Legislative Activity

Republicans Focus on Small Businesses, Democrats Target Tax “Loopholes”

Following a busy week for tax-writers – which included several hearings on “Tax Day” to address tax reform and the potential impact on small businesses – there is growing discussion about the possibility of pursuing business-only tax reform. To that end, Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee Chairman Paul Ryan (R-WI) last week requested input on how to overhaul the corporate tax Code, while at the same time protecting pass-through entities. The two lawmakers emphasized that “[w]e cannot afford to wait until 2017 to act.  If President Obama is willing to help us achieve a first phase of tax reform focused in part on business income, we owe it to American workers and their families to see if we can find common ground.” Suggestions are due on May 31.

On the Democratic front, lawmakers have introduced two pieces of legislation targeting corporate “loopholes.” Senator Bernie Sanders (I-VT) introduced S. 922, the Corporate Tax Dodging Prevention Act of 2015, which he indicated would “stop profitable corporations from sheltering profits in the Cayman Islands and other tax havens.” Separately, a bicameral group of lawmakers – including Senators Dick Durbin (D-IL), Jack Reed (D-RI), Sheldon Whitehouse (D-RI), and Al Franken (D-MN), along with Representatives Rosa DeLauro (D-CT), Sandy Levin (D-MI), and Lloyd Doggett, (D-TX) – introduced legislation to ban federal contracts with companies that undergo corporate tax inversions. However, it is unlikely that either tax-writing committee will move on such legislation; instead, they are expected to maintain their focus on broader tax reform efforts.

Lawmakers Introduce Highway Funding Proposals

Senators Rand Paul (R-KY) and Barbara Boxer (D-CA) last week introduced S. 981, the Invest in Transportation Act of 2015, which would tax up to $2 trillion in corporate revenue currently stored abroad to pay for domestic infrastructure projects. Specifically, the legislation would offer companies a rate of 6.5-percent for voluntarily repatriating their offshore cash to the United States. According to the Senators, the proposal is a “fiscally responsible approach to providing the necessary resources to correct the shortfalls in the Highway Trust Fund, while strengthening the U.S. economy and keeping jobs here at home.” As an alternative, Representative James Renacci (R-OH), along with a bipartisan group of lawmakers, has introduced a proposal to fund the nation’s highways by increasing the gas tax. However, while lawmakers continue to debate different approaches to highway funding, the Highway Trust Fund’s funding is set to expire this summer, thus not providing them an extended amount of time to debate the issue. As such, while members of Congress continue to determine exactly what approach they will take on tax reform – including the possibility of using repatriation as a longer-term funding mechanism for the nation’s infrastructure – it is likely that lawmakers will turn to a short-term patch to extend funding for the Highway Trust Fund past the summer.

This Week’s Hearings:

  • Wednesday, April 22: The House Ways and Means Subcommittee on Oversight will hold a hearing on the 2015 tax filing season and general operations at the Internal Revenue Service (IRS).
  • Thursday, April 23: The Senate Finance Committee will hold a hearing titled “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation, and Patients.”
  • Thursday, April 23: The Senate Finance Committee will hold a hearing to consider various nominations.

Regulatory Activity

IRS Receive Feedback on Internal Software Research Credit Rules

Last Friday, April 17, the IRS held a meeting to receive public comment on a proposed rule regarding credits for research activities on computer software that is developed for internal use by taxpayers. According to practitioners, while “the regulations are very helpful, [] when they are finalized they will apply to almost no one.” As such, commenters urged the IRS to apply the rules retroactively.