Tax professionals from Big Four firms discussed when to expect movement on upcoming major tax legislation and what businesses can do in the interim as President Trump marked is 100th day in office.
EY, PricewaterhouseCoopers (PwC), and KPMG each held webcast events April 30 discussing how recent developments involving sweeping tariffs, expected tax legislation, and workforce reductions at the Treasury Department impacts business clients and their investment projects.
TCJA extensions and more.
Congress returned to session from Easter recess this week as President Trump and Republican lawmakers look to land on a legislative framework for extending expiring provisions of the Tax Cuts and Jobs Act.
But tax is just one component of what the administrations hopes will be “one big, beautiful bill” — a budget reconciliation package incorporating multiple House committees of jurisdiction, observed KPMG Principal Jennifer Acuna. She said unlike the TCJA and “some of the other reconciliation bills we have seen in recent years, this bill is not just a tax bill, … it’s a lot of committees doing their work all in tandem, in addition to the tax writing committee.”
Acuna said there is “certainly an accelerated timeline” for the majority party in both chambers to agree to a bill that will pass at each stage of the process. “Right now, Congress is angling to try to hit the political deadline” of the first day of August recess, which is scheduled for August 1. She noted how it took seven weeks “from the moment you saw bill text” of the TCJA for it to become law.
“House leadership has indicated that they actually want the tax piece to begin moving through committee next week” to try and pass a bill before July 4, or perhaps even by Memorial Day. The timeline is in flux at the moment and is subject to change from day to day, said Acuna.
KPMG Principal John Gimigliano, responding to Acuna’s comments, added that the “House is counting on major spending cuts” while the “Senate is less reliant on that … so will House members be content to not have spending cuts, many of which they believe in, or will the Senate accept the House spending cuts?”
EY Washington Council and Principal Adam Francis said during his firm’s panel that while the Ways and Means Committee aims to get the ball rolling as soon as next week, the tax agenda involves more than just extending the TCJA “for as long as possible.”
Republicans must also incorporate Trump’s tax policy agenda alluded to on the campaign trail and restated during his most recent congressional address. Those proposals vary and “cover a lot of ground, whether it’s no tax on tips” or “no tax on overtime,” said Francis. On the business tax front, there have been “a lot of discussion around incentivizing domestic manufacturing activity and perhaps some additional incentives to incentivize that behavior going forward.”
Business strategies.
To navigate tax policy and regulatory uncertainty in the meantime, EY Global Strategy Insights Leader Courtney Rickert McCaffrey recommended that businesses improve their “political risk identification and monitoring systems.” This entails “a lot of internal activity within companies” and “working with trade associations and industry associations” to obtain “a much stronger handle on what’s happening now and what’s likely to happen in the future in terms of policy and regulatory change,” she said.
Companies should map out different scenarios impacting their business — such as any applicable tariffs and overall compliance requirements — so there is a level of preparedness and ability to adapt as events develop.
For companies considering tax divestitures as a strategy for weathering economic turbulence, Code Sec. 355 spinoffs “are incredibly valuable as a way to get non-core assets off of your balance sheet,” said PwC Mergers and Acquisitions Principal Craig Gerson. “But the rules there can be very rigorous and may not be suitable in all purposes.”
Gerson said he has been seeing at a higher rate what he described as an “up-C” corporation transaction. Here, the C corp “will take those non-core assets, drop them into a partnership, and then, increasingly, they’ll invite the public in as a new partner in that partnership through a new public company that will register and go public.” The new public company takes control of the balance sheet to move non-core assets down “as a standalone vehicle,” Gerson explained.
Then, “the partnership will have units that equate economically to shares of stock in the new public company,” he continued. “And so the company — then the divesting company — at its leisure, can take a unit and exchange it for a share of stock in the public company and monetize it on a pace and at a time that makes sense for it and for the tax planning that it wants to do.”
Gerson said this provides “flexibility” where a Section 355 spinoff “might be a challenge.”
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