Category: Tax Policy

Senate Finance Committee Tackles 2025 Tax Policy Debate

Posted on by Abigail Grenadier

The Senate Finance Committee held a hearing on the 2025 tax policy debate, highlighting sharp divides between Republicans and Democrats over the future of the key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) that are set to expire in 2025. (Watch Hearing | Bloomberg, Sept. 12)

2025 Tax Policy Debate

  • Chair Sen. Ron Wyden (D-OR) pushed for reforms targeting tax avoidance by the ultra-wealthy. Wyden pointed out tactics like “buy, borrow, die,” which he argues allow billionaires to accumulate wealth without paying appropriate taxes, and criticized corporate tax loopholes​. (Sen. Wyden Statement)
  • Ranking Member Sen. Mike Crapo (R-ID) defended the TCJA, emphasizing its positive impact on economic growth, job creation, and tax relief for middle-class Americans. Sen. Crapo warned that allowing the TCJA to expire would result in significant tax increases for individuals and businesses, harming the economy. (Sen. Crapo Statement)
  • Jeff Brabant, VP of Federal Government Relations at the National Federation of Independent Business, testified on the importance of making the 20% pass-through business income deduction (Section 199A) permanent and shared new data detailing the critical impact the deduction’s looming expiration will have on the small business economy if Congress fails to act. (Brabant Testimony)
  • Republicans also pushed back on potential changes to estate taxes, including lowering exemptions or eliminating stepped-up basis, which they argue would hurt family-owned businesses. (Bloomberg, Sept. 12)
  • Speaking on the consequences of eliminating stepped-up basis on small businesses, Brabant said, “If you get rid of stepped-up basis and you have an increase in the death tax, you’re looking at a double death tax. Our members who are nearing retirement, this is a critical issue for them. The concern for the small business sector is, often these small businesses are selling these businesses—because they can’t afford to pay these taxes—to larger businesses that don’t have the same footprint in these same small rural communities.”

199A Coalition

  • The Roundtable is a founding member of the newly formed PROTECT Coalition, an alliance of small, medium and large pass-through businesses and industries that oppose the expiration of Section 199A. (Politico, Sept. 5)
  • The coalition’s mission is to defend vital tax incentives that support the growth and sustainability of successful entrepreneurial businesses across the nation.
  • The Real Estate Roundtable’s SVP & Counsel Ryan McCormick said, “Over four million businesses, including two million in real estate, are organized as partnerships. Section 199A was enacted to ensure that these entrepreneurial businesses could compete on a level playing field with large corporations. Permanently extending Section 199A will allow partnerships and other pass-through businesses to continue advancing careers, investing in communities, and expanding economic opportunity for all.”

What’s Next

  • The TCJA expiration looms large, with both parties framing the debate around small businesses, working families, and economic growth. Republicans argue that letting it expire would stifle economic activity, while Democrats are focused on shifting more of the tax burden on higher-income earners.
  • Next week, on September 18 at 2:00 PM EDT, the Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy, chaired by Senator Elizabeth Warren (D-MA) will hold a hearing on the macroeconomic impacts of potential tax reform in 2025.

The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue to closely track ongoing tax debates in Congress.

The Roundtable Files Amicus Brief in Sirius Solutions v. Commissioner

Posted on by Abigail Grenadier

On August 19, The Roundtable submitted an amicus brief to the Fifth Circuit Court of Appeals in Sirius Solutions v. Commissioner, a pivotal case that could redefine the tax obligations of limited partners under the self-employment tax in the Self-Employed Contributions Act (SECA). (Amicus Brief)

Why It Matters

  • There are more than 441,000 limited partnerships in the U.S., with over 10 million partners. Nearly half of these limited partnerships are real estate partnerships.
  • If the IRS position prevails, it could result in widespread tax increases on real estate limited partners who provide some services to the business and effectively raise the tax burden on real estate investments.
  • The IRS’s position would requires limited partners to be “passive investors” to qualify for the exemption from the 3.8% SECA tax under Section 1402(a)(13).

