Tag: Tax Policy

IRS Guidance Ensures Real Estate Businesses Benefit from Phase Three Tax Relief

Posted on by Trey Jackson

IRS Building

This week, the IRS issued two revenue procedures that will help real estate businesses maximize the amount of tax relief they receive under the “Phase 3” CARES Act. The IRS actions are consistent with recent Real Estate Roundtable recommendations.

Partnership Amended Returns

  • The CARES Act included several provisions designed to generate deductions in prior years that can be “monetized” today, through the filing of amended tax returns, to help businesses stay afloat during the current economic turmoil.  As the Senate Finance Committee summary noted, “[t]hese changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.”  
  • In the understandable rush to enact the CARES Act, Congress did not have an opportunity to consider fully how provisions in the legislation would interact with various aspects of existing tax law and regulations.  In particular, under the partnership audit regime enacted in 2015, partnerships are no longer permitted to file amended tax returns.
  • In a letter on April 4, Roundtable President and CEO Jeffrey DeBoer urged the Treasury Department and IRS to use its regulatory authority to allow partnership to file superseding tax returns that could replace returns filed in 2018 and 2019. 
  • IRS Rev. Proc. 2020-23, released on Wednesday, allows partnerships to file amended returns for those years, effectively providing the relief The Roundtable requested.  

Business Interest Limitation

  • The Tax Cuts and Jobs Act created a new limitation on the deductibility of business interest, but allows real estate businesses to elect out, which most did in 2018.  The election is irrevocable, and the price of the election is longer cost recovery periods for real property and improvements.  The CARES Act liberalized the limitation on the deductibility of business interest for tax years 2019 and 2020.  However, the law did not allow real estate businesses to go back and change their election out of the regime.
  • In its April 4 letter, The Roundtable asked the IRS to allow real estate businesses to revoke elections made in 2018 and 2019.  This afternoon, the IRS issued the requested relief in Rev. Proc. 2020-22.

Like-Kind Exchanges

  • In addition to the actions related to the CARES Act, the IRS has provided relief to taxpayers having difficulty completing like-kind exchanges due to the COVID-19 pandemic.  In late March,  The Roundtable and 21 other national real estate organizations requested relief from the strict statutory deadlines that apply for identifying replacement property and closing on like-kind exchange transactions.  Under IRS Notice 2020-23, like-kind exchange deadlines that would otherwise fall between April 1 and July 14 are extended to July 15.

Opportunity Zones

  • Relief from the various deadlines and compliance testing dates for Opportunity Zones during the pandemic is a Roundtable priority.  IRS Notice 2020-23 provides that if a taxpayer’s 180-day period to invest gain in an opportunity fund would have expired between April 1 and July 14, 2020, the taxpayer now has until July 15, 2020 to make the investment.   

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Tax Changes Affecting CRE in Senate “Phase 3” Coronavirus Package; Roundtable Submits Request for Administration to Waive COD Income

Posted on by Trey Jackson

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Senate Majority Leader Mitch McConnell (R-KY) unveiled a “Phase III” coronavirus economic stimulus proposal on March 19 that includes a number of tax provisions important to real estate – including a temporary reinstatement of the net operating loss carryback; relaxation of the current-law restrictions business interest deductions; and long-sought technical corrections to several provisions in the 2017 tax code overhaul (e.g. qualified improvement property). 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act will be subject to change or additions as Democratic lawmakers and the White House with Republicans engage in urgent negotiations to produce a final bill by early next week. A number of tax provisions in the current package affecting real estate include: 

  • Temporarily increasing the threshold of deductible business interest under section 163(j) from 30% to 50% of EBITDA in 2019 and 2020.
  • Allowing a full 5-year carryback of net operating losses from 2018, 2019, and 2020 with no 80% income limitation.
  • A technical correction to the Tax Cuts and Jobs Act (TCJA) of 2017 cost recovery period for qualified improvement property.
  • A suspension of the new limitation on active losses of a pass-through business (section 461(l)) until 2021.
  • A technical correction to TCJA downward attribution of stock ownership rules.  

