Blog Posts Tagged With Proposed Reform

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Chairman Hatch’s Modifications at a Glance

Last night the Joint Committee on Taxation released a description of Senate Finance Committee Chairman Hatch’s proposed Modifications to the Senate Mark of the Tax Cuts and Jobs Act.  Reports in anticipation of the Chairman’s Modifications had described them as intended to reduce the deficit increases otherwise expected under the initial Senate Mark.  The JCT also released an updated score last night that reflects the impact of the Chairman’s Modification. In addition to modifying the tax brackets applicable to individuals, increasing the child tax credit, and repealing the individual mandate to obtain health insurance under the Affordable Care Act, the Modification make several noteworthy revisions to the original Chairman’s Mark.
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Senate Tax Proposal Establishes Base Erosion Tax

The Senate Finance Committee Chairman’s Mark (Senate Mark) released last Thursday includes a provision that would impose a so-called “base erosion tax” on deductible payments made by certain corporations to their non-U.S. affiliates in taxable years beginning after December 31, 2017.  We previously discussed a similar proposal in the House that would impose a 20% excise tax on certain payments made by U.S. corporations to their non-U.S. corporate affiliates here.

Base Erosion Tax.  The Senate Mark’s base erosion tax would apply to U.S. and non-U.S. corporations (other than regulated investment companies, real estate investment trusts and S corporations) with average annual gross receipts of at least $500 million for the prior three-year period that have a “base erosion percentage” of 4% or higher for the taxable year. 
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JCT Releases Updated Distributional Effects of House Bill

This morning the Joint Committee on Taxation released its updated estimates of the distributional effects of the House tax bill reported out of the Ways and Means Committee.

As with prior estimates of the House bill, the JCT predicts that in the later years of the 10-year budget window, taxpayers in certain income brackets will experience an increase in taxes.
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Senate Mark Changes to Employee Benefits

The Senate Mark includes a number of changes relating to employee benefit programs and qualified defined contribution plans, effective for tax years beginning after 2017.

The Senate Mark is largely consistent with the House bill in repealing certain exclusions and deductions for expenses relating to entertainment, amusement and recreation activities and moving and relocation expenses. However, the Senate Mark does not contain provisions included in the House bill repealing the deductions, exclusions or credits for qualifying employer-sponsored education expenses, employee achievement awards, adoption assistance programs and, from 2023, dependent care expenses.

The Senate Mark eliminates catch-up contributions to qualified defined contribution plans for employees age 50 or older (up to $6,000 for 2017) for any employee who received wages of $500,000 or more in the prior year.
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More on the Senate Mark’s Deemed Repatriation

Like its House bill, the Senate Mark released Thursday provides for a one-time transition tax on untaxed accumulated earnings and profits (“E&P”) of certain non-U.S. corporations. The proposal splits E&P between cash and non-cash amounts with cash taxed at a 10% effective rate and non-cash taxed at a 5% effective rate. The highlights:

Basic Framework.  Under the proposal, 10% U.S. shareholders of a non-U.S. corporation generally will include in income their pro rata share of the foreign corporation’s previously untaxed accumulated E&P, determined as of November 9, 2017 or some undefined other appropriate measurement date (whichever produces more E&P). Non-U.S.
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Weekly Roundup

Last week the House Ways and Means Committee reported a tax bill out of committee for consideration on the House floor, where the GOP leadership expects it to pass on an up-or-down vote this week. View the bill as reported out of the House Ways and Means committee with our House Bill Navigator.

The Joint Committee on Taxation also released on Thursday a summary of the Senate Finance Committee’s tax reform proposals, which we have incorporated into our Senate Bill Navigator.  The Senate Finance Committee is expected to mark up its bill this week, and report it out of committee for consideration on the Senate floor after Thanksgiving.
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Comparing the House and Senate Tax Proposals Affecting Private Equity

The House and Senate versions of the Tax Cuts and Jobs Act would each have a significant impact on private equity firms, investors and portfolio companies.