Roundtable Amicus Brief

  • The Roundtable’s amicus brief argues that the IRS’s interpretation is flawed, pointing to decades of state law that allows limited partners to provide services and still retain their status.
  • The brief emphasizes that pre-1977 state court decisions and the IRS’s own 1994 proposed regulations contradict the government’s position that limited partners must be passive to avoid SECA taxes.
  • The Tax Court’s imposition of the passive investor test is found nowhere in the statute and rests on a fundamental misunderstanding of state laws that Roundtable members and others have relied on for decades.  
  • Ignoring an established body of partnership law, the IRS is relying on a recent Tax Court decision, Soroban, that imposes a judge-made test requiring a limited partner to be a “passive investor.” The Roundtable believes this fundamental error should be reversed. 

What’s Next

  • The Fifth Circuit’s ruling in Sirius will set a precedent for future SECA tax cases, with significant consequences for real estate and other industries that use limited partnerships for business purposes.
  • A successful outcome in the Sirius case could reduce the likelihood that the government moves forward with formal tax guidance that expands the reach of SECA taxes.    

The Roundtable remains committed to protecting entrepreneurs’ ability to flexibly organize in partnerships and other pass-through entities that promote capital formation, risk-taking, and economic growth, and it will remain engaged as the SECA dispute moves forward.   

Bipartisan Tax Bill Stalls in Senate

Posted on by Abigail Grenadier

Yesterday, the Senate failed to pass a bipartisan $79 billion tax package, the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). The House-passed legislation seeks to extend various expiring tax provisions from the 2017 and pandemic-related tax bills. (WSJ, Aug. 1 | The Hill, Aug. 1)

Key Points

  • Bipartisan Effort: Senate Finance Committee Chair Ron Wyden (D-OR) and House Ways and Means Committee Chair Jason Smith (R-MO) crafted the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). The bill passed the House on Jan. 31 by an overwhelming 357-70 vote.
  • Senate Opposition: Despite bipartisan support, the bill faced significant opposition in the Senate, where critics argued it failed to adequately address long-term fiscal concerns and prioritized short-term fixes.
  • Roundtable Support: The bill included Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC).
  • Other provisions in the agreement: Reforms to the child tax credit, the expensing of R&D costs, disaster tax relief, a double-taxation tax agreement with Taiwan, and a large pay-for that creates significant new penalties for abuse of the employee retention tax credit (ERTC) rules and accelerates the expiration of the ERTC. (RW, Jan. 19)

Roundtable Advocacy

  • In February, The Roundtable and a large coalition of housing and other real estate groups sent letters to Congress in support of the tax bill. (RW, Feb. 16)
  • The Roundtable and the Housing Affordability Coalition’s letter emphasized the importance of advancing provisions in the bill that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit families, workers, and the national economy.
  • The coalition noted how the bill would increase the housing supply as a positive response to the nation’s housing affordability crisis. It would also suspend certain tax increases on business investment that took effect in 2022 and 2023. 

Congress will return to Washington on September 9, with several critical legislative priorities on the agenda, including decisions on key housing policies and potential new regulations impacting the commercial real estate industry.

Roundtable Requests Additional Guidance for FIRPTA REIT Regulations

Posted on by Abigail Grenadier

Today, The Roundtable wrote to U.S. Treasury Secretary Janet Yellen requesting that the Treasury Department provide additional clarifying guidance regarding transition relief in the Foreign Investment in Real Property Tax Act’s (FIRPTA) regulations for domestically controlled REITs.  (Letter)

Key Concerns

  • In April, Treasury issued final regulations that redefined what constitutes a domestically controlled REIT exempt from tax under FIRPTA. The regulations created a new look-through rule that extended the reach of the discriminatory FIRPTA regime to common investment structures. (Roundtable Weekly, April 26)
  • Clarifying guidance is necessary and urgent to enable a qualified investment entity (QIE) to make a timely determination concerning its direct or indirect ownership of “U.S. real property interests” (“USRPI(s)”) under the conditions of the Transition Rule.
  • Impact on foreign investment: Foreign investment can attract significant capital, helping to support market stability and create jobs. The final regulations, designed to define a domestically controlled QIE, are feared to be deterring foreign investment in U.S. real estate.
  • Outstanding questions: Specifically, the letter seeks additional guidance on: what constitutes “direct or indirect” ownership of real estate when it is held by a REIT through multiple subsidiaries, how to treat acquisition costs and capitalization expenditures, and situations where ongoing construction or substantial renovations are occurring. 

