Legislative Activity
Reid, Paul Working on Repatriation Bill to Fund Transportation Infrastructure
On June 10, Senate Majority Leader Harry Reid (D-NV) and Senator Rand Paul (R-KY) indicated that they are working on legislation that would allow corporations to repatriate foreign earnings at lower rates, suggesting that this revenue could be used to fund improvements to transportation infrastructure. Senators Reid and Paul are basing their discussions on section 965 of the Internal Revenue Code (IRC), which was enacted in 2004 and provided for an optional, one-year 85 percent dividends received deduction for dividends paid by a controlled foreign corporation to a U.S. corporation. Majority Leader Reid has suggested setting the rate at 9.5 percent, which he estimated would yield $30.3 billion in the first two years; however, revenue losses in later years would offset this early gain, netting approximately $3 billion total over a 10 year period. In contrast, the Joint Committee on Taxation (JCT) estimates that a one-year reinstatement of section 965 would cost the government an estimated $95.8 billion over a 10 year period. While Senator Paul has not yet expressed support for the 9.5 percent rate, he has suggested that he is seeking a compromise between his preference for a permanent 5 percent rate on repatriated profits and Democrats’ desire for a temporary tax holiday. It is unclear whether Senators Reid and Paul intend for a repatriation proposal to serve as a long or short-term fix to replenish the depleted Highway Trust Fund.
Despite efforts to work out a compromise on repatriation, Senate Republicans do not generally support using such legislation to pay for highway spending. Notably, House Ways and Means Committee Chairman Dave Camp (R-MI) has also indicated that he opposes such a plan, as he would prefer to use revenues from repatriation to keep comprehensive tax reform revenue neutral.
Warren’s Student Loan Bill Stalls in the Senate
On June 11, the Senate decided not to move forward with Senator Elizabeth Warren’s (D-MA) bill (S. 2432) to refinance student loan debt with a minimum tax on high-income filers (the “Buffet Rule”). The bill, the Bank on Students Emergency Loan Refinancing Act, would impose a minimum effective tax rate on the adjusted gross income (AGI) of joint filers whose AGI exceeds $1 million ($500,000 for married individuals filing separately). The tax would phase in for joint filers with AGIs between $1 million and $2 million (between $500,000 and $1 million for married individuals filing separately), reaching 30 percent when fully phased in.
Regulatory Activity
IRS to Issue Corrections, FAQs as FATCA Effective Date Nears
As the Foreign Account Tax Compliance Act (FATCA) July 1 effective date draws near, the Internal Revenue Service (IRS) has announced that requirements of qualified intermediary (QI) agreements and withholding partnership (WP) agreements will be added to the requirements of a foreign financial institution (FFI) agreement. The IRS is also planning technical corrections to both final and temporary FATCA regulations. Reportedly, the IRS is examining: (1) temporary regulations (T.D. 9657) dealing with the rule for collateral for a withholding payment exception; (2) the descriptions of the QI and QI certification forms; and (3) the commercial activities test regarding the limitation on treatment as an exempt beneficial owner in section 1.1471-6. The corrections will likely be issued by July 1 or shortly thereafter.
Further, on June 11, the IRS indicated that audits to verify compliance with FATCA requirements are not likely to begin until early 2016, as it will take until then to process and prepare the information that the agency will receive beginning in 2015.
