Preliminary Comparison of H.R. 1, the “Tax Cut and Jobs ......FICA tip tax credit Limits FICA tip...
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Preliminary Comparison of H.R. 1, the “Tax Cut and Jobs Act” as approved by the House of Representatives and as approved by the Senate Capitol Tax Partners © HOUSE SENATE BUSINESS Corporate rate Permanently lowers rate from 35 percent to 20 percent, beginning in 2018. The partial dividends received deductions are each proportionally reduced to reflect the reduction in the corporate tax rate. Similar to House bill, but permanently lowers rate from 35 percent to 20 percent, beginning in 2019. The partial dividends received deductions are each proportionally reduced to reflect the reduction in the corporate tax rate, beginning in 2019. Corporate AMT Repeals corporate Alternative Minimum Tax (AMT), effective for tax years beginning after 2017. AMT credit carryforwards to be refundable (i.e., to the extent the credits exceed regular tax for the year), up to 50 percent of the remaining credits in tax years beginning in 2019, 2020, and 2021. The remaining AMT credit carryforwards to be refundable in the tax year beginning in 2022. The Senate bill retains the corporate alternative minimum tax (AMT) at its current rate of 20 percent. The bill favorably reported by the Senate Finance Committee would have repealed the corporate AMT. Because the regular corporate tax rate and the AMT rate are both 20 percent in 2019, retaining the corporate AMT effectively repeals certain general business credits claimed for regular tax purposes (e.g., the R&D credit), as well as tax- exempt interest. It is also not clear how the AMT interacts with various international provisions, including the base erosion proposals and the deduction for foreign source dividends. Business deductions/credits Repeals section 199 deduction for domestic production. Repeals Work Opportunity Tax Credit. Repeals Historic Rehabilitation Credit. Repeals New Markets Tax Credit. Repeals tax credit for employer-provided child Repeals section 199 deduction for domestic production, effective for corporations in taxable years beginning after 2018. For non-corporate taxpayers, the repeal of section 199 applies to taxable years beginning after 2017
Transcript of Preliminary Comparison of H.R. 1, the “Tax Cut and Jobs ......FICA tip tax credit Limits FICA tip...
PreliminaryComparisonofH.R.1,the“TaxCutandJobsAct”asapprovedbytheHouseofRepresentativesandasapprovedbytheSenate
CapitolTaxPartners©
HOUSE SENATEBUSINESS
Corporaterate Permanentlylowersratefrom35percentto20percent,beginningin2018.Thepartialdividendsreceiveddeductionsareeachproportionallyreducedtoreflectthereductioninthecorporatetaxrate.
SimilartoHousebill,butpermanentlylowersratefrom35percentto20percent,beginningin2019.Thepartialdividendsreceiveddeductionsareeachproportionallyreducedtoreflectthereductioninthecorporatetaxrate,beginningin2019.
CorporateAMT RepealscorporateAlternativeMinimumTax(AMT),effectivefortaxyearsbeginningafter2017.AMTcreditcarryforwardstoberefundable(i.e.,totheextentthecreditsexceedregulartaxfortheyear),upto50percentoftheremainingcreditsintaxyearsbeginningin2019,2020,and2021.TheremainingAMTcreditcarryforwardstoberefundableinthetaxyearbeginningin2022.
TheSenatebillretainsthecorporatealternativeminimumtax(AMT)atitscurrentrateof20percent.ThebillfavorablyreportedbytheSenateFinanceCommitteewouldhaverepealedthecorporateAMT.BecausetheregularcorporatetaxrateandtheAMTrateareboth20percentin2019,retainingthecorporateAMTeffectivelyrepealscertaingeneralbusinesscreditsclaimedforregulartaxpurposes(e.g.,theR&Dcredit),aswellastax-exemptinterest.ItisalsonotclearhowtheAMTinteractswithvariousinternationalprovisions,includingthebaseerosionproposalsandthedeductionforforeignsourcedividends.
Businessdeductions/credits
Repealssection199deductionfordomesticproduction.RepealsWorkOpportunityTaxCredit.RepealsHistoricRehabilitationCredit.RepealsNewMarketsTaxCredit.Repealstaxcreditforemployer-providedchild
Repealssection199deductionfordomesticproduction,effectiveforcorporationsintaxableyearsbeginningafter2018.Fornon-corporatetaxpayers,therepealofsection199appliestotaxableyearsbeginningafter2017
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care.Repealsorphandrugcredit.Repealsthecreditforexpensestoprovideaccessfordisabledpeople.Repealsdeductionforexpensesforlobbyingbeforelocalgovernments.
Reducesorphandrugcreditratefrom50percentto27.5percent,andstrikesanybaseamountcalculationandstrikesthelimitationregardingqualifiedclinicaltestingexpensestotheextentsuchtestingrelatestoadrugwhichhasbeenpreviouslyapprovedundersection505oftheFederalFood,DrugandCosmeticAct.Reformstherehabilitationcreditbyrepealingthe10percentcreditforpre-1936buildingsandprovidingthatthecurrent20percentcreditforqualifiedhistoricrehabexpendituresforcertifiedhistoricstructuresbetakenratablyovera5-yearperiod.Repealsthesection196deductionfor“certainunusedbusinesscredits.”Deniesthedeductionforlocallobbyingexpenses,settlementpaymentsofcertainsexualharassmentclaims,andpayments(similartofinesandpenalties)inrelationtoaviolationoflaw(orinsettlementthereof),otherthancertainrestitutionpayments.Adoptsqualifiedopportunityzones.Allowsdeductionforreplantingcertaincitruscrops.Exemptscertainpaymentsforthemanagementofprivateaircraftfromtheexcisetaxforairtransportation.
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Adoptsseveralprovisionsmodifyingthelow-incomehousingtaxcreditfromS.548,theAffordableHousingCreditImprovementActof2017Adoptsseveralprovisionsmodernizingthetreatmentofcertainbeer,wineandspirits.Adoptsnewcreditequalto12.5percentofcertainwagespaidduringperiodsoffamilyandmedicalleave.
