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Federal Tax

Uncertainty Abounds as TCJA Expiration Looms, Tax Pros Say

Tim Shaw  

· 7 minute read

Tim Shaw  

· 7 minute read

With several provisions of the Tax Cuts and Jobs Act (TCJA, PL 115-97) set to expire or change in 18 months, the tax community is navigating a period of uncertainty ahead of a critical election cycle that will alter the landscape of policy debate in 2025.

Checkpoint spoke with three members of Crowe LLP’s tax team on what is at stake over the next year and a half for taxpayers across the board while lawmakers mull what to do about temporary changes to the Tax Code by the 2017 reform bill, as well as how the US’ international tax regime may measure up with the rest of the global tax community.

2024 elections.

Party control of Congress and the White House hang in the balance, especially in the Senate where Democrats currently hold a narrow majority. Former President Donald Trump, who signed the TCJA into law, seeks reelection as President Joe Biden looks to carry out his tax agenda detailed in Treasury’s “Greenbook” for fiscal year 2025.

But despite a split Congress, this year saw a rare bipartisan, bicameral tax agreement make headway. The Tax Relief for American Families and Workers Act of 2024 (HR 7024) advanced out of the House January 31 by a margin of 357-70. The bill, which includes modifications or temporary extensions to some TCJA provisions (like those affecting bonus depreciation and research and development expensing), was drafted by Senate Finance Committee Chair Ron Wyden (D-OR) and House Ways and Means Committee Chair Jason Smith (R-MO). It has since lost momentum in the Senate, where no further action has been taken.

Rochelle Hodes, principal in Crowe’s Washington National Tax Office, told Checkpoint that when it comes to the Tax Relief for American Families and Workers Act as a tax package, “all bets are off.” The “discussion going forward” is not “going to be wedded to that agreement necessarily,” said Hodes.

In fact, she does not expect any major tax legislation to become law before the November elections. Once the dust settles and a new Congress begins next year, though, “everything is on the table,” Hodes continued, “and there’s a bunch of menu items.” She explained that since many lawmakers “have their own set of priorities” and “their own items that are important to them,” it is “really hard to envision that somebody would address a potential topic of negotiation now.”

The TCJA and its expiring provisions have the potential to “change the dynamic” around tax topics up for negotiation, said Hodes. As we get closer to the expiration date, “the less likely tax items are going to be able to be agreed upon, for all kinds of reasons.” The lame duck session “is not going to be fruitful for dealing with tax,” she commented, since fiscal year 2025 appropriations are still on the to-do list, but the TCJA expirations are “really weighing heavily.”

Should those provisions sunset as currently scheduled, the impact will be felt come tax filing season in 2027, she said. Examples include higher individual income tax rates, the lower standard deduction (which will result in more taxpayers electing to itemize their deductions), and the reduced Child Tax Credit.

High-net-worth individuals.

Several TCJA provisions affect high-net-worth individuals, such as the higher exemption amounts for the alternative minimum tax (AMT). For tax year 2024, the AMT exemption amounts are:

  • $85,700 for single filers
  • $133,300 for married joint filers
  • $66,650 for married couples filing separately.

When, or if, those thresholds revert, “a very high percentage of high-income individuals” will be back in scope under the AMT regime, Sarah Allen-Anthony, Crowe partner and leader of the firm’s Private Client Services, told Checkpoint. This is “both because of the lowered AMT exemption as well as changes to the itemized deductions. For example, the state and local tax [SALT] deduction no longer being capped at $10,000 — but that’s not allowed for AMT.”

The TCJA’s limit on the amount of state and local deductions that can be claimed has been a point of contention since the bill was enacted. Lawmakers have considered raising the SALT deduction cap or repealing it early. Gauging how expiration of the cap will impact high-income taxpayers will be “particularly interesting” to see, albeit “complicated,” Allen-Anthony said, given the amount of states that have implemented a pass-through entity tax (PTET) regime.

“Many of the high-income taxpayers do have ownership and flow-throughs, whether it’s partnerships or S corporations,” she said. If the SALT cap is lifted, it may be “actually detrimental” to some who may find themselves subject to the AMT.

Another “pretty impactful change” would be the expiration of the Code Sec. 199A qualified business income deduction that was designed to create parity between tax treatments of pass-through owners and corporations. The TCJA lowered the corporate tax rate from 35% to 21% and the 20% Section 199A deduction was intended to provide relief to non-corporate business taxpayers.

However, the corporate tax rate change is permanent while the Section 199A deduction is scheduled to sunset. If that happens, “you’re going to have a lot of taxpayers considering choice of entity,” said Allen-Anthony.

International.

The TCJA overhauled the US’ international tax regime with the goal of deterring profit-shifting by large multinational corporations. It features global intangible low-tax income (GILTI), foreign derived intangible income (FDII), and the base erosion and anti-abuse tax (BEAT). These components have their own tax rates as part of a so-called blended system, as opposed to a country-by-country calculation, but changes are coming in 2026:

  • GILTI tax rate ranges increase from 10.5%-13.125% to 13.125%-16.406%
  • BEAT tax rate increases from 10% to 12.5%
  • FDII deduction reduces, changing the effective tax rate to 16.4%

Crowe Partner Kristin Kranich, who leads the firm’s International Tax Services, told Checkpoint that the mechanics of the calculations under the TCJA international tax system did not incentivize companies to keep intangible property in the US, nor did they disincentivize the practice of offshoring assets.

Large multinationals have “found their workarounds,” Kranich said, or have not faced a “significant burden.” In some cases, the TCJA was “actually a positive change for them.” She added that companies are “definitely going to always be looking for the best ways to optimize regardless of the law.” Kranich is “not sure that TCJA completely accomplished what it was trying to in terms of the international provisions.”

The elephant in the room is the Organization for Economic Cooperation and Development’s (OECD) two-pillar tax framework. Pillar 1 includes mechanisms for expanding a jurisdiction’s ability to tax profits from companies with economic activity in their country but that do not have a physical presence. Pillar 2 is a 15% global minimum tax comprised of several components functioning as top-up taxes and backstops. So far, 140 countries have signed onto the OECD framework, several of which are moving forward with implementing Pillar 2. The US, through the Biden administration, has been involved in negotiations but has not formally adopted either pillar.

While the OECD previously issued guidance carving out some exceptions for the US’ GILTI system, more would need to be done to align with Pillar 2, Kranich said, like moving to a per-jurisdiction approach. “Currently, we’ve got this blending of all your controlled foreign corporations. You look at the tested income for GILTI for all of them combined. Similarly, you take all of the foreign taxes paid for all of them combined and you do a blended calculation, and that is how you come out with your overall GILTI inclusion and related foreign tax credits — so that is something that needs to be addressed.”

If the US does not adopt the Pillar 2 rules but the vast majority of the global tax community do, some companies may “pay additional taxes outside of the US,” Kranich added.

 

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