Other noteworthy tax provisions in the bill: 

  • Allows employers to defer payment of employer portion of Social Security tax (6.2%) in 2020, with the deferred amount payable in 2021 (50%) and 2022 (50%)
  • Provides recovery checks of up to $1,200 for individuals, $2,400 for married couples.  The rebates are increased by $500 for every child.  The rebates phase out for individuals with incomes above $75K and married couples above $150K.
  • Extends the filing date for income tax returns to July 15
  • Permits postponement of quarterly estimated tax payments due on April 15 and July 15 until October 15
  • Waives 10% early withdrawal penalty for retirement distributions up to $100K for coronavirus-related purposes. Provides favorable rules that spread out income recognition, allow for recontribution of withdrawals, and create additional flexibility for plan loans.
  • Allows non-itemizers to deduct up to $300 in charitable donations in 2020.
  • Suspends AGI limitation on charitable contributions by individuals and increases the AGI limitation on corporations to 25% in 2020.
  • Accelerates access to corporate AMT refundable credits.
  • Allows companies to recover overpayments of tax associated with TCJA one-time repatriation toll charge.

The full text of the CARES Act is available here and a lengthier summary is available here.  Additional Reference: Deloitte’s Tax News & Views March 20 summary.

Cancellation of Indebtedness (COD) Income 

The Real Estate Roundtable today asked Treasury Secretary Mnuchin and IRS Commissioner Charles Rettig to act quickly and use their broad authority to provide additional emergency tax relief that will help discourage permanent business closures, layoffs, and consumer bankruptcies.

Specifically, The Roundtable urges the Administration to waive cancellation of indebtedness (COD) income for all taxpayers for events generating COD income between March 1 and August 31, 2020.   (Roundtable COD letter, March 20)

  • Treasury has the authority to temporarily suspend COD income for one year under the statutory disaster relief tax provisions.  Waiving COD income will help facilitate private parties’ ability to engage in debt forgiveness, debt cancellation, and debt restructuring events that would not be necessary in ordinary times.
  • As the Roundtable letter explains, the action will free up much-needed financial resources that businesses can use to avoid force reductions and layoffs.  For families and individuals, waiving COD income will promote the mutual modification of obligations, including credit card debt, mortgages, student loans, and small business loans – helping them avoid bankruptcies and/or large, unwarranted tax bills.
  • The Roundtable also intends to work with Congress to ensure that it provides a permanent exemption of COD income that accrues during this extraordinary and unforeseeable public health and economic crisis.  
  • The Roundtable is also working with other real estate trade organizations to persuade Treasury to use its disaster relief authority to modify the deadlines applicable to like-kind exchange transactions.  The relief will avoid penalizing transactions delayed by the economic crisis.

As the repercussions of the corona pandemic continue to unfold, The Roundtable’s Tax Policy Advisory Committee (TPAC) continues to work on tax policies that benefit American workers, businesses and the overall economy. 

Treasury Secretary Mnuchin Addresses FIRPTA Reform at House Ways and Means Hearing

Posted on by Trey Jackson

 

Testifying before the House Ways and Means Committee on the President’s FY 2021 budget, Treasury Secretary Steven Mnuchin was questioned this week on the Foreign Investment in Real Property Tax Act (FIRPTA) and addressed potential steps he could take to encourage greater real estate investment from abroad.  (Watch 2:35 video of March 3 exchange with Mnuchin)

