Taxation & Representation, January 29, 2019

Taxation & Representation, January 29, 2019

Jan 29, 2019

Client Alert

Brownstein Client Alert, January 29, 2019

IN THIS ISSUE

 

 

 

MEET THE MEMBERS

Welcome to the next installment of Meet the Members, where we take a look at the House Ways and Means newbies. In this week’s trio, we meet Reps.  Ron Estes (R-KS), Dwight Evans (D-PA) and Jimmy Panetta (D-CA). 

Ron Estes (R-KS-04). Rep. Ron Estes has served in the House since winning a 2017 special election to replace CIA Director Mike Pompeo. He represents Kansas’s 4th district, which includes Wichita and surrounding areas. Estes began his professional career as a consultant in the aerospace, energy and manufacturing sectors, working at Procter & Gamble, Koch Industries and Bombardier Learjet. Estes first served in public office as Sedgwick County Treasurer (2004-2010) and was later elected to be the Kansas State Treasurer (2011-2017). In Congress, he has been a strong proponent of tax cuts and called for defunding Planned Parenthood. During his short tenure on the Hill, he has cosponsored 20 tax bills. 

Dwight Evans (D-PA-03). Rep. Dwight Evans has represented Philadelphia since 2016 when he won a special election, but he now represents the commonwealth’s 3rd district under the new redistricted map. Prior to his time on Capitol Hill, he represented Pennsylvania's 203rd state house district for 36 years (1981-2016). During his long career in the state legislature, Evans fought for urban development, education, infrastructure and arts funding. He also established the Pennsylvania Fresh Food Financing Initiative, which expanded grocery store access to underserved communities. In Congress, Evans has continued to fight for these initiatives and priorities by supporting funding increases for SNAP and other health care programs. Last session, Evans introduced the Rehabilitation of Historic Schools Act of 2017 (H.R. 922), which would amend the Internal Revenue Code to allow rehabilitation expenditures for any building that is a qualified public educational facility to qualify for the rehabilitation tax credit. Evans also serves on the House Small Business Committee. 

Jimmy Panetta (D-CA-20). Since his election in 2016, Rep. Jimmy Panetta has represented California's Central Coast, including Santa Cruz and Santa Clara, which is primarily driven by agriculture. He is the son of former Defense Secretary Leon Panetta. Prior to serving in Congress, Panetta was a prosecutor in Oakland and served in the Navy Reserve for eight years, which included deployment to Afghanistan in 2007. In the House, he has worked to increase defense spending to aid his district's numerous military installations, and he is invested in environmental issues in an effort to preserve the Monterey Bay National Marine Sanctuary in his district. In addition to Ways and Means, Panetta serves on the House Budget Committee and House Agriculture Committee. 

 

 

 

LEGISLATIVE LOWDOWN

Mnuchin and Neal Debate Shutdown Hearing. The longest government shutdown ended last week, as President Donald Trump agreed to re-open the federal government for about three weeks. However, it is unclear whether House Ways and Means Chairman Richard Neal (D-MA) plans to reschedule a canceled hearing on the impact of the shutdown on American taxpayers. During the shutdown, Neal requested that Treasury Secretary Steven Mnuchin brief the committee on the department’s plans during the shutdown. Mnuchin declined the invitation, instead offering senior Treasury and IRS officials who were better suited to answer questions on contingency plans. Mnuchin offered his traditional testimony before the committee once the president’s budget proposal is released. The president’s budget is generally released the first week of February. Neal has offered alternative dates in February for Mnuchin to testify. A new date has not yet been set. 

