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Apr 17, 2018

Tax Policy Update

MEETING OF THE WEEK: EXTENDERS ROUNDTABLE

Extenders roundtable 

Photo: Mark Wilson/Getty Images

On April 18, the House Ways and Means Committee will hold a closed-door meeting to discuss next steps for tax extenders. All House lawmakers are invited to participate in the extenders roundtable, which will be led by Tax Policy Subcommittee Chairman Vern Buchanan (R-FL). The meeting will give members an opportunity to make their case on why certain tax provisions should be made permanent, phased out, or eliminated altogether. The roundtable is a follow-up to the subcommittee’s March 14 public hearing on extenders, where industry leaders were invited to defend their favored provisions.

Legislative Landscape

Bills, Bills, Bills. In observance of Tax Day, the House will be tackling a series of bills related to IRS reform. Most of the bills will be taken up under suspension of the rules (congressional lingo for fast-track consideration). See the full list of suspensions here.

Three bills, however, will be debated under rules specified by the House Rules Committee:

  • H.R. 5192 – the Protecting Children from Identity Theft Act would authorize the commissioner of Social Security to provide confirmation of fraud protection data to certain permitted entities.
     
  • H.R. 5444 – the Taxpayer First Act is a bipartisan measure that would overhaul IRS operations and tax administration procedures. Read the Tax Policy Update team’s high-level summary of the bill here.
     
  • H.R. 5445 – the 21st Century IRS Act would improve cybersecurity and taxpayer identity protection; and modernize the information technology of the IRS.

The bills are expected to pass. However, it is still unclear whether the Senate will help get the House package across the finish line.

Senate Finance Chairman Orrin Hatch (R-UT) has thanked the Ways and Means Committee for its efforts on IRS reform, noting that he and Ranking Member Ron Wyden (D-OR) will review these measures and explore options in the Senate to improve IRS operations.

Kautter in the House (and Senate). At his congressional hearings last week, Acting IRS Commissioner David Kautter told lawmakers that it would take years for the IRS to write all the necessary guidance to implement the new tax law. Testifying before a House appropriations panel, Kautter said that the IRS would need an additional $77 million for implementation.

The acting commissioner also appeared before the Senate Finance Committee to give an update on the 2018 tax filing season and challenges at the IRS. Kautter offered three key legislative changes to help improve the IRS:

  • Require mandatory e-filing of business information returns.
  • Encourage the IRS to establish online accounts for all taxpayers.
  • Codify the IRS mission, which should focus on delivering top-notch taxpayer services. The objective is to help all taxpayers meet their obligations.

As of March 30, the agency has received more than 94 million individual returns and issued more than $212 billion in refunds — the average refund is $2,900. In addition to dealing with the filing season, the IRS has also been busy implementing the new tax law and provisions of the Bipartisan Budget Act.

It’s Quittin’ Time. House Speaker Paul Ryan (R-WI) announced that he would not be seeking re-election in 2018. While it was not a complete surprise to those in the know, the decision sent a shockwave through Washington. Ryan is now part of the growing list of Republicans (about 46) who will not be returning to Congress next year.

Ryan’s retirement appears to reinforce the GOP’s fear that a “blue wave” will hit Congress come November, taking away the party’s majority status in both chambers. Yet, interestingly, the latest poll conducted by ABC News and Washington Post shows that the Democrats’ advantage in the midterm elections may be shrinking: The 12-point advantage held in January has dropped to a four-point lead. Generic ballot statistics tend to be all over the place leading up to Election Day, as a lot can change between now and November.

So far, Ryan has resisted calls for him to step down as speaker and allow an early leadership election to proceed. The GOP establishment is taking bets on whether the party will be able to force Ryan to hand over the gavel — some suspect that he may cave to the pressure by summer.

Based on most accounts, Majority Leader Kevin McCarthy (R-CA) is the likely successor, despite the personal scandal that helped sink his candidacy last time around. Majority Whip Steve Scalise (R-LA) is also getting a lot of buzz, but he’s unlikely to put up a fight against McCarthy, who has already secured Ryan’s blessing. Now McCarthy must bend the knee to the House Freedom Caucus to seal the deal.

Hitch Your Tax Dreams to the FAA Bill. On April 13, House lawmakers introduced the FAA Reauthorization Act of 2018 (H.R. 4). The bill would provide a five-year reauthorization of the Federal Aviation Administration (FAA).

Of note, the measure does not contain the controversial proposal to privatize the air traffic control system — an issue that snarled up previous reauthorization bills. Current reauthorization for the FAA is set to expire on Sept. 30.

The 2018 FAA bill contains a revenue title (Title VIII) that would extend the taxes that fund the Airport and Airway Trust Fund (e.g., fuel tax, airfare tax, etc.). More importantly, the revenue title provides a placeholder for other tax provisions — Republicans are looking to use it for technical corrections and extenders.

The House is aiming to take up the bill as soon as possible. However, timing on the Senate side remains uncertain.

Third Time’s the Charm. A 51-year old tax decision may finally be overturned as the Supreme Court takes a third look at a highly controversial sales tax issue: Should companies be required to remit sales taxes to states in which they sell products to residents, but do not have a physical presence? On April 17, the Supreme Court will hear legal arguments for South Dakota v. Wayfair, with a decision to follow this summer.

The Wayfair case began when South Dakota passed a law requiring Internet sellers to collect state sales tax for goods sold to residents. The lower court struck down the law as violating a prior 1992 Supreme Court decision: Quill v. North Dakota. Earlier this year, the Supreme Court accepted the Wayfair case, essentially agreeing to revisit the Quill decision.