  • During the hearing’s Q&A with Secretary Mnuchin, committee member Kenny Marchant (R-TX) noted a recent letter that he and other GOP taxwriters sent to the Treasury Department urging a reevaluation of FIRPTA and related IRS guidance (Notice 2007-55).  
  • The congressional letter, led by Ways and Means Republican Devin Nunes (R-CA), encourages Treasury to withdraw section two of the IRS Notice, which effectively imposes U.S. capital gains tax on the liquidating distributions of domestically controlled real estate investment trusts (REITs).   Often, when a foreign investor is a minority partner in a U.S. real estate or infrastructure investment, the joint venture employs a domestically controlled REIT structure.
  • The 16 signatories of the February 20 letter wrote, “repealing the IRS Notice will restore the intent of Congress with respect to the tax law governing liquidations, provide parity to investors, and increase direct foreign investment in U.S. commercial real estate and infrastructure in every corner of the nation.”
  • During the hearing, Rep. Marchant called attention to the letter – and noted the IRS guidance applies FIRPTA to previously untaxed transactions involving domestically controlled REITs.  
  • Mnuchin responded that the Feb. 20 letter prompted a briefing at Treasury this week – and that he shares the concerns the letter  raises about FIRPTA.  “[I]t makes no sense that we discriminate against foreign investors,” Mnuchin said.  “But in my mind, anything we can do legally to encourage those investments we will do.  So thank you for the letter.  We are reviewing it.  It is at the top of my list,” he added. (Watch 2:35 video of Marchant and Mnuchin)
  • During another Ways and Means tax hearing last month, Rep. Marchant said, “FIRPTA is an outdated, discriminatory law.  It applies to no asset class other than real estate and infrastructure … Economic studies indicate repealing FIRPTA could drive $65 to $125 billion in new investment.”  (Watch video of Feb. 11 FIRPTA exchange).  Rep. Marchant is lead sponsor of the bipartisan Invest in America Act (H.R. 2210), a bill that would repeal the entire FIRPTA law. 
  • A similar letter was sent on December 18, 2019 to Secretary Mnuchin by a bipartisan group of 11 Senate Finance Committee Members led by Sen. Robert Menendez (D-NJ) – a longtime lead sponsor of FIRPTA repeal bills.  Another bipartisan letter to Secretary Mnuchin urging repeal of the IRS Notice was signed by 32 Representatives of the House Ways and Means shortly before introduction of the Tax Cuts and Jobs Act of 2017 (TCJA). (Roundtable Weekly, Dec. 20, 2019)

Members of the Roundtable’s Tax Policy Advisory Committee (TPAC) have met with Treasury officials on multiple occasions to discuss the harm caused by IRS Notice 2007-55.  Leading industry experts also convened on Oct. 30 at the National Press Club in Washington for an in-depth discussion the economic damage incurred by the IRS Notice.  An industry coalition is scheduled to meet with officials in Treasury’s Office of Tax Policy next week to discuss the issue.

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House Ways & Means Republicans Ask Treasury Secretary Mnuchin to Boost Investment, Create Jobs by Easing FIRPTA Tax Burden

Posted on by Trey Jackson

Treasury Department

Over three-quarters of the Republican Members of the House Ways and Means Committee on Feb. 20 urged Treasury Secretary Steven Mnuchin to remove tax barriers to foreign investment in U.S. real estate and infrastructure.  