Pressure on Neal to Request Trump Tax Returns. Four weeks into the 116th Congress, progressive groups are ratcheting up the pressure on House Ways and Means Committee Chairman Richard Neal (D-MA) to request the release of President Trump’s tax returns under his newfound legal authority. Last Thursday, three progressive advocacy groups—Tax March, Stand Up America and Indivisible—wrote Neal urging him to look into President Trump’s tax returns amid speculation of the president’s “numerous conflicts of interests and significant financial entanglements.” As leader of one of two tax-writing committees, a rarely used law grants Neal the authority to request the tax returns of any American taxpayer. Of course, requesting the returns is the easy part—the Trump administration is likely to fight Neal in court. Even if Democrats successfully obtain the president’s tax returns, they would be bound by strict rules on the disclosure of confidential tax information. With the recent Democratic takeover of the House, legislative attention in the lower chamber has unsurprisingly pivoted toward administrative oversight. As a result Trump’s controversial tax returns have become a priority. For his part, Neal said he is trying to “resist the emotion of the moment” and take a more judicious approach.  

 

 

 

REG WATCH

Opportunity Comes Once in a Lifetime. On Jan. 24, Sens. Tim Scott (R-SC) and Cory Booker (D-NJ) sent a bipartisan letter, along with 14 other senators, to U.S. Treasury Secretary Steven Mnuchin, urging him to address key issues related to Opportunity Zones. 

Specifically, the lawmakers asked Mnuchin to reconsider a requirement in the Oct. 19 regulations that Opportunity Zones businesses must derive at least 50 percent of gross income from the active conduct of a trade or business in a qualified opportunity zone to be eligible for the program. 

Lawmakers believe that this locational requirement in the regulations is contrary to congressional intent. In their letter, the senators stated that since businesses may derive income from the “sale of goods and services outside of a single census tract, this would significantly limit the ability for local operating businesses to qualify for opportunity fund investment.”

The original standard for businesses to qualify for Opportunity Fund investment did not contain this additional locational requirement. 

Given that 2019 is the last year to maximize the 15 percent capital gains tax reduction offered by the Opportunity Zone program, investors are eager for clarity. Further delays by the Treasury Department in providing concrete guidance on this program may deter investment in Opportunity Zones. After 2019, investors can still benefit from investments in Opportunity Zones, but they can only obtain a 10 percent reduction in capital gains tax. 

 

 

 

2020 VISION

Kamala Harris—Modern Day Robin Hood? On Martin Luther King Day, first-term Sen. Kamala Harris (D-CA) became the third female senator to announce her candidacy for president. Although her entire platform has yet to be fleshed out, it is expected to include a $2.75 trillion tax plan and a $32 trillion Medicare-for-all proposal. In addition to her Medicare proposal, which received its inspiration from Sen. Bernie Sanders’s (I-VT) plan, Harris intends to provide tax relief for low-income renters. Specifically, the LIFT Middle Class Act would provide a tax credit of up to $6,000 a year—or up to $500 a month—for lower income families, in addition to tax credits and other federal benefits they already receive. Harris has consistently said that the money from the GOP’s tax cuts largely help corporations and the top 1 percent—she wants to redistribute these benefits to lower and middle income Americans. Of course, Harris’s tax plan is currently all carrots and no sticks, with few concrete proposals on how to pay for these benefits. So far, Harris has suggested the following payfors: (1) repealing the Tax Cuts and Jobs Act, with the exception of provisions that provide relief to taxpayers with under $100,000 in annual income; and (2) assessing a fee on financial institutions with total consolidated assets of more than $50 billion. A cost estimate for Harris’s tax plan has not yet been released. 

Democrats to Push a Wealth Tax Next? Senator Elizabeth Warren (D-MA) released a proposal for an annual 2 percent tax on Americans with over $50 million in assets and a 3 percent tax on Americans with over $1 billion in assets. The Senator, who announced her candidacy for president in December, has been working with two left-leaning economists at Berkeley to develop the legislation that would have a notable effect on wealth concentration and decrease the divide of inequality. This “wealth tax” is expected to raise over $2.75 trillion in ten years from 75,000 families. The proposal also tackles tax evasion, including providing additional funds for the IRS, annual audits for those subject to the wealth tax, and a penalty for those with over $50 million in assets looking to surrender U.S. citizenship. The plan comes mere weeks after Rep. Alexandria Ocasio-Cortez (D-NY) floated a 70 percent tax on earnings over $10 million. Could it be the beginning of a beautiful friendship?

