The following article was featured on the Worcester Business Journal, you can view the original article by clicking here.
The U.S. Tax Cuts and Jobs Act was signed into law by the president on Dec. 22, 2017. It represented a major legislative achievement for the current administration and is our country’s most significant tax bill in more than 30 years. The TCJA was not without controversy; it was passed entirely on party lines with not one Democratic vote. The bill was rushed through the House and Senate. As a result, numerous details were not addressed, and drafting errors need correcting.
For most calendar year taxpayers, the tax law changes were effective for 2018, requiring a quick response to comply with the new changes. For certain taxpayers with foreign subsidiaries, there was a requirement to include the repatriation tax with their 2017 tax filing, necessitating an even more timely response.
Many of the corporate-related tax law changes are permanent in they are part of the Internal Revenue Code and would require an act of Congress to change. Other changes, such as reduced individual income tax rates, increased child tax credit, and new deduction for pass-through income, as examples, expire after 2025. In order to get the bill passed and through scoring, certain provisions needed sunsetting provisions to meet budgetary requirements. In 2018, there was some initial discussion about Tax Reform 2.0, a proposed plan to make permanent the tax cuts for individuals and pass-through entities (such as S-corporations and partnerships). In the fall, the House passed a bill to make these changes, which passed mostly along party lines. The bill stalled in the Senate where Republicans were reluctant to take up a bill they felt could not get the 60 votes required for passage.
The Treasury Department and the Internal Revenue Service started issuing guidance beginning in the first quarter of 2018. Initial guidance related to the repatriation tax came earlier, since taxpayers had to address this with their 2017 tax returns. Treasury and IRS have issued and continue to issue proposed or final regulations to provide assistance for taxpayers and practitioners relative to filing 2018 tax returns. Having had a government shutdown occur early in filing season was certainly not helping.
To date, hundreds of pages of regulations have been issued. Much more guidance is still required. Proposed regulations issued on Nov. 26 provide guidance on a provision of TCJA limiting the business-interest deduction for certain taxpayers. Those proposed regulations are 439 pages long! Other proposed regulations issued in July of last year provide guidance on the new 20-percent deduction on qualified pass-through income. Those regulations were only 184 pages long.
Lawmakers in Washington will have to address technical corrections needed in the tax reform bill. Issues often arise after legislation is enacted, and Congress can pass technical corrections to make the law accurately reflect Congressional intent. The TCJA is no exception. Wording in the bill makes certain types of capital investments called qualified improvement property worse off in terms of cost recovery for tax purposes, solely because of a drafting error.
Although a lot of progress has been made over the past year in terms of what Treasury and IRS have issued for guidance, there is clearly still much more work to be done.
Happy tax season!