Interest Includesthincapitalizationruleprovidingforadisallowanceofadeductionfornetinterestexpenseinexcessof(i)30percentofadjustedtaxableincome(generallyEarningsBeforeInterest,DepreciationandAmortizationorEBIDA),plus(ii)businessinterestincome.Providesfora5-yearcarryforwardofdisallowedinterest.Thereisnocarryforwardofexcesslimitation.Includescarve-outsforutilities,realestate,smallbusinesses,andtaxpayersthatpaidoraccruedintereston“floorplanfinancingindebtedness.”Appliestopartnerships.Nograndfatheringprovided.
SimilartoHousebill.Includesthincapitalizationruleprovidingforadisallowanceofadeductionfornetinterestexpenseinexcessof(i)30percentofadjustedtaxableincome(generallyEarningsBeforeInterestandTaxesbutnotBeforeDepreciationandAmortization),plus(ii)businessinterestincome.Providesforanindefinitecarryforwardofdisallowedinterest.Thereisnocarryforwardofexcesslimitation.Includescarve-outsforutilities,certainelectriccooperatives,floorplanfinancing,realestate(ifelected)andsmallbusinesses($15millioningrossreceipts,ratherthan$25millionasinHousebill).Allowsfarmingbusinesses(includingfarmercooperatives)toelectoutandapplyAlternativeDepreciationSystem(ADS)topropertywitharecoveryperiodof10yearsormore.Appliestopartnerships.Nograndfatheringprovided.
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Costrecovery Increasesthebonusdepreciationpercentageto
100percentforpropertyacquiredandplacedinserviceafterSeptember27,2017andbeforeJanuary1,2023.Appliestothetypesofpropertyforwhichbonusdepreciationcurrentlyapplies.Alsoappliestousedpropertyifthetaxpayerneverpreviouslyusedsuchproperty.Doesnotapplytopropertyusedbytaxpayerstowhichthecutbackininterestexpensedoesnotapply,generallyregulatedpublicutilities,realestatebusinesses,and“floorplanfinancingindebtedness.”Repealslike-kindexchangerulesexceptforrealestate.
SimilartoHousebill.Increasesthebonusdepreciationpercentageto100percentforpropertyplacedinserviceafterSeptember27,2017andbeforeJanuary1,2023(2024forcertainlongerproductionperiodpropertyandaircraft).Appliestothetypesofpropertyforwhichbonusdepreciationcurrentlyapplies,butexpandedtoincludequalifiedfilm,televisionandlivetheatricalproductions.Doesnotapplytousedproperty.Doesnotapplytopropertyusedbytaxpayerstowhichthecutbackininterestexpensedoesnotapply,generallyregulatedpublicutilitiesandrealestateandfarmbusinessesthatelectADS.Shortensthedepreciablelifeoffarmproperty(from7to5years),realproperty(from27.5and39yearsto25years),andleaseholdimprovements(from15to10years).ChangesADSlifeofresidentialrentalpropertyto30years.TheexpensingallowancewasextendedontheSenatefloorandphaseddownafter2022.Theexpensingpercentagewillbe80percentfor2023,60percentfor2024,40percentfor2025,and20percentfor2026.Repealslike-kindexchangerulesexceptforrealestate.Modifiesdepreciationlimitationonluxuryautosandpersonaluseproperty.
Netoperatinglosses Generallylimitsdeductionsfornetoperatinglossesto90percentoftaxableincome.
SimilartoHousebill.Generallylimitsdeductionsfornetoperatinglossesincurredintaxableyears
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Carrybackswouldbeeliminated,exceptforcertaindisasterorcasualtylossesforfarmorsmallbusinesses).Carryforwardswouldbeindexedforinflation.
beginningafter2017to90percent(80percentafter2022)oftaxableincome.Carrybackswouldbeeliminated,exceptfora2-yearcarrybackinthecaseofcertainfarminglossesandP&Cinsurancecompanies.Carryforwardswouldnotbeindexedforinflation.
ResearchandDevelopment
PreservestheResearchandDevelopmenttaxcredit.Requirescapitalizationand5-yearamortization(15yearsforexpendituresattributabletooffshoreresearch)ofcertainresearchorexperimentalexpenses.Appliestoexpenditurespaidorincurredduringtaxableyearsbeginningafter2022.
SimilartoHousebill.PreservestheResearchandDevelopmenttaxcredit.Requirescapitalizationand5-yearamortization(15yearsforexpendituresattributabletooffshoreresearch)ofcertainresearchorexperimentalexpenses.Appliestoexpenditurespaidorincurredduringtaxableyearsbeginningafter2025.
Healthcare/ACA DoesnotaddressAffordableCareActtaxes. RepealstheACAindividualmandatepenaltytaxafter2018.
FICAtiptaxcredit LimitsFICAtiptaxcredittotipsreportedabovetheminimumwage(ratherthanthepreviouslowerthreshold).Allrestaurantsclaimingthecreditwouldbesubjecttoreportingrequirementspreviouslyapplicableonlytolargerestaurants,andwouldberequiredtoallocatetipincomeequalto10percentofgrossreceiptstoalloftheirtippedemployees.
Noprovision.
Workerclassification
Proposaltoprovideworkerclassificationsafeharborforindependentcontractorsandtochangeinformationreportingthresholdsundersec.6050WwasdeletedbyChairman’smodification.
Partnerships Repealsthetechnicalterminationrules.
RequiresthatgainorlossonsaleorexchangeofforeignpartnershipinterestbetreatedasEffectivelyConnectedIncome(ECI)totheextentthetransferorwouldhavehadECIifthe
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partnershipsolditsassetsatfairmarketvalue(FMV).Alsorequires10percentwithholdingunlessappropriatecertificationreceived.Adjuststhe“substantialbuilt-inloss”definition—asitrelatestoamandatorybasisadjustment—uponthetransferofapartnershipinterest.Undertheproposala“substantialbuiltinloss”existsiftransfereewouldbeallocatedanetlossof$250,000underahypotheticaldispositionofallpartnershipassets.Thebasislimitationonpartnerlossesappliestoapartner’sdistributiveshareofcharitablecontributionsandforeigntaxes.
Carriedinterest Imposesa3-yearholdingrequirementfortreatmentaslong-termcapitalgain.
SimilartoHousebill.
