CONSISTENTLY DELIVERS

Apr 25, 2017

Tax Policy Update

MEME OF THE WEEK:

 

Government Shutdown Showdown. Heeeey…déjà vu. Congress must pass a spending bill to fund the rest of fiscal year 2017 (FY2017) by the end of Friday or face a government shutdown.

Disagreements over hot-button political issues like funding for the border wall, Obamacare cost-sharing subsidies, and sanctuary cities have been jamming things up.

The good news is that the government will likely keep its lights on, as lawmakers are looking to pass a clean, short-term continuing resolution or “CR” to give themselves a little more time to sort things out.

LEGISLATIVE LANDSCAPE

Oh the Possibilities! Here are the big-ticket items to keep an eye on this week: (1) a possible government shutdown, (2) a possible healthcare vote, and (3) a possible unveiling of President Trump’s tax reform plan.

The White House would like a vote on repealing Obamacare this week, but it is unlikely that House GOP leadership has secured the necessary votes to pass an updated version of the American Health Care Act (“AHCA”). And it’s hard to imagine leadership rushing to hold a vote when everyone is still waiting to see the legislative text. But hey, anything goes these days, so we shall see.

Here’s what we do know about the healthcare bill:

House Speaker Paul Ryan has been working with Rep. Tom MacArthur (R-NJ), co-chair of the centrist Tuesday Group, and Rep. Mark Meadows (R-NC), chair of the Freedom Caucus, on a compromise to garner votes from both factions. While the final proposal has not been released, below are a few items that the new AHCA may include…

When the Chips Are Down. With the risk of collapsing Obamacare markets and a potential government shutdown on the line — President Trump is threatening to use cost-sharing subsidies as a bargaining chip to draw Democrats to the negotiating table on health care. Democrats have of course scoffed at the idea, noting that they do not negotiate with “hostage takers.” With the budget deadline looming, a high-stakes drama has been unfolding over the fate of these subsidies.

Obamacare mandates the payment of cost-sharing subsidies to help insurers cover low-income enrollees’ deductibles and co-pays. In 2014, House Republicans sued the Obama administration for appropriating money through the Treasury Department to pay marketplace insurers for cost-sharing subsidies. The House argued that Congress had…

Any Given Wednesday. President Trump told reporters last week to expect his tax reform plan on Wednesday, April 26. However, in an earlier interview with the Wall Street Journal, the president said he would not release details on his tax plan until Congress repeals Obamacare. The back-and-forth is giving administration officials whiplash.

When pressed for details, administration officials gave conflicting reports as to what will be in Wednesday’s release. Office of Management and Budget Director Mick Mulvaney indicated that the release will contain more …

Tax Reform by August! Just Kidding… During recess, Treasury Secretary Steven Mnuchin came to the sobering realization that getting tax reform done by August is “not realistic at this point.” But the secretary remains optimistic that tax reform will happen in 2017.

Before Congress left for recess, House Ways and Means Chairman Kevin Brady (R-TX) held meetings with House Democrats, which led tax policy observers to wonder whether Republicans can get some Democrats on board to help pass tax reform. Payroll tax cuts and other middle-class tax cuts are reportedly being floated around to gauge interest. But McConnell isn’t holding his breath — he believes that Republicans and Democrats are too far apart on policy and does not expect Democrats to participate meaningfully.

Back on the House side, the Ways and Means Committee is gearing up to hold a few hearings on tax reform. There were talks of the Tax Policy Subcommittee holding a hearing on the border adjustment tax this Thursday, but that has been postponed. If the committee uses the entire month of May for hearings, House tax writers may be able to put out legislative text around mid-June — but this is still a very optimistic timeline.

REGULATORY WORLD

Trump Calls for Review of Tax and Financial Services Regulations. On April 21, President Trump issued an executive order and two presidential memos related to tax and financial services regulations:

1. Executive Order on Identifying and Reducing Tax Regulatory Burdens

  • Purpose : to reduce regulatory burden on American taxpayers.
  • Treasury Secretary Steven Mnuchin is ordered to review all significant tax regulations issued in 2016 and identify those that are burdensome, overly complex, and exceed statutory authority. An interim report is due in 60 days (June, 20, 2017).
  • Within 150 days of the executive order, Mnuchin has to provide a final report detailing the actions to be taken to mitigate the tax burden imposed by the regulations identified in the interim report.

2. Presidential Memo on the Financial Stability Oversight Council (FSOC)

  • Purpose : to ensure that the designation process for identifying nonbank SIFIs actually help to reduce systemic risk and promote market discipline.
  • Mnuchin is ordered to review the Financial Stability Oversight Council’s determination and designation process for identifying systemically important nonbank financial institutions (SIFIs).
  • The Treasury Department has to submit a report within 180 days assessing whether these processes are fair and transparent.
  • The report must also make the following determinations:
    • whether the FSOC designation process could cause instability in the U.S. financial system.
    • whether the designation process is consistent with the administration’s Core Principles for the Regulation of the U.S. Financial System.
  • Until the review is complete, FSOC will refrain from making additional SIFI determinations and designations.

