, Co-Director, Urban-Brookings Tax Policy Center
Last week (April 2-6)
Touting tax bill: President Trump and House Speaker Paul Ryan (R-WI) both participated in events highlighting the Tax Cuts and Jobs Act (TCJA) this week. The President's remarks during what was billed as a Roundtable Discussion on Tax Reform in West Virginia April 5 were wide-ranging and veered into immigration issues, and he dispensed with prepared remarks on taxes as "boring." Still, President Trump said of 100% expensing under the TCJA, which is phased down after 2022 and expires in 2026, "I think it's going to be the greatest benefit in the whole bill." Speaker Ryan addressed Southwest Airlines employees in Dallas April 2, saying the tax bill was an effort to put a strong foundation on the US economy, which means "more jobs, higher wages, more competitive, resilient businesses that don't go through boom-and-bust cycles." CNBC reported April 5 that House Republicans could soon bring to a vote a bill to make permanent individual tax rate reductions, which expire in 2025, and 100% expensing. One possibility is for the vote to occur on April 17, the individual tax filing deadline. Such a bill would not likely pass the Senate, where Democratic support would be needed, but the effort could help keep attention on tax policy ahead of the midterm elections amid trade developments and other issues. The President and congressional Republicans have previously expressed a desire to pursue a "Phase 2" tax cut bill.
TCJA guidance: The IRS issued a spate of guidance related to the TCJA. Notice 2018-26 described regulations IRS intends to issue in connection with the Section 965 transition tax, including: (1) anti-avoidance rules for certain transactions, accounting method changes and elections that occurred (or were made) on or after November 2, 2017; (2) guidance on certain elections; and (3) procedures on reporting and paying the tax. The Notice also included relief from certain estimated tax requirements and penalties resulting from the transition tax and TCJA changes to the stock attribution rules. Notice 2018-28 described regulations IRS intends to issue addressing the calculation of the Section 163(j) business interest expense deduction limitation at the level of a consolidated group of corporations and other rules to clarify aspects of the law as it applies to corporations. The Notice also clarified the treatment of interest disallowed and carried forward under Section 163(j) prior to TCJA enactment and made clear that partners in partnerships and S corporation shareholders cannot interpret Section 163(j) to inappropriately "double count" the business interest income of a partnership or S corporation. Notice 2018-29 announced that the IRS and Treasury intend to issue regulations on how to qualify for exemptions from withholding on the transfer of non-publicly traded partnership interests.
Tariffs: The USTR April 3 published a proposed list of 1,300 imports that could be subject to a 25% tariff pursuant to the Section 301 investigation of China's trade practices that include theft of intellectual property. USTR said the products were selected to achieve the lowest consumer impact — clothes and toys were omitted — but there are still concerns about the effects on US manufacturing. The tariffs total approximately $50 billion annually, which USTR said "is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China's harmful acts, policies, and practices." Comments on the proposed list of products are due to USTR May 11 and a hearing will be held May 15. Larry Kudlow, the newly installed National Economic Council Director, suggested on Fox News April 4 that the trade moves were part of a negotiating process, saying, "I think we're going to come to agreements … I believe that the Chinese will back down and will play ball." However, tensions continued to escalate rather than subside as China published its own list of $50 billion of tariffs on US agricultural goods and other products, and President Trump reacted by threatening an additional $100 billion in tariffs on Chinese goods. Treasury Secretary Steven Mnuchin said on CNBC April 6 that he is "cautiously optimistic" things will be worked out with China, but acknowledged "there is a level of risk that we could get into a trade war."
Members of Congress have expressed concerns about the effects of the Administration's tariffs on their constituent businesses, particularly agricultural interests seen as particularly vulnerable to retaliation. The Louisville Courier Journal April 3 reported Senate Majority Leader Mitch McConnell (R-KY) as saying, "I'm not a fan of tariffs, and I am nervous about what appears to be a growing trend in the administration to levy tariffs." McConnell said he hopes the tariff situation ends before it becomes a "broader tit-for-tat that can't be good for our country," and expressed concern on behalf of his constituent farmers. "I am nervous about getting into trade wars and I hope this doesn't go too far," he said. Senator Ben Sasse (R-NE) said April 5 that the President is "threatening to light American agriculture on fire."
OECD review of TCJA: The OECD was set to begin April 4 its review of TCJA provisions, including the base erosion and anti-abuse tax (BEAT), the deduction for foreign derived intangible income (FDII), and the requirement that US shareholders of controlled foreign corporations pay tax on their global intangible low-taxed income (GILTI), according to a letter from the OECD to Bulgaria's tax policy director reported by Bloomberg Tax April 5. The review was requested following a February meeting of European Union finance ministers amid concerns about the TCJA, including that the BEAT may be incompatible with the OECD Model Tax Convention non-discrimination Article 24.
Sequestration and AMT: A new IRS post, "Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations," affirmed that corporate AMT refund payments and credit elect and refund offset transactions processed during fiscal year 2018 will be reduced by the 6.6% sequestration rate. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise affects the sequester (which was imposed by the 2011 Budget Control Act), IRS said. An OMB report to Congress on FY 2018 reductions said sequestration reductions are 6.6% for nondefense mandatory programs, as opposed to sequestration for discretionary programs that was lifted under the Bipartisan Budget Act that set levels for the FY 2018 omnibus appropriations bill.
Personnel: On April 2, President Trump announced his intention to nominate Justin Muzinich to be the Deputy Secretary of the Treasury. Muzinich, who currently serves as Counselor to the Secretary of the Treasury, was part of the negotiations leading to the TCJA. Muzinich's nomination will be considered by the Senate Finance Committee and confirmation by the full Senate is required. Also, it was reported this week that the President's top infrastructure adviser, DJ Gribbin, is leaving the White House.
Quote of the Week
"This is going to be a challenging election year. We know the wind is going to be in our face. We don't know whether it's going to be a Category 3, 4 or 5." — Senate Majority Leader Mitch McConnell (R-KY), April 3