October 9, 2017 - Weekly Legislative Update

White House Meeting

 

President Donald Trump and Secretary of Transportation Elaine Chao invited transportation leaders, including TIA Executive Vice President Roy Littlefield, to a 90 minute White House meeting on October 5th, to discuss the Administration's trillion dollar infrastructure spending proposal.

Other participant's in the October 5th White House infrastructure talks included Vice President Pence, D.J. Griffin  (National Economic Council), Alex Herrgott (Council on Environmental Quality), Deputy DOT Secretary Jeffrey Rosen, and Federal Highway Administrator Walter Waidelich.

Discussions focused on streamlining road construction permitting, cutting expensive and burdensome regulations, and invest in using local governments to spend more money on transportation projects.

While there are currently 39 legislative proposals in Congress to address the funding issue, there were no funding proposals discussed by administration officials. 

 

President Signs Disaster Tax Relief Bill With Employee Retention Credit

 

President Trump signed HR 3823 the Disaster Tax Relief and Airport and Airways Funding Act of 2017 on September 29 and the bill became law on that date. TIA worked for the passage of the bill.

Section 503 of the bill, entitled "Disaster-Related Employment Relied," pertains to the new retention tax credit applicable to wages paid by an eligible employer to an eligible employee during a period when the employee's place of work was inoperable as a result of a declared disaster. 

The retention credit applies to disaster zones resulting from Hurricanes Harvey, Irma, and Maria.

We advise you to commence documentation of the retention credit based on text of the law, while waiting for Internal Revenue Service and Department of Labor regulations regarding manner of documenting and claiming the credit.

Nothing in the law requires adherence to Section 51(d)(13 of the Internal Revenue Code which requires submission of requests for certification of eligible workers to State Workforce Agencies. 

We will advise when IRS and DOL regulations, regarding the manner of documenting and claiming the "disaster employee retention credit," are issued.

Text of the new law is at www.congress.gov, write in H.R. 3823, click on "text," and use only the text of the "enrolled bill," which is now law.

 

Section 2704 Regulations Withdrawn

 

We are pleased to inform you that, on October 4th, the Treasury announced that it will be withdrawing its proposed regulations under Section 2704 which would have eliminated minority discounts, and largely eliminate marketability discounts, thereby making it harder and far more costly for the older generation to gift interests in a family-owned business to the younger generation.

TIA has been very active in opposing these regulations since their initial introduction and this announcement is a big win for association members. 

In his report to the President in which he announced the Treasury's intention to pull the 2704 proposed regulations, Treasury Secretary Steven Mnuchin expressed a pretty scathing view of the proposed regulations stating as follows:

"Section 2704 addresses the valuation, for wealth transfer tax purposes, of interests in family controlled entities. In limited cases, Section 2704 disregards restrictions on the ability to liquidate family-controlled entities when determining the fair market value of an interest for estate, gift, and generation-skipping transfer tax purposes. Also in limited cases, Section 2704 treats lapses of voting or liquidation rights as if they were transfers for gift and estate tax purposes. The proposed regulations, through a web of dense rules and definitions, would have narrowed longstanding exceptions and dramatically expanded the class of restrictions that are disregarded under Section 2704. In addition, the proposed regulations would have required an entity interest to be valued as if disregarded restrictions did not exist, either in the entity's governing documents or under state law. No exceptions would have been allowed for interests in active or operating businesses.

The goal of the proposed regulations was to counteract changes in state statutes and developments in case law that have eroded Section 2704's applicability and facilitated the use of family-controlled entities to generate artificial valuation discounts, such as for lack of control and marketability, and thereby depress the value of property for gift and estate tax purposes. Commenters warned, however, that the valuation requirements of the proposed regulations were unclear and that their effect on traditional valuation discounts was uncertain. In particular, commenters argued that it was not feasible to value an entity interest as if no restrictions on withdrawal or liquidation existed in either the entity's governing documents or state law. A legal vacuum in which there is no law relevant to an interest holder's right to withdraw or liquidate is impossible, commenters asserted, and, therefore, cannot meaningfully be applied as a valuation assumption. Commenters also argued that the proposed regulations could have produced unrealistic valuations. For example, the lack of a market for interests in family-owned operating businesses is a reality that, commenters argued, should continue to be taken into account when determining fair market value.

After reviewing these comments, Treasury and the IRS now believe that the proposed regulations' approach to the problem of artificial valuation discounts is unworkable. In particular, Treasury and the IRS currently agree with commenters that taxpayers, their advisors, the IRS, and the courts would not, as a practical matter, be able to determine the value of an entity interest based on the fanciful assumption of a world where no legal authority exists. Given that uncertainty, it is unclear whether the valuation rules of the proposed regulations would have even succeeded in curtailing artificial valuation discounts. Moreover, merely to reach the conclusion that an entity interest should be valued as if restrictions did not exist, the proposed regulations would have compelled taxpayers to master lengthy and difficult rules on family control and the rights of interest holders. The burden of compliance with the proposed regulations would have been excessive, given the uncertainty of any policy gains. Finally, the proposed regulations could have affected valuation discounts even where discount factors, such as lack of control or lack of a market, were not created artificially as a value-depressing device.

In light of these concerns, Treasury and the IRS currently believe that these proposed regulations should be withdrawn in their entirety. Treasury and the IRS plan to publish a withdrawal of the proposed regulations shortly in the Federal Register."