Roundtable Weekly -- December 13, 2019

Policy Landscape

Congress Reaches Spending Deal to Avert Shutdown; Roundtable and Business Coalition Urge Year-End TRIA Reauthorization

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A bipartisan spending deal to fund the government before a Dec. 20 deadline has been agreed to in principle, with details and a vote expected next week, according to top congressional lawmakers.  During the year-end policy rush to attach other legislation to the must-pass spending bill, The Roundtable and a diverse business coalition on Dec. 11 urged Congress to extend the Terrorism Risk Insurance Act (TRIA) for 7 years by passing S. 2877.

  • After rounds of funding negotiations between leaders of Senate and House appropriators this week, House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin, House Appropriations Chairwoman Nita Lowey (D-NY) on Thursday reported, “There’s a meeting of the minds.”  (Wall Street Journal, Dec. 12 and The Hill)

  • “Let me say in no uncertain terms, nobody wants to have a government shutdown,” said Sec. Mnuchin.  (Bloomberg Tax, Dec. 12)

  • Funding for the National Flood Insurance and EB-5 investor programs are currently operating under a four-week spending bill signed by President Trump on Nov. 21.  If a new round of funding is not agreed to by policymakers, the programs will shutdown on Dec. 21. (Roundtable Weekly, Nov. 22)

  • The spending agreement would avert a shutdown by spreading nearly $1.4 trillion in discretionary government spending over a dozen appropriations bills for FY2020, which ends Sept. 30, 2020.  The specific bills are likely to be unveiled Monday. (BGov, Dec. 13)

  • The contentious issue of funding for border wall along the Mexican border, which led to a 35-day government shutdown last year, is reportedly part of an agreement on immigration issues. The spending deal would provide the same funding for the border wall that Congress offered for fiscal year 2019 – $1.375 billion, instead of $5 billion requested by the White House.  (Roll Call, Dec. 12)

  • A flurry of policy developments this week may result in lawmakers agreeing to the massive funding bill, a U.S.-Mexico-Canada trade agreement and a Phase One Deal with China.

As lawmakers work to assemble the final spending package to pass by Dec. 20, several other measures – including a seven-year TRIA reauthorization and tax extenders – may compete for inclusion in the final “omnibus” bill.

Roundtable Urging TRIA Reauthorization

On Dec. 11, The Roundtable and a  diverse business coalition sent a letter to all members of the Senate urging action on the Terrorism Risk Insurance Program Reauthorization Act of 2019 (S. 2877) as soon as possible.  The Senate bill would extend TRIA for seven years, “allowing the program to continue providing vital economic protections against acts of terrorism that companies throughout the nation rely on,” according to the letter

  • The letter also notes, “Since its initial enactment in 2002, TRIA has served as a vital public-private risk sharing mechanism, ensuring that private terrorism risk insurance coverage remains available to commercial businesses, educational institutions and non-profit organizations at virtually no cost to the taxpayer.”

  • A seven-year TRIA reauthorization passed the House on Nov. 18 (H.R. 4634) as the Senate Banking Committee advanced a similar bill (S. 2877) on Nov. 20.  (Roundtable Weekly, Nov. 22)

  • Last week, The Roundtable and its partners in the Coalition to Insure Against Terrorism (CIAT) urged Senators to include the TRIA reauthorization in a possible year-end spending package.  (CIAT Letter, Dec. 2)

  • Roundtable President and CEO Jeffrey DeBoer commented on the importance of TRIA in a Dec. 12 Bisnow article on “5 Policy Issues That Could Affect Commercial Real Estate In 2020.”

  • "The reason it's important is you want your assets, the property and potential damage to be covered by insurance, but you also want the people in your building to be covered by insurance if, God forbid, something happened," DeBoer said. "If you don't have all risk coverage on your asset, typically it's very difficult to get financing for that asset from a bank or pension fund."