Securitysales Generally,requiresFirst-InFirst-Out(FIFO)accounting,ratherthanbyidentification.Doesnotapplytomutualfunds.
Contributionsofcapital
Treatscontributionsofcapitalasincomeiftheirvalueexceedsthevalueofthestockissuedinexchangeforsuchcontributions.
Noprovision.
FDICpremiums LimitsdeductionforFederalDepositInsuranceCorporationpremiumsiftheinstitution’sconsolidatedassetsexceed$10billion.Theamountdisallowedisbasedontheratiothatsuchassetsinexcessof$10billionbearsto$40billion.
SimilartoHousebill.
ACCOUNTING Generally,requiresthatataxpayerrecognize
incomenolaterthantheyearinwhichtheincomeistakenintoaccountonthetaxpayer’s
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financialstatement.Thereisanexceptionforcertainmortgageservicecontracts.CodifiesIRSRevenueProcedure2004-34,allowingtaxpayerstodeferaninclusionofincomebeyondthetaxableyearforsome“advancedpayments.”Requiresthatoriginalissuediscount(OID)beincludedinincomeintheyearinwhichitisreceived.TheSenatebilldelayedtheeffectivedateuntiltaxyearsbeginningafter2018,andprovidedforasix-yearspreadonthechangeinmethodofaccounting.
INSURANCE Insurance ConformstheNetOperatingLossrulesforlife
insurancecompaniestomatchothercompanies,changingfromback3yearsandforward15,toback2yearsandforward20.Repealsthesmalllifeinsurancecompanydeduction.Imposesan8percentsurtaxonlifeinsurancetaxableincome(asaplaceholderforotherlifeinsuranceoffsets).Conformstherulesforadjustmentsforchangesincomputingreservestothegeneralrule,sothatlifeinsurancecompanieswillnolongerhavea10-yearperiodforcertainadjustmentsbutwill
ConformstheNetOperatingLossrulesforlifeinsurancecompaniestomatchothercompanies(asmodifiedelsewhereinthebill).However,P&Ccompaniesretaincurrentlawat2yearsbackand20forwardtooffset100percentoftaxableincome.SimilartoHousebill,repealsthesmalllifeinsurancecompanydeduction.Modifiesthelifeinsuranceprorationrulesforpurposesofdeterminingthedividendsreceiveddeductionbyestablishingthecompanyshareat70percentandthepolicyholder’sshareat30percent.
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followthegeneralruleoffouryearsforanadjustmentthatincreasestaxableincome,whilereductionstotaxableincomearetakenintoaccountinthecurrentyear.Reservescalculationsforexistingcontractswouldbetakenintoaccountratablyoverthenexteightyears.Repealsspecialrulefordistributionstoshareholdersfromcertainpre-1984policyholders’surplusaccounts.ModifiesP&CProrationRule:Increasesthecurrent15percentreductioninreservedeductionsto26.25percent,inlinewiththedecreaseinthecorporatetaxrate.ModifiesP&CDiscountingRules:Changesthediscountratetothecorporatebondyieldcurve(asspecifiedbyTreasury),ratherthanthemid-termapplicableFederalrate,basedonlosspaymentpatterns.Also,thespecialruleforlong-taillinesofbusinessextendingthelosspaymentpatternperiodisappliedsimilarlytoalllinesofbusiness,andtheprovisionallowingcompany-specificlosspaymentpatternsisrepealed.Repealsspecialestimatedtaxpayments,whichhadbeenavailabletocompanieselectingtotakeadeductionforthedifferencebetweenthecomputationofreservescomputedonadiscountedandundiscountedbasis.
Providesforthecomputationoflifeinsurancetaxreservesatthegreaterofnetsurrendervalueor92.87percentofstatutoryreserves.SimilartoHousebill,conformstherulesforadjustmentsforchangesincomputingreservestothegeneralrule,sothatlifeinsurancecompanieswillnolongerhavea10-yearperiodforcertainadjustmentsbutwillfollowthegeneralruleoffouryearsforanadjustmentthatincreasestaxableincome,whilereductionstotaxableincomearetakenintoaccountinthecurrentyear.Reservescalculationsforexistingcontractswouldbetakenintoaccountratablyoverthenexteightyears.SimilartoHousebill.Repealsspecialrulefordistributionstoshareholdersfromcertainpre-1984policyholders’surplusaccounts.ModifiesDeferredAcquisitionCostrules:Expensesassociatedwithearningastreamofpremiumincomewouldbespreadover180months,ratherthan120(butkeepsspecialruleforthefirst$5million,withphaseout).Thespecifiedpercentageusedtocalculatetheexpenseratiowouldincreaseto2.1percentforannuitycontracts;2.46percentforgrouplifecontracts;andto9.24percentforallothercontracts.SimilartoHousebill,modifiesP&CProrationRule:Increasesthecurrent15percentreduction
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inreservedeductionsto26.25percent,inlinewiththedecreaseinthecorporatetaxrate.SimilartoHousebill,repealsspecialestimatedtaxpayments,whichhadbeenavailabletocompanieselectingtotakeadeductionforthedifferencebetweenthecomputationofreservescomputedonadiscountedandundiscountedbasis.Establishesataxreportingrequirementforacquisitions(includingindirect)oflifeinsurancecontracts(orintereststherein)oncertainsaleswheretheacquirerhasnosubstantialfamily,businessorfinancialrelationshiptoinsured.ReportingtoincludebasisanddeathbenefitpaymentinformationtoIRSandpayee(effective2018).Basisshallnotincludeanyreductionforthecostofinsurance,overturningIRSRevenueRuling2009-13(effectivefortransactionsafterAugust25,2009).Inareportablepolicysale,exceptionsfortransferforvaluerulesdonotapply,andthus,someportionofthedeathbenefitmaybeincludedinincome.
BONDS Tax-exemptbonds Repealstaxexemptionforinterestonnewly-
issuedprivateactivitybondsandnewly-advancedrefundingbonds.EffectiveforbondsissuedafterDecember31,2017.Repealstaxcreditbondsafter2017.Existingtaxcreditbondsaregrandfathered.
Repealstaxexemptionforinterestonnewly-issuedadvancedrefundingbonds,effectiveforbondsissuedafterDecember31,2017.
