Legislative Activity

Senate to Vote on Highway Funding Bill

This week, the Senate is expected to vote on H.R. 5021, the Highway and Transportation Funding Act of 2014, which recently passed the House by a vote of 367-55. The bill would patch and reauthorize the Highway Trust Fund (HTF) through May 2015 by using transfers from the General Fund and the Leaking Underground Storage Tank Trust Fund. To offset the cost of the General Fund transfer, the bill calls for pension smoothing and customs fees. In addition to H.R. 5021, the Senate will also consider the following three tax-related amendments to the bill: (1) S. Amdt. 3582, which includes many of the same provisions as the House bill, but also incorporates additional revenue-raising compliance measures; (2) S. Amdt. 3583, which is also similar to the House bill, but eliminates its pension smoothing provision and would only fund the HTF through the end of the 2014 calendar year; and (3) S. Amdt. 3584, which would transfer HTF taxing and spending authority to the states over a five year period, terminate the Mass Transit Account, and lower taxes on gasoline and other fuels. However, as reported in previous coverage, the Senate is widely expected to simply adopt the House version of the bill.

Additional Inversion Proposals Expected

Last week, following a flurry of discussion about corporate tax inversions, President Obama urged that “we need to stop companies from renouncing their citizenship just to get out of paying their fair share of taxes. We can’t wait for [comprehensive tax reform]. You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers.”

Currently, Internal Revenue Code (IRC) section 7874 requires that if the continuing ownership of historical shareholders of the domestic corporation in the foreign acquiring corporation is 80 percent or more (by vote or value), the new foreign parent corporation is treated as a domestic corporation for all U.S. tax purposes.  In addition, if the continuing U.S. shareholder ownership is at least 60 percent but less than 80 percent, the foreign status of the acquiring corporation is respected but certain other adverse tax consequences apply (the “60-percent test”).  Earlier this year, in its FY2015 budget request, the Obama Administration proposed, among other things, replacing the 80-percent test with a greater than 50-percent test and to eliminating the 60-percent test.

Over the last several months, as more inversion transactions have been announced, lawmakers have proposed various legislative solutions to the matter.  Notably, Senator Carl Levin (D-MI), along with Representative Sandy Levin (D-MI), Ranking Member of the House Ways and Means Committee, have introduced companion bills that would closely follow the Obama Administration’s anti-inversion proposal. Moreover, as previously reported, on July 22, 2014, the Senate Finance Committee held a hearing titled, “The U.S. Tax Code: Love It, Leave It, or Reform It!”  The general topic of the hearing was international taxation, with a sharp focus on recent and possible future corporate inversion transactions.  Further, numerous Members outside of the tax-writing Committees have weighed in as well, turning to the annual appropriations process as a means to affect tax policy.  Following President Obama’s recent comments, it is expected that lawmakers will release additional anti-inversion proposals this week before Congress adjourns for August recess.

Several notable lawmakers are not in favor of standalone inversion legislation. For example, House Ways and Means Committee Chairman Dave Camp (R-MI) has argued that anti-inversion legislation should not be viewed as a solution and, instead, continues to focus his efforts on comprehensive reform.

Future on Insourcing Bill Unclear

This week, the Senate may move forward with S. 2569, the Bring Jobs Home Act, which would provide a 20 percent tax credit for expenses related to relocating jobs to the United States and deny deductions for outsourcing expenses. However, since being introduced, Senators have filed more than three-dozen amendments to the bill, making its future uncertain.

This Week’s Hearings:

  • Wednesday, July 29: The Senate Finance Committee will hold a hearing titled “Tobacco: Tax Owed, Avoided, and Evaded.”
  • Wednesday, July 30: The House Ways and Means Subcommittee on Select Revenue Measures will hold a hearing titled “Dynamic Analysis of the Tax Reform Act of 2014.”

Regulatory Activity

IRS Issues Rules on money Market Funds

On July 23, in response to the Securities and Exchange Commission’s (SEC) determination that money market funds may no longer use special exemptions allowing them to maintain a stable net asset value (NAV), the Internal Revenue Service (IRS) issued proposed rules (REG-107012-14, RIN 1545-BM04) and an accompanying revenue procedure (Rev. Proc. 2014-45)  clarifying the tax accounting associated with frequent trading of money market fund shares.

IRS Issues Further FATCA Guidance

The IRS has clarified that, under the Foreign Account Tax Compliance Act (FATCA), qualified intermediaries will be considered in effect as of June 30 if they either renew their status or apply for that status by July 31.