  • "We're optimistic we can get it done before the end of 2019," he said. "If that does not happen, our top priority in 2020 will be to extend TRIA and maintain that Act."  (Bisnow, Dec. 12)

House Majority Leader Steny Hoyer (D-MD) said yesterday that a final omnibus containing the spending bill and other measures may be grouped into two packages and voted on Tuesday.  Congress is expected to adjourn for the holiday recess by Dec. 20.  (The Hill, Dec. 12) 

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Opportunity Zones

White House Reviewing Final OZ Tax Regulations; Senate Legislation Introduced on Reporting Requirements

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The White House’s Office of Management and Budget (OMB) is reviewing a set of highly anticipated final rules for the Opportunity Zones program created by the 2017 Tax Cuts and Jobs Act, according to a Dec. 6 OMB notice.  The rules will address requirements of qualified opportunity funds that invest in opportunity zones (OZs).

  • OZ investors are looking for clarifications on a number of open issues that will help qualified opportunity funds drive economic development in economically distressed communities nationwide.

  • Treasury released its first set of proposed OZ rules in Oct. 2018, followed by expanded guidance in April 2019.  The Treasury rulemakings have reduced investor uncertainty and encouraged capital formation, job creation and productive real estate.  However, certain questions remain that warrant additional guidance, such as whether an existing owner can retain a carried interest when selling property to a related Opportunity Fund.

  • The Real Estate Roundtable on July 1, 2019 submitted recommended clarifications for final OZ tax regulations, which may be issued by the Treasury Department before the end of this year (Roundtable Comment letter, July 1).  The Roundtable also submitted prior letters on OZ tax incentives in June 2018 and December 2018.)

  • In Congress, GOP senators on Dec. 6 introduced a bill that would expand information reporting requirements for OZ investments, including requiring investors to report the number of full-time workers employed by opportunity zone projects. (BGov, Dec. 8 and Sen. Marco Rubio news release, Dec. 9)

  • The Senate’s “Improving and Reinstating the Monitoring, Prevention, Accountability, Certification, and Transparency Provisions of Opportunity Zones (IMPACT) Act” would “… help show communities and investors that the initiative is working, as well as help root out any fraud or abuse,” according to Sen. Tim Scott (R-SC), the lead sponsor of the bill.  (The Hill, Dec. 6)

  • Democratic lawmakers in the Senate and House have also recently proposed measures that would require more reporting requirements about Opportunity Zone investments – as well as reform the tax incentive, and formally investigate recent allegations of wrongdoing related to the program. (Roundtable Weekly, Nov. 8)

  • The Roundtable has strongly supported the Opportunity Zone tax incentives since their enactment as a potential powerful catalyst for transformative real estate investment in economically struggling parts of the country.  (GlobeSt.com interview with Roundtable President and CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick –July 16, 2018).

Through its Tax Policy Advisory Committee and Opportunity Zone Working Group, The Roundtable will continue to contribute to the implementation and oversight of the Opportunity Zone incentives, offering constructive comments and recommendations to Members of Congress and Treasury officials. 

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Partnership Regulations

IRS Delays and Modifies Several New Partnership Tax Reporting Requirements

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Responding to concerns raised by The Real Estate Roundtable and others, the Internal Revenue Service (IRS) on Dec. 9 issued Notice 2019-66 modifying and postponing several proposed changes to partnership tax reporting requirements.  (Bloomberg Tax, Dec. 9)

The Real Estate Roundtable on Nov. 18 sent a letter to Treasury and the IRS urging the government to postpone certain reporting requirements in the new partnership tax return forms for 2019.  The letter encouraged the IRS to seek formal input from stakeholders regarding specific items.  The Roundtable noted in the letter that the reporting requirements as originally proposed were generating significant taxpayer uncertainty; could lead taxpayers to adopt inconsistent approaches to computing information; and may result in more harm than good.  (Roundtable letter, Nov. 18)

Twelve other national real estate organizations sent a joint letter on Nov. 22 seeking a delay in the requirements and requesting a comprehensive comment process

This week’s IRS Notice makes the following changes:

  • The requirement to report partners’ shares of partnership capital on the tax basis method is delayed until 2020 (for 2019, capital accounts will be reported consistent with the reporting requirements in 2018);

  • The requirement for partnerships to report to partners information about separate “Section 465 at-risk activities” is delayed until 2020;

  • The Notice clarifies the requirement for partnerships and other persons to report a partner’s share of “net unrecognized Section 704(c) gain or loss” by defining this term for purposes of the reporting requirement.

