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June 23, 2019
2019-1136

EY Center for Tax Policy: This Week in Tax Policy News for June 21

This Week (June 24-28)

Congress: The Senate and House are in session, prior to the weeklong Independence Day recess the following week. The Senate will consider the National Defense Authorization Act (NDAA) for Fiscal Year 2020, which is more controversial than in the past because of provisions related to the border wall, Guantanamo Bay, and Iran. Majority Leader Mitch McConnell (R-KY) has stated that he hopes to also consider the border security supplemental appropriations bill before the recess. House business is expected to include the financial services appropriations bill that covers IRS funding.

Tax treaties: The Senate Foreign Relations Committee will vote on protocols amending US tax treaties with Switzerland, Luxembourg, Spain, and Japan during a business meeting that has been scheduled for June 25 at 2:15 p.m. The four are among tax treaties that have been awaiting action in the Senate for years and held up over Senator Rand Paul's (R-KY) concerns over information sharing provisions. Foreign Relations Committee Chairman Jim Risch (R-ID) has said the plan is to move rapidly on the treaties and that Senate floor time may be allocated to advance them. The business meeting does not list on the agenda new tax treaties with Hungary, Chile, and Poland. Foreign Relations Ranking Member Robert Menendez (D-NJ) wrote to Treasury June 11 regarding his concerns about possible reservations for the base erosion anti-abuse tax (BEAT) that may be necessary for those treaties. The issue could require more work to sort out and those treaties could be scheduled for Committee action at a later date.

SALT hearing: The House Ways and Means Select Revenue Measures Subcommittee will hold a hearing, entitled "How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values" on Tuesday, June 25, at 10:00 a.m. This hearing will be followed, at 2 p.m. by a Members' Day Hearing focused on the recent changes made to the federal tax treatment of state and local taxes.

CBO outlook: CBO will release the 2019 Long-Term Budget Outlook at 10:00 a.m. on Tuesday, June 25. The report presents projections of what federal spending, revenues, deficits, and debt would be for the next 30 years if current laws generally did not change.

Last Week (June 17-21)

Tax extenders: The House Ways and Means Committee June 20 approved by a 25-17 vote the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (H.R. 3301), to extend through 2020 tax provisions that expired at the end of 2017 and 2018, and that will expire at the end of 2019, plus disaster relief tax provisions. The vote came nearly 12 hours after the beginning of the markup, which also included votes on separate bills addressing the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) and marriage equality under the tax code. Republican amendments to the extenders bill were defeated, but in processing them Chairman Richard Neal (D-MA) indicated he plans to move a Tax Cuts and Jobs Act (TCJA) technical corrections bill this year, a prospect that had been unclear because of Democratic reluctance to help fix the GOP-authored law. Neal suggested such a bill may be a better vehicle for Rep. Dave Schweikert's (R-AZ) subsequently defeated amendment to include in the extenders bill technical corrections addressing qualified improvement property (QIP) depreciation, Section 965 overpayments, downward attribution, and attorney's fees for harassment cases that should be deductible by victims. Other defeated or withdrawn GOP amendments fit into tranches of making expiring TCJA provisions permanent, changing or providing longer-term certainty for extender provisions, repealing Affordable Care Act (ACA) taxes (including the Cadillac tax and the medical device tax), and striking provisions from the bill. The length of the markup was in part attributable to the large number of amendments offered by Republicans, many of which addressed issues Democrats would otherwise support but not in the context of a narrow, paid-for extenders package.