Roundtable Advocacy

FIRPTA
  • The Roundtable has consistently advocated for the withdrawal of regulations and policies that hinder foreign investment in U.S. real estate. (Roundtable Weekly, April 26)
  • David Friedline, a tax partner at Deloitte and Vice Chair of RER’s Tax Policy Advisory Committee (TPAC) said, “The official guidance would provide needed clarification for our members, who have been adversely affected by the final regulations’ new look-through rule, on how to comply with the conditions of the transition relief.”  Friedline was a principal drafter of the Roundtable letter. 
  • Building new affordable housing and office-to-residential conversion projects requires encouraging more investment, not less. Erecting new barriers to passive foreign investment in U.S. real estate runs counter to important bipartisan policy priorities.

The Roundtable remains committed to collaborating with the Treasury to ensure that the final regulations can provide much-needed clarity and stability, supporting the industry’s efforts to attract foreign capital and drive economic growth.

Supreme Court Rules in Case of Federal Taxation of Unrealized Income

Posted on by Abigail Grenadier

On Thursday, the Supreme Court ruled 7-2 to uphold the constitutionality of mandatory repatriation tax (MRT) enacted in 2017, but chose to sidestep and not rule on the issue of whether the Constitution imposes a realization requirement on the taxation of income. (Moore v. United States)

Background & The Decision

  • The petitioners in Moore argued that the MRT exceeds Congress’s authority under the 16th Amendment to lay and collect taxes on income. The Moore’s were shareholders of a foreign corporation. The corporation never distributed its earnings, but the MRT taxed the Moore’s on their deemed share of the corporation’s income. The Moore’s argued that the federal government could not tax them on income they never realized. (Roundtable Weekly, Oct. 13)
  • A decision in favor of the Moore’s could have important consequences for both legislative proposals to tax unrealized gains, but also existing aspects of the tax code and pass-through taxation. 
  • The Ninth Circuit ruled against the Moore’s on the grounds that there is no realization requirement in the Constitution. 
  • The Roundtable has consistently opposed proposals to tax unrealized gains on several grounds, including their constitutionality and the damage they would cause to the economy, entrepreneurship, and productive investment. 
  • The Supreme Court, in a decision authored by Justice Brett Kavanaugh, stepped back from the sweeping holding by Ninth Circuit and concluded that it did not need to rule on the realization question because the foreign company’s operating income was clearly “realized” by the foreign company. In passing the MRT, Congress was simply attributing (or passing through) that income to its U.S. shareholders. 
  • The 7-2 opinion by Justice Kavanagh was accompanied by two concurring opinions, one from Justice Jackson and one from Justice Barrett (joined by Justice Alito). Justices Thomas and Gorsuch dissented. 
  • While the Real Estate Roundtable’s Tax Policy Advisory Committee (TPAC) and its members are still parsing the language of the various opinions to understand the broader implications, at the end of the day, there appear to be at least four justices willing to uphold a realization requirement (Barrett, Alito, Thomas, and Gorsuch), one justice prepared to hold that realization is not required (Jackson), and four justices who have not yet tipped their hand (Kavanaugh, Roberts, Sotomayor, and Kagan).  See analysis of Moore decision by TPAC member Don Susswein (Principal, RSM US LLP)

The Moore ruling is unlikely the last word in the heated debate over the constitutionality of taxing unrealized gains.

