Industry groups urge fixes for errors in Tax Cuts and Jobs Act

A broad coalition of hundreds of industry associations and companies sent a letter Wednesday to Treasury Secretary Steven Mnuchin urging him to resolve errors in last year’s tax code overhaul related to depreciation rules and net operating loss carrybacks.

The nearly 300 business groups include the National Retail Federation, the National Restaurant Association, the National Grocers Association, the National Federation of Independent Business, the National Association of Theater Owners, as well as large companies such as McDonald’s, Best Buy, Kroger, Wendy’s and Yum Brands.

The hastily drafted tax legislation sailed through Congress late last year with few hearings, driven by Republicans eager to pass the bill before the end of the year. By passing it last December, they were able to use a budget reconciliation procedure that allowed it to pass in the Senate without the threat of a filibuster. The text on draft versions of some provisions was written by hand, and Democrats objected to the way the bill was being rushed through Congress, warning it would need technical corrections.

Treasury Secretary Steven Mnuchin
Treasury Secretary Steven Mnuchin

Last week, a group of Republicans on the Senate Finance Committee asked the IRS and the Treasury Department to issue guidance based on their explanation of the “congressional intent” behind several provisions, including the net operating loss deduction and qualified improvement property expensing referred to in the industry letter (see Senate Republicans clarify intent of TCJA provisions). Under the Tax Cuts and Jobs Act, remodeling and other improvements to stores or buildings were supposed to be fully depreciated in the first year the work is done. Instead, a mistake in the legislative language requires the depreciation to be done over the course of 39 years.

In a separate error, the legislation made a mistake in the effective date of carryback eligibility, which the industry groups complained would lead to a retroactive tax increase on businesses with losses, some of which are already facing liquidity issues. The timing difference is crucial for cash-strapped businesses that were counting on the carryback to finance their continuing operations as well as investments needed to revitalize their businesses, they pointed out. Brick-and-mortar retail chains across the country like Toys 'R' Us have been closing in recent years because of competition from online retailers like Amazon.

They complained that confusion over the provisions is keeping them from improving property in businesses such as restaurants and stores.

“The delay in correcting these provisions has caused economic hardship (that is) delaying investments across the economy that impact the communities in which these companies are doing business,” the groups wrote in a letter. “We urge the Treasury Department to issue guidance that will assure that these provisions are administered as intended by Congress.”

In addition to economic impact, the groups said the drafting errors have raised safety concerns by delaying projects such as upgrading sprinkler systems, “creating a more perilous situation for our nation’s firefighters.”

They argued that the need to correct the errors is becoming more urgent because most retailers have to file their first income tax returns related to the change on November 15, according to the letter. A national chain can file up to 100 federal, state and local income tax returns and, if the errors aren’t corrected before then, may have to file 100 amended returns once the mistakes are fixed. Such a time-consuming and costly process, the industry groups noted, would contradict President Trump’s executive order in April 2017 aimed at reducing tax regulatory burdens.

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