Senate Debate Begins

It has begun. The Senate voted last night to begin formal debate of the Senate Bill (52-48).  The official legislative text under consideration – S.1 – is identical to the legislative text released last Tuesday, except that it also includes a package of oil drilling provisions added by the Senate Budget Committee earlier this week (view the bill here – we also ran a PDF comparison against last Tuesday’s text, which is available here).

The Senate is scheduled to reconvene at 10:30 this morning to continue debate, and a number of Senators filed amendments over night (a total of 72, as of midnight).
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What’s on Deck this Week

Congress is officially back from the Thanksgiving holidays, and is expected to move full steam ahead on tax reform. The Senate is set to consider its tax bill on the floor later this week, and to bring the bill to a vote before the weekend.  Unlike on the House side, we expect the Senate to consider (and perhaps even adopt) a number of amendments to their tax reform bill during the floor debate, so stay tuned.

You can read the current legislative text of the Senate Bill on our updated Senate Bill Navigator, available here. We also ran a comparison of the major corporate and international provisions of the House and Senate bills, which you can view here.
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House and Senate Proposals Affecting Exempt Organizations

The Tax Cuts and Jobs Act passed by the House and the Senate Mark approved by the Senate Finance Committee each contain numerous proposals that would affect tax-exempt organizations, in some cases materially. Below we highlight some of the provisions that are of relevance to public charities and certain other exempt organizations.

Excise tax on “excessive” executive compensation.  Both the House Bill and Senate Mark would introduce a new 20% excise tax on compensation above $1 million paid by tax exempt organizations to their highest paid employees in any tax year after December 31, 2017—the top five employees under the House bill, and the top three under the Senate plan.
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Weekly Roundup

With Congress in recess for the Thanksgiving holiday, this week is expected to be significantly less exciting than the last two weeks of tax reform. The House passed its tax reform bill last Thursday afternoon. Later that night, the Senate Finance Committee approved a series of manager’s amendments to the Senate Mark (the Senate’s summary of its tax reform proposal), and promptly thereafter reported the revised Senate Mark out of committee. You can read the amendments offered here.

On Friday, the Joint Committee on Taxation released a revised revenue score for the Senate Mark as reported out of committee, which you can read here.  
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Key Compensation Changes in Chairman Hatch’s Modifications to the Senate Bill

On November 14, the Joint Committee on Taxation released a summary of the Chairman’s Modifications to the Senate’s tax reform bill, which add or remove a number of provisions relating to compensation.

  • Deferred Compensation.  The Chairman’s Modifications remove a provision that would have taxed almost all compensation at vesting (when no longer subject to a service requirement) and thereby effectively would have ended the ability to defer compensation. This provision was included in the original House bill but was not included in the bill passed by the House.
  • Deferral of Stock Options and RSUs.  The Chairman’s Modifications add a provision that allows employees of certain private companies to elect to defer the taxation of stock options and RSUs for up to five years after exercise of the options or settlement of the RSUs.

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Senate Finance Committee Reports Mark to Floor

The Senate Finance Committee voted to report the Senate Mark to the floor on party lines (14-12). The final Mark reported to the floor includes a set of manager’s amendments offered by Chairman Orrin Hatch shortly before debate ended. You can read the amendments here.

In one key change, the amendment would impose a three-year holding period requirement for qualification as long-term capital gain with respect to partnership interests received in connection with the performance of services – i.e. a similar carried interest proposal to the one contained in the House Bill. The amendment also allows for a modified historic rehabilitation tax credit and adds an exception to the Senate Mark’s FIFO rule for regulated investment companies.
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House Ways and Means Committee Report on the Tax Cuts and Jobs Act

The House Ways and Means Committee’s official Report on H.R. 1, the Tax Cuts and Jobs Act, the tax reform bill that passed the House, includes additional explanations of the bill that were not previously included in the Committee’s initial section-by-section summary (or additional summary) or the Joint Committee on Taxation’s description of the bill.  The Committee Report also addresses certain technical issues with the bill.

Deemed repatriation inclusion mechanics.  For example, the Committee Report acknowledges that the bill’s mandatory deemed repatriation provisions requiring U.S. shareholders to include their pro rata share of their specified foreign corporation’s earnings and profits could be interpreted to require multiple inclusions with respect to the same earnings and profits in certain cases. 
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