Legislative Activity

Ways and Means Votes to Permanently Extend Seven Tax Extenders, Finance Zeroes in on Getting to Tax Reform

On Wednesday, February 3, the House Ways and Means Committee held a markup of seven bills to permanently extend certain tax provisions, including section 179 business expensing and various charitable provisions. During the 113th Congress, former House Ways and Means Committee Chairman Dave Camp (R-MI) held numerous markups of a similar nature, seeking to make various tax provisions permanent. However, lawmakers were unable to achieve permanency on extenders in the last Congress and ultimately voted to pass legislation that provided a one-year retroactive extension of the more than 50 expired tax provisions for the 2014 calendar year. Therefore, effective January 1, 2015, these tax provisions expired again, leaving it to the 114th Congress to take action on the matter.

Similar to the dialogue during markups last Congress, there was a clear divide between the Republicans – who argued that making tax extenders permanent was necessary to ensure an “honest” baseline – and Democrats – who opposed the bills for failing to provide an offset. Nevertheless, all seven bills were favorably reported out of Committee and are set to be considered by the full House of Representatives this week.

On the Senate side, the Finance Committee has scheduled a hearing to discuss what Members can learn from the Committee’s last successful effort to reform the tax Code. Former Senate Finance Committee Chairman Bob Packwood (R-OR) and former Member Bill Bradley (D-NJ) – both of whom played a critical role in passage of the Tax Reform Act of 1986 – will testify before the Committee.

Lawmakers Hint at Short-Term Patch for Highway Funding

Despite efforts by Senators Rand Paul (R-KY) and Barbara Boxer (D-CA), as well as Representative John Delaney (D-MD), to push for legislation that would pay for infrastructure funding with a tax on repatriated earnings, there continues to be opposition from Republican leadership, including Senate Finance Committee Chairman Orrin Hatch (R-UT). Given the continued pushback, House Ways and Means Select Revenue Measures Subcommittee Chairman Dave Reichert (R-WA) has suggested that he does not “think [repatriation proposals are] going to work.” Separately, Representative Earl Blumenauer (D-OR) has indicated that House Ways and Means Committee Chairman Paul Ryan (R-WI) has agreed to at least discuss raising the gas tax as part of the Committee’s efforts to find funding for the nation’s infrastructure; however, as discussed previously, a gas tax hike lacks broad support and is unlikely to prevail. Absent congressional action, the Highway Trust Fund will run out of funding on May 31 of this year.

This Week’s Hearings:

  • Tuesday, February 10: The Senate Finance Committee will hold a hearing titled “Getting to a Yes on Tax Reform: What Lessons Can Congress Learn from the Tax Reform Act of 1986?”
  • Wednesday, February 11: The House Ways and Means Subcommittee on Human Resources will hold an organizational meeting, which will be followed by the first hearing in a series titled “Moving America’s Families Forward.”
  • Wednesday, February 11: The House Ways and Means Subcommittee on Oversight will hold an organizational meeting, which will be followed by a hearing titled “Protecting Small Businesses from IRS Abuse.”

Regulatory Activity

IRS to Release Guidance on Hedge Fund Income, Treasury to Consider “Broader” Approach to Earnings Stripping

Last week, following pressure from Senate Finance Committee Ranking Member Ron Wyden (D-OR), Internal Revenue Service (IRS) Commissioner John Koskinen indicated that the IRS will work to release guidance within 90 days regarding a strategy applied by hedge funds that uses foreign reinsurance companies to shelter their income from U.S. taxes. Ranking Member Wyden highlighted that it has been over a decade since the IRS issued Notice 2003-35, which described the need for guidance on such arrangements. According to Commissioner Koskinen, the guidance is mostly prepared and takes into consideration the need to avoid harming legitimate reinsurance companies.

Separately, a Treasury official recently indicated that it is considering taking a “broader” approach to address earnings stripping, beyond tightening prohibitions against over-leverage between related parties.