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Apr 10, 2018

Tax Policy Update

BILL OF THE WEEK: Taxpayer First Act

Photo of Internal Revenue Service Building

Congress is back from recess this week. Over the break, House Ways and Means Oversight Subcommittee Chairwoman Lynn Jenkins (R-KS) and Ranking Member John Lewis (D-GA) released a discussion draft of The Taxpayer First Act, a bipartisan bill to improve the Internal Revenue Service (IRS) operations and tax administration procedures.

The House Ways and Means Committee has scheduled a markup of the bill and other related measures for Wednesday, April 11. More details on the bill in the section below.

Legislative Landscape

I’m Just Saying You Could Do Better. This is essentially the message that the Taxpayer First Act is sending to the IRS. The draft legislation would overhaul the tax collection agency and modernize its information technology (IT) infrastructure. The overall goal is to improve taxpayer services and customer experience with the IRS.The discussion draft is the product of 11 subcommittee hearings and roundtables over the past three years. The six-title bill includes provisions to reform the independent appeals process; improve customer service; promote sensible enforcement; enhance cybersecurity protection; modernize the IT infrastructure; and update the Tax Court. Most of the provisions in the bill have bipartisan and bicameral support.

Here are some noteworthy highlights:

  • Modify Select Official Titles. The current title of “Commissioner of Internal Revenue” would be changed to “Administrator of the Internal Revenue Service.” The current title of “Deputy Commissioner” would be changed to “Deputy Administrator.”

  • Establish an IRS Independent Office of Appeals. This provision would ensure that all taxpayers are able to access the administrative review process, so that their cases can be heard by an independent decision maker. This includes codifying the IRS Independent Office of Appeals and providing for additional Congressional oversight over decisions to stop taxpayers from engaging in the administrative review process.

  • Codify IRS Free File Program. This provision would codify the existing Free File Program and work with stakeholders to improve and promote the program. This is a bipartisan proposal spearheaded by Reps. Peter Roskam (R-IL) and Ron Kind (D-WI).

  • Limit Access to Information. This provision would prohibit a person, other than IRS personnel, from examining books, records, and witness testimony as part of an examination, unless they are serving as an expert.

  • Establish a Single Point of Contact for Identity Theft Victims. This provision would establish a single point of contact within the IRS for any taxpayer who is a victim of identity theft.

Interestingly, the bill does not include any provisions to regulate paid tax return preparers — an issue that has been hotly debated in recent years.

A full section-by-section summary of the discussion draft is available here.

It’s the Second Most Wonderful Time of the Year. Taxes are due on April 17 this year, so here’s a token IRS hearing from the Senate Finance Committee in anticipation of Tax Day: Acting IRS Commissioner David Kautter will appear before the committee on Thursday, April 12, to discuss the 2018 tax filing season and future challenges at the IRS.

Specifically, the hearing will examine whether the agency has the necessary staff and technological resources to serve taxpayers, reduce fraud, and secure sensitive personal data. Spoiler alert: The answer is “no.”

A livestream of the hearing will be available here.

Tax Cuts To-Go. Talks of doing another round of tax cuts bubbled up again over the spring break recess. As theTax Policy Update team previously reported, House Republicans are considering teeing up a second package of tax cuts for a vote this summer.

The GOP fully appreciates the fact that another tax bill has little to no chance of passing the Senate. But still, they want to put Democrats on the record for voting against tax cuts — a talking point for the campaign trail.

The forthcoming package is expected to focus on making the temporary provisions in the new tax law permanent. As a refresher, provisions affecting the individual side of the tax code are set to expire at the end of 2025.

When You Play the Game of Thrones, You Win or You Die. Ok, it’s not as dramatic as the war for the Seven Kingdoms, but the back-and-forth between the Treasury Department and the Office of Management and Budget (OMB) over who should get the final say on tax regulations has been heating up. OMB Director Mick Mulvaney appears to be winning the debate.

If the OMB does indeed get to approve the tax regulations coming out of Treasury, it means that the issuance of critical regulations (e.g., deemed repatriation, net interest deductibility, etc.) will be noticeably delayed. This makes sense given that tax regulations would have to go through an additional layer of scrutiny at the OMB’s Office of Information and Regulatory Affairs (OIRA). The big question is whether there are actual tax policy experts at OIRA to properly review Treasury’s rulemakings.

Backing Up the Omnibus. Right before the spring break recess, Congress introduced a $1.3 trillion omnibus package and got the president to sign it on March 23 — just in time to avert a government shutdown.