  • The congressional letter, led by Representative Devin Nunes (R-CA), encourages Treasury to withdraw section two of IRS Notice 2007-55.  The Notice, which relates to the Foreign Investment in Real Property Tax Act (FIRPTA), effectively imposes U.S. capital gains tax on the liquidating distributions of a domestically controlled REIT. 
  • Domestically controlled REITs commonly are employed in joint ventures where a foreign investor is a minority partner in a U.S. real estate or infrastructure investment.  Prior to the Notice, a liquidating distribution from a domestically controlled REIT was treated as nontaxable sale of stock for tax purposes. 
  • The 16 signatories of the February 20 letter wrote that “repealing the IRS Notice will restore the intent of Congress with respect to the tax law governing liquidations, provide parity to investors, and increase direct foreign investment in U.S. commercial real estate and infrastructure in every corner of the nation.”
  • The Ways and Means Republican letter comes on the heels of a high-profile exchange on the broader economic harm caused by FIRPTA at a recent Ways and Means tax hearing.  At the hearing, Rep. Kenny Marchant (R-TX), said that “FIRPTA is an outdated, discriminatory law.  It applies to no asset class other than real estate and infrastructure . . . Economic studies indicate repealing FIRPTA could drive $65 to $125 billion in new investment.” Rep. Marchant is lead sponsor of the bipartisan Invest in America Act (H.R. 2210), a bill to repeal FIRPTA altogether.  (Watch video of Feb. 11 FIRPTA exchange)
  • In conjunction with The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting on January 29, Darin Mellott, Director of Americas Research at CBRE shared updated data indicating that foreign capital represented only 10 percent of total transaction volume between 2007 and 2019 – further evidence that FIRPTA weighs heavily on potential inbound investment.  In other asset classes, such as manufacturing, foreign capital represents a much larger share of overall investment. 
  • A letter similar to the House Republican letter was sent by a bipartisan group of 11 Senate Finance Committee Members to Secretary Mnuchin on December 18, 2019.  The December letter was led by Sen. Robert Menendez (D-NJ), a longtime lead sponsor of bills to roll back FIRPTA, and Sen. Johnny Isakson (R-GA).  A bipartisan House Ways and Means Committee letter urging repeal of the Notice and signed by 32 Representatives was sent to Secretary Mnuchin shortly before introduction of the Tax Cuts and Jobs Act of 2017 (TCJA). ( Roundtable Weekly , Dec. 20, 2019)

Members of the Roundtable’s Tax Policy Advisory Committee have met with Treasury officials on multiple occasions to discuss the harm caused by IRS Notice 2007-55.  Since 2017, Treasury’s regulatory agenda has focused on implementing the TCJA.  With TCJA implementation nearly complete, The Roundtable is now urging Treasury officials to give the Notice the attention it merits.

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White House Releases FY 2021 Budget; Congressional Hearings Focus on Administration Policy Priorities, Including FIRPTA Repeal

Posted on by Trey Jackson

FY2021 Budget Cover x475

The Trump Administration on Monday released a $4.8 trillion budget for FY 2021 signaling policy priorities for a potential second term, followed by Senate and House committee hearings this week that focused on the proposal and tax-related issues – including FIRPTA repeal; correcting a drafting error affecting qualified improvement property (QIP); and expansion of the low-income housing tax credit.  (Administration’s 2021 budget proposal and supporting budget materials)

  • Initial budget proposals from the White House are useful only as a starting point for funding negotiations with Congress, which can produce a significantly different budget reflecting vastly different policy positions. 
  • The Administration’s FY 2021 budget proposal would also reverse a two-year deal negotiated with Congress last summer.  While the August deal raised spending limits for both defense and domestic programs, this week’s proposed budget would cut domestic spending by six percent. (The Hill, Feb. 9)
  • The proposed budget also includes the elimination of several energy tax incentives of importance to real estate, including:

* Repeal credit for residential energy efficient property placed in service after December 31, 2020.

* Repeal accelerated depreciation for renewable energy property —including solar energy, wind energy, biomass, geothermal, combined heat and power, and geothermal heat pump property; fuel cells; and micro-turbines—would range from five to 20 years. Qualifying properties would still be eligible for the bonus depreciation allowance included in the 2017 tax overhaul.

* Repeal energy investment credit for property where construction begins after December 31, 2020.

  • The White House budget, which would also devote billions to construct a border wall with Mexico and lead to a $966 billion deficit, was immediately rejected by House Speaker Nancy Pelosi (D-CA) and criticized by House Budget Committee Chairman John Yarmuth (D-KY). (Associated Press, Feb. 9)

  • Republican Senate Budget Chairman Mike Enzi (WY) also weighed in with a Feb. 10 statement.  “Presidents’ budgets are a reflection of Administration priorities, but in the end, they are just a list of suggestions, as the power of the purse rests with Congress. Bipartisan consensus will be necessary to bring our debt and deficits under control. I hope to work with my colleagues on both sides of the aisle to put our country on a more sustainable fiscal course.”

