Weekly Legislative Update - November 25, 2019

Congress Sends Continuing Resolution To President Funding Government Thru Dec 20
The Senate passed and sent to the President, H.R. 3055, "Continuing Appropriations, 2020" providing funds for the government through December 20th.  President Trump has said he will sign the bill.
 
Upon concluding its business, the Senate adjourned for Thanksgiving recess till December 2, the House till December 3.
 
So far no decision has been reached by the tax-writing committees on WOTC, VOW To Hire Heroes Act, or other tax extenders.
 
However, there could be developments during the recess, as Finance and Ways and Means chairs are still looking for a bi-partisan deal, and will be in touch with tax staffs on progress.

SALT Efforts Continue
Led by Democrats from high tax states, the efforts to chip away at one of the most unpopular provisions of the 2017 Tax Cuts and Jobs Act - the $10,000 cap on deductions for state and local property, income and sales taxes (commonly referred to as "SALT") - have continued.
 
Recently the Senate, voting almost exclusively along party lines, failed to pass a bill which would have overturned a rule enacted by the IRS prohibiting high tax states from creating a workaround for taxpayers by allowing them to donate to state established charity funds in exchange for state tax credits (i.e. to allow the taxpayers to reduce how much they owe in state and local taxes and avoid hitting the cap, while still bringing revenue to the state). The White House is now said to be reviewing a proposed rule that would formalize a safe harbor (set forth by the IRS in Rev. Proc. 2019-2) to allow C corporations and pass through entities that meet certain criteria to receive state and local tax credits for charitable donations notwithstanding the IRS's rule.
 
On the other side of the Hill, the Democrats on the House Ways and Means Committee have been meeting recently to discuss a potential bill to either temporarily repeal the cap or increase the cap. As has been the case from the beginning, the biggest challenge is finding a pay for as the Joint Committee on Taxation has estimated that it would cost $668 billion to fully repeal the cap. The Ways and Means Democrats are said to be considering a proposed increase to the top individual tax rate - however, any bill containing such an increase would likely be dead on arrival in the Republican controlled Senate. 

Even though the Tax Cuts and Jobs Act was not revenue neutral, the House of Representatives under Democratic control has decided that all bills need to be revenue neutral and hence the need to find a revenue raiser to offset the loss of tax revenue.

Corporate Transparency Act
On October 22, 2019, the House passed the Corporate Transparency Act (H.R. 2513) by a vote of 249-173 with twenty-five Republicans joining two hundred twenty-four Democrats in voting for the measure, while five Democrats and one Independent joined one hundred sixty-seven Republicans in voting against the bill. 

If passed by the Senate in its current form, the Corporate Transparency Act would impose new reporting requirements on certain small businesses (specifically corporations and limited liability companies with twenty or fewer employees). 

The stated objective of the bill is to require companies to disclose their beneficial owners in order to prevent bad actors from using shell companies to break the law or hide illicit activity.
 
There is no word yet on whether the bill will be taken up by the Senate before the end of the year. The corresponding bill in the Senate (S.1978) currently has the bi-partisan sponsorship of Senators Ron Wyden (D-OR), Sheldon Whitehouse (D-RI) and Marco Rubio (R-FL) so there is the potential that the measure could move, whether on its own, or tacked on to some larger package.

Executive Orders Restraining Power of Agencies
Earlier this month, President Trump signed two executive orders with the goal of limiting federal agencies' use of letters, memos and guidance. Some argue that, in many areas, informal guidance (also known as sub-regulatory guidance), which is presented outside of the formal rulemaking process in which public input must be sought, can be helpful because they shed light on how the agencies interpret and view the laws and rules that they are tasked with enforcing. 

This is particularly true in highly technical or nuanced fields where a new law has gone into effect so that taxpayers have to comply with it but the agency has not been able to issue detailed regulations. However, there has been a growing concern about agencies taking this role one step further and using informal guidance to, in fact, create rules outside of the required rulemaking process.
 
Under the new executive orders, before issuing a "significant guidance document" agencies will be required to make the guidance available and seek public input. The order will also impresses that agencies should only be bringing actions based on laws and regulations and not solely on positions laid out in agency guidance.
 
How the new Executive Order will apply will vary largely by agency and is still somewhat uncertain as the agencies move forward in parsing out what they can and cannot do based on what they already have on the books and the standard procedures of the agency.

ACA Ruling Expected
The latest significant challenge to the Affordable Care Act (ACA) is making its way through the federal court system. Last December in the case of Texas v. Azar, a federal district court in Texas held, in short, that when the Tax Cuts and Jobs Act reduced the penalty for violating the ACA's individual mandate to, it rendered the mandate and, in turn, the entire ACA unconstitutional.
 
This case is on appeal to the Fifth Circuit and the Fifth Circuit's ruling is expected any day. While there are few guarantees in Washington, it is as close to certain as things can get that any decision by the Fifth Circuit will be appealed to the Supreme Court.
 
While the ACA will remain in full force and effect until all the appeals are concluded, particularly if the Fifth Circuit sides with the district court in finding the ACA unconstitutional, there will be significant pressure for lawmakers to start planning ahead and considering what would replace the ACA if the Supreme Court in turn declares it unconstitutional.