Senate Republicans clarify intent of TCJA provisions

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A group of Republicans on the Senate Finance Committee is asking the Internal Revenue Service and the Treasury Department to issue guidance based on the senators' explanation of the congressional intent behind several provisions of the Tax Cuts and Jobs Act related to qualified improvement property expensing, the net operating loss deduction and sexual misconduct settlements.

The Republicans, led by Senate Finance Committee Chairman Orrin Hatch, R-Utah, wrote a letter to Treasury Secretary Steven Mnuchin and IRS Acting Commissioner David Kautter on Thursday asking them to issue the guidance and saying they plan to draft technical corrections legislation as well.

It is unusual for one party to dictate the “congressional intent” of tax provisions to the IRS and the Treasury and insist that they draw up guidance in that way.

Republicans pushed through the wide-ranging Tax Code overhaul late last year with few hearings and little input from legislators, including Democrats. Copies of the hastily drafted legislation contained handwritten additions in the margins of some pages, and lawmakers recognized that a technical corrections bill would be necessary. However, while Republicans were able to use a budget reconciliation procedure to pass the legislation in the Senate without a 60-vote supermajority, a technical corrections bill would need the support of Democrats.

So far, the two sides have only agreed to fix a provision related to the tax treatment of agricultural cooperatives (see Deal reached on fixing 'grain glitch' in new tax law). However, a number of pressing problems have been identified in the new tax law, including one that’s been proving difficult for the restaurant and retail industries, and restaurant and store owners who want to renovate their property.

“We write to clarify the congressional intent of this recently enacted tax legislation (specifically, Sections 13204, 13302, and 13307 of H.R. 1), which is reflected in the conference report, revenue estimates, and other legislative history,” Republicans on the Finance Committee wrote in their letter. “While this letter focuses on these three important provisions, we are continuing a thorough review … to identify other instances in which the language as enacted may require regulatory guidance or technical corrections to reflect the intent of the Congress. After this review, we intend to introduce technical corrections legislation to address any items identified in the on-going review.”

They noted that Section 13204 of H.R. 1 provides rules related to the depreciation of real property, and they identified a technical correction to reflect the legislative intent.

“Specifically, in eliminating the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property and providing a new single definition of qualified improvement property, the language in Section 13204(a) failed to designate qualified improvement property as 15-year property under the modified accelerated cost recovery system,” they wrote. “In addition, there is a typographical error in a cross-reference identifying qualified improvement property as property which is recovered over 20 years under the alternative depreciation system. Congressional intent was to provide a 15-year MACRS recovery period and a 20-year ADS recovery period for qualified improvement property.”

The rules surrounding net operating losses are also in need of a technical correction, the senators noted.

“Section 13302 of H.R. 1 modifies the rules governing the deduction of net operating losses,” they wrote. “We have identified a technical correction that is necessary to reflect the legislative intent with respect to this provision. Specifically, Section 13302(e)(2) includes language stating that the modifications made to NOL carryforwards and carrybacks apply to net operating losses arising in taxable years ending after Dec. 31, 2017. Congressional intent was to provide that the NOL carryforward and carryback modifications are effective for NOLs arising in taxable years beginning after Dec. 31, 2017.”

They also want to fix a provision in the law that has been causing consternation among victims of sexual harassment and sexual abuse and their advocates, especially in the #MeToo era.

“Section 13307 of H.R. 1 denies a deduction for (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment. We have identified a technical correction that is necessary to reflect the legislative intent with respect to this provision,” they wrote. “Specifically, the provision arguably prohibits the recipient of any payment from deducting legal fees incurred in pursuing sexual harassment cases, because such legal fees are 'related to' a settlement or payment that is subject to a NDA. Congressional intent was that these attorney’s fees would not be subject to this rule.”

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