Tax execs waiting on TCJA guidance

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Tax executives are undecided about the impact of tax reform, and they continue to seek regulatory guidance to understand how to structure their business, according to law firm Miller & Chevalier and the National Foreign Trade Council’s 13th Annual Tax Policy Forecast.

“The Tax Cuts and Jobs Act was a very complex piece of legislation,” said Marc Gerson, chair of Miller & Chevalier and former majority tax counsel to the House Committee on Ways and Means. “Folks are appreciative of the effort the Treasury and the IRS have put to get guidance out, especially in the international area. But a lot of the guidance is still proposed, so there’s a period of uncertainty. As more regs get finalized, there still might be unresolved issues, and we’ll see more focus on legislation to address some of these.”

“There’s the hope that the uncertainties will be resolved as the regs get finalized,” he added, “but there’s also the expectation that this will be followed by legislation to address the issues, either by technical corrections or by more substantive legislation.”

As for timing, Gerson believes that there will be a push to get additional guidance out by the end of the summer. “Then there will be a renewed legislative effort, on a dynamic, rolling basis over the summer and fall,” he said.

Almost half of respondents saw their company’s taxes decrease under the TCJA, but executives don’t think they can adequately assess the law’s complete effect on their businesses without further clarifications.

“The TCJA has a myriad of business implications to consider before any shifts can be made,” cautioned Gerson. “Our respondents’ search for clarity shows that companies are doing their due diligence to understand the legislation.”

In a near-even split, respondents identified global intangible low-taxed income, or GILTI, the Base Erosion and Anti-Abuse Tax and the limitation on the deduction of business interest expense as the TCJA provisions for which businesses need the most guidance.

“While most respondents agree that the reduction in the corporate tax rate from 35 percent to 21 percent was a key benefit of the legislation, the interaction of the TCJA’s international provisions with existing rules may result in the anticipated reduction to taxpayers’ effective tax rates to be somewhat muted,” said Miller & Chevalier Tax Department member Lauren Pond, also a former majority tax counsel to the Ways and Means Committee. “The respondents attention to GILTI and BEAT shows that they’re cognizant of the potential impact and are eager for regulatory guidance to address the nuances of the rules and certain perverse interactions that have come to light since the TCJA’s enactment.”

In light of the divided Congress, a large percentage of respondents don’t expect any tax legislation to advance this year despite significant interest in technical corrections to the TCJA and tax extenders, Bipartisan agreement would be required to move tax extenders and technical corrections forward, Gerson noted. “This was reflected in respondents’ belief that Senate Majority Leader MItch McConnell would have the largest impact on tax policy this year, followed by House Speaker Nancy Pilosi, But with a limited window of opportunity given the impending 2020 elections, the likelihood of such bipartisan legislation is not high,” he said.

Among the survey highlights:

  • Executives were almost evenly split between the TCJA provisions for which they would like additional guidance: GILTI (32 percent) the BEAT (29 percent) and the Section 163(j) business interest deduction limitation (29 percent).Thirty-one percent of respondents said that no additional guidance is needed.
  • Forty-two percent would like to see technical corrections made to the TCJA, and 32 percent want temporary TCJA provisions to be extended or made permanent. However, most respondents don’t think any legislation will be enacted into law in 2019 given the divided Congress.
  • The largest percentage of respondents (39 percent) believe that the U.S. economy will have the most significant positive impact on tax policy in 2019. This suggests that there is some hope for legislative changes to be made this year, despite executives’ (31 percent) belief that the inability of congressional leaders and the White House to reach agreement will most negatively impact tax policy in 2019.
  • Respondents are most interested in technical corrections to the TCJA and extension or permanence of TCJA provisions.

In December 2018, a technical corrections package was passed by the House of Representatives as part of the Retirement Savings and Other Tax Relief Act of 2018, Gerson observed. “In addition, outgoing House Ways and Means Chairman Kevin Brady released a discussion draft of the Tax Technical and Clerical Corrections Act in early January 2019. Neither measure was enacted into law.”

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