IRS and Treasury Unveil New Rules Aimed at Partnership “Basis-Shifting” Transactions

Posted on by Abigail Grenadier

This week, the IRS and Treasury Department announced a multistage regulatory initiative aimed at regulating certain partnership transactions that shift the tax basis of assets and generate additional depreciation deductions, reduce taxable gains, or increase deductible losses. (IRS-Treasury Press Release, June 17)

Guidance Package

IRS building in Washington DC
  • In Notice 2024-54, Treasury and the IRS indicated they intend to issue proposed regulations governing certain transactions that affect the basis of property held by a partnership or distributed by a partnership. The guidance will focus on partnerships that involve related parties or tax-indifferent parties. 
  • Related parties could include family members, corporations and their shareholders, and other entities and businesses with common or overlapping ownership.  It is unclear from the guidance where the administration believes the targeted abuses generating inappropriate tax benefits are most likely to arise (e.g., corporate mergers, family offices, real estate, etc.). 
  • The rules will apply to cost recovery deductions and gain/loss calculations for tax years ending after June 17, 2024, thus covering deductions, gains, or losses attributable to transactions completed in prior years. 

Roundtable Concerns

  • A principal concern voiced at this week’s RER Tax Policy Advisory Committee meeting is related to the broad scope of the new rules. Rather than focusing specifically on identifiable, abusive transactions, Notice 2024-54 states that the forthcoming regulations will provide “mechanical rules applicable to all covered transactions without regard to the taxpayer’s intent and without regard to whether the transactions could be abusive or lacking in economic substance.”
  • Moreover, the Notice states that the regulations will only apply if the transaction results in a basis increase for the relevant property.  “If, and to the extent, property has been allocated a basis decrease, the proposed rules would not apply.”
  • The new rules thus apply to a transaction regardless of whether the transaction is abusive or lacking in economic substance, but only if they result in a negative outcome for the taxpayer.  If the same mechanical rules would generate a positive result for another taxpayer, they are disregarded.  In sum: Heads, IRS wins; tails, taxpayer loses. 

Additional Developments:

Other elements of the regulatory initiative include:

  • Proposed regulations (REG-124593-23) identifying some partnership-related-party basis adjustment transactions as transactions of interest and requiring disclosures by participants and material advisers. 
  • Revenue Ruling 2024-14 notifying taxpayers that it will apply the codified economic substance doctrine to challenge certain basis-shifting transactions. 
  • The IRS Office of Chief Counsel also announced the formation of a new associate office focused exclusively on partnerships, S corporations, trusts, and estates. (TaxNotes, June 17)

The Roundtable’s Tax Policy Advisory Committee will continue its discussion of the partnership basis-shifting issue and how best to respond on its next TPAC Zoom meeting.

Final Treasury Rules Expand Reach of FIRPTA Tax Regime

Posted on by Abigail Grenadier
The Treasury Department in Washington, DC

The Treasury Department issued final regulations this week that redefine what constitutes a domestically controlled REIT exempt from tax under the Foreign Investment in Real Property Tax Act (FIRPTA). The regulations create a new look-through rule that extends the reach of the discriminatory FIRPTA regime to common investment structures. (Final Regulations | Tax Notes, April 25 and Bloomberg Law, April 24)

New Look-Through Rule

  • By looking through a domestic C corporation to its shareholders, the new FIRPTA rules run counter to general tax principles, past IRS guidance, and historic precedent.  Moreover, the final regulations do not provide relief to widely held U.S. real estate funds with dispersed foreign ownership, even if the foreign investors are far removed and separate from the management and control of the U.S. funds’ activities. 
  • While the final rules increased the total percentage of foreign ownership of a C corp. necessary to trigger look-through treatment, the change offers little practical relief since participating U.S. investors typically will only invest in U.S. real estate through other channels (e.g., directly, through a partnership, or through a REIT).
  • Transition relief in the final regulations may offer some respite to certain foreign investors, depending on their facts and circumstances. The new look-through rule does not apply to preexisting business arrangements—but only if the entity does not acquire a significant amount of new real estate interests or undergo a significant change in its ownership during the 10-year transition period.

