CONSISTENTLY DELIVERS

Jan 18, 2017

Tax Policy Update

PICTURE OF THE WEEK:

Source: CNN

House Speaker Paul Ryan Does the “Dab.” House Speaker Paul Ryan (R-WI) held a town hall over at CNN on Jan. 12. The hour-long discussion focused primarily on the GOP’s plan to repeal and replace the Affordable Care Act (“Obamacare”). In addition to healthcare topics, Speaker Ryan also fielded questions regarding tax, trade, and the president-elect’s tweeting habits.

But the most important takeaway from the town hall came at the end when Ryan was asked which comments on social media have amused and bothered him the most. Ryan recounted the episode from the swearing-in ceremony where a lawmaker’s son sneaked in a quick “dab,” which led the speaker to ask whether the kid was sneezing. Social media had a field day with Ryan’s ignorance of the popular dance move. Seeking to win back some cool points, Ryan showed the town hall audience that the speaker of the House of Representatives knows how to dab.

On a more serious note, at the town hall, Ryan confirmed that the GOP is planning to repeal and replace Obamacare simultaneously — although details on how they will go about executing the replacement plan remain sparse. Policy watchers are still waiting to hear more about what the actual plan will entail. According to Ryan, the GOP plan will help Americans purchase high-quality and affordable healthcare insurance by providing a refundable tax credit.

LEGISLATIVE LANDSCAPE

Trump’s Other Border Problem. The border adjustment tax proposed in the House GOP’s tax reform blueprint has been under attack since the start of the new year. Opposition from Democratic staffers of the Senate Finance Committee and the U.S. retail industry is to be expected. But the Trump Administration threw a curveball last week when Larry Kudlow, an economic adviser to the president-elect, publicly shot down the border adjustment tax proposal, dismissing it as a serious solution to the country’s overly complex tax code. Kudlow believes that tax reform is doomed if Republicans insist on this proposal. President-elect Donald Trump added more firepower to Kudlow’s comments in an interview with the Wall Street Journal over the weekend, saying that he does not “love it.” According to Trump, the border adjustment tax will mean the U.S. is “going to get adjusted into a bad deal.”

Trump’s comments aren’t helpful to House Speaker Paul Ryan who…

You Get Insurance! You Get Insurance! Everybody Gets Insurance! Donald Trump recently proclaimed that everybody will have insurance under the GOP replacement for the Affordable Care Act. Trump also promised that the replacement law will be simpler, less expensive, and will offer greater coverage. Trump added that he was willing to use the power of the presidency and the influence of his 140-character platform to prevent Congress from getting “cold feet.”

Last week, Republicans kicked off the reconciliation process that will be used to repeal the ACA by adopting the budget resolution. In the days leading up to the vote, ranking GOP members faced growing resistance to repealing the ACA without a replacement plan. Despite assurances that the GOP will not pursue the “repeal and delay” strategy, many within the party are worried about the impact …

Ways and Means’ Republicans Meet to Talk Tax Reform. Republican members of the House Ways and Means Committee have been gathering in various working groups to talk through some of the remaining sticking points in their tax reform plan. One working group met last week to discuss the tax treatment of carried interest. No agreement emerged after the meeting, however. During the 2016 presidential campaign, Trump voiced his support for taxing carried interest at ordinary tax rates. House Republicans appear to be divided on this issue. According to Chairman Brady, the taxation of carried interest and of certain insurance products are still under discussion.

Blind Credits. GOP tax-writers are looking to consolidate a number of renewable tax credits under their plan to overhaul the tax code. According to Rep. Tom Reed (R-NY), the GOP’s forthcoming tax reform legislation will likely eliminate the deduction for intangible drilling costs for oil and gas well owners, while provisions such as the percentage depletion deduction for fossil fuels and special treatment for MLPs will likely be retained. Republicans on the energy tax working group of the House Ways and Means Committee hope to create a system of renewable tax incentives that is “blind” to the type of energy technology used.

States, Online Retailers May See Relief in 2017. After years of stalled action, remote sales tax legislation may finally see some action as part of tax reform. Since the seminal 1992 case Quill Corp. v. North Dakota, lawmakers have struggled to define the parameters of states’ taxing authority over remote retailers. As online sales have dramatically increased, without consensus on a solution at the federal level, states have been eager to remove federal restraints on taxing out-of-state sellers.

There are three noteworthy pieces of legislation pending that might be key players in 2017…

Congress Adopts FY2017 Budget. Last week, the House and Senate adopted the budget resolution for fiscal year 2017. The adoption of the FY2017 budget resolution officially kicked off the reconciliation procedures to be used for the repeal of Obamacare. Committee markups of the repeal legislation is expected in Feb. 2017, at the earliest.

During the Senate’s amendment process for the budget resolution (so-called “Vote-a-Rama”), 19 amendments were offered up for votes. No amendments were agreed to, however, given the points of order raised against them. A 60-vote majority is required to waive a point of order, and the amendments below all failed to overcome that threshold…

REGULATORY WORLD

Taxpayer Advocate Releases Annual Report to Congress. The national taxpayer advocate, Nina Olson, released her annual report to Congress last week. The report notes that the IRS devotes 43 percent of its annual budget to audits and enforcement, but less than 6 percent to outreach and education. Olson advised the agency to spend more time on taxpayers who attempt to comply with the code and fewer resources on those who actively evade taxation.