We have prepared a presentation that summarizes many of the relevant provisions as they currently stand in each version and highlights their differing impact on private equity. This follows our post from last week highlighting the provisions in the House tax bill affecting private equity.
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More on the Senate Mark’s Taxation of Pass-Through Business Income

The Senate’s tax reform mark provides for favorable tax treatment of so-called “pass-through” business income derived by individuals by permitting an individual taxpayer generally to deduct 17.4% of “domestic qualified business income” from a partnership, S corporation, or sole proprietorship. The House tax bill, by contrast, provides a special 25% maximum rate on certain types of business income derived by individuals through partnerships, S corporations or sole proprietorships.

The Senate proposal also introduces a new rule, that is not in the House bill, that would require a non-U.S. shareholder to treat all or a portion of the gain from the sale of an interest in a U.S.
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More on the Senate Mark’s Corporate Provisions

The Senate Finance Committee has released a summary of its proposed tax legislation (what we refer to as the Senate Mark), though without any legislative text. Following the House, the Senate Mark would lower tax rates and reduce or eliminate deductions and credits for corporations, but in several respects it takes an approach that differs from the House bill (which you can read about here). Here are some of the highlights:

Rate Reduction.  Like the House bill, the Senate Mark would eliminate the corporate alternative minimum tax and replace today’s graduated corporate tax rates, which include a top marginal rate of 35%, with a flat rate of 20%.
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More on the Senate Mark’s Real Estate-Related Proposals

The text of the Senate Finance Committee’s proposed tax reform bill has not yet been released, but the Senate Finance Committee Chairman’s Mark released in summary form (“Senate Mark”) suggests that it will differ from the House bill as reported to the House floor on November 9 in several material respects. Below, we highlight several of the proposals mentioned in the Joint Committee’s summary that are of interest to the real estate industry.

17.4% Deduction for Certain Pass-Through Income (including REIT dividends).  Subject to the wage limitation mentioned below, the Senate Mark generally allows an individual to deduct 17.4% of its “domestic qualified business income” from a partnership, S corporation, or sole proprietorship.
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JCT Scores Tax Bill Reported Out of Ways and Means Committee

Last weekend the Joint Committee on Taxation released its updated score of the House tax bill as reported out of the Ways and Means Committee.  The updated estimate predicts a loss of $1.436 trillion in revenue over the 10-year budget window, within the guidelines established under the Joint Budget Resolution that controls whether the legislation will be eligible for the filibuster-proof reconciliation procedures in the Senate.  Almost $600 billion of the loss in revenue results from the House bill’s preferable treatment of pass-through business income, and another approximately $475 billion in net revenue loss results from the House bill’s corporate and international tax reforms.
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Senate Tax Proposal Establishes “GILTI” Patent Box

The  Senate Finance Committee Chairman’s Mark (Senate Mark) released last Thursday includes a provision that effectively imposes a foreign minimum tax on 10% U.S. shareholders of controlled foreign corporations (CFCs) to the extent the CFCs are treated as having  “global intangible low-taxed income” (GILTI). Under a related provision, corporate U.S. shareholders generally would be entitled to a deduction equal to 37.5% of any GILTI plus other foreign-derived intangible income, as described further below. Combined, these provisions amount to a 12.5% “patent box” that would impose current taxation on net income of a CFC that generally exceeds a routine rate of return on the CFC’s tangible depreciable business assets.
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JCT Releases Score of Senate Finance Committee’s Mark of Tax Reform

The Joint Committee on Taxation has released its score of the Senate Finance Committee Chairman’s Mark tax reform proposals. Although formal bill text is not expected to be available prior to next week, the Joint Committee presumably relied on the detailed section-by-section summary released by the Joint Committee last night.

Under JCT’s analysis, the proposals are expected to reduce federal revenues by $1.495 trillion over the 2018-2027 budget window, within the framework established under the governing Joint Budget Resolution. The JCT’s estimates do not extend to periods beyond the budget window, during which the bill’s effects must be deficit neutral in order to be passed by majority vote under the rules for reconciliation.  
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Senate Mark at a Glance

The Senate Finance Committee Chairman’s Mark (Senate Mark) released last night diverges sharply in many respects from the House Bill.  Although in summary form, the Senate Mark describes a comprehensive tax reform proposal that will take some time to analyze. In the meantime, the table below summarizes key features of the Senate Mark, together with a comparison to the final House Bill.