Congressional Hearings

Administration officials appeared before congressional committees this week to testify about the budget proposal and face Q&A on other policy issues.

  • Secretary of the Treasury Steven Mnuchin testified on Feb. 12 before the Senate Finance Committee, urging Congress to make the temporary provisions of the 2017 tax law permanent.

  • During Q&A, Mnuchin also expressed interest in working with Sen. Maria Cantwell (D-WA) and Senate Banking, Housing and Urban Affairs Ranking Member Sherrod Brown (D-OH) on expanding the Low Income Housing Tax Credit (LIHTC).
  • The Treasury Secretary reiterated his support for Sen. Pat Toomey’s (R-PA) bill to correct a drafting error in the 2017 tax law that unintentionally requires retailers to depreciate certain property improvements over 39 years – rather than the intended option of immediate expensing.  Correcting this qualified improvement provision (QIP) is, Mnuchin testified, “our number one request to get a congressional fix for.”  (Senate Finance Committee hearings, with video)
  • In the House, the Ways and Means Committee on Feb. 11 held a hearing on “The Disappearing Corporate Income Tax, which was preceeded by a Joint Committee on Taxation report on corporate income tax policy.
  • During Q&A, Committeee Member Kenny Marchant (R-TX), sponsor of the Invest in America Act (H.R. 2210, engaged witnesses on the importance of repealing the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).
  • Jason Furman – an economics professor at the Harvard Kennedy School of Government and former chair of the White House Council of Economic Advisers – responded to Rep. Marchant, “I think it is certainly worth taking a serious look at repealing it … In the Obama Administration we did take a look at this and it did seem like there was some infrastructure investment that wasn’t coming in to the country as a result of it.”
  • Douglas Holtz-Eakin – a former director of the Congressional Budget Office and the sole Republican witness – told the committee, “This is a law whose time has passed.  It should be repealed.”  ( Watch video of Rep. Marchant’s FIRPTA exchange)

More congressional hearings on the budget and appropriations are scheduled after lawmakers return from next week’s congressional recess.

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House Ways and Means Committee Signals Green Energy Tax Bill; Trump Administration Developing “Tax 2.0” Proposal

Posted on by Trey Jackson

House Ways and Means Committee Chairman Richard Neal (D-MA) recently confirmed plans to advance legislation in 2020 that would expand and create new renewable energy and energy-efficiency tax incentives.  “We talked about (the markup) this morning,” Neal told reporters on Jan. 14. He added, “We are scheduling events.” (BGov, Jan. 15 and Jan. 24) 

  • The starting point for green energy tax legislation in the Ways and Means Committee is likely a draft bill unveiled last November by Rep. Mike Thompson (D-CA), who chairs the Subcommittee on Select Revenue Measures. 
  • Rep. Thompson’s discussion draft of the Growing Renewable Energy and Efficiency Now (GREEN) Act would modify the enhanced deduction for energy-efficient commercial building property (section 179D);create an expanded tax credit for the developers of new, energy-efficient home (section 45L); and modify the tax credit for energy-efficient improvements to existing homes (section 25C).  (Roundtable Weekly, Nov. 22) (Rep. Thompson news release with link to the GREEN tax draft legislation, Nov. 19) 
  • The Real Estate Roundtable and other real estate and environmental organizations are encouraging Members of Congress to consider an additional proposal that would incentivize existing buildings to purchase and install energy-efficient upgrades that reduce greenhouse emissions, generate taxpayer savings, and spur innovation and investment.    
  • Specifically, draft legislation under review would create a new category of energy-efficient qualified improvement property (E-QUIP) that is subject to an accelerated 10-year depreciation period.  The E-QUIP benefit would apply to purchases of modern and energy-efficient HVAC, lighting, and building envelope improvements, such as energy-saving roofs and windows. (Roundtable Weekly, May 10)