H.R. 3301 would extend the tax provisions that expired at the end of 2017 except the classification of certain race horses as 3-year property, the election to expense advanced mine safety equipment, and — by way of amendment at the markup — the Indian coal provision. The three provisions that expired at the end of 2018 that would be extended under the bill are the 7.5% deduction floor for medical expenses, the oil spill liability trust fund rate, and the black lung liability trust fund excise tax. Provisions expiring at the end of 2019 that would be extended, through 2020, under the Ways and Means Committee bill include the controlled foreign corporation (CFC) look-through rule, the Work Opportunity Tax Credit, and the New Markets Tax Credit. The revenue offset to fully cover the $33.19 billion 10-year cost of the extenders provisions would accelerate the sunset of the TCJA estate tax regime — the TCJA roughly doubled the estate tax exemption, which is an inflation-adjusted $11.4 million per-person for 2019 — to the end of 2022 instead of the end of 2025. The Committee defeated an amendment to strike the offset. Next steps are uncertain for the bill. Chairman Neal has described the Ways and Means bill as a House negotiating position on tax extenders legislation. The Senate position is embodied in S. 617 sponsored by Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR), which addresses only 2017 and 2018 expired provisions, extending them through 2019 without a revenue offset. Politico reported Grassley as saying Congress historically hasn't and shouldn't offset tax extenders

EITC, CTC bills, and offset issue: The issue of revenue offsets was an undercurrent throughout the Ways and Means markup, as some Democratic members expressed opposition to bills and amendments that were not paid for. The Economic Mobility Act of 2019 (H.R. 3300 ), approved by the Committee 22-19, would, for two years, make the CTC and child and dependent care tax credit (CDCTC) fully refundable, expand the Earned Income Tax Credit (EITC) for workers without children, and increase the amount of the exclusion for employer-provided dependent care assistance from $5,000 to $10,500. In a colloquy at the start of the markup, Rep. Brad Schneider (D-IL) asked that the $100 billion cost of the EITC and CTC expansions be offset when the bill is considered on the floor, which Chairman Neal was amenable to. Rep. Stephanie Murphy (D-FL) said she backed the provisions but opposed the bill for lacking an offset, and Reps. Lloyd Doggett (D-TX) and Ron Kind (D-WI) withheld support for the same reason. The bill would also repeal the requirement that unrelated business income tax (UBIT) be increased for expenses related to qualified transportation fringe benefits (the so-called "church parking tax"). It was amended to increase the amount of the CTC to $3,000 for young children and to increase the AGI limit for the CDCTC. Another bill (H.R. 3298) approved by Ways and Means would increase child care entitlement funding.

PRIDE Act: The Promoting Respect for Individuals' Dignity and Equality (PRIDE) Act of 2019 (H.R. 3299), approved by voice vote in Ways and Means, would allow lawfully married same-sex couples to file claims for credits and refunds related to a change in marital status back to their year of marriage, and amend the tax code so that provisions that apply to married couples use gender-neutral language.

EY GILTI Alert: EY published an Alert on final regulations (TD 9866) on global intangible low-taxed income (GILTI) under Section 951A that were released end-of-day June 14 and formally published in the Federal Register June 21. Along with the final regulations, Treasury also proposed new regulations (REG-101828-19) under Sections 951A and 958, which were released June 14 and published June 21 with a September 19 comment deadline. A separate EY Alert covers proposed and temporary regulations (REG-106282-18) under IRC Sections 245A and 954(c)(6), which were released June 14 and published June 18 with a September 16 comment deadline.

199A co-op regs: The IRS issued proposed regulations (REG-118425018) providing guidance to cooperatives and their patrons on the qualified business income (QBI) deduction under IRC Section 199A(a). The proposed regulations also provide guidance for (1) certain agricultural or horticultural cooperatives and their patrons on the domestic production activities deduction under IRC Section 199A(g); and (3) the rule under IRC Section 199A(b)(7) requiring patrons of Specified Cooperatives to reduce their QBI deduction. Concurrent with the proposed regulations, the IRS proposed a revenue procedure (Notice 2019-27) to provide guidance on methods for calculating W-2 wages purposes of IRC Section 199A(g) and certain provisions of the new proposed regulations. The regulations address one of the first and few TCJA fixes approved by Congress, the so-called "grain glitch" that provided more favorable treatment of sales by farmers to cooperatives than sales to commercial operators that are not cooperatives (under the 20% deduction for qualified business income of pass-through entities) that was addressed in the March 2018 Consolidated Appropriations Act.