The omnibus did not contain many tax provisions. The ones that made it into the final bill include: The so-called “grain glitch fix” (Sec. 199A), an extension of the Low-Income Housing Tax Credit, and a set of technical corrections from all bills prior to the enactment of the GOP tax bill. The spending package also extended the National Flood Insurance Program through July 31 and the FAA through Sept. 30.

Even though the omnibus has been signed into law, the political drama over the massive spending bill is not over. It appears that the president is experiencing signer’s remorse: The administration is planning to ask Congress to approve a recission package to pare back some of the non-military domestic spending in the omnibus. At this writing, the total sum of the proposed cuts and the timing of a vote are still unknown. The administration’s attempt to go back on the spending deal does not sit well with Democrats and will make any future spending negotiations more difficult.

Regulatory World

IRS Issues Additional Guidance. On April 2, the Treasury and IRS issued the following guidance:

  • Notice 2018-26 provides that the IRS and Treasury intend to issue proposed rules regarding certain elections made under Section 965 as well as the reporting and payment of the deemed repatriation tax. Additionally, this notice contains relief from estimated tax penalties arising in connection with the deemed repatriation provision and the repeal of Section 958(b)(4) (attribution rules).The IRS and Treasury have requested public comments on what additional guidance should be issued to assist taxpayers in applying the deemed repatriation provision. No specific deadline has been provided.

  • Notice 2018-28 generally provides that the IRS and Treasury intend to issue regulations that: (1) treat all interest paid or accrued by C corporations on debt will be business interest, not investment interest; (2) apply the provision on a consolidated group basis; and (3) provide rules on calculating a partner’s interest deduction. The IRS and Treasury have requested public comments on what additional guidance should be issued to assist taxpayers in applying this provision.

Line Items

  1. The Treasury and the IRS issued guidance (Notice 2018-29) for the withholding on the transfer of non-publicly traded partnership interests.

  2. The Department of the Treasury announced a new round of sanctions against Russia, designating a number of Russian oligarchs, government officials, and companies. A list of the designated individuals and entities can be viewed here.

  3. House Democrats and a handful of Republican lawmakers have called on EPA Administrator Scott Pruitt to resign amidst ongoing investigations into Pruitt’s use of public funds and his growing ethics problems.

Commander-in-Tweet

President Trump tweet

In the Queue

Congressional Activity

Wednesday, 4/11

Senate Finance Committee
Subcommittee hearing on “Market Access Challenges in China.”

House Ways and Means Committee
Markup of bills to redesign the IRS and strengthen taxpayer protection.

House Financial Services Committee
Hearing on the CFPB’s semi-annual report to Congress with Acting Director Mick Mulvaney.

House Small Business Committee
Hearing on “The State of Trade for America’s Small Businesses.”

Thursday, 4/12

House Ways and Means Committee
Committee hearing on the effects of tariff increases on the U.S. economy.

House Ways and Means Committee
Subcommittee hearing on “Jobs and Opportunity: Local Perspectives on the Jobs Gap.”

House Financial Services Committee
Subcommittee hearing on “H.R. 4311, the Foreign Investment Risk Review Modernization Act.”

House Financial Services Committee
Subcommittee hearing on oversight of the FHFA.

Senate Finance Committee
Hearing on “The 2018 Tax Filing Season and Future IRS Challenges.”

Senate Banking Committee
Hearing on the CFPB’s semi-annual report to Congress with Acting Director Mick Mulvaney testifying.

Agency Activity

Monday, 4/9

SEC
Fixed Income Market Structure Advisory Committee Meeting.

Thursday, 4/12

SEC
National Compliance Outreach Seminar for Investment Companies and Investment Advisers.

FSOC
The council to hold a closed session to discuss the designation of Prudential; amendments to the council’s bylaws; and amendments to the interpretive guidance regarding nonbank financial company designations.

Other Activity

Monday, 4/9

The Federalist Society
Discussion on Dodd-Frank and the future of financial services regulation. More information here.

ICBA
2018 Capital Summit with special guests: CFPB Director Mick Mulvaney, Comptroller of the Currency Joseph Otting, and Sen. Pat Toomey.

Brookings Institution
Discussion on “The Tax Cuts and Jobs Act: Tax Administration Challenges.”

Thursday, 4/12

Heritage Foundation
Discussion on “Should the Expired Tax Provisions Be Given a New Lease on Life?”

National Press Club
Lunch discussion with Sen. Sherrod Brown (D-OH) on the nation’s pension crisis.

 


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