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Report from Washington

Congress is on track to pass its comprehensive tax reform package perhaps by the end of the year. With both the House and Senate completing their respective bills, the two bills go to a “Conference” where the differences will be ironed out before going back to each chamber for a final vote.

If both chambers pass the conferenced bill, then the bill goes to the president for his signature and becomes law. In the meantime, Congress has extended its short-term funding for the federal government again – this time for about two weeks in order to buy themselves some additional needed time to pass a longer-term spending package. Most everything else is on hold. Below are the provisions for business tax reform at the time this article was written. ISRI will keep you updated on changes.

Provisions without Differences (Between the House and Senate bills)

• Reduction in corporate tax rate to 20 percent (sec. 3001 of the House bill, sec. 13001 of the Senate amendment, and sec. 11 of the Code)7;

• Reduction in dividends-received deductions (sec. 3001 of the House bill, sec. 13002 of the Senate amendment, and sec. 243 of the Code)8;

• Modification of treatment of S corporation conversions into C corporations (sec. 3204 of the House bill, sec. 13543 of the Senate amendment, and secs. 481 and 1371 of the Code)9;

• Like-kind exchanges limited to real property not held primarily for sale (sec. 3303 of the House bill, sec. 13303 of the Senate amendment, and sec. 1031 of the Code);

• Repeal of deduction for local lobbying expenses (sec. 3305 of the House bill, sec. 13308 of the Senate amendment, and sec. 162(e) of the Code);

• Repeal of deduction for income attributable to domestic production activities (sec. 3306 of the House bill, sec. 13305 of the Senate amendment, and sec. 199 of the Code)10;

• Limitation on deduction for FDIC premiums (sec. 3309 of the House bill, sec. 13531 of the Senate amendment, and sec. 162 of the Code);

• Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (sec. 3314 of the House bill, sec. 13309 of the Senate amendment, and new sec. 1061 of the Code);

• Amortization of research and experimental expenditures (sec. 3315 of the House bill, sec. 13206 of the Senate amendment, and sec. 174 of the Code)12;

• Repeal of advance refunding bonds (sec. 3602 of the House bill, sec. 13532 of the Senate amendment, and sec. 149 of the Code);

• Net operating losses of life insurance companies (sec. 3701 of the House bill, sec. 13511 of the Senate amendment, and secs. 805(a)(5) and 810 of the Code);

• Repeal of small life insurance company deduction (sec. 3702 of the House bill, sec. 13512 of the Senate amendment, and sec. 806 of the Code);

• Adjustment for change in computing reserves (sec. 3704 of the House bill, sec. 13513 of the Senate amendment, and sec. 807(f) of the Code);

• Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account (sec. 3705 of the House bill, sec. 13514 of the Senate amendment, and sec. 815 of the Code);

• Repeal of special estimated tax payments (sec. 3708 of the House bill, sec. 13516 of the Senate amendment, and sec. 847 of the Code);

• Modification of limitation on excessive employee remuneration (sec. 3801 of the House bill, sec. 13601 of the Senate amendment, and sec. 162(m) of the Code)13;

• Excise tax on excess tax-exempt organization executive compensation (sec. 3802 of the House bill, sec. 13602 of the Senate amendment, and new sec. 4960 of the Code); and

• Treatment of qualified equity grants (sec. 3803 of the House bill, sec. 13603 of the Senate amendment, and secs. 83, 3401, and 6051 of the Code);

Expansion of section 179 expensing (sec. 3201 of the House bill, sec. 13101 of the Senate amendment, and sec. 179 of the Code)

Dollar limitations

House Bill

• Increases the maximum amount a taxpayer may expense under section 179 to $5,000,000, and the phase-out threshold amount to $20,000,000, for taxable years beginning in 2018, 2019, 2020, 2021, and 2022.

• Indexes such amounts for inflation for taxable years beginning after 2018.

Senate Amendment

• Increases the maximum amount a taxpayer may expense under section 179 to $1,000,000, and the phase-out threshold amount to $2,500,000, for taxable years beginning after 2017.

• Indexes such amounts, as well as the $25,000 sport utility vehicle limitation, for inflation for taxable years beginning after 2018.

 

Qualified property

House bill.–Expands the definition of qualified real property under section 179 to include qualified energy efficient heating and air-conditioning property acquired and placed in service by the taxpayer after November 2, 2017.

Senate amendment.–Expands the definition of:

• Section 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging; and

• Qualified real property to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

House Bill

• Applies the increased dollar limitations under section 179 to taxable years beginning after December 31, 2017.

• Applies the expansion of qualified real property to include qualified energy efficient heating and air-conditioning property to property acquired and placed in service after November 2, 2017.

Senate Amendment

• Applies to property placed in service in taxable years beginning after December 31, 2017.

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