Olson also discussed the IRS Future State Initiative, once again emphasizing her concerns that the agency maintain phone services, even as they increase their online capabilities. Olson also suggested that the IRS overhaul its approach to tax collection, citing to the fact that the agency asked for a 7.2 percent increase in enforcement funding for 2017, but just a 3.1 percent boost for taxpayer services. Olson pointed out that the agency’s funding requests might be remiss given that the IRS was barely able to answer half the phone calls it received in fiscal year 2016, up from 38 percent of calls in 2015.

And Then There Were Sixteen. Last April, the Senate Finance Committee unanimously recommended the confirmation of Elizabeth Ann Copeland and Vik Edwin Stoll. However, the full Senate never confirmed the nominees, leaving the 19-member court with three vacancies.

The American Bar Association’s tax section and a separate group of 52 tax experts sent letters to Senate leaders after the election, urging them to confirm both nominees. The letters cautioned that the Tax Court would not be able to function properly without the two additional judges. Delays in confirmations will have unintended consequences including longer waits for cases to be heard, increases in accrued interest and potential penalties, and increased workload for other Tax Court judges.

EU Proceeds with CCCTB. The EU is forging ahead with plans to introduce a common consolidated corporate tax base (CCCTB). The new tax takes a two-step approach: the first step will require large multinational corporations operating in the EU to comply with the common corporate tax base (CCTB); and the second step will involve drafting a set of rules for the CCCTB.

Dutch MEP Paul Tang and European People’s Party MEP Alain Lamassoure have been tasked with shepherding steps one and two, respectively, through the European Parliament.

ROAD WORK AHEAD

Trump’s DOT Nominee Signals Administration’s Direction on Infrastructure. On Jan. 11, President-elect Trump’s pick for transportation secretary, Elaine Chao, appeared before the Senate Commerce Committee for her confirmation hearing. Chao’s hearing was filled with friendly faces who praised her qualifications, including her experience serving as labor secretary and deputy secretary of the Department of Transportation. Chao also served as deputy administrator for DOT’s Maritime Administration and chair of the Federal Maritime Commission, giving her deepwater roots in the shipping industry.

During the hearing, Chao illuminated a number of key issues that will pave the way for her time at the Department of Transportation and reaffirmed the incoming administration’s commitment to invest in infrastructure. Some of the biggest takeaways from the discussion include…

COMMANDER-IN-TWEET

Washington, D.C. is bracing itself for Inauguration Day on Jan. 20 — the city is expecting up to one million visitors this week. See here for the full inauguration schedule.

LINE ITEMS

  1. Rep. Bob Latta (R-OH) introduced a bill (H.R. 451) to repeal the estate tax and retain the stepped-up basis at death.
  2. The House passed, 238-183, the Regulatory Accountability Act to reform the process by which federal agencies analyze and formulate new regulations and to clarify the nature of judicial review of agency interpretations.
  3. The Treasury Department released a report on major infrastructure investments. To highlight the benefits of infrastructure investment and its potential impact on the economy, the Treasury Department commissioned a study identifying 40 proposed transportation and water infrastructure projects across the United States of major economic significance, which can be found here.
  4. Last week, U.S. DOT revealed its “ 2015 Status of the Nation's Highways, Bridges and Transit: Conditions and Performance” report, confirming that more investment is needed to overcome a nearly trillion-dollar investment backlog in road and transit projects.
  5. The IRS’ Whistleblower Office has helped the agency rake it in — collecting $3.4 billion since its inception a decade ago. The IRS has also doled out $465 million in whistleblower rewards over the same period. The whistleblower program is a bipartisan initiative spearheaded by Sen. Chuck Grassley (R-IO), who wrote provisions in 2006 legislation improving incentives for reporting tax fraud.
  6. The Treasury Department and Department of Health and Human Services released new data that highlights how the Affordable Care Act has helped entrepreneurs and small business owners. The report indicates that one in five 2014 marketplace consumers is a small business owner or self-employed, suggesting that the healthcare law has helped alleviate “job lock”—a significant impediment to entrepreneurship.
  7. The IRS recently released T.D. 9812 (RIN: 1545-BL00, RIN 1545-BM45) – the most recent piece of anti-inversion guidance. The final and temporary rules will answer the question of when the agency will disqualify the stock of a foreign corporation in determining whether an inversion is in compliance with regulations.
  8. Donald Trump recently indicated that his team is currently working with Congress to get the corporate tax rate “as close to 15 percent” as possible. Trump is set on the 15 percent rate, hoping that it will lead to a “mushrooming of jobs moving back” to the U.S.

LOOKING AHEAD

Congressional Activityy

Wednesday, 1/18

Senate Foreign Relations Committee
The full committee meets for a hearing on the nomination of Nikki Haley to be ambassador to the U.N.

Senate Commerce Committee
The full committee meets for a hearing on the nomination of Wilbur Ross to be commerce secretary.

Senate EPW Committee
The full committee meets for a hearing on the nomination of Scott Pruitt to be administrator of the EPA.

Thursday, 1/19

Senate Finance Committee
The full committee meets for a hearing on the nomination of Steven Mnuchin to be Treasury secretary.

Senate Energy Committee
The full committee meets on the nomination of former Gov. Rick Perry to be Energy secretary.

Friday, 1/20

Inauguration Day


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The McGuireWoods’ Tax & Financial Services Policy Group assists clients in understanding how the latest legislative and regulatory proposals and decisions may impact their business and industry. To learn more about how our team can help you monitor, analyze, and navigate all relevant legislative and regulatory developments, please contact any of our attorneys and consultants below at (202) 857-1700. For more information on how to subscribe to our weekly Tax Policy Update and tax news alerts, please contact Radha Mohan, , (202) 857-2944.

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