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Interestonbondsissuedtofinancetheconstructionof,orcapitalexpendituresfor,aprofessionalsportsstadiumwouldbesubjecttotax.EffectiveforbondsissuedafterNovember2,2017.
COMPENSATION&
BENEFITS
Executivecompensation
Non-qualifieddeferredcompensationproposaltoimposetaximmediatelyuponvestingwasdeletedbyChairman’samendment.Subjects“performance-based"compensationforCEO,CFO,andnextthreehighest-paidemployeestothe$1milliondeductionlimitundersection162(m).Alsoincludesformertopofficerswhoarestillreceivingremunerationpaymentsfromthecompany.Permitstaxdeferralforrevenuefromqualifiedequitygrants.
SimilarprovisionwasdeletedbyChairman’smodification.SimilartoHousebill,exceptdoesnotapplytoanyremunerationundercertainexistingbindingcontractsineffectonNovember2,2017.SimilartoHousebill.
Benefits Limits,oreliminates,deductionsbyemployersforcertainfringebenefits:
• Nodeductionisallowedforanyactivityconsideredtobeentertainment,amusement,orrecreation;
• The50percentoffoodlimitationisexpandedtoincludeemployersprovidingfoodorbeveragesdirectlytoemployees;
• Nodeductionformembershipduesforanyclub;and
• Theproposaldisallowsadeductionfor
SimilartoHousebill.Also,disallowsdeductionformealsprovidedtoemployeesforconvenienceoftheemployerintaxableyearsafter2025.
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anyqualifiedtransportationfringe.Travelpasses,as“no-additional-cost”benefits,donotappeartobeimpacted.
Retirementsavings Retainssavingsprogramswithsmallmodifications.
Appliesasingleaggregatelimitwithrespectto401(k),403(b),and457(b)plans.Generally,appliesearlywithdrawaltaxtoadistributionfroma457(b)planbeforeage59½.
INTERNATIONAL Territorialsystem Generally,providesfora100percentdividends
receiveddeduction(DRD)fordividendsreceivedbydomesticcorporationsfrom10-percentownedforeigncorporationsotherthanapassiveforeigninvestmentcompany(PFIC)thatisnotacontrolledforeigncorporation(CFC).
SimilartoHousebill,butdeniesDRDforhybriddividends.One-yearholdingrequirementdiffersfromsix-monthrequirementinHousebill.
Deemedrepatriationtransitiontax
USshareholdertaxedonpro-ratashareofallpost-1986pre-effectivedateundistributedearningsofspecifiedforeigncorporationstaxedatoneoftworates(reducedbypro-ratedFTCs)–(i)14percent(earningsrepresentedby“cashpositionassets”,i.e.,cash,cashequivalentsorothershort-termassets);or(ii)7percent(allotherearnings).
USshareholdertaxedonpro-ratashareofallpost-1986pre-effectivedateundistributedearningsofspecifiedforeigncorporationstaxedatoneoftworates(reducedbypro-ratedFTCs)–(i)14.49percent(earningsrepresentedby“cashpositionassets”);or(ii)7.49percent(allotherearnings).Appliestopost-1986earningsonlyforperiodswhenaUSpersonowned10percentormoreofthevotingstockofthecorporation.
Anti-baseerosion—minimumtax
SubjectsaUSshareholderofaCFCsubjecttotaxon50percentofitsaggregateshareofeachCFC’sforeignhighreturnamount(FHRA),whichisnetincomeinexcessofaroutinereturn(7percentplustheFederalshort-termrate)ontheaggregateadjustedbasisindepreciabletangiblepropertylessinterestexpense.Limitsforeigntaxcreditsto80percentofforeigntaxespaidonCFCexcessreturnincome,subjecttoseparateforeigntaxcreditlimitation,andnot
SimilartoHousebill,butincomeinclusionslabeled“globalintangiblelowtaxincome”(GILTI),routinereturnis10percentofthequarterlyaverageofaggregateadjustedbasisindepreciabletangibleproperty,anditisimplementedthroughafullinclusionanda50percentdeduction,foranet50percentinclusionandaneffectivetaxrateof10percent.Foreigntaxcreditsarelimitedto80percentoftheaggregateforeigntaxespaidontheexcessreturn
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allowedtobecarriedbackorcarriedforward.Ineffect,assumingacorporaterateof20percent,theminimumtaxwillnotapplytotaxpayersthatarenotforeigntaxcreditlimitedif,onanaggregatebasis,theCFCeffectiveforeigntaxrateis12.5percentorhigher(10percent/80percent).No“roundtriprule”(butseenewexcisetaxwithECIelectionbelow).
income,subjecttoseparateforeigntaxcreditlimitation,andnotallowedtobecarriedbackorcarriedforward. No“roundtriprule”(butseenewbaseerosionanti-abusetaxbelow).NetGILTIinclusionincreasedto62.5percent(after37.5percentdeduction)fortaxableyearsbeginningafterDecember31,2025.
Foreignintangibleincomededuction
Noprovision. 50percentdeductionforGILTIand37.5percentdeductionforadomesticcorporation’s“foreignderivedintangibleincome”(FDII),determinedbyapplyingsameformulausedtodetermineGILTItodirectlyearnedforeignderivedincome.CombinedGILTIandFDIIdeductionslimitedtotaxableincome(cannotcreateanNOL).
GILTIdeductionreducedtoafter37.5percentanddomesticFDIdeductionreducedto21.875percentfortaxableyearsbeginningafterDecember31,2025.
Allowsfortax-neutraldistributionsofIPheldbyCFCsondateofenactment.QualifiedIPincludesintangiblepropertydefinedinsection936(h)(3)(B)andcomputersoftwaredefinedinsection197(e)(3)(B).AppliestodistributionstoUSshareholdersbeforetheendofCFC’sthirdtaxyearbeginningafterDecember31,2017.
