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US Tax Reform

2017 Tax Reform: Latest changes to the Senate-passed “Tax Cuts and Jobs Act”

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

On December 2, the Senate, by a vote of 51 to 49, passed the “Tax Cuts and Jobs Act” (the Act). This article highlights the key last-minute, significant modifications to the previous version of the proposed Senate bill that were included in the bill, as passed by the Senate.

The next step is for the House and Senate tax bills to be reconciled into a single piece of legislation by a Conference Committee composed of House and Senate conferees. Although there are many similarities between the two bills, there are also a number of significant differences to be addressed by the Committee, including the Senate bill’s “sunset” of many tax breaks, the year in which the corporate tax rate reduction would go into effect, and whether or not the estate tax and alternative minimum tax (AMT) are repealed.

For provisions related to individual provisions, see ¶ 1 .

For provisions related to business provisions, see ¶ 26 .

For provisions related to foreign income and persons, see ¶ 30 .

Individual Provisions

The final version of the Senate Act would:

. . . allow an itemized deduction for up to $10,000 in state and local real property taxes not paid or accrued in a trade or business, for tax years beginning after Dec. 31, 2017.

. . . reinstate the individual alternative minimum tax (AMT), with increased exemption amounts and phaseout thresholds, for tax years beginning after Dec. 31, 2017 (present-law AMT to apply after 12/31/25).

. . . increase the deduction for qualified business income of pass-thru entities to 23%, for tax years beginning after Dec. 31, 2017.

. . . provide for the treatment of certain publicly traded partnerships (PTPs) under the 23% deduction for qualified business income, for tax years beginning after Dec. 31, 2017.

. . . provide for the treatment of agricultural and horticultural cooperatives under the 23% deduction for qualified business income, for tax years beginning after Dec. 31, 2017.

. . . clarify the treatment of employees under the 23% deduction for qualified business income, for tax years beginning after Dec. 31, 2017.

. . . eliminate the deduction for member of Congress living expenses, for tax years beginning after the date of enactment.

. . . provide retirement plan and casualty loss relief for any area with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Relief and Emergency Assistance Act during 2016, effective on the date of enactment.

. . . restore the medical expense deduction for expenses in excess of 7.5% of adjusted gross income (AGI), for tax years beginning after 12/31/16.

. . . provide for recordkeeping for contributions to ABLE accounts, for tax years beginning after Dec. 31, 2017.

. . . provide that for 2025 only, i.e., the year before the child credit sunsets, the credit is only available for children under the age of 17, while maintaining 17 as the maximum age for earlier years.

. . . remove reference to section 1909 of the Social Security Act in unification of the tax treatment of whistleblower awards, for tax years beginning after Dec. 31, 2017.

Business Provisions

The final version of the Senate Act would:

. . . not repeal the corporate AMT.

. . . repeal the Code Sec. 199 deduction for income attributable to domestic production activities for non-corporate taxpayers, for tax years beginning after Dec. 31, 2017.

. . . extend and phase-down bonus depreciation for property placed in service after and specified plants planted or grafted after 12/31/22. The percentage is phased down from 100% by 20% per calendar year beginning in 2023 (2024 for certain longer production period property and certain aircraft).

. . . modify the recovery period for real property, for tax years beginning after Dec. 31, 2017.

. . . provide an exception for floor plan financing from the limitation on the business interest deduction, for tax years beginning after Dec. 31, 2017.

. . . include agricultural and horticultural cooperatives in the definition of a farming business for purposes of the limitation on the business interest deduction, for tax years beginning after Dec. 31, 2017.

. . . modify the treatment of S corporation conversions into C corporations, effective on date of enactment.

. . . modify new Code Sec. 163(n) by: (a) modifying the definition of total equity, for tax years beginning after Dec. 31, 2017; (b) phasing in new Code Sec. 163(n), for tax years beginning after Dec. 31, 2017 (excess indebtedness of the U.S. group exceeds 130% of total indebtedness of worldwide group in 2018, 125% in 2019, 120% in 2020, 115% in 2021, and 110% in 2022 and thereafter).

. . . prohibit cash, gifts cards, and other non-tangible personal property as deductible employee achievement awards, for amounts paid or incurred after Dec. 31, 2017.

. . . delay the effective date of the applicable financial statement (AFS) conformity rule for original issue discount (OID) income by one year, and increase the adjustment period to six years, for tax years beginning after Dec. 31, 2017.

. . . provide an exception from the AFS conformity rule for income from mortgage servicing rights, for tax years beginning after Dec. 31, 2017.

. . . with respect to the low-income housing tax credit: 1) add veterans to the existing law exception to the general public use requirement; 2) expand the basis boost to buildings located in defined rural areas generally and change the basis boost from 130% to 125%. For buildings placed in service after date of enactment.

. . . modify the excise tax based on investment income of private colleges and universities to: (a) exempt schools that do not participate in Federal financial aid programs and (b) increase asset-per-student threshold to $500,000, for tax years beginning after Dec. 31, 2017.

. . . provide for IRS to require substantiation for tax credit to certain employers who provide family and medical leave, for tax years beginning after Dec. 31, 2017.

. . . strike conformity of contribution limits for employer-sponsored retirement plans, for tax years beginning after Dec. 31, 2017.

. . . make technical change to the partnership provisions for the limitation on the business interest deductions, for tax years beginning after Dec. 31, 2017

. . . strike the Act provision (section 13517) relating to insurance policy acquisition expenses, for tax years beginning after Dec. 31, 2017; (a) computation of life insurance reserves, for tax years beginning after Dec. 31, 2017; (b) modification of rules for life insurance proration, for tax years beginning after Dec. 31, 2017; and (c) capitalization of certain policy acquisition expenses, for tax years beginning after Dec. 31, 2017.

International Provisions

The final version of the Senate Act: would:

. . . modify the repatriation toll charges to be 7.5% and 14.5% for non-cash and cash amounts, respectively, effective for the last tax year of foreign corporations beginning before Jan. 1, 2018, and for all subsequent tax years of foreign corporations and for the tax years of a U. S. shareholder with or within which such tax years end.

. . . eliminate the Senate’s earlier proposal to end the current law treatment of domestic international sales corporations (DISCs) and interest charge domestic international sales corporations (IC-DISCs) present-law treatment.

. . . increase the maximum overall domestic loss recapture to 100% for pre-2018 losses, for tax years beginning after Dec. 31, 2017.

. . . exclude specified payments from the base erosion and anti abuse tax (BEAT) and increase the BEAT tax rate by 1 percentage point for certain financial institutions, for amounts paid or accrued after Dec. 31, 2017.

. . . modify the definition of property considered as for a foreign use for purposes of determining foreign-derived intangible income, for tax years beginning after Dec. 31, 2017.

The Tax Cuts and Jobs Act (as passed by the Senate).

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