Treasury Secretary Steven Mnuchin testified before Senate and House tax-writers this week about implementation of the new tax law – including needed corrections affecting carried interest limitations and a drafting mistake that subjects qualified property improvements to a 39-year recovery period, rather than 15 years.
Secretary Mnuchin testified on tax issues before the Senate Finance Committee on Feb. 14, followed by his appearance before the House Ways and Means Committee on Feb. 15.
Ways and Means Chairman Kevin Brady (R-TX) pledged during a Feb 15 hearing to address errors included in the Tax Cuts and Jobs Act (P.L. 115-97). Brady stated, "We know that certain parts of this provision are having unintended consequences" and that he was "committed to working with our Ways and Means Members, with Senator Hatch and the Senate Finance Committee, and the Administration and stakeholders to develop the right solution now – one that is thoughtful, carefully crafted, and successful restoring balanced competition in the marketplace." (Brady's Opening Statement, Feb. 15)
[Earlier that day, Brady invited input from stakeholders on potential problems and unintended consequences arising from the new tax law. "We expect to develop a punch list of provisions that need to be addressed either administratively or through changes in the code itself," he said. (BNA, Feb. 15)]
During the House hearing, Rep. Jim Renacci (R-OH) explained to Secretary Mnuchin that Ways and Means members are working on a tax reform drafting mistake that should have provided for a 15-year recovery cost-recovery period to qualified property improvements, instead of the 39 year period that was enacted.
Mnuchin responded to Renacci: "I am aware of the error and it obviously was unintended. We are looking at whether there is anything we can do with regulations. I think it is likely that this is something that may need to be fixed in the bill. We look forward to working with you." (Ways and Means Committee, Mnuchin's testimony and hearing video)
If a focused corrections bill cannot be quickly passed by Congress, policymakers are considering adding a corrections provision to a must-pass spending bill to keep the government funded beyond by March 23. (Bloomberg Law, Feb. 13)
Mnunchin also testified during a Feb 14 Senate Finance Committee hearing that Treasury will issue guidance this month regarding new tax laws affecting carried interest. Under the new tax law, investment fund managers and others qualify for carried interest tax treatment after holding assets for three years, instead of one year. Yet the new law doesn't apply to S corporations' carried interest profits. (The Hill, Feb. 14)
"We will be putting out guidance and regulations to make sure that people can't abuse the pass-throughs," Mnuchin testified. "The IRS and [Treasury office of] tax policy intends to send out within the next two weeks guidance that we do believe that taxpayers will not be able to get that loophole by going through [S corporations]," he added. (Bloomberg, and CQ, Feb. 14)
In January, The Roundtable wrote to Treasury Secretary Mnuchin offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA). [Roundtable Letter, Jan. 18]