3. Presidential Memo on Orderly Liquidation Authority (OLA)

  • Purpose : to assess whether OLA enables taxpayer-funded bailouts of financial companies in distress and encourages risk-taking.
  • Mnuchin is ordered to conduct a review of the federal government’s Orderly Liquidation Authority.
  • Within 180 days, Mnuchin has to submit a report assessing whether OLA encourages risk-taking and has a negative impact on U.S. financial stability.
  • The Treasury Department is ordered to evaluate possible alternatives to OLA — specifically, whether enhanced bankruptcy procedures would be a better, feasible alternative.

More on the Tax Regulation E.O. President Trump’s April 21 executive order requiring Treasury Secretary Steven Mnuchin to review all significant tax regulations issued in 2016 might put the Obama Administration’s inversion regulations in its crosshairs. During this review, the Treasury Department will take another look at an April 2016 rule aimed at serial inverters and regulations under Sec. 385 of the code targeting earnings stripping. The regulations under Sec. 385 came under heavy fire, with members of the Obama Administration admitting that the rules target even normal business transaction.

Mnuchin’s review of the regulations are part of the overall tax and regulatory reform efforts to simplify the tax code and eliminate rules that stymie growth. After the completion of the review, in order to repeal the regulations, Treasury would have to go through the formal process of proposing a plan to rescind the rules and allowing for a public comment period. This process could take six months to complete.

Taxman Comin’. On April 4, the IRS revived a program that employs private companies to collect outstanding tax debts. As of now, only four private groups are authorized to participate in this program: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y.

The IRS will send out letters to a select group of taxpayers who might be involved with the four private debt collectors this month. The debt collection companies will follow up and call taxpayers over the phone. The debt collection companies will have to follow certain steps to ensure that they properly identify themselves to taxpayers, lowering the chances of fraud. Agency officials will closely monitor to ensure that tax scammers do not take advantage of the collection program.

IRS personnel indicated that the private debt collection companies are likely to start with cases involving less than $50,000 in tax debt, with about 100 cases assigned to each company per week, before building up to 1,000 cases a week.

ROAD WORK AHEAD

Kicking the Can Down the Road. With the Trump Administration approaching its 100-day mile marker, it’s only natural to reflect on how the president’s top priorities have progressed since Inauguration Day. With no legislative victories to date, it appears that President Trump is stalled by inside-the-Beltway congestion.

So what does this mean for infrastructure? Trump’s focus on healthcare legislation and tax reform has pushed back the release of an infrastructure package. A couple of weeks ago, Transportation Secretary Elaine Chao said she expected to roll out an infrastructure plan in May. Chao has assured that her department is on track to unveil a proposal this summer. However, it appears that rather than moving on to other priorities that have the potential to garner bipartisan support, such as infrastructure investment, the president is opting to take the rockier road with issues that are sure to drive division in Washington.

COMMANDER-IN-TWEET

LINE ITEMS

  1. The Internal Revenue Service is seeking comments for the agency’s 2017-2018 Priority Guidance Plan. Notice 2017-28 invites the public to identify tax issues that should be addressed in the guidance plan.
  2. As tax reform ramps up, the Big 7 coalition of non-partisan groups representing state and local governments is asking Congress to preserve the exemption on interest from municipal bonds. Coalition members are concerned that Republicans might end the exemption as a way to finance tax cuts. The coalition is currently made up of the following groups: National Governors Association, the National Association of Counties, the Council of State Governments, the National League of Cities, the National Conference of State Legislatures, the U.S. Conference of Mayors and the International City/County Management Association.

LOOKING AHEAD

Congressional Activity

Wednesday, 4/26

House Transportation Committee
Full committee hearing on “Building a 21st Century Infrastructure for America,” April 26-27.

House Ways and Means Committee
Social Security Subcommittee hearing on “Stopping Disability Fraud: Risk, Prevention, and Detection.”

House Ways and Means Committee
Oversight Subcommittee hearing on “Examining the 2017 Tax Filing Season.”

House Financial Services Committee
Hearing on “A Legislative Proposal to Create Hope and Opportunity for Investors, Consumers, and Entrepreneurs.”

Agency Activity

Tuesday, 4/25

CFPB
Meeting of the Community Bank Advisory Council to discuss alternative data and consumer access to financial records.

Other Activity

Monday, 4/24

Brookings Institution
Forum on “Reflecting on Trump’s First 100 Days.”

POLITICO
Discussion on “Rebuilding America: A New Infrastructure Agenda.”

Wednesday, 4/26

The Hill
Newsmaker Series with Treasury Secretary Steven Mnuchin

Thursday, 4/27

Bloomberg Government
Discussion on “Tax and Trade: Changing Border Tax Policies and the Impact on U.S. Business.”


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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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