Tax Strategy

2019 federal tax legislation starting to take shape

In the first significant action on tax legislation in the new Congress, the House Ways and Means Committee, on April 2, 2019, approved three bills, the Building on Reemployment Improvements to Deliver Good Employment for Workers (BRIDGE for Workers) Act (H.R. 1759), the Setting Every Community Up for Retirement Enhancement (SECURE) Act (J.R. 1994), and the Taxpayer First Act (H.R. 1957).

congress-fotolia.jpg

All three bills passed unanimously, reflecting broad, bipartisan support. The Taxpayer First Act has already moved on to pass the House on April 9 on voice vote and move on to the Senate. Similar bills are being considered in the Senate. Still, as is typical of the legislative process in Congress, what emerges for final passage is likely to be somewhat different than what has passed the Ways and Means Committee.


The SECURE bill

Key elements of the retirement enhancement legislation were also being worked on last year in the Republican-controlled Congress. The legislation includes these key elements:
1. Make retirement plans more portable to move from one employer to another or to an IRA.
2. Increase the 10 percent limitation on default rates under an automatic enrollment safe harbor plan to 15 percent.
3. Relaxing rules for the nonelective contribution 401(k) safe harbor.
4. Increase the credit limitation for small employer pension plan startup costs to the greater of $500, or
the lesser of $5,000 or $250 multiplied by the number
of non-highly compensated employees eligible to participate.
5. Credit of up to $500 per year for three years for startup costs for new 401(k) or SIMPLE IRA plans, or for converting to an automatic enrollment plan.
6. Treat certain taxable non-tuition fellowship and stipend payments as compensation for IRA purposes.
7. Treat excluded difficulty-of-care payments to foster care providers as compensation for determining retirement contribution limits.
8. Repeal maximum age for IRA contributions.
9. Prohibit making plan loans through credit card or similar arrangements.
10. Direct the Treasury to issue guidance on the treatment of custodial accounts on termination of a 403(b) plan.
11. Clarification of the coverage of ministers relating to church-controlled organizations.
12. Plan coverage for long-term part-time workers.
13. Penalty-free withdrawals for child birth or adoption.
14. Change the age to begin required minimum distributions from 70-½ to 72.
15. Reinstate for one year and increase by $50 the exclusion for state or local tax benefits and reimbursement payments to volunteer emergency response organizations.
16. Election for alternative minimum funding for single-employer community newspaper plans.
17. Expand qualified 529 plan payments to include apprenticeship programs, homeschooling, education loan payments, and a broader range of elementary and secondary education expenses.
18. A set of plan administration improvements, including modification of the nondiscrimination rules to protect older, longer-service participants.

A couple of amendments approved during markup provide guidance on multiple and pooled employer plans and modify Pension Benefit Guarantee Corp. premiums for cooperative and small employer charity plans.

To offset the cost of these provisions, the bill includes four revenue raisers. Three involve raising penalties for failure to file and failure to file a retirement plan, and increased information sharing to administer excise taxes. The main revenue raiser, however, would change the after-death distribution rules for qualified retirement plans and IRAs to a general 10-year distribution maximum, with life expectancy distribution only available for certain eligible beneficiaries, including the surviving spouse, a disabled or chronically ill individual, an individual not more than 10 years younger than the deceased, or a child of the deceased who has not reached the age of majority.

Ways and Means Committee Chair Richard Neal, D-Massachusetts, also stated that additional retirement legislation can be expected in 2019 to further help taxpayers save for retirement and simplify the system.


Taxpayer First bill

The Taxpayer First bill, which has now passed the House, is designed to make the IRS a little more taxpayer-friendly. It would make the IRS Appeals office independent, require the IRS to adopt a comprehensive customer service strategy, codify the IRS Free File and fillable form programs, and make statutory a low-income exception for offer-in-compromise user fees. The legislation also addresses seizure requirements with respect to structuring transactions, equitable relief from joint liability, modification of procedures for a third-party summons, private debt collection, reform notice to contact third parties and authority to issue designated summons, and limitation of access of non-IRS personnel to return information. (For more, see "An IRS revamp?")

Other provisions address the structure of the IRS and National Taxpayer Advocate office, return preparation programs, seizure of perishable goods, whistleblower reforms, and misdirected tax refund deposits.

Also addressed are cybersecurity, information technology, income verification systems, expanded use of electronic systems, training, reform of laws governing IRS employees, and changes with respect to exempt organizations. The legislation has only a minimal revenue effect.


BRIDGE for Workers bill

This legislation would provide for a broader definition of unemployment insurance recipients eligible for re-employment service and eligibility assessment grants, or RESEAs.


Summary

All of this legislation appears generally to have bipartisan support, although concerns have been raised by individual members of Congress, including Senate Finance ranking member Ron Wyden, about certain provisions in the legislation.

While the House tends to pass many separate bills, in the Senate the tendency is to group tax legislation into one larger package before enactment. The Senate is also somewhat more likely to tack on additional amendments. While chances of passage of this legislation appear good, the timing remains somewhat uncertain, as are the specifics of what will finally be included when passage is obtained.