Roundtable Response

FIRPTA
  • Roundtable President and CEO Jeffrey DeBoer responded to the Treasury rules. “Foreign capital is badly needed to supplement domestically sourced capital in cities and downtowns that continue struggling to recover from the pandemic. The wide spread adoption of remote work, coupled with today’s high interest rates and decreased lending by banks is fueling a reinforcing cycle of declining investment, property values, and tax revenues that can only be countered through additional investment capital.”
  • “Unfortunately, the final Treasury rules on FIRPTA and domestically controlled REITs raise new barriers to passive foreign investment in U.S. real estate, including affordable housing and the conversion of underutilized office buildings,” DeBoer said.
  • The Real Estate Roundtable and some members of Congress had advocated for the withdrawal of the proposed regulations or significant changes. House Ways and Means Committee Members Darin LaHood (R-IL) and Carol Miller (R-WV) urged Treasury Secretary Janet Yellen to drop the FIRPTA proposal. (Letter to Yellen, July 28, 2023 and real estate industry coalition letter, March 1, 2023 | Roundtable Weekly: Jan. 6, March 4 and Aug. 4, 2023) 

A Roundtable Tax Policy Advisory Committee (TPAC) working group is reviewing the most recent changes and considering potential policy and tax planning strategies going forward. The next TPAC meeting will be held on June 21 in conjunction with the all-member Roundtable Annual Meeting in Washington, DC.

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Senate Democrats Reintroduce Legislation to Tax Carried Interest at Ordinary Income Rates

Posted on by Abigail Grenadier

A group of Senate Democrats introduced legislation this week that would tax carried interest capital gains income at ordinary income tax rates of up to 40.8%. (Bloomberg Tax April 16)

Carried Interest Proposals

  • The Carried Interest Fairness Act was introduced on April 15 by Senate Banking Committee Chairman Sherrod Brown (D-OH) along with Sens. Tammy Baldwin (D-WI), Joe Manchin (WV), and several other Democratic co-sponsors.
  • According to Sen. Brown, the change would raise $6.5 billion in revenue over 10 years. The Senators introduced a similar bill in 2021. (Sen. Brown news release; Crain Currency, April 16)
  • This week’s carried interest bill is part of a broader effort by congressional Democrats to position legislative changes in anticipation of the expiration of 2017 Tax Cuts and Jobs Act provisions at the end of 2025. The approaching expiration of those individual provisionsis likely to drive tax negotiations next year into what some policymakers have referred to as the “Super Bowl of Tax.” (Bloomberg Tax, Jan. 4 and Axios, Feb. 16)

Democratic Proposals

FY2025 proposed Biden administration budget
  • President Biden’s 2025 budget also proposes taxing all carried interest as ordinary income. Most of the Biden tax agenda is carried over from his prior budgets. (Roundtable Weekly, March 15 and March 8 | White House Fact Sheet, March 11)
  • Senate Finance Chair Ron Wyden (D-OR) introduced legislation last year to treat the grant of carried interest as deemed compensation in the form of an interest-free loan from the limited partners to the general partner (GP). (Bloomberg Tax, Nov. 15, 2023)
  • The Roundtable has consistently opposed these and similar proposals since 2007 for failing to recognize that carried interest is actually granted for the value a General Partner adds beyond routine services, such as business acumen, experience, and relationships.  Carried interest also reflects a recognition of the risks the GP takes with respect to the partnership’s liabilities—e.g., funding predevelopment costs, guaranteeing construction budgets, and potential litigation.
  • Carried interest changes would also harm small businesses, stifle entrepreneurs and sweat equity, and threaten future improvements and infrastructure in neglected areas. They would increase the cost of building or improving infrastructure, workforce housing, and other socially desirable projects.

The Tax Cuts and Jobs Act of 2017 created a three-year holding period requirement for carried interest to qualify for the reduced 20% long-term capital gains rate.

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Broad Coalition Urges Congressional Tax Writers to Support Like-Kind Exchange Rules

Posted on by Abigail Grenadier

This week, The Real Estate Roundtable and 35 other national business organizations urged leaders of the Senate and House tax-writing committees to preserve long-standing tax rules governing like-kind exchanges (LKEs). The April 10 letter encouraged policymakers to reject proposals, such as those in President Biden’s budget, to restrict the use of LKEs. (Coalition letter, April 10)

Value of LKEs

  • The letter, sent to the chairs and ranking members of the House Ways and Means and Senate Finance Committees, details the importance of LKEs to the health, recovery, and realignment of U.S. commercial real estate in the post-pandemic economy.  
  • Exchanges have helped offset reduced transaction activity associated with high interest rates and other sources of economic uncertainty.  Without LKEs, many properties would languish—underutilized and underinvested—because of the tax burden that would apply to an outright sale.   
  • The letter notes how LKEs increase economic mobility for cash-poor small business owners, farmers, and entrepreneurs—including minorities, women, and veterans—while contributing to environmental conservation efforts, housing affordability, and redevelopment in economically struggling cities and towns.

