Tax Policy Update

NUMBER OF THE WEEK: 3,415. The number of people who renounced their citizenship in 2014 according to IRS data. This is one of the five highest totals on record since the U.S. Congress passed the Foreign Account Tax Compliance Act in 2010. In the past five years, more than 10,000 Americans living abroad have given up their citizenship. Click here to read the most recent data publication from the IRS.

LEGISLATIVE LANDSCAPE

House Passes Permanent Extenders for Charitable Donations and Small Businesses. The House passed two bills last week that would permanently extend currently expired tax breaks related to charitable contributions and small businesses. The “America Gives More Act of 2015” (H.R. 644) would permanently extend: the deduction for companies that donate food to food banks; the deduction for donations of qualified conservation easements; the tax-free treatment of charitable contributions (up to $100,000) made directly from Individual Retirement Accounts for those over the age of 70½; and the reduction of the excise tax on investment income for private donations.

The “America’s Small Business Tax Relief Act of 2015” (H.R. 636) would make permanent: Section 179 expensing; the reduced recognition period for built-in gains of S corps; the rule regarding basis adjustment to stock of S corps making charitable contributions of property.

Both bills face veto threats from President Obama, and opposition from the majority of House Democrats, given that no offsets have been provided for the provisions, which would cost a total of $93.2 billion over ten years. Despite this opposition and uncertainty about whether Senate Republican leaders are on board, House Ways and Means Committee Chairman Paul Ryan (R-WI) is mounting an aggressive piecemeal strategy to make select expired extenders permanent.

The approach is aimed at greasing the wheels of tax reform, which Ryan has told reporters would need to happen by this summer if it’s going to have a shot in 2015. “If it goes past summer it is hard to see how it gets done,” he said.

Next Up: R&D Credit. Ryan’s tax-writing committee approved a second group of permanent extensions last Thursday related to the R&D credit and the deduction of state and local sales taxes. Votes during the markup fell along partisan lines. Once again, Republicans and Democrats sparred over the issue of offsets. Congressman Richard Neal offered a failed amendment that would prevent companies that choose to invert from claiming the R&D credit. The House is likely to take up the two bills next week before turning its attention towards education legislation, and the Ways and Means Committee is expected to mark up two additional permanent tax extender provisions next week before shifting its focus to trade.

Bill on 529s to Come to the House Floor Next Week. The chamber will take up Congresswoman Lynn Jenkins’ bill to expand and strengthen 529 college savings plans (H.R. 529) before the end of the month. The bill was approved by House Ways and Means during its markup last week. The legislation would amend the tax code to improve 529 plans by allowing the purchase of a computer to be considered a qualified expense; removing the distribution requirements; allowing students who receive a refund of any qualified higher education expenses to redeposit those funds into a 529 plan without penalty.

Senate Finance OKs 17 Tax Bills. Members of the Senate Finance Committee passed 17 minor tax bills by voice vote during a markup last Wednesday. These bills, which addressed tax provisions across several industries including real estate, energy, beverage, and nonprofits, were deemed “noncontroversial” and enjoyed bipartisan support in the committee. In preparation for the markup, members on both sides of the aisle had submitted tax extenders and pension-related bills, but Chairman Hatch convinced members to defer these submissions until extenders and pension issues are taken up. Mr. Hatch gave no indication of how soon that might occur. Generally, Hatch has been reluctant to take up measures that would permanently extend any tax provisions as he would like to see those dealt with as part of comprehensive reform. The fate of these 17 bills remains up in the air. It is unclear if Senate Majority Leader Mitch McConnell (R-KY) plans to bring the package to the floor for consideration with a House revenue measure.

Sens. Reed and Grassley Introduce Bill to End Tax Write Offs for Corporate Penalties. The bipartisan “Government Settlement Transparency & Reform Act” would close a loophole that has allowed companies to deduct a portion of penalties incurred through unlawful activities. The bill would clarify what payments are considered punitive and non-deductible and require the government to work with the opposing party to reach an agreement on how settlement payments should be treated for tax purposes. At the time of settlement, the government would be required to file a return that would specify the expected tax treatment for penalties to be paid. The bill text is not yet available, but Senators Reed and Grassley introduced a similar bill in the last Congress, which can be read here.

REGULATORY WORLD

Country-By-Country Reporting Templates Expected in April. OECD templates for CBC reporting are expected in April. While initial reporting for fiscal years beginning after Jan. 1, 2016, companies should make report available for filing as of Dec. 31, 2017. During last week’s Tax Policy Council Institute conference, some concerns were raised regarding confidentiality of such information given that the reports would be made available to all countries that share them. The U.S. would also likely have to pass legislation to implement the reporting, despite suggestions that it could be done administratively under section 6001, 6038, 6038A, or 6038C of the tax code.

IRS Invites Comments on FATCA Forms. In an effort to reduce paperwork and regulatory burdens, the IRS is seeking comments on a number of Foreign Account Tax Compliance Act (FATCA) forms. They are: (1) Form 8957, for registering; (2) Form 8966, for reporting, and its cover sheet; (3) Form 8508-I, for waiver from electronic filing; and (4) Form 8809-I, for extensions of time to file. Comments should pertain generally to the burdens of collecting information, how it can be reduced, and ways to increase the quality, utility, and clarity of such information.

Special EU Tax Committee to Review State Aid. The European Parliament announced a special tax committee to review tax deals between multinational companies and EU member states. The mandate requires the committee to look into tax ruling practices as far back as Jan. 1, 1991, and review the way the European Commission treats state aid and the extent of its transparency. The initial review period is set for six months, and is expected to make recommendations for the future. This follows on the heel of a series of investigations of multinational companies in Luxembourg, Ireland, Belgium, and the Netherlands.