The American Institute of CPAs sent the leaders of Congress’s tax committees a set of technical corrections to the new tax law Thursday.
The recommendations include clarifying the effective date for net operating losses for fiscal year tax filers, clarifying the property class life on qualified improvement property, and correcting a section concerning charitable deductions that reduces the allowed charitable deduction if assets besides cash are donated.
The sweeping tax cuts legislation that Congress passed last December was hastily drafted and narrowly passed along party lines by Republicans. It is widely acknowledged that it will need a follow-on technical corrections bill, as was necessary after previous major tax cuts legislation. A technical corrections bill would likely need to get the votes of Democrats as well. The Tax Cuts and Jobs Act passed in the Senate using a budget reconciliation procedure that required only 51 votes, as opposed to the 60 typically needed to overcome any possible veto. The AICPA addressed the letter Thursday to both Republican and Democratic leaders of the House Ways and Means Committee and the Senate Finance Committee. On Wednesday, it sent a separate letter to the Internal Revenue Service and the Treasury Department asking for immediate guidance on the vague provisions relating to the pass-through business tax deduction in the bill (see AICPA wants ‘immediate guidance’ on pass-through business income under new tax law).
For Thursday’s letter to Congress, in the area of net operating losses, the AICPA suggested Congress provide a technical correction to clarify the language pertaining to the effective date and its applicability to fiscal year filers. The institute recommended Congress should change the statutory language to “taxable years beginning after December 31, 2017” instead of “taxable years ending after December 31, 2017.”
“A technical correction to the wording of the effective date would provide fairness to fiscal year taxpayers that have incurred an NOL during 2017 prior to the enactment date,” wrote AICPA Tax Executive Committee chair Annette Nellen. “The current statutory language particularly hurts small fiscal year taxpayers that have little chance of leveling out income with large swings in their taxable income even though the 2017 calendar year taxpayers can continue using losses generated during the same time frame.”
In the area of clarifying the applicable recovery period for qualified improvement property, the AICPA suggested Congress provide a technical correction to the property class life on QIP as 15 years and the inclusion of QIP as eligible property for 100 percent bonus depreciation.
The statutory language in the new tax law doesn’t include QIP, the AICPA pointed out, leaving it as nonresidential real property (39 years modified accelerated cost recovery system) and not subject to bonus depreciation or some other class of property (for example, a property with 15 years MACRS).
On the topic of the charitable contribution deduction, the AICPA suggested Congress make a technical correction to the language in one of the provisions in the new tax law so the new limitation on the charitable deduction to 60 percent of adjusted gross income can function as lawmakers intended. In its place, the AICPA offered some proposed language to fix the problem for taxpayers who are donating securities or other types of property besides cash to a charity.
“The current statutory language in the TCJA reduces the allowed charitable deduction if assets other than cash are donated,” Nellen wrote. “This reduction results in a total percentage of 50%, rather than 60% of AGI. This reduction is the result even if a dollar of non-cash assets is donated (such as securities).”
The AICPA said its recommended change “would confirm Congress’s intent was to allow for the increased 60% of AGI limitation, assuming the additional amount is in cash (for example, 30% appreciated securities and 30% cash). Currently, under the TCJA, the taxpayer can only receive the increased 60% of AGI limitation if the entire donation is in cash.”
The AICPA also proposed a few miscellaneous technical fixes to the law. One of them would increase the alternative minimum tax exemption and phaseout for estates and trusts, similar to the new law increase of the AMT exemption and phaseout for individuals. Another technical correction would enable taxpayers to elect out of a provision that allows sourcing of a pro rata portion of distributions, from the accumulated adjustments account, following the post-termination transition period. In addition, the AICPA suggested a couple of other technical corrections relating to the AMT.
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