Anti-baseerosion—inbound
Imposesa20percentexcisetaxoncertainamountspaidoraccruedbyaUScorporationtoaforeignaffiliatethataredeductible,includibleincostofgoodssold(COGS),orincludibleinthe
Imposesabaseerosionanti-abusetax(BEAT)onapplicabletaxpayers(generallyUScorporations),otherthanREITs,RICs,andScorporations,equaltotheexcessof(i)10percentoftaxableincome
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basisofadepreciableoramortizableasset,unlesstheforeignaffiliateelectstotreattheamountaseffectivelyconnectedwiththeconductofatradeorbusinessintheUSand,forpurposesofanytreatybetweentheUSandanyforeigncountry,asincomeattributabletoapermanentestablishmentintheUS(ECIelection).Provisiondoesnotapplyiftheamountofthe3-yearaverageannualpaymentsofthegroupare$100millionorless.
• EffectofECIelection:hastheeffectofsubjectingtheforeignaffiliatetoUStaxinthesamemannerasaUScorporation(i.e.,onanetbasis),withrespecttoincomederivedfromdeductibleamountsreceivedfromUSaffiliates.
o Expensesgenerallyallocatedbasedonthegroup’sconsolidatedfinancialstatements,takingintoaccountonlyforeigngroupmembers.
o AllowsaforeigncorporationthatmakeanECIelectionaforeigntaxcreditof80percentofforeigntaxes.
o Branchprofitstaxalsoappearstoapply.
• Excisetaxnon-deductible:IfECIelectionisnotmade,theexcisetaxisnotdeductibleforpurposesofdeterminingtheUScorporation’staxliability.
InteractionwithnewminimumtaxonCFCincome:NewminimumtaxdoesnotincludeECI.IfECI
generallydeterminedwithoutregardtodeductionsforamountspaidoraccruedtoaforeignrelatedparty,includingamountsincludibleinthebasisofadepreciableoramortizableasset,andCOGSpaidtoarelatedsurrogateforeigncorporation;over(ii)regulartaxliabilityreducedbyallcreditsotherthantheR&Dcredit.Provisiongenerallydoesnotapplytotaxpayerswithaverageannualgrossreceiptsoflessthan$500million,andanexceptionisprovidedforcertainderivativepayments.Taxrateappliedtomodifiedtaxableincomeincreasedto12.5percentandregulartaxliabilityundersection26(b)(i.e,reducedbyallcredits)fortaxableyearsbeginningafterDecember31,2025.DetailedreportingrequirementforCOGSandrelatedpartypaymentsbrokendownbytypeandseparatelystated.ThetaxrateonBEATis1percentagepointhigherforcertainfinancialinstitutions.
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electionisnotmade,however,theCFC’sincomeappearstobeincludedinthenewminimumtaxbase(seeabove).
Internationallimitationondeductiblenetinterestexpense
DisallowadeductionfortheamountofaUScorporation’snetinterestexpensethatexceeds110percentofitsallocableshareofthegroup’snetinterestexpense.It’sallocableshareofthegroup’snetinterestexpensebasedonitsshareofthegroup’sEBITDA.GroupnetinterestexpenseandEBITDAarebasedonGAAPorIFRSconsolidatedfinancialstatements.Forexample,iftheUScorporation’sshareofglobalEBITDAis50percent,itsnetinterestexpensedeductionwouldbelimitedto55percent(110percentof50percent)oftheworldwidegroup’sconsolidatednetinterestexpense(i.e.,netinterestonthirdpartydebt).Consolidatedgroupstreatedasasingletaxpayer.
• Interactionwithgenerallimitonnetinterestexpense:Thislimitationappliesinadditiontothegenerallimitationonnetinterestexpense(seeabove).Theamountdisallowedisthegreateroftheamountsdeterminedunderthisprovisionandthegeneralprovision.
• Carryforward:Disallowedinterestexpensecanbecarriedforwardforuptofivetaxableyears(onafirst-in,first-outbasis).
• Internationalfinancialgroup:Definedasagroupofentitiesthatincludes(i)atleastoneforeigncorporationengagedinaUStradeorbusinessor(ii)atleastone
DisallowsadeductionfortheamountofnetinterestexpenseofaUScorporationthatisamemberofaworldwideaffiliatedgroupattributabletoexcessivedomesticdebt.Thedisallowedamountistheproductof(i)netinterestexpense;multipliedby(ii)thedebt-equitydifferentialpercentageoftheworldwideaffiliatedgroup.
• Interactionwithgenerallimitonnetinterestexpense:Thislimitationappliesinadditiontothegenerallimitationonnetinterestexpense(seeabove).Theamountdisallowedisthegreateroftheamountsdeterminedunderthisprovisionandthegeneralprovision.
• Worldwideaffiliatedgroup:Affiliatedgroupundersection1504,using50percentownershiptestandincludingforeigncorporations.
• Debt-equitydifferentialpercentage:Excessdomesticindebtednessofthegroup,dividedbytotalindebtednessofthedomesticcorporatemembersofthegroup.
• Excessdomesticindebtedness:TheamountbywhichUSgroupdebtexceeds110percentofwhatsuchdebtwouldbeiftheUSgroup’sdebt-equityratiowasproportionatetotheworldwidegroup’sdebt-equityratio.USmembersofthe
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domesticcorporationandoneforeigncorporation,andsuchgrouppreparesconsolidatedfinancialstatements,andhasannualgrossreceiptsofmorethan$100million.
worldwideaffiliatedgrouptreatedasonemember.
• Carryforward:Disallowedinterestcanbecarriedforwardindefinitely.
• Phase-in of excess indebtedness percentage: For tax years beginning in 2018 – 2021, percentage is 130 percent, 125 percent, 120 percent, and 115 percent.
Otheranti-baseerosion
ModifyPFICexceptionforinsurancecompaniestoapplyonlyifcertainrequirementsaresatisfied.