In Quill, the Supreme Court limited the state’s ability to collect sales tax to retailers with a physical presence (e.g., warehouse or store) in the taxing jurisdiction. Quill itself followed the 1967 Bellas Hess v. Illinois case in which the Court determined that states cannot tax mail order companies for in-state sales, unless they maintained a physical presence in the state. Of course, this was long before the Internet and the growth of online retail.

Barring congressional action, the fate of cash-strapped states and retailers seems to be in the hands of the high court. Earlier this year, lawmakers made a final attempt to attach a sales tax legislation to the FY 2018 omnibus. However, the provision did not make it into the final deal.

Regulatory World

OMB Fights Off FOMO. The Treasury Department and the Office of Management and Budget (OMB) have released a Memorandum of Agreement (MOA) establishing a new process for the review of tax regulations. The MOA brings an end (at least for now) to the recent power struggle between the two agencies over who should get the final say in approving tax regulations. Under the MOA, the OMB has gained new authority to give final approval to certain tax regulations issued by the Treasury.

Under the new framework, a tax regulatory action will be subject to review by the OMB’s Office of Information and Regulatory Affairs (OIRA) if it is likely to result in a rule that may:

  • create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
  • raise novel legal or policy issues, such as by prescribing a rule of conduct backed by as assessable payment; or
  • have an annual non-revenue effect on the economy of $100 million or more, measured against a no-action baseline.

A tax rule that is subject to OMB’s additional review cannot be published in the Federal Register until OIRA notifies the Treasury that it has waived or concluded its review. OMB’s review will generally take 45 days after Treasury’s submission of a rule. The MOA also explains that any “policy disagreement that could not be resolved during the review process” will be resolved via a “principals meeting.” OIRA would facilitate such a meeting and, if needed, elevate any outstanding issues to the president.

According to the Treasury’s general counsel, Brent McIntosh, this MOA would affect only a small portion of the rules related to the implementation of the tax law. 

This new MOA supersedes the 1983 Memorandum of Agreement between the Treasury and OMB with respect to tax regulatory actions.

A copy of the MOA is available here. The agencies’ official press release can be viewed here.

Line Items

  1. Emin Toro, a partner at Covington & Burling, has been nominated to the U.S. Tax Court.
     
  2. Rep. Raja Krishnamoorthi (D-IL) introduced the Investing in American Workers Act (H.R. 5516), a bill that would provide a 20 percent tax credit to small and midsized companies that make new investments in worker training.
     
  3. The House failed to advance a joint resolution (H.J. Res. 2) proposing to add a balanced budget amendment to the U.S. Constitution.    
     
  4. The IRS issued Notice 2018-38 providing guidance on how non-calendar year corporations should calculate their federal income tax.

Commander-in-Tweet

April 17, 2018 Trump Tweet

In the Queue

Congressional Activity

Tuesday, 4/17

House Financial Services Committee
Hearing on the efforts, activities, objectives, and plans of the Federal Reserve.

House Financial Services Committee
Subcommittee hearing on the housing choice voucher program.

Senate Banking Committee
Nominations of Jeffrey Nadaner to be assistant secretary of Commerce for export enforcement; Thelma Drake to be federal transit administrator; and Seth Appleton to be assistant secretary of HUD for policy development & research.

House Ways and Means Committee
Hearing on “Jobs and Opportunity: Federal Perspectives on the Jobs Gap.” Labor Secretary Acosta to testify.

House Oversight Committee
Subcommittee hearing on “Continued Oversight Over the IRS.”

House Small Business Committee
Subcommittee hearing on “Small Business Retirement Plans and the IRS’ Employee Plans Fee Change.”

Wednesday, 4/18

House Appropriations Committee
Hearing on the FY 2019 Budget of the OMB with Director Mick Mulvaney.

Joint Select Committee on Solvency of MEPs
Hearing on the history and structure of the multiemployer pension system.

Thursday, 4/19

Senate Banking Committee
Hearing on the “Semiannual Testimony of the Federal Reserve's Supervision and Regulation of the Financial System.”

Senate Finance Committee
Hearing on opioid and substance use disorders in Medicare, Medicaid, and Human Services Programs.

Agency Activity

Tuesday, 4/17

FDIC
Open meeting to discuss the Interagency Regulatory Capital Rule: Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments to the Regulatory Capital Rule and Conforming Amendments to Other Regulations.

Wednesday, 4/18

SEC
Meeting to determine whether the commission should propose rules related to investment advice. Full meeting agenda here.

Other Activity

Monday, 4/16

Heritage Foundation
Discussion on the internet sales tax and the case before the Supreme Court.

Tuesday, 4/17

Brookings
Discussion on digital currencies and implications for central banks.

U.S. Chamber of Commerce
“Tax Cuts at Work” event with special guest Sen. Pat Toomey.

Wednesday, 4/18

SIFMA
Equity Market Structure Conference in New York. Details here.

Urban Institute
Discussion on how changes enacted through the Tax Cuts and Jobs Act of 2017 could affect the resources available to families and communities seeking to bridge the opportunity gap.

Thursday, 4/19

SIFMA
Global Finance Forum in Washington, DC. Details here.

American Enterprise Institute
Discussion on future of corporate taxation in a digital world.


McGuireWoods’ Tax Policy Group assists clients in understanding how the latest legislative and regulatory actions may impact their business and industry. To learn more about how our team can help you monitor, analyze, and navigate all relevant policy developments, please contact any of our attorneys and consultants below at (202) 857-1700.

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