Transparency in Government Settlements and Deductions for “Fines or Penalties”

Last month, Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) re-introduced bipartisan legislation intended to force government agencies to specify which payments made pursuant to out-of-court settlement agreements will be nondeductible under a newly expanded Section 162(f). Under the proposed new Section 162(f), amounts constituting restitution or paid to come into compliance with law (which generally are deductible under current law) would be deductible only if identified as such in the court order or settlement agreement. Amounts paid or incurred as reimbursement to the government for the costs of any investigation or litigation in relation to the violation or potential violation of law would not be deductible. Continue Reading

Update: House Passes Obamacare Repeal Bill

Yesterday, Republican members in the House of Representatives passed the American Health Care Act, H.R. 1628, by a 217-213 vote, with 20 Republicans and all Democrats voting against. Although the House made various health-policy and spending amendments to the bill since our March 21st post, the tax provisions described in that post survived with only one change – the repeal of the 0.9% Medicare surtax on wages above certain amounts was delayed to taxable years after December 31, 2022.  Notably, the tax provisions included in the AHCA passed by the House includes the retroactive repeal (starting on January 1 of this year) of the 3.8% tax on certain net investment income under Section 1411 of the Code. Continue Reading

Tax Items in the Budget Bill

Late Sunday night Congress reached a budget deal that will keep the Federal government funded through the end of the fiscal year in September. The House and Senate are expected to vote on the package today or tomorrow (the House vote is scheduled for this afternoon) to ready it for President Trump’s signature before the end of the day on Friday to avert a government shutdown. The bill totals 1,600 pages (you can read the whole thing here.)

Here is a summary of the tax-related items:

  • The bill allocates a total amount of $11.2 billion to the IRS to fund various activities and operations.
Continue Reading

Reactions to the Trump Tax Plan

As noted in yesterday’s summary, the basic outline of the Trump Administration’s tax plan is largely similar to the Trump campaign proposals, with fewer details and with one notable shift toward the House Blueprint’s approach – the move toward territoriality. The table below shows how this latest plan compares to the House Blueprint and the Trump 2016 campaign plan.

In the press conference to announce the “broad-strokes” plan, both Treasury Secretary Mnuchin and National Economic Council Director Cohn said that they were in agreement with members of Congress over the four driving goals of tax reform – grow the economy and create millions of jobs, simplify the tax code, provide tax relief to American families, especially middle-income families and lower the business tax rate from one of the highest in the world to one of the lowest. Continue Reading

Update: Trump Administration Officially Announces “Massive Tax Cuts” in One Page Proposal

Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn announced the Trump Administration’s tax plan in “broad-strokes” at a White House press conference this afternoon. The proposal is in line with what we predicted earlier today, with a handful of changes and a bit of additional detail. A more detailed comparison between what was announced, Trump’s campaign proposals and the House Blueprint will follow.  For now, here is a brief summary of what we heard:

Business Taxes

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15% (with rules to prevent individuals from flowing personal income through pass-throughs to secure the lower rate)
  • Repeal the corporate AMT?
Continue Reading

President Trump To Announce Tax Reform Principles

The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15%
  • Repeal the corporate AMT
  • Deemed repatriation of accumulated offshore earnings taxed at 10%
  • No destination-based cash flow tax
  • Shift toward territoriality?
Continue Reading

Tax Reform and Revenue Raisers

One of the biggest challenges facing lawmakers in the current tax reform process is finding a way to reduce headline tax rates in a revenue neutral way. Some revenue raisers (like eliminating itemized deductions) would raise significant revenue and simplify the tax code. Other revenue raisers come at the cost of increased complexity, at least in the short term (e.g., implementing a federal VAT or a new carbon tax). Closer inspection of ideas on the table reveals that politically popular reforms are not necessarily the largest revenue raisers. For example, there seems to be bipartisan support for taxing carried interest as ordinary income (more on that here), a relatively small revenue raiser. Continue Reading

Mnuchin: Tax Reform Timing Likely to Slip and Other Hints at the Administration’s Thinking

Treasury Secretary Steven Mnuchin told the Financial Times yesterday to expect tax reform to slip past the August recess, stating that the previously announced timeline was “highly aggressive to not realistic at this point.” Mr. Mnuchin’s interview touched on other areas of tax reform as well, confirming that the Administration has not ruled out the DBCFT (and the ~$1 trillion of revenue it would purportedly raise) while implying that the Administration is also considering alternative revenue raisers.  When asked how the Administration would ensure tax reforms were deficit-neutral, Mr. Mnuchin also stressed the importance of economic growth in generating revenue, implying that the Administration may lean on dynamic scoring to meet the reconciliation process’s budget neutrality requirements. Continue Reading

A Future for FATCA?

Certain aspects of the Foreign Account Tax Compliance Act (“FATCA”), the revenue-raising portion of the 2010 stimulus bill known as the HIRE Act, have been a continuing source of controversy since its inception. A spate of recent criticism and introduced legislation raises the question whether FATCA will survive if any tax reform proposals are enacted. For example, on April 5, Senator Rand Paul (R-KY) and Representative Mark Meadows (R-NC 11th) sent an open letter to the Treasury Secretary and the Director of OMB outlining administrative steps that the Trump administration could take to halt, or at least severely slow, the enforcement of the law. Continue Reading

NY State RETT Expansion Not Included in Final New York Budget

Last month we wrote about a proposal included in New York State Governor Andrew Cuomo’s 2017-2018 budget that would have expanded the New York State Real Estate Transfer Tax (“NY State RETT”) to cover transfers of minority interests in certain entities. Late last week New York lawmakers reached a final deal on the budget that excludes this provision. The final revenue bill can be found here (see part JJ – what was once the proposed NY State RETT expansion is now “Intentionally Omitted”). It passed the Senate and Assembly over the weekend and is expected to be signed by the Governor today. Continue Reading

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