Weekly Legislative Update - December 17, 2018

House Pushes New Version of Lame Duck Tax Bill
Outgoing Ways and Means Committee Chairman Kevin Brady (R-TX) is at it again with a final push to get another tax bill passed in the final weeks of the Congressional session. After failing to garner support from his own party for proposed tax bill (H.R. 88) in November, Chairman Brady introduced an amended version of the bill last week. Unfortunately, the new version of the bill includes items to appeal to members of the most conservative wing that are likely to significantly undermine the legislation's changes of passing the Senate.
 
We are still parsing through the full details but from a bird's eye view here's what is included in the Amendments to H.R. 88:
  • Tax relief for certain individual and business affected by natural disasters;
  • Technical corrections to fix some of outstanding issues with the 2017 Tax Cuts and Jobs Act;
  • A number of retirement plan provisions drawn from the Family Savings Act of 2018 which, as we previously reported, the House passed as part of its Tax Reform 2.0 package earlier this year. These changes include expanding the availability of multiple employer plans (MEPS) which is anticipated to promote the formation of new small business retirement plans, providing tax credits for small employers to cover the cost of starting up a retirement plan, allowing penalty free withdrawals from retirement accounts upon the birth or adoption of a child, modifying age limits and distribution requirements, and changing the non-discrimination rules. TIA was pleased to see that the bill does not include an elimination of the stretch IRA which is currently still part of the Senate's Retirement Enhancement and Savings Act (RESA). Under current law, an IRA can pay out the assets during the owner's and his/her spouse's lifetimes and distribute the remainder, if any, out over the lifetime of the second beneficiary (almost always the children of the owner). Under the current version of RESA, in the vast majority of cases, assets over an aggregate account balance of $450,000 in a defined contribution plan or IRA, would have to be paid out by the end of the fifth calendar year following the year of the IRA owner or employee's death. TIA has opposed this provision.
  • Reforms to the Internal Revenue Service (IRS). These reforms would include improving taxpayer program and online services, implementing steps to prevent identity theft, modifying the IRS's authority to seize taxpayer assets, and modifying the IRS's appeals process.
  • A provision allowing unborn children to be the beneficiaries of 529 accounts;
  • A further five year delay of the Affordable Care Act's (ACA) medical device tax;
  • A further one year delay of the ACA's Cadillac tax;
  • A permanent elimination of the ACA's excise tax on tanning;
  • A two year stay of the annual fee on health insurers; and
  • A repeal to so-called Johnson Amendment which prohibits churches and non-profits from supporting or opposing candidates.
The big item that is not included is the extension of a number of temporary tax provisions (commonly known as "extender items") which were to be addressed in the original version of H.R. 88. Chairman Brady has indicated that he intends to run the extender items through in a separate bill, though there is a group representing a broad range of groups from across the political spectrum that have called for opposition to an extenders package based on budgetary and deficit concerns.
 
Meanwhile, on the other side of the Hill, Senate Republicans are said to be working on their own skinny tax bill which would include select extender items and retirement plan provisions. The details of the Senate option have not yet been released, nor is it clear whether such a proposal will have bi-partisan support as Democrats have complained that they are being excluded from the drafting process.
 
While we don't expect to see some of the more partisan provisions get through both Chambers, there is a chance that some of the retirement plan and IRS restructuring provisions could ride their way in on the back of the provisions to provide tax relief for natural disasters, or even a larger budget deal. 

2019 Appropriations
On December 6, Congress passed a continuing resolution to keep the government funded through December 21, 2018 (the prior deadline was December 7).
 
Congress has passed five of the twelve appropriations bills needed to set funding levels for federal fiscal year 2019 which began on October 1, 2018. Meanwhile, the big sticking point for the remaining seven bills is the President's demand for $5 billion to fund the building of a southern border wall. Although Congress has managed to buy time by passing continuing resolutions, the President has indicated on multiple occasions that a government shutdown is not off the table if his demands are not met.
 
Senate Minority Leader Chuck Schumer (D-NY) and House Minority Leader Nancy Pelosi (D-CA) met with the President yesterday and tried to reach a deal. The Democratic leadership has made it clear that it will agree to provide $1.6 billion in border security funding that is not specifically earmarked for a wall but that may be used for other border security measures like pedestrian fencing. This proposal would mirror, in both funding amount and structure, the funding agreement that was ultimately reached for the 2018 fiscal year. In proposing the deal, Schumer and Pelosi wanted the President to either agree to a deal to keep all of the currently unfunded agencies at their current FY2018 levels through the end of FY2019 or update the funding levels for everything but the $1.6 billion in border security which would remain the same from FY2018 to FY2019. So far the President has firmly rejected this deal. With the mid-term elections behind him, the President may see less downside to forcing a government shutdown over the wall funding. However, the cost and politics surrounding such a move could backfire on the President, and his advisors are surely cognizant of that.   At a minimum, such a shut-down would cost the taxpayers significant dollars adding to our deficit woes.