  • It exempts publicly traded partnerships from the requirement to report their partners’ shares of net unrecognized Section 704(c) gain or loss; and

  • It also provides relief from certain reporting penalties imposed under the tax code for taxpayer who follow the Notice.  These penalties include the failure to furnish correct payee statements; the failure to file a partnership return that shows required information; and the failure to furnish information required on a Schedule K-1.

Significant changes were made to the partnership audit rules in 2015, in response to widespread government concerns related to the challenges of administering partnership tax rules. The Roundtable and members of its Tax Policy Advisory Committee (TPAC) have actively contributed to the development and modification of partnership audit reform legislation.  (Roundtable Weekly, Jan. 5, 2018 and October 11, 2019)

TPAC will continue to engage IRS and Treasury officials about timely stakeholder concerns with regulatory issues affecting real estate and the economy.

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Tax Policy

Year-End Tax Package Uncertain; House Ways & Means Votes to Suspend Cap on State and Local Tax Deduction

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[Above: Members of the House Ways and Means Committee, including Chairman Richie Neal (D-MA), top center, and Ranking Member Kevin Brady (R-TX), top right.]

Prospects for a year-end tax bill are uncertain as congressional leadership and the Trump Administration expect to reveal details of a nearly $1.4 trillion FY2020 spending deal next week.  Meanwhile, the House Ways and Means Committee on Dec. 11 approved a temporary suspension of the $10,000 deduction cap on state and local taxes (SALT) enacted in the 2017 tax reform bill.

  • The Restoring Fairness for States and Localities Act (H.R. 5377) passed Ways and Means on a mostly party line vote of 24-17. The bill would raise the SALT deduction cap from $10,000 to $20,000 for married couples in 2019 and repeal the limit entirely for 2020 and 2021.

  • The measure’s costs would be offset by an increase in the top individual tax rate from 37 percent to its pre-2017 tax law level of 39.6 percent through 2025, when tax provisions in the 2017 tax overhaul are set to expire.  (The Hill, Dec. 11)

  • A description of the proposed changes to the SALT cap and top rate bracket are available from the Joint Committee on Taxation.

  • H.R. 5377 is expected to pass the House if it gets a vote next week on the House floor. The House Rules Committee has announced a hearing on the bill for December 16. However, the GOP-led Senate is unlikely to consider the legislation.  (BGov, Dec. 11)

  • If any tax measures are to be enacted this year, they would likely have to ride on an “omnibus” spending bill, which may be broken into two packages for votes next week before Congress is scheduled to recess on Dec. 20.

  • Disagreements between House Democratic and Senate Republican tax-writers over what measures should have priority, combined with the large number of tax items competing for consideration, are complicating prospects for agreement. 

  • Senate Majority Whip and Finance Committee member John Thune (R-SD) on Dec. 12 said, “At the moment, nothing’s happening.”  (Deloitte Tax News & Views, Dec. 13)

  • Senate Finance Committee member Sherrod Brown, (D-OH) commented to reporters Dec.12 about what tax measures are under negotiation.  “It’s still all over the place,” Brown said.  Committee member Sen. Rob Portman (R-OH) stated, “I’m frustrated because I don’t think we have an agreement yet on anything.”  (Tax Notes, Dec. 13)

A summary of the expired and expiring tax deductions, credits, and incentives that would be renewed through 2020 under the Taxpayer Certainty and Disaster Relief Act (H.R. 3301), which the House Ways and Means Committee approved on June 20, is available from Deloitte Tax LLP.

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