Klobuchar first 100 days: A new blog post by presidential candidate Senator Amy Klobuchar (D-MN) on what she would do in the first 100 days as president included some tax proposals beyond those previously announced. To pay for numerous policies "and reduce the debt, Senator Klobuchar will repeal the regressive portions of 2017 Republican tax reform, equalize tax rates for capital gains and ordinary income, put the Buffett rule in place, and close the carried interest and big oil loopholes." Klobuchar has proposed in legislation to change GILTI by "instituting a 'per-country' minimum tax instead of a blended or 'global rate' under current law and eliminating companies' ability to deduct 10% of their return on tangible assets before the tax rate on foreign income applies," and in the blog post she said she will "direct the IRS to mitigate the worst effects of [the TCJA] and crack down on attempts to minimize tax liability through outsourcing." She also promised a plan to expand the EITC and CTC and repeated her intention to increase the statutory corporate tax rate to pay for infrastructure.

Spending/debt limit: The Administration and congressional leaders of both parties continued meeting in search of a deal to lift FY 2020 spending caps and address the debt limit, without reporting an agreement. Press reports cited Administration officials as suggesting the main sticking point is the level of non-defense discretionary spending and that, absent a deal, a one-year continuing resolution (CR) of funding at current levels and a debt limit fix is a fallback option. "Our No. 1 priority is raising the debt ceiling," Treasury Secretary Steven Mnuchin said after a June 19 meeting, as reported by the Wall Street Journal. "We are prepared to do a one-year CR with a one-year debt ceiling [increase]."

Regulations watch: Below is a timeline for guidance projects released by the IRS related to the TCJA.

Guidance

Federal Register Publication*

Comment period

Section 965 transition tax (TD 9846)

Final rules published February 5

 

Section 199A pass-through deduction (TD 9847)

Final rules published February 8

 

Section 956 inclusions for corporate US shareholders (TD 9859)

Final rules published May 23

 

Contributions in exchange for state or local tax credits (TD 9864)

Final rules published June 13

 

Guidance Related to Section 951A (Global Intangible Low-Taxed Income) and Certain

Guidance Related to Foreign Tax Credits (TD 9866)

Final rules published June 21

 

Bonus depreciation (REG-104397-18)

Proposed rules published August 8

Ended October 9

Removal of Section 385 Documentation Regulations (REG-130244-17)

Proposed rules published September 24

Ended December 24

Investing in Qualified Opportunity Funds (REG-115420-18)

Proposed rules published October 29

Ended December 28

Foreign Tax Credit (REG-105600-18)

Proposed rules published December 7

Ended February 5

Section 163(j) Limitation on Deduction for Business Interest Expense (REG-106089-18)

Proposed rules published December 28

Ended February 26

Section 59A Base Erosion and Anti-Abuse Tax (REG-104259-18)

Proposed rules published December 21

Ended February 19

Rules Regarding Certain Hybrid Arrangements (REG-104352-18)

Proposed rules published December 28

Ended February 26

Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income (REG-104464-18)

Proposed rules published March 6

Ended May 6, public hearing July 10

Investing in Qualified Opportunity Funds (REG-120186-18) — Second package

Proposed rules published May 1

Ends July 1, public hearing July 9

Ownership Attribution for Purposes of Determining Whether a Person Is Related to a Controlled Foreign Corporation under section 954(d)(3) (REG-125135-15)

Proposed rules published May 20

Ends July 19

GILTI regulations regarding gross income that is subject to a high rate of foreign tax (REG-101828-19)

Proposed rules published June 21

September 19

Limitation on Deduction for Dividends Received from Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception (REG-106282-18)

Proposed and temporary regulations published June 18

September 16

*Unless otherwise indicated, dates are when proposed regulations were published in the Federal Register.

Quotable

"Congrats 2 Sen Susan Collins of Maine 4casting her 7000th consecutive vote in the US Senate She's never missed votes as a senator Not missing votes is a way 2show the ppl u represent that you're on the job That's why I've cast 8447 consecutive votes w/out missing in 26 yrs" — Senate Finance Committee Chairman Chuck Grassley (R-IA), June 18 tweet

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