Separately, President Trump on Jan. 22 said a substantial middle-class tax cut – referred to as “Tax Cut 2.0” – will be released within 90 days, during an interview with Fox Business’ Maria Bartiromo at the World Economic Forum in Davis, Switzerland.  (Reuters, Jan. 22)

  • Treasury Secretary Steven Mnuchin told CNBC at the same conference, “The president has asked us to start working on what we call ‘tax 2.0,’ and that will be additional tax cuts. They’ll be tax cuts for the middle class, and we’ll also be looking at other incentives to stimulate economic growth.”  (CNBC, Jan. 23)
  • Larry Kudlow, director of the White House National Economic Council, told FOX Business’ Liz Claman on Jan. 17 that “The president directed me to produce what we’re calling ‘tax cuts 2.0.’  It will be published sometime during the campaign, has a message for future Trump economic growth policies, particular emphasis on the middle class in his second term.”
  • A legislative path toward passage of individual tax bills in an election year is very narrow, but separate tax proposals by Congress and the White House could culminate in an end-of year compromise package. 

Tax issues for 2020 will be a focus at next week’s Roundtable State of the Industry Meeting in Washington – both during the Jan. 28 business meeting and the Jan. 29 Tax Policy Advisory Committee (TPAC) meeting.  

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Seven-Year TRIA Reauthorization Passed as Part of $1.4 Trillion Spending Bill

Posted on by Trey Jackson

A seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA) was approved this week by the House and Senate as part of a year-end funding bill (H.R. 1865).  The provision reauthorizes TRIA through 2027, a year ahead of its slated sunset date of Dec. 31, 2020. (TRIA provisions on pages 1233–1236 of the year-end funding legislation). 

The measure is part of a massive $1.4 trillion congressional spending deal to fund the government until the end of the fiscal year – Sept. 20, 2020.  President Trump is expected to sign two separate funding bills to keep the government open past midnight tonight. 

Roundtable Chair Debra Cafaro (Ventas, Inc.) stated, “The Real Estate Roundtable is pleased that TRIA will be extended until 2027.  This federal terrorism insurance backstop was enacted following 9-11 and has been extended and reformed several times since. We cannot overstate the valuable safety and liquidity that the program brings to the US economy, businesses of all manner and commercial real estate markets.”

A long-term, “clean” reauthorization of TRIA, well in advance of its expiration, has been a top policy goal of The Roundtable.  This was achieved a full year ahead of schedule.  (Roundtable background on TRIA)

In addition to TRIA, the omnibus appropriations bill (H.R. 1865) contains several other positive measures affecting real estate.  The tax and funding extensions include: 

  • The EB-5 Regional Center Program, which provides visas to foreign nationals who pool their investments in regional centers to finance U.S. economic development projects.  The program would be extended until Sept. 2020.  Department of Homeland Security (DHS) regulations that took effect in November presently govern key elements of the EB-5 program regarding investment levels and Targeted Employment Area (TEA) definitions.   
  • The National Flood Insurance Program.  Without the extension, the program’s borrowing authority would have been reduced from $30.4 billion to $1 billion. The program would also be extended until Sept. 2020.   (BGov and CQ, Dec. 20)
  • Tax measures would be extended through the end of 2020.  They include (1) the section 179D tax deduction for energy efficient commercial building property; (2) the section 25C tax credit for energy efficient improvements to principal residences; (3) the section 45L tax credit for construction of new energy efficient homes; (4) the tax exclusion for home mortgage debt forgiveness; (5) the tax deduction for mortgage insurance premiums; and (6) the New Markets Tax Credit;
  • The Brand USA program would be extended through fiscal year 2027.  Brand USA promotes travel to the U.S. through a public-private partnership that is funded through private-sector donations and funds collected from foreign visitors to the U.S.

