Legislative Activity

Tax-Writers Running Out of Time on Highway Bill

Last week, the House of Representatives passed by a vote of 312-119 an $8 billion five-month highway patch that includes various tax compliance-related pay-fors, which themselves raise nearly $5 billion. If the House is successful in getting the Senate to agree to its short-term extension before highway funding runs out at the end of the month, House Ways and Means Committee Chairman Paul Ryan (R-WI) plans to pursue a six-year highway bill, a package of permanent tax extenders, and international tax reform when Congress returns from August recess. Notably, such a proposal may use “deemed repatriation” to help finance both the highway bill and a transition to a hybrid territorial system of taxation.

On the Senate side – and despite the White House’s support for a short-term extension – Senate Majority Leader Mitch McConnell (R-KY) is still pushing to pass a multiyear highway bill before Congress adjourns later this month. While the bill may only extend highway funding through the 2016 Election, Senate Finance Committee Chairman Orrin Hatch (R-UT) appears to have identified pay-fors (not including repatriation) to fund up to a five-year highway bill – though he does not yet appear to have the necessary votes.

As July 31 – the date on which the Highway Trust Fund will run out of money – approaches, it is becoming increasingly less likely that the Senate’s approach will win the day. In addition to disagreements over the pay-fors, the possibility that lawmakers will seek to include a reauthorization of the Export-Import Bank as part of the legislation may also hamper the process, as various Republican Senators have already indicated that they plan to filibuster the highway bill if it contains such a provision. While Senate leadership will soon unveil its proposal in hopes of gaining the necessary support before lawmakers leave Washington at the end of the month, there will likely not be sufficient time for the Senate to come to a consensus on a long-term bill, which would force lawmakers to accept the House’s short-term patch and return to the debate after August recess.

Relatedly, while we do not expect the bill will gain any traction, House Democrats last week offered their own highway bill that would reauthorize highway funding for six years to the tune of $478 billion. Notably, lawmakers would partly pay for the bill with a provision that would restrict corporate tax inversions and raise $41 billion. In responding to the proposal, Chairman Ryan was critical of addressing inversions through more regulation, suggesting that such an approach would make U.S. companies more vulnerable to takeover by foreign firms.  Instead, Chairman Ryan continues to believe that inversions are best addressed through tax reform.

Senate to Move Two-Year Extenders Package

The Senate Finance Committee has announced that it will hold a markup this Tuesday, July 21, to renew 52 expired tax provisions for two years – retroactively for 2015 and prospectively through the end of 2016. In total, the proposal would cost $95.6 billion over the 10 year scoring window.  On the House side, lawmakers are expected to address tax extenders when Congress returns from August recess. Notably, when the House does move forward on tax extenders, they are likely to focus on making tax extenders permanent, rather than simply passing a two-year extension. Presently, it is uncertain whether the Senate or House approach will prevail; however, the process will likely be influenced by how Congress chooses to approach the highway bill and international tax reform. Should the House path ultimately prevail, however, President Obama has indicated he will veto any legislation that makes tax extenders permanent without providing offsets.

This Week’s Hearings:

  • Tuesday, July 21: The Senate Finance Committee will hold a markup of legislation to extend certain expired tax provisions.
  • Thursday, July 23: The House Ways and Means Subcommittee on Oversight will hold a hearing titled “IRS Audit Selection Process.”

Regulatory Activity

IRS Proposes Regulations to Eliminate Property Transfer Election Requirement

On Friday, July 17, the Internal Revenue Services proposed regulations regarding property transferred in connection with the performance of services, which would eliminate the requirement that taxpayers submit a copy of a section 83(b) election with their tax return for the year in which the property subject to the election was transferred. The regulations would take effect on January 1, 2016, and would apply to property transferred on or after that date. Comments are due by October 15.