Since the passage of the law formerly known as the Tax Cuts and Jobs Act (TCJA), the focus of tax policy shifted to the guidance process. Treasury and the Internal Revenue Service (IRS) issued several notices, FAQs and ostensibly a change to a revenue procedure on the transaction tax under section 965. Over the coming months, Treasury will publish a notice that will allow the section 78 gross up for global intangible low taxed income (GILTI) to be included in the GILTI foreign tax credit basket, proposed regulations on section 965, proposed regulations regarding GILTI, and other provisions in the TCJA.
Many taxpayers are spending their time with the various teams at Treasury and the IRS to scope issues and provide potential solutions. Taxpayers will have additional opportunities to comment when Treasury and the IRS publish proposed regulations. However, it is unlikely that Treasury and the IRS will be able to fix all of the known and unknown errors and problems in the TCJA.
Congress devoted significant time to tax policy last year, and it will continue to do so in 2018. There are several points where Congress may consider (and possibly pass) certain types of tax legislation. First, House Committee on Ways and Means Chairman Kevin Brady (R-TX) announced that he and his committee are working on Tax Reform 2.0 (TR 2.0), which may be released as early as the end of August. Chairman Brady is considering the permanent extension of certain provisions of the TCJA as part of TR 2.0, including the permanent extension of current expensing. Some view this provision as helping to grow the economy, and permanent extension could further stimulate long term domestic investment. Other possible candidates include the permanent extension of the individual rates (due to expire at the end of 2025), repeal of the estate tax, and permanent extension of certain business provisions in the TCJA. Chairman Brady has not indicated whether he will include offsets to pay for the proposal.
There will likely be significant press regarding TR 2.0, but it is unlikely that it will be enacted in 2018. The Senate would need 9 Democrats to vote with the 51 Republicans to take up TR 2.0. Additionally, the Senate does not have a reconciliation instruction that would allow for TR 2.0 to be passed on a purely partisan vote. Nevertheless, TR 2.0 could be used as an election issue and become the basis for legislation in 2019 and beyond.
Another issue Congress will address is funding for the Federal Aviation Agency (FAA). The FAA is funded by various taxes and fees that Congress is required to periodically reauthorize. The FAA fund expires by the end of September 2018. Congress will need to act by either passing a temporary patch (possibly to December) or a tax bill that provides years of funding. As of this time, the better money is on a temporary patch.
In the background, the Joint Committee on Taxation (JCT) continues to work on the Bluebook (a summary of tax legislation passed in Congress), with a likely release before the end of the year. Additionally, the House, Senate and JCT continue to meet with taxpayers who have identified technical (and nontechnical) issues with the TCJA. It is unlikely that Congress will address technical corrections (and other policy issues) before the election. The likely fixes that could move are to current expensing for restaurants and retail, and the confusion regarding the effective date for the changes to section 172 (net operating losses).
Another opportunity for tax legislation is during the lame duck session, the period after the election and before the new Congress begins (usually around January 3). It is unclear whether one or both houses of Congress will flip, but it is important to note that several members of Congress with a deep interest in tax policy are retiring. For example, Senate Committee on Finance Chairman Orrin Hatch (R-UT) will retire at the end of this Congress. He has repeatedly expressed interest in addressing retirement issues in the tax code, and he may seek to move his legislation before he retires. House Speaker Paul Ryan (R-WI) will also retire at the end of the year.
The potential expiration of an FAA patch (and the above mentioned retirements), may require Congress to pass a tax bill. Taxpayers who want changes to the TCJA should being laying the groundwork for including their changes in a year end bill. Like the process for TCJA, the lame duck session will be quick. A tax bill in the lame duck session will require bipartisan support, and it is possible that it will not be revenue neutral.
Thus, it is important to engage with Treasury and the IRS, but it is also important to keep an eye on Congress and begin engaging in the event Congress has a lame duck session.
14 Tax News and Developments June 2018