Widespread Use

  • Academic and other economic research has repeatedly demonstrated the positive economic contribution of LKE. Research by Professors David Ling (University of Florida) and Milena Petrova (Syracuse University) estimates that 10 to 20 percent of commercial real estate transactions involve a like-kind exchange. 
  • A recent Marcus & Millichap analysis demonstrates the value of LKEs to the health and financing of the commercial real estate industry, particularly during market corrections and liquidity shortages. (Roundtable Weekly, Dec. 1, 2023)

House Tax Hearings

  • Separately, congressional hearings in the House this week considered tax provisions scheduled to expire at the end of 2025 that were enacted in the 2017 Tax Cuts and Jobs Act (TCJA).
  • During an April 11 House Ways and Means Committee hearing, Chairman Jason Smith (R-MO) stated, “With the expiration of the 199A small business deduction, we will see even more ‘closed for business’ signs up and down Main street when their federal tax rate jumps to over 40 percent.”
  • Chairman Smith added that strong bipartisan support for key TCJA provisions exists in the House after passage earlier this year of the Tax Relief for American Families and Workers Act (H.R. 7024) by a vote of 357-70. (Roundtable Weekly, Feb. 2)

The $79 billion tax package passed by the House includes Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC), but continues to face hurdles in the Senate. The Roundtable and 21 other industry organizations that comprise the Housing Affordability Coalition urged the Senate on Feb. 15 to pass the tax package.

Senate Republicans Seek Changes to House-Passed Tax Package

Posted on by Abigail Grenadier
Senate Finance Committee Chairman Ron Wyden (D-OR), left, and Ranking Member Mike Crapo (R-ID), right.

The Senate Finance Committee’s top Republican made it clear this week that he wants changes to a House-passed $78 billion tax package, which includes Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC). [Roundtable Weekly, Feb. 2 | PoliticoPro and Tax Notes, Feb. 29]

Senate Republicans Concerns

  • The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) passed the House on Jan. 31 by an overwhelming 357-70 vote. House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) are pressing Senators to support its passage. (Axios, Feb. 16)
  • Senate Republicans considering the House tax package have called for an amendment process that could be time consuming. (The Hill, Feb. 2)
  • Finance Committee Ranking Member Mike Crapo (R-ID) laid out the changes he would like to see in the bill in a Feb. 28 news release. A major issue for Sen. Crapo is a reform to the Child Tax Credit (CTC) that allows taxpayers to rely on income from prior years when determining their eligibility for the refundable credit. (Fiscal Times, Feb. 29)
  • Sen. Crapo added in comments to Tax Notes this week that “There’s just a lot of separate issues that need to get sorted out. Everything from traditional extenders to LIHTC to SECURE 2.0.”

Congressional Timing

  • Sen. Crapo also stated in his news release that “… with each week that has passed, (Republican) members have strongly voiced additional calls for numerous modifications, and there are also increasing concerns about making 2023 changes this far into the IRS tax filing season.” The Senator said he is “committed to seeking a bipartisan resolution that a majority of Senate Republicans can support.” (Tax Notes, Feb. 29)
  • Sen. Wyden and senior congressional staff discussed the tax package with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington. (Roundtable Weekly, Jan. 26)
  • Additionally, The Roundtable and 21 other industry organizations that comprise the Housing Affordability Coalition urged the Senate on Feb. 15 to pass the tax package. The coalition’s letter emphasized the importance of advancing provisions in (H.R. 7024) that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit communities and the broader economy. (Coalition letter, Feb. 15)

The best chances for enacting the tax package may be in combination with a government funding bill later in March. (See story above).

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