Legislative Activity

Coming Soon: The GOP’s Tax Reform “Blueprint”

With House Republicans expected to roll out their comprehensive tax “blueprint” this month – and lawmakers set to leave Washington on Friday, June 24 – it is likely that we will see the proposal released this week. It is quite possible, however, that the final product may not contain many substantive details (although, in light of work done by Representative Charles Boustany (R-LA) and others), perhaps more detail will be included on the corporate and international tax portions). Instead, the “blueprint” will likely serve more as a messaging piece for Republicans’ tax priorities in the 115th Congress. Notably, in speaking about what to expect, House Ways and Means Committee member Kenny Marchant (R-TX) noted that he hopes not to “alarm people” by how “radically [we’ve] lowered the rate, and change[d] the revenue side of [things] – how many deductions have to go away to get to that result.”

As for Senate Republicans, we may also soon see Senate Finance Committee Chairman Orrin Hatch’s (R-UT) “corporate integration” proposal, which is expected to provide a dividends-paid deduction to corporations in an effort to end the double taxation of corporate income. Senator Hatch had previously indicated his proposal would be released sometime in June once it receives a score from the Joint Committee on Taxation (JCT). The Senate will be in session next week while the House is on recess, which may be a particularly opportune time for Senator Hatch to finally unveil his proposal.

Not to be left out, Democrats in both Chambers are continuing to focus on short-term tax reform efforts, centering on inversions. In particular, the Senate Finance Committee is continuing its months-long work on a broad anti-inversion package. According to Todd Metcalf, Chief Democratic Tax Counsel,“[s]ome pieces of it are anti-inversion, other pieces are what I would describe as mini-reforms of the international system that might lessen the incentives to invert.” The Committee is expected to release its proposals this summer.

Senate Democrats Hoping to Move Energy Tax Extenders as Part of FAA Reauthorization

Following last week’s Senate Finance Committee hearing on energy tax policy, it remains clear that Senate Democrats will continue to push for an extension of those energy tax provisions that were (according to some lawmakers) inadvertently left out of last December’s fiscal agreement. As Senate Finance Committee Ranking Member Ron Wyden (D-OR) noted, “[t]he sooner Democrats and Republicans come together, take care of these energy extenders and clear the decks, the sooner we can turn to finding a smarter, fresh approach to energy tax policy.”

Both Senators Wyden and Chuck Schumer (D-NY) have indicated their preference to use the upcoming bill to reauthorize the Federal Aviation Administration (FAA) as the vehicle to extend these provisions; however, it is unclear whether Senate Majority Leader Mitch McConnell (R-KY) and Chairman Hatch would support such an approach. Moreover, on the House side, Chairman Brady has previously expressed his preference to address any remaining tax extenders in 2017 as Congress moves forward with its work on tax reform. With the current FAA reauthorization set to expire in mid-July, lawmakers will be forced to act soon if they hope to avoid another year-end negotiation.

This Week’s Hearings:

  • June 22: The House Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing titled “Audits and Attitudes: Is the IRS Helping or Hurting Small Businesses?”
  • June 22: The House Judiciary Committee will hold a hearing titled “Examining the Allegations of Misconduct Against IRS Commissioner John Koskinen, Part II.”

Regulatory Activity

With Comment Period on Section 385 Regulations Closing Soon, It Remains Unclear How Treasury Will Respond to Concerns

Following a June 10 briefing of Senate Democratic tax staffers by Bob Stack, Deputy Assistant Secretary for International Tax Affairs, and Mark Mazur, Assistant Secretary for Tax Policy, there has been much speculation that the Treasury Department may delay the release of its final section 385 debt-equity rules beyond Labor Day – possibly as late as December. However, despite lobbying efforts seeking a delay, it appears that the Treasury Department is likely focused more on making changes to substantive areas of the rulemaking that might be problematic if implemented as proposed (cash pooling, for example).

Beyond these types of changes, however, it is unlikely that Treasury will significantly change the substance or timing of the proposal – unless, of course, there is significant pushback from Democratic lawmakers. While lawmakers are reportedly considering a hearing on the proposals, it seems unlikely that Democrats will join Republican efforts seeking to pare back the rulemaking. The comment period on the regulations is presently expected to close on July 7.

Internal Revenue Service Electronic Advisory Committee to Hold Open Meeting

On Tuesday, June 21, the Internal Revenue Service’s (IRS) Electronic Tax Administration Advisory Committee (ETAAC) will hold an open meeting to discuss recommendations for electronic tax administration, which will be published in the ETAAC’s Annual Report due to Congress by June 30, 2016. The Internal Revenue Service is expected to respond to the various recommendations.