We have also released an initial version of our Senate Bill Navigator, a hyperlinked version of the Senate Mark built to ease your navigation of its text, which you can find here.

Corporates.  As expected, the Senate Mark calls for a permanent reduction in the corporate tax rate to 20%, with implementation delayed until 2019.
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Updated House and Senate Bill Navigators

An updated version of the Tax Bill Navigator (renamed the House Bill Navigator) is now available, which reflects the House bill as reported to the House floor on November 9th.  You can find the updated House Bill Navigator here.

We are also pleased to release our first “Senate Bill Navigator,” a hyperlinked version of the Senate’s Chairman’s Mark released last night.  In this initial release we have hyperlinked the Chairman Mark’s section-by-section table of contents and have included a “back to top” function.  We plan to supplement this release with a second version that includes an additional table of contents organizing the Chairman’s Mark by subject matter.
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Brady’s Second Amendment at a Glance

Chairman Brady released another manager’s amendment to the House Bill this afternoon. This amendment was promptly approved by the House Ways and Means Committee 24-16 and included in the House Bill reported to the floor.

We have incorporated this amendment into the text of the Chairman’s Mark and have generated a PDF comparison showing the revised sections, which you can find here. Click here for a comparison that shows the entirety of the bill’s text. Both comparisons are against the bill as amended on November 6th. We will follow up in the morning with an updated Tax Bill Navigator, reflecting the final bill as reported to the House floor.
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Senate Releases Chairman’s Mark

The Senate Finance Committee joined the fun this evening, releasing the official “Chairman’s Mark” in advance of Senate Finance Committee markup scheduled to begin on Monday. Unlike in the House, the Chairman’s Mark is in the form of a detailed section-by-section summary, not full bill text – bill text will be generated as the markup progresses. You can read the full Chairman’s Mark here. A brief two-page summary is available here.

We will be posting on our blog throughout the day tomorrow as we dig into the Chairman’s Mark. Expect a chart summarizing the bill’s headline items (as compared to the House Bill) as well as the release of our a Senate Bill Navigator to help users more easily find specific provisions of the Chairman’s Mark.
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Brady Settles Ambiguity Over SALT Deduction for Pass-Through Income

Confusion as to whether (or how) the House bill’s repeal of the deduction for state and local income taxes would apply to state and local income taxes imposed on an individual’s share of the income received from a pass-through business has been resolved in a letter issued by House Ways and Means Committee Chairman Kevin Brady (R-TX) this morning. Read the full letter here.

The Ways and Means section-by-section summary and the JCT summary released on Saturday both indicate that the deduction is intended to be preserved for state and local income taxes paid or accrued in carrying on a trade or business or producing income.
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The House Tax Bill Provisions Affecting Private Equity

The House tax bill contains several provisions that could significantly affect private equity sponsors, investors and portfolio companies. Below we have highlighted a number of these proposals, including discussions of:

Carried Interest. The House bill generally would limit the favorable taxation of carried interest to investments that have a holding period of more than three years, and treat carried interest attributable to gains on investments held for three years or less as short-term capital gain (taxed at the rates applicable to ordinary income).
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CBO Scores Initial Chairman’s Mark of the House Tax Bill

Today the Congressional Budget Office released revised estimates of the deficit and debt effects of the House tax bill as amended by Chairman Kevin Brady’s (R-TX) mark from last week.  Under the CBO’s analysis, the initial Chairman’s Mark of the tax bill would increase the deficit by $1.7 trillion during the ten-year budget window, greater than the $1.5 trillion increase authorized by the Joint Budget Resolution (see our prior post on the Senate’s passage of the resolution here).  These estimates do not reflect the revisions made by the Chairman’s amendments adopted on Monday, which reportedly further decrease expected revenues.
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