Legislative Activity

Lawmakers to Focus on Tax Extenders

As Congress returns to Washington, tax extenders legislation remains on the relatively short list of “must pass” items in the lame duck session. While the House and Senate have thus far taken different approaches on extenders, it is likely that lawmakers will finalize a proposal before adjourning for the year. In May, the Senate Finance Committee reported bipartisan legislation, the EXPIRE Act, out of Committee, which would extend nearly all expired provisions for two years (2014 and 2015). Rather than opting for a short-term extension of all expired provisions like the Senate, the House passed a handful of bills making select extender provisions permanent. Under the House approach, dozens of provisions that expired at the end of 2013 remain unaddressed. With the 2014 tax filing season drawing near, there is significant pressure on Congress to finalize tax extenders legislation during lame duck. While both the House and Senate will seek to defend their preferred approach on tax extenders, it is more likely that the Senate’s short-term approach, whether one or two years, will prevail.  There remains, however, the possibility of  a broader deal that involves making various provisions permanent, helping to set the stage for discussions on tax reform by making it easier for both sides to agree on a revenue baseline.

Regulatory Activity

Administration to Issue Further Guidance on Inversions

In September, Treasury Secretary Jack Lew announced the Administration’s much anticipated proposed regulatory restrictions on inversion transactions, which would: (1) prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of certain loans, which are known as “hopscotch” loans; (2) prevent inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free;  (3) foreclose an inverted company’s ability to transfer cash or property from a controlled foreign corporation to the new parent to completely avoid U.S. tax; and (4)  make it more difficult for U.S. entities to invert by increasing the requirement that the former owners of the U.S. entity own less than 80-percent of the new combined entity.  The guidance has slowed the pace of inversion announcements and impacted several pending inversion transactions, and the Treasury Department recently announced that it will likely propose additional restrictions on inversions in the coming weeks, with some targeting earnings stripping.