Legislative Activity

Lawmakers to Focus on Certain Elements of Tax Reform

This week, lawmakers are set to focus on various aspects of tax reform. On the Senate side, the Finance Committee will hold a hearing on reforming the retirement savings system, as well as a hearing on reforming energy tax incentives. In the House, Members will vote on H.R. ___, the Jobs for America Act, which was introduced last week by Ways and Means Committee Chairman Dave Camp (R-MI) and contains several provisions already passed by the House. In particular, the bill would make permanent five business tax extenders: (1) the research and development (R&D) tax credit; (2) section 179 expensing; (3) bonus depreciation; (4) the five-year built-in gains recognition period for S corporations; and (5) the rules on basis adjustments to the stock of S corporations making charitable contributions of property.

Additionally, as discussed in previous coverage, Senator Charles Schumer (D-NY) has been particularly vocal about the need to address corporate tax inversions.  Last week, Senator Schumer, along with Senator Dick Durbin (D-IL) and eight other Senate Democrats, released the text of anticipated legislation that would further mitigate the ability of inverted companies to deduct interest expense in the United States. Specifically, the bill would: (1) Repeal the debt-to-equity safe harbor so that limitations on the interest expense deduction will apply to all inverters, regardless of their financial leverage; (2) Reduce the permitted net interest expense to no more than 25 percent (down from 50 percent) of the subsidiary’s adjusted taxable income; (3) Repeal the interest expense deduction carryforward and excess limitation carryforward so that inverters cannot take advantage of the deduction in future years; and (4) Require the U.S. subsidiary to obtain IRS preapproval annually on the terms of their related-party transactions for 10 years immediately following an inversion.

This Week’s Hearings:

  • Tuesday, September 16: The Senate Finance Committee will hold a hearing titled “Retirement 2.0 Savings: Updating Savings Policy for the Modern Economy.”
  • Wednesday, September 17: The House Ways and Means Subcommittee on Select Revenue Measures will hold a hearing titled “Private Employer Defined Benefit Pension Plans.”
  • Wednesday, September 17: The Senate Finance Committee will hold a hearing titled “Reforming America’s Outdated Energy Tax Code.”
  • Thursday, September 18: The Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations will hold a hearing titled “Tax Audits of Large Partnerships.”

Regulatory Activity

Administration Likely to Release Inversion Guidance

As discussed in previous coverage, both Congress and the Administration continue to grapple with how to best address the issue of corporate inversions. However, it has become increasingly clear that, in the near term, Congress is unlikely to implement a legislative fix.  Recognizing that “Congress may not move as quickly as necessary” to address the inversion issue, Secretary Lew explained last week that the Treasury Department is “completing an evaluation about what we can do to make these deals less economically appealing, and we plan to make a decision in the very near future.”

Specifically, he suggested that any anti-inversion legislation should be retroactive and apply to any deal made after “early May” 2014. Nevertheless, he emphasized that while action by the Treasury would have a sound policy and legal basis, no administrative action can serve as a substitute for legislation, as the Administration can “only address part of the economics.” Treasury may take action on the inversion issue as early as this week.

IRS to Hold Meeting on REIT Provisions

On Thursday, September 18, the Internal Revenue Service will hold a meeting on proposed regulations that clarify the definition of real property for purposes of the real estate investment trust (REIT) provisions of the Internal Revenue Code.  Discussion will center on railroad properties, mobile home units permanently installed in a planned community, air rights over real property, interests in mortgage loans secured by total energy systems, and mortgage loans secured by microwave transmission property.