Limitationsonincomeshiftingthroughintangiblepropertytransfers:Would(i)amendthedefinitionofintangiblepropertyforpurposesofsections367(d)and482includesworkforceinplace,goodwill,andgoingconcernvalue,andanyotheritemownedorcontrolledbyataxpayerthatisnotatangibleorfinancialassetandthathassubstantialvalueindependentoftheservicesofanyindividual;(ii)clarifythattheIRSmayvalueintangiblepropertiesonanaggregatebasiswherethatachievesamorereliableresult;and(iii)clarifythattheIRSmayvalueintangiblepropertytakingintoconsiderationthepricesorprofitsthatthecontrolledtaxpayercouldhaverealizedbychoosingarealisticalternativetothecontrolledtransactionundertaken.Relatedpartypaymentsinhybridtransactionsorwithhybridentities:Denydeductionfordisqualifiedrelatedpartyinterestorroyaltypaidoraccruedinahybridtransactionoftoahybridentity.Surrogateforeigncorporationsnoteligibleforreducedrateondividends:Reducedrateon
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dividendsreceivedbyindividualsnottoapplytodividendsfrominvertedcorporations.EffectivefordividendspaidintaxableyearsbeginningafterDecember31,2017.InsuranceexceptiontoPFICrules:ModifyPFICexceptionforinsurancecompaniestoapplyonlyifcertainrequirementsaresatisfied.
SMALLBUSINESS Pass-throughrate Treatsaportionofnetincomeas“business
income,”subjecttoamaximumrateof25percentinsteadofordinaryincometaxrates.Remainingnetincometobetaxedatordinaryindividualincometaxrates.Businessincomeeligibleforthelowerrate:--100percentofanynetbusinessincomederivedfrompassivebusinessactivity.Theprovisionincludesanypassiveactivitydefinedinsection469(c)(determinedwithoutregardtoparagraphs(3)and(6)(B));or--Ownersorshareholdersfromanactivebusinesswoulddeterminetheirbusinessincomebyreferencetothe“capitalpercentage”ofnetincome.The“capitalpercentage”equalseither30percentofnetbusinessincomederivedfromactivebusinessactivities(theso-called“70/30rule”);or--Thetaxpayercanchoosetouseanalternatefacts-and-circumstancestesttodetermineacapitalpercentagegreaterthan30percent.Incomesubjecttopreferentialrates—suchas
Allowsa23percentdeductionofqualifiedbusinessincomefromapartnership,Scorporation,orsoleproprietorship.Thedeductionisgenerallynotavailabletoservicebusinesses—health,law,engineering,architecture,accounting,actuarialscience,performingarts,consulting,athletics,financialservices,brokerageservices,andanybusinesswherethereputationorskillofoneormoreemployeeistheprincipalasset.Servicebusinesstaxpayersareonlyeligibleiftheirtaxableincomedoesnotexceed$500,000(marriedfilingjointly)and$250,000forotherindividuals.Individualsprovidingservicesasanemployeewouldnotbeeligibleforthededuction.ForpartnershipsandScorporations,the23percentdeductionislimitedto50percentoftheW-2wagesofthetaxpayer.TheW-2wagelimitationdoesnotapplyinthecaseofataxpayerwithtaxableincomebelow$500,000(marriedfilingjointly)and$250,000forothertaxpayers.
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dividendincome—wouldnotbecalculatedaspartoftheowner’scapitalpercentage.Personalservicebusinesses(e.g.law,accounting,financialservices,etc.)aregenerallynoteligibleforthe25percentrate.--Providesa9percenttaxrateinlieuoftheordinary12percentrate.Therateisavailableforthefirst$75,000innettaxableincomeofanactiveownerorshareholderearninglessthan$150,000.The9percentbenefitfullyphasesoutat$225,000intaxableincome.
DividendsfromaREIT(otherthanaqualifieddividendsubjecttocapitalgainsrates)arequalifiedincomeandeligibleforthe23percentdeduction.NetqualifiedincomefromPTPswouldbetreatedsimilartoREITdividends.The23percentdeductionappliestothetaxableincomeofagriculturalandhorticulturalcooperativesfrom2019to2025.DoesnotapplytoreasonablecompensationpaidbyanScorporation,certainpaymentsbypartnershipsorinvestment-relatedincome.
Losslimitation Excessbusinesslossesofanon-Ccorporationaredisallowedandcarriedforwardaspartofthetaxpayer’sNOL.Anexcesslossisataxpayer’snet,aggregatecurrent-yearpass-throughlossabove$500,000(marriedfilingjointly)and$250,000forothertaxpayers.TheprovisionsunsetsonDecember31,2025.
Expensing Increasesthecurrent-lawsmallbusinessexpensinglimitationundersection179from$500,000to$5millionandthephaseoutrangefrom$2,000,000to$20millionfortaxableyears2018-22.Also,treatscertainenergyefficientHVACpropertyasqualifiedproperty.
Increasesthecurrent-lawsmallbusinessexpensinglimitationundersection179from$500,000to$1millionandthephaseoutrangefrom$2millionto$2.5millionfortaxableyears2018andbeyond.Also,treatscertainpersonalpropertyusedinlodging,HVACproperty,fireprotectionandsecuritysystemsasqualifiedproperty.
Smallbusinessaccountingmethodreform
Providesgreateraccesstothecashmethodofaccounting,othersimplifiedaccountingmethodrules,andtheexemptionfromcomplexUNICAPrules.
GenerallysameastheHousebill.Exemptsbusinesseswithaveragegrossreceiptsof$15millionorlessfromtheinterestlimitationrulesproposedinthebill.
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Exemptsbusinesseswithaveragegrossreceiptsof$25millionorlessfromtheinterestlimitationrulesproposedinthebill.
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ENERGY Wind Modifiestheproductiontaxcreditforwind
facilitiesbyeliminatingtheinflationadjustmentwithrespecttoprojectstheconstructionofwhichbeginsafterthedateofenactment.Alsorequiresthestartofconstructiontobedeterminedbasedonaprogramofcontinuousphysicalworkforallprojects.
Noprovision.
Solarandotherenergyproperty
Modifiestheinvestmenttaxcredit(ITC)forotherenergyfacilitiesbyextendingandphasingouttheITCforrenewableenergytechnologiesthatwerenotextendedin2015.Providesthesamecreditphasedownschedulemadeapplicabletosolarpropertypursuanttothe2015taxextenderbill.Terminatesthepermanent10percentITCforsolarandgeothermalpropertyafter2027.Requiresthestartofconstructiontobedeterminedbasedonaprogramofcontinuousphysicalworkforallprojects.
Noprovision.
