United States: Tax Policy Update - April 28, 2015

NUMBER OF THE WEEK: $9.6 Billion. The total amount that the federal government could save over 10 years under the PTC Elimination Act (H.R. 1901) – a bill that would phase out and repeal the renewable energy production tax credit. In addition to reducing the credit by as much as 35 percent, the bill outlines a special rule to clarify the “beginning of construction” definition, requiring qualified construction to be “continuous, significant, and finite.” The bill introduced by Congressmen Kenny Marchant (R-TX) and Mike Pompeo (R-KS) would also completely repeal the PTC after Dec 31, 2025. “The PTC Elimination Act may only be one piece of the effort to fix our broken tax code […]. That’s the approach to tax simplification we must use to revitalize the American Economy,” Marchant said.

LEGISLATIVE LANDSCAPE

Tax Committees Approve Health Care Tax Credit. Members of Senate Finance and House Ways & Means committees voted to extend the Health Coverage Tax Credit (HCTC) for American workers who may be negatively impacted by foreign trade. The tax credit covers 72.5 percent of an eligible individual’s health care premium cost. Under the House Trade Assistance Adjustment (TAA) bill (H.R. 1892), the credit would be extended retroactively from 2014 to the end of 2019. The HCTC provision would cost approximately $173 million over ten years according to the Joint Committee on Taxation. Both of the tax-writing committees aim to pay for the extension by eliminating the refundable portion of the child tax credit for American taxpayers living abroad who claim the foreign earned income exclusion under Section 911 of the tax code.

The TAA bill also includes a provision modifying the way corporations pay their federal income tax on a quarterly basis. Under the provision, corporations with more than $1 billion in assets during the third quarter of 2020 would be expected to pay 27.75 percent of their estimated annual tax payment – that’s a 2.75 percent increase from the current 25 percent rate. The increase would be temporary as the provision would “reduce the next estimated tax payment by the same amount.” The Ways & Means explanation of these provisions can be found here.

Repeal of “Cadillac” Tax Back on Radar. Congressman Joe Courtney (D-CT) plans to introduce a bill today that would repeal the “Cadillac” tax created under the Affordable Care Act. The 40 percent excise tax on high-cost health plans is scheduled to take effect in 2018, but proponents of the repeal would like to eliminate the tax before it kicks in. The excise tax is designed to generate revenue in order to help pay for the expansion of health coverage to the uninsured. The repeal would cost the federal government approximately $87 billion – a hefty price tag for proponents to overcome. According to the congressman’s office, the bill currently has 48 cosponsors.

Rep. Dold to Replace Schock on Ways & Means. House Ways and Means plans to welcome Congressman Robert Dold (R-IL) to the committee this week. The seat on the tax-writing panel has been vacant since former Congressman Aaron Schock (R-IL) resigned in March after mounting allegations of criminal misconduct. Dold is currently a member of the House Financial Services Committee but will have to give up his seat in order to move to Ways and Means. Dold’s move will need to be approved by the House Republican Conference before it is official. Once approved, he will be the third Illinois member on the tax panel along with Congressmen Peter Roskam (R-IL) and Danny Davis (D-IL).

Senate Finance to Mark Up 529 College Savings Bill. On Wednesday, lawmakers on the Senate Finance Committee will meet to mark up a bill that would expand and improve 529 college savings plans (S.335). The legislation is similar to Rep. Lynn Jenkins (R-KS) bill (H.R. 529) approved by the House back in February. Under the measure, the definition of qualified higher education expenses would be expanded to include computer and software purchases, and students that receive a refund of any qualified higher education expenses would be allowed to redeposit those funds into a qualified tuition program within 60 days without penalty. In addition, S.335 contains a technical amendment eliminating the requirement that the earnings portion of any distribution be determined by aggregating accounts.

REGULATORY WORLD

IRS Proposed Regulations Expand PFICs. The Internal Revenue Service (IRS) recently published proposed regulations on narrowing the exception from passive income for certain foreign insurance companies. The regulations are intended to prevent offshore hedge funds from operating as insurance companies to avoid taxes. Some offshore hedge funds have avoided being designated as passive foreign investment companies under Section 1297 of the tax code because of the exception for active insurance businesses. However, the proposed regulations would narrowly describe the active conduct of an insurance business. Rather than considering the conduct of officers and employees of related entities, only the conduct of actual employees is considered. In the publication, found on the Federal Register, submissions will be accepted up to July 23, 2015.

SIFMA Seeks De Minimis Relief for Correcting Information Returns. The Securities Industry and Financial Markets Association, in a letter, recently asked Treasury and the IRS for relief from having to correct certain information returns. SIFMA seeks exemption from having to correct information returns where the correction amount is $50 or less. The letter noted that it would relieve burdens for taxpayers, IRS, and information return filers. This past week, IRS Commissioner Koskinen was under fire from the House Ways & Means Subcommittee and was pressed to find ways the agency could save additional money. Relief from correcting information returns requested here may allow the IRS to redirect its relatively limited resources.

LOOKING AHEAD

Wednesday, 4/29

Thursday, April 30

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.