Online Sales Tax Bill
On December 6, Senator Jeanie Shaheen (D-NH), along with three Democrat co-sponsors, unveiled a bill (S. 3725) in the Senate addressing the collection of sales taxes by online sellers. The bill, is a companion to a bill (H.R. 6824) in the House that is being sponsored by Republican Congressman Jim Sensenbrenner (R-WI). The pair of bills are in response to the Supreme Court's decision this summer in the case of South Dakota v. Wayfair. The Wayfair decision upheld a South Dakota law that requires remote sellers that sell more than $100,000 of goods or engage in more than 200 transactions in the state to collect and remit sales taxes to South Dakota. Since the decision, a large number of states have scrambled to pass their own laws that, like the South Dakota law, would allow for the collection of sales taxes from certain online or remote sellers. In an effort to prevent the Wayfair decision from being applied retroactively, S. 3725 and H.R. 6824 would prohibit states from collecting sales taxes from remote sellers for transactions that occurred before the Wayfair decision was released on June 21, 2018.
 
Given the bi-partisan support for the concepts promoted in these bills - the big question will really be whether there's the bandwidth for them to be added to a vote before the end of lame duck or if they will have to wait.

IRS Announces Higher 2019 Estate and Gift Tax Limits
On November 15, the Internal Revenue Service announced the official estate and gift tax limits for 2019: The estate and gift tax exemption is $11.4 million per individual, up from $11.18 million in 2018. That means an individual can leave $11.4 million to heirs and pay no federal estate or gift tax, while a married couple will be able to shield $22.8 million. The annual gift exclusion amount remains the same at $15,000.

The IRS announced the new inflation-adjusted numbers in Rev. Proc. 2018-57.

The Trump tax cuts slashed the number of estates subject to the federal estate tax, by doubling the exemption amount from a base level of $5 million per person. So, there were only an estimated 1,890 taxable estates in 2018 (according to the Tax Policy Center). That compares with 4,687 taxable estates in 2013 reflecting a base $5 million exemption, and 52,000 taxable estates in 2000 when the exemption was $675,000.

For now, TIA and other death tax foes are trying to make the new doubled exemption amounts permanent; the Trump tax cuts are scheduled to expire at year-end 2025.
Under the annual exclusions, you can give away $15,000 to as many individuals as you'd like. A husband and wife can each make $15,000 gifts. So, a couple could make $15,000 gifts to each of their four grandchildren, for a total of $120,000. Lifetime gifts beyond the annual exclusion amount count towards the $11.4 million combined estate/gift tax exemption.

Warning: The $22.8 million number per couple isn't automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to use your late spouse's unused exemption - a move called "portability"-you must elect it on the estate tax return of the first spouse to die, even when no tax is due. The problem is if you don't know what portability is and how to elect it, you could be hit with a surprise federal estate tax bill.

Revised Tax Bill
On December 11th, Ways and Means Chairman Brady announced he is dropping his original bill tax bill in favor of a revision that eliminates all tax extenders.
 
Brady appears to be responding to a letter to Congress by the Heritage Foundation, Koch groups, and others, pushing their view that tax extenders don't belong in the new tax code.
 
This is despite the fact that every tax extender has a purpose established by Congress, and the fact that an extender is expiring or has expired is no reason to condemn it's worth.
 
It seems these organizations favor some tax credits, like the new credit for paid family leave, but not credits which happen to have expired.
 
Brady's reversing himself is intended to attract conservative votes for his bill.  His original bill wasn't going to pass.
 
The new bill does contain some worthwhile provisions, such as employee retention credit for disaster areas, veterans treated as a specified group in the low-income housing credit, and 15-year write-off for qualified improvement property.
 
The bill also contains a new Section 951B, Amounts Included In Gross Income of Foreign Controlled United States Shareholders, dealing with controlled corporations, and clarifies the application of Sections 951A and 965.
 
Brady's press release and text of revised bill is posted at the Ways and Means website, www.waysandmeans.house.gov.
 
Finance Committee senators are continuing to work for agreement on a tax bill that includes the extenders.  Please continue to stay in  touch with Finance Committee senators and consider calling upon your members and branches in senators' home states to reinforce your request for an extension of at least two years for the Empowerment Zone Employment Credit and Indian Employment Credit, and the importance of excluding  WOTC from the BEAT tax.

2019 Legislative Priorities
In December, the government affairs efforts of TIA were shared at the SBLC (Small Business Legislative Council) retreat. 
 
At the retreat, the SBLC with TIA developed their top legislative priorities for 2019. These included:
 
1. Labor Shortage/Flow
-Education/ training
-529 Plans and Student Loan Forgiveness
-Drug Testing and Opioid Crisis
-Immigration
 
2. Taxes
-Online Sales/ Interstate, post Wayfair Decision
-Estate Tax
-199A
-Permanence/ Curing uncertainty
 
3. Infrastructure and Rural Development
-Transportation/ driver shortages
-Broadband
 
4. Tariffs and Trade

5. Association Health Plans
-CAF Plans
-Cadillac Tax
 
6. Cyber Security

7. Debt and Deficit
These issues will be shared with other small business groups, members of congress, and the administration. We anticipate a busy 2019 legislative year on both the state and federal levels.