 

 

 

1111 CONSTITUTION AVENUE

Shutdown? What Shutdown? Trump Administration officials believe that the partial government shutdown is unlikely to have many lasting effects on the IRS’ ability to begin processing tax returns this week. Administration officials have noted that the IRS and Treasury Department were already in the process of calling furloughed employees back to work to process returns, per the agency’s contingency plan. As a result, they expect the agency to be fully operational and provide regular customer service with few interruptions. 

Filing season officially began on Monday, as thousands of federal workers returned to work after the 35-day shutdown. Of course, outside the administration several stakeholders have questioned whether filing season will go smoothly. For starters, this is the first filing season after the GOP’s tax overhaul. It is also the first time in over 30 years that taxpayers will have to file their taxes under a new system. Despite the Treasury Department’s best efforts to release regulations clarifying various aspects of the Tax Cuts and Jobs Act (TCJA), taxpayers are still left with murky guidance in several areas. 

Additionally, the IRS is still plagued by longstanding issues that continue to get worse, absent additional funding and implementing agency reforms. Last Congress, Republicans did not approve funding increases for the IRS in light of the agency improperly targeting conservatives by delaying and scrutinizing groups with “tea party” or “patriot” in their names. 

With even fewer IT workers in 2019, the technical glitches that impacted last filing season are likely to occur again. Former IRS Commissioner under President George W. Bush, Mark Everson, worried that an outage could last for days, derailing filing season. Industry stakeholders have also expressed concerns that the shutdown and dwindling IT support have left the agency more vulnerable to identity thieves looking to steal refunds. 

The nightmare for the IRS and taxpayers may not be over. The bill signed by the president on Jan. 25 only temporarily ends the government shutdown, punting the issue of the border wall funding to mid-February. If there is another government shutdown in February, this would interfere with refund season, a major pressure point for the GOP looking to tout the success of the TCJA in fattening taxpayers’ pocketbooks. Right now, it is entirely possible another partial government shutdown occurs at the end of the three week extension—President Trump has the odds at “less than 50-50” that Congress reaches a deal. Over the weekend, the president indicated that another government shutdown is an option, as he expressed skepticism that Congress would reach a compromise on his $5.7 billion request for the wall.

Give ‘Em a Break. As tax filing season officially gets underway, the American Institute of CPAs (AICPA) has urged federal officials to provide taxpayers who underpaid their obligations with “additional and more extensive relief" from penalties on top of the recent waiver from the IRS. On Jan. 16, the IRS announced it would forgive taxpayers who paid at least 85 percent of their taxes in 2018—the AICPA wants the agency to change that to 80 percent. The group also recommended that the IRS establish an expedited process to grant relief for underpayment and late payment penalties due to the “array of changes brought forth by TCJA and the lack of guidance…”

 

 

 

AT A GLANCE

  • THEY DID IT!...For Now. The House and Senate quickly passed a continuing resolution on Friday to provide funding for nine federal agencies for an additional three weeks. President Trump signed the deal on Friday, which provides funding through Feb. 15.
  • SHUTDOWN SHUTS DOWN IRS HEARING. The partial government shutdown resulted in the cancelation of a public hearing on imposing user fees for enrolled agents and enrolled retirement plan agents. The hearing was originally scheduled for Jan. 24. The hearing has not been rescheduled.
  • OPPORTUNITY ZONE AND GILTI HEARINGS. The IRS has scheduled a hearing on proposed regulations for Opportunity Zones on Feb. 14. This hearing was originally scheduled on Jan. 10, but was cancelled due to the partial government shutdown. The agency has also scheduled a hearing on proposed regulations for the new tax on the Global Intangible Low-Taxed Income (GILTI) for Feb. 13.

 

 

 

BROWNSTEIN BOOKSHELF

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