Residentialenergyproperty
ExtendstheresidentialenergyITCforgeothermalheatpumps,smallwindprojects,andqualifiedfuelcellsthrough2021,subjecttothecurrentphasedownapplicabletoresidentialsolarproperty.
Noprovision.
Oilandgastaxcredits
Repealstheenhancedoilrecoverycreditandmarginalwelltaxcreditafter2017.
Noprovision.
Advancednucleartaxcredit
ExtendsandmodifiestheadvancednucleartaxcreditinamannersimilartolegislationthatpreviouslypassedintheHouse.
Noprovision.
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TAX-EXEMPTORGANIZATIONS
Tax-exemptorganizations
Providesthatallentitiesexemptfromtaxundersec.501(a)aresubjecttotheunrelatedbusinessincomerules.
Noprovision.
Imposes1.4percentexcisetaxonnetinvestmentincomeofcertainprivatecollegesanduniversitiesandotherrelatedinstitutions.
SimilartoHousebill,butwouldnotapplytoschoolsforwhichtheaggregatefairmarketvalueoftheassetsattheendoftheprecedingtaxableyear(otherthanthoseassetswhichareuseddirectlyincarryingouttheinstitution’sexemptpurpose)arelessthan$500,000perstudent(upfrom$250,000perstudentintheSFCbill).
Imposea20percentexcisetaxoncompensationinexcessof$1millionpaidtothefivehighestpaidemployeesofatax-exemptorganization.
SimilartoHousebill.
Simplifiesexcisetaxonprivatefoundationinvestmentincome.
Noprovision.
Modifiestheso-calledJohnsonruleandallowschurchesandcharitiestomakestatementsrelatingtopoliticalcampaignsintheordinarycourseofreligiousservicesandactivities,aslongasexpensesrelatedtosuchspeecharedeminimis.
Noprovision.
Additionalreportingrequirementsfordonoradvisedfundsponsoringorganizations.
Noprovision.
Exemptcertainprivatefoundationsfromtheexcessbusinessholdingstax.
StrickenfromFinanceCommitteebill.
CertainfringebenefitdeductiondisallowancesaretreatedasUBI.
Noprovision.
Unrelatedbusinessincomeseparatelycomputed
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foreachtradeorbusinessactivity. Nocharitabledeductionforamountpaidfor
athleticseatlicenses.
INDIVIDUAL Individualrates Creates4brackets:12percent,25percent,35
percent,and39.6percent.--25percentbracketthreshold($90,000forjointfilers,and$45,000forthosefilingseparately);--35percentbracketthreshold($260,000forjointfilers,and$200,000forthosefilingseparately);--39.6percentbracketthreshold($1,000,000forjointfilers,and$500,000forthosefilingseparately).Forsingleparentsfilingasheadofhousehold,thebracketthresholdswouldbethemidpointbetweenthethresholdsforunmarriedindividualsandmarriedtaxpayersfilingjointly,exceptthatthe39.6percentbracketthresholdforheadsofhouseholdwouldbe$500,000.Phasesout12percentbracketforhighearners(i.e.above$1.2millionforjointfilers).
7brackets:10percent,12percent,22percent,24percent,32percent,35percentand38.5percent.--10percentbracket(upto$19,050forjointfilers,and$9,525forthosefilingseparately);--12percentbracket(upto$77,400forjointfilers,and$38,700forthosefilingseparately);--22percentbracket(upto$140,000forjointfilers,and$60,000forthosefilingseparately);--24percentbracket(upto$320,000forjointfilers,and$170,000forthosefilingseparately);--32percentbracket(upto$400,000forjointfilers,and$200,000forthosefilingseparately);--35percentbracket(upto$1,000,000forjointfilers,and$500,000forthosefilingseparately);--38.5percentbracket(over$1,000,000forjointfilers,andover$500,000forthosefilingseparately);Separateheadofhouseholdbracket,butbenefitphasesoutforhigherearners(andnewduediligencerequirementtoverifystatus).“KiddieTax”simplification.ThebracketthresholdsandotherindexedtaxparametersarealladjustedforinflationusingChainedCPI-U.
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Allindividualchangesexpireafter2025,exceptfortheChainedCPI-Uprovision.
Standarddeduction Increasesfrom$6,350to$12,000forindividuals,from$12,700to$24,000formarriedcouples.Singlefilerswithatleastonequalifyingchildincreasedto$18,000.IndexedforinflationusingChainedConsumerPriceIndex(CPI).Repealsadditionalstandarddeductionforelderlyandblind.
SimilarincreasestoHousebill(amountsindexedwithChainedCPI),butthestandarddeductionforelderlyandblindisnotchanged.Expiresafter2025.
Personalexemption Repealspersonalexemptionandpersonalexemptionphaseout(PEP).
SimilartoHousebill.Expiresafter2025.
Deductionsandexclusions
RepealsStateandlocalincomeandsalestaxdeduction.CapsStateandlocalpropertytaxdeductionat$10,000(unlessincurredbyabusinessentityincarryingonatradeorbusiness).Limitsdeductionformortgageinteresttoloansforupto$500,000fornewhomepurchases.Existingmortgagesgrandfathered.Limitsinterestdeductibilitytoprimaryresidence,eliminatingdeductionforinterestonsecondhomeandhomeequity.Retainsdeductionforcharitablecontributions,withmodifications.RepealsmedicalexpensedeductionandrepealsdeductionforfutureArcherMSAcontributions.Repealsdeductionfortaxpreparationexpenses.Repealsdeductionforalimonypayments.Repealsdeductionformovingexpenses,exceptforactivedutymilitaryonorders.Repealsdeductionforstudentloaninterest.
RepealsStateandlocalincomeandsalestaxdeduction.LimitsdeductionforStateandlocalpropertytaxto$10,000(unlessincurredincarryingonatradeorbusiness).Retainsdeductionforcharitablecontributions,withmodifications.LowersthemedicalexpensedeductionfloorthroughJanuary1,2019toexpensesthatexceed7.5percent(ratherthan10percent)ofAGIandprotectsfromAMT.Preservedthehomemortgageinterestdeductionforacquisitionindebtedness,butrepealsitforinterestonhomeequityindebtedness.Repealsdeductionfortaxpreparationexpenses.Repealsdeductionformovingexpenses(butretainsspecialrulesforexclusionsifmilitary).RepealsPeaselimitation.Repealsexclusionforbicyclecommutingreimbursement.