This week also saw the House pass legislation (H.R. 5377) that would temporarily raise and then eliminate for two years the $10,000 cap on state and local tax (SALT) deductions, which would be paid for by permanently raising the top individual tax rate to 39.6%.  This “messaging” bill is unlikely to be taken up in the GOP-controlled Senate and President Trump has also threatened to veto it.

After a flurry of year-end policymaking amid impeachment proceedings, both chambers of Congress recessed today and will return in early January.

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

Posted on by Trey Jackson

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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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IRS Delays and Modifies Several New Partnership Tax Reporting Requirements

Posted on by Trey Jackson

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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 Measures and TRIA Among Year-End Policy Rush

Posted on by Trey Jackson

Capitol Hill
Congress faces a Dec. 20 deadline to fund the government or risk a shutdown as the impeachment process continues in the House, with a likely trial in the Senate beginning in January.

  • 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.  Without a spending bill or a “Continuing Resolution” (CR) extending current funding, the programs will shutdown on Dec. 21 until Congress reaches a resolution. (Roundtable Weekly, Nov. 22)
  • Several legislative measures – including an end-of-year tax policy bill and reauthorization of the Terrorism Risk Insurance Act (TRIA) – may compete for inclusion in a must-pass “omnibus” spending package. Yet lawmakers may not have enough time to complete fiscal 2020 appropriations before current funding runs out in two weeks.  Another CR is a possibility before Congress breaks for the holiday.
  • The contentious issue of appropriating Department of Homeland Security (DHS) funds for a wall on the border with Mexico remains a sticking point in negotiations. This same issue led to a historic, 35-day government shutdown from Dec. 22, 2018 to Jan. 25, 2019.
  • This year, the Trump Administration has requested $8.6 billion for Fiscal Year 2020 to build the wall – and an additional $3.6 billion to restore military base funding that was previously transferred toward partial wall construction.  An administration official said President Trump will not sign any nondefense bill until funding for DHS and a border wall are resolved.  (CQ, Dec. 4)
  • Among the legislative measures of importance to commercial real estate that may be included in a year-end omnibus are tax extenders and technical corrections.
  • Negotiations on a tax package and extenders have been difficult, according to Senate Finance Chairman Chuck Grassley (R-IA). “It’s different this year from other years,” he said. (Politico, Dec. 5)
  • House Ways and Means Committee Chairman Richie Neal (D-MA) said yesterday that some technical corrections to the 2017 tax overhaul law could become part of a year-end tax bill.  “I’m interested in some technical corrections,” Neal said, adding that they could include a fix to an error that prevents restaurants and retailers from immediately expensing the cost of interior renovations.  (BGov Tax, Dec. 5)
  • A top legislative priority for CRE that is also outstanding is a seven-year TRIA reauthorization, which 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)
  • The Real Estate Roundtable is working with its partners in the Coalition to Insure Against Terrorism (CIAT) to urge Senators to include the TRIA reauthorization in a possible year-end spending package.  CIAT sent a letter this week to all Senators urging them to co-sponsor S. 2877 and secure its passage before the end of 2019. (CIAT Letter, Dec. 2)
  • The Roundtable and its CIAT partners continue to meet with Senate offices to encourage increased support for S. 2877. Sen. Thom Tillis (R-NC) is the lead sponsor, with 17 bipartisan cosponsors.
  • As Congress attempts to juggle many legislative priorities – including an updated version of a trade agreement with Mexico and Canada (USMCA) and a bill on prescription drug costs – the pressure to pass multiple appropriations bills funding government agencies may lead to a Continuing Resolution extending current funding.

House Majority Leader Steny Hoyer (D-MD) told reporters this week, “I don’t want to contemplate having bills pushed over [into 2020] because we can’t get agreement.”  (CQ, Dec. 4)

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