globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload |
07 December 2017 US Senate approves Tax Cuts and Jobs Act The United States (US) Senate early on 2 December 2017, approved the Tax Cuts and Jobs Act (H.R. 1) by a 51-49 vote. Senator Bob Corker was the only Republican to vote against the bill. The House and Senate must now agree to the same version of the bill. As the Senate approached the final vote on the Tax Cuts and Jobs Act, and Republicans appeared more confident they had the votes to pass the tax overhaul plan, Senate Majority Leader Mitch McConnell offered a manager's amendment1 making numerous significant changes to the bill. Many of the changes were included to ensure the 50 Republican votes necessary to pass the bill. However, Republican leaders opted not to add significant new tax increases to appease Senator Bob Corker, whose concern about the bill's potential to increase the deficit led him to announce his plan to vote against the bill. Another senator with deficit concerns, Jeff Flake, announced he would vote in favor following elimination of an "$85 billion expensing gimmick" and an assurance from the Majority Leader on future Senate consideration of the Deferred Action for Childhood Arrivals (DACA) program. To appease Senator Flake, the manager's amendment would change the 100% expensing provision under the bill, which was slated to be eliminated after 2022. In its place, the expensing provision in the manager's amendment would be phased down after 2022, so that it would apply at 80% for property placed in service during 2023; 60% for property placed in service during 2024; 40% for property placed in service during 2025; and 20% for property placed in service during 2026. Senators Ron Johnson and Steve Daines announced their support for the bill after securing a deduction for pass-through businesses of 23%, up from 17.4% in the original bill. Senator Susan Collins announced her support for the bill after securing a change to restore the state and local property tax deduction up to US$10,000, as under the House bill. She also announced that the bill will include her amendment to reduce the threshold for deducting medical expenses from 10% to 7.5% of adjusted gross income for two years (the deduction would be repealed under the House tax bill). Collins also announced that she secured adoption of her amendment to "reverse the Senate bill's ill-advised elimination of catch-up contributions to retirement accounts for church, charity, school, and public employees." To help pay for changes to the bill, the individual alternative minimum tax (AMT) would no longer be repealed, but exemption amounts for the individual AMT would be increased. No changes on the corporate side would be made to current law, so the corporate AMT tax rate would stay at 20%, the same as the corporate tax rate after 2018.
Life insurance company taxation — Replaced the changes to the deferred acquisition costs (DAC) rules in the Finance Committee language with more modest changes to the DAC amortization rules, a limitation on the deduction for reserves equal to 92.87% of statutory reserves, as well as a limitation of 70% on the company share of the dividends received deduction while the policy holder share would be 30%. Income acceleration — Modified new rules relating to book-tax conformity in order to clarify the application of the all events test and the exemption from the new rules for mortgage servicing rights. Interest deduction limitations — Consistent with the House-passed version of the bill, allowable interest includes floor plan financing indebtedness. Section 199 domestic production deduction — Deduction repealed for taxpayers other than corporations. Deduction repealed for regular corporations for tax years beginning after 31 December 2018. Employee achievement awards — Certain awards given to employees (such as cash, cash-equivalents and gift cards) will be treated as non-tangible personal property for purposes of qualifying the awards for a business deduction. Low-income housing credit — The credit is made more favorable for housing provided to veterans and housing in certain rural areas; an offset is provided by reducing the allowance for housing in high-cost areas. Deemed repatriation transition rule — Transition tax rates were increased to 14.5% and 7.5% from 10% and 5% respectively. Denial of deduction for interest expense of US shareholders that are members of worldwide affiliated groups with excess domestic indebtedness — The definition of total equity was modified such that the calculation cannot be less than "1." Additionally, the "110%" in the calculation of excess domestic indebtedness is phased in between 2018 and 2021 (130%, 125%, 120%, and 115%, respectively). Repeal of the Domestic International Sales Corporation special rules — This provision was struck from the bill. Overall domestic losses (ODL) — This is a new section that allows for an election to recapture more than 50% of an ODL balance as foreign-source earnings for purposes of a pre-2018 ODL balance, but not above 100%. Base Erosion and Anti Abuse Tax — The tax rate is increased to 12.5% for years beginning after 31 December 2025, and regular tax liability in those years would be reduced by all credits for this purpose. In addition, the new tax on certain "base erosion payments" would be modified to increase the rate of the tax to 11% initially and to 13.5% after 2025 for banks and broker dealers. However, the provision would also exempt certain derivative payments from the definition of base erosion payments subject to the new tax. Sense of the Senate on improving customer service and protections for taxpayers by reinstating appropriate funding levels Free file program — This proposal would have codified and permanently extended the Free File Program, first created by negotiated public rulemaking in 2002. Dividends paid deduction for domestic corporations — This proposal would have create a placeholder for corporations to deduct dividends in computing taxable income subject to tax under Section 11, with the rate set at zero. Repeal of deduction for certain unused business credits certain provisions related to the low-income housing program — This proposal incorporated several provisions of S. 548, the Affordable Housing Credit Improvement Act of 2017, including:
Conformity of contribution limits for employer-sponsored retirement plans — This proposal would have applied a single aggregate limit to contributions for an employee in a governmental Section 457(b) plan and elective deferrals for the same employee under a Section 401(k) plan or a 403(b) plan of the same employer. Exception from private foundation excess business holding tax for independently operated philanthropic business holdings Simplification of rules regarding records, statements and returns — Under this proposal, brewers would be permitted to employ a unified system for any records, statements and returns required to be kept, rendered or made under Section 5555. Taxation of passenger cruise gross income of foreign corporations and nonresident alien individuals — This proposal would have created a new category of passenger cruise gross income that, if earned by a foreign-operated commercial vessel such as a cruise line, would have been subject to tax as effectively connected with a US trade or business. Repeal exclusion applicable to certain passenger aircraft operated by a foreign corporation — This proposal would have modified the reciprocal exemption under Section 883 for income derived by a foreign corporation from the international operation of an aircraft if the foreign corporation were headquartered in a country that does not have a tax treaty with the United States and had fewer than two arrivals and departures from major US-headquartered airlines per week. Revenue-dependent proposals — Subtitle E contained a trigger mechanism that would have repealed tax increases in the bill if total government revenues exceed certain levels. The manager's amendment deletes Subtitle E. In earlier votes, Senator Bill Nelson's motion to commit the bill to the Finance Committee with instructions to return it to the Senate with improvements for the middle class was defeated on a 48-52 vote. Senator Tammy Baldwin's motion to commit the bill with instructions to report back the legislation to tax carried interest as income was defeated on a 48-52 vote. Senator Ben Cardin's motion to commit the bill and have it returned to use repatriation revenue for infrastructure funding was defeated on a 47-53 vote. 1 A manager's amendment is typically used after the traditional committee process to make changes to a bill to gain more support before a floor vote. Document ID: 2017-5016 |