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RepealsPeaselimitation.Repealscasualtylossdeduction(unlessaddressedinspecialdisasterreliefbill).
Repealofitemizeddeductionsubjecttothetwo-percentfloor.Repealscasualtylossdeduction(unlessaddressedinspecialdisasterreliefbill,orspecialprovisionsforMississippiDeltafloodof2016containedherein).Retainsdeductionforalimony,medicalexpenses,andstudentloaninterest.Clarifiesthetreatmentofwageringlosses.Expiresafter2025.
IndividualAMT RepealsindividualAlternativeMinimumTax. Increasescurrentlawexemptionamountsandphase-outthresholds.Increasesexemptionamounts:Inthecaseofjointreturnsincrease$78,750to$109,400.Inthecaseofindividualreturnsincrease$50,600to$70,300.Increasesphase-outandindexesforinflation:Inthecaseofajointreturnincrease$150,000to$208,400.Inthecaseofanindividualreturnincrease$112,500to$156,300.Expiresafter2025andreturnstocurrentlawAMT.
Childrenanddependents
EstablishesnewFamilyCredit,effectivethrough2022,whichincludesexpandingtheChildTaxCreditfrom$1,000to$1,600,andprovidesacreditof$300foreachparentandnon-childdependent.Refundableportionlimitedto$1,000(requireswork-eligibleSocialSecuritynumberforrefundableandenhancedCTC).Phasesoutat$230,000forjointfilersand$115,000forsinglefilers.
IncreasesChildTaxCreditto$2,000(notindexed).Refundableupto$1,000,andindexedsothatin2018,itis$1,100.Theearnedincomethresholdforrefundabilityisloweredto$2,500(notindexed).Thecreditbeginstophaseoutat$500,000.Appliestoachildwhohas“notattainedage18,”ratherthanage17undercurrentlaw,untiltaxyearsafter2024.
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PreservesChildandDependentCareTaxCredit.PreservesEarnedIncomeTaxCredit(butrequireswork-eligibleSocialSecuritynumberandnewprogramintegrityrules).Exclusionfordependentcareassistanceprogramretaineduntil2023.
RequiresvalidSSNforeachchildforrefundablecredit.Addsa$500non-refundablecreditfordependentsthatarenotchildren.PreservesChildandDependentCareTaxCredit.PreservesEarnedIncomeTaxCredit.Noprovisionsrelatedtodependentcareassistanceprogram.Expiresafter2025(exceptfortheagechangeforCTC).
PersonalNonrefundableCredits
Repealscreditfortheelderlyandpermanentlydisabled.Repealscreditforelectriccars.Repealstaxcreditformortgagecreditcertificates.Retainsadoptiontaxcredit.
Noprovisions.
Education CombinesAmericanOpportunityTaxCredit,LifetimeLearningCredit,andHopeScholarshipintoanAmericanOpportunityTaxCredit—a100-percenttaxcreditforthefirst$2,000ofqualifiedexpensesanda25percentcreditforthenext$2,000ofqualifiedexpenses.Retainscurrentlawrefundabilityof$1,000(requireswork-eligibleSocialSecuritynumber).RepealsnewcontributionstoCoverdellESA,buttax-freerolloversfromCoverdellinto529accountsareallowed.ElementaryandHighSchoolexpensesupto$10,000peryearwouldbequalified529expenses.Apprenticeshipprogramexpenseswouldbequalifying.Childreninuteromaybedesignated529beneficiaries.
SimilartoHousebill,allowrolloversfrom529accountstoABLEaccounts.Retainsanddoublestheclassroomteacher’sdeduction.Expands529planstoincludeK-12elementaryandsecondaryschooltuitionforpublic,private,andreligiousschools,includingK-12educationalexpensesforhomeschoolstudents.Expiresafter2025.Childreninuteromaynotbedesignated529beneficiaries.
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Allowsrolloversfrom529planstoAchievingaBetterLifeExperience(ABLE)programs.Providesthatstudentloandebtforgivenessonaccountofdeathordisabilitywouldbeexcludablefromincome.RepealstheexclusionofinterestfromUSbondsusedtopayforhighereducation,theexclusionforqualifiedtuitionreductionprograms,andtheexclusionforemployer-providededucationassistanceprograms.Repealsdeductionforinterestoneducationloansandthedeductionforqualifiedtuitionandrelatedexpenses.Repealstheexemptionofqualifiedtuitionreductions.
Savingsandinvestmentincome(capitalgains,dividendsandinterest)
Preserveslowerratesforcapitalgainsanddividends.However,thecurrentlawexclusionforgainsonhomesales($500,000married/$250,000single)phasesoutfortaxpayersover$500,000married/$250,000single,andtogettheexclusionthe“principalresidencerule”isincreasedfrom2of5previousyearsto5of8previousyearsandisonlyavailableonceevery5years.
Indexesbreakpointsfor15percentand20percentratesusingchainedCPI.Regardinggainsonhomesales,retainscurrentlawexclusionamountsbutonlyavailableifthe“principalresidencerule”of5of8previousyearsismetandisonlyavailableonceevery5years.ExemptsbindingcontractsbeforeJanuary1,2018.Expiresafter2025.
Estateandgifttaxes Theexemptionamountisincreasedfrom$5.49millionto$10million,indexedforinflation,beginningin2018.Repealsestateand
Theexemptionamountisincreasedfrom$5.49millionto$10million,indexedforinflation,beginningin2018.Theestateandgeneration-
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generation-skippingtaxesin2024,whilemaintainingabeneficiary’sstepped-upbasisinestateproperty.Lowersgifttaxtoatoprateof35percentandretainsabasicexemptionamountof$10millionandanannualgifttaxexclusionof$14,000(asof2017),alsoindexedforinflation.
skippingtaxesarenotrepealedandnochangesaremadetothegifttaxorannualgifttaxexclusion.Expiresafter2025.
Patents Repealsspecialcapitalgainstreatmentforsalesofpatentspriortoactualcommercialuse.
Noprovision.
