Congress advances bills on IRS reform, retirement incentives

Tax Legislative UpdateCongress has taken major steps toward a potential future agreement on packages of IRS tax administration provisions and retirement incentives.

The House passed the Taxpayer First Act (H.R. 1957) with a bipartisan voice vote on April 9, while the Setting Every Community Up for Retirement incentives for Retirement Enhancement (SECURE) Act (H.R. 1994) was approved by the House Ways and Means Committee in a bipartisan vote a week earlier. The bills also have traction on the Senate side. Both the chair and ranking member of the Senate Finance Committee have co-introduced legislation identical to the Taxpayer First Act (S. 928) and have released a retirement incentives package similar to the SECURE Act. The two bills are among only a handful of tax legislative priorities with any chance of enactment this year, though the final timing and process remains uncertain.

The IRS reform and tax administration package enjoys the best outlook. A similar bill that passed the full House last year narrowly missed a unanimous consent agreement in the Senate, and still enjoys broad support. It is aimed at updating IRS technology, addressing cybersecurity, and making various improvements to customer service and tax administration. It includes provisions that would:

  • Codify an independent appeals process with limited ability for the IRS to deny taxpayers access
  • Require the IRS to create a comprehensive customer service plan
  • Create an internet platform for filing Form 1099
  • Allow tax payments by debit or credit cards
  • Lower the threshold for when electronic returns are required
  • Require electronic filing for tax exempts filing any Form 990 and Form 8872
  • Codify the Free File program

Although the bill enjoys broad support, it is not without controversy. Some Democrats have objected to codifying the Free File program and preventing the IRS from creating a pre-filed return platform, while others have pushed to further limit private debt collection. The bill also does not include a provision to give the IRS authority to regulate return preparers.

Despite the objections, the bill has enough bipartisan support that it stands a good chance of passage. The most likely avenue toward passage in the Senate is a “hotline” process that would form a unanimous consent agreement. Often this is not done until just before a year-end adjournment, though it could happen earlier. It’s also possible the bill is packaged along with other tax priorities, such as the retirement incentives bill, expired tax “extender” provisions, and even a limited set of tax reform technical corrections. The timing for any such package is less clear, as the Senate is reluctant to allow a stand-alone tax package open for amendments on the Senate floor. A broader tax package may need another must-pass legislative vehicle to carry it.

The retirement incentives legislation also enjoys broad bipartisan support, but there are differences between the House and Senate versions that would need to be resolved before enactment. Importantly, the SECURE Act and its Senate companion, the Retirement Enhancement and Savings Act (RESA) of 2019 (S. 972), do share many core provisions, including:

  • Allowing unrelated entities to participate in multiple employer 401(k) plans (also known as “open MEPs”)
  • Repealing the 10% cap on automatic escalation of employee deferrals after the first year
  • Simplification of the Safe Harbor 401(k) rules
  • Repealing the 70.5-year age cap on making contributions to an individual retirement account (IRA)
  • Barring plans from offering loans to employees that can be accessed through credit cards
  • Allowing participants to roll an annuity investment into an IRA (or another employer's plans) if a plan eliminates the annuity as an investment option
  • Deeming certain custodial accounts in a Section 403(b) plan that has been terminated to be an IRA
  • Expanding the types of employees of nonqualified church-controlled organizations to be covered under retirement income account 403(b) plans
  • Extending the deadline for establishing a non-401(k) plan from the last day of the taxable year to the extended due date of the return for such year

Although there are differences in the two bills, they should not be insurmountable. Many of the differences arose simply from Senate Finance Committee process. Finance Committee Chair Chuck Grassley, R-Iowa, indicated he prefers to not allow a prolonged mark-up that could lead to contentious amendments, so he re-introduced a version nearly identical to a bill that had passed the committee in prior years. Although committee action doesn’t carry forward from prior Congresses, Grassley is essentially arguing the same bill shouldn’t need another full markup. This would potentially free him to negotiate directly with the House on a compromise version.

Like the tax administration package, the retirement incentives may need another must-pass legislative vehicle to carry them. The best-case scenario would be for the two bills to be combined with the extenders and a limited number of tax reform technical corrections to create a larger tax package big enough to move on its own. This would be an uphill battle, and many parts of this package do not yet appear ready for consideration. Although Grassley has been pushing to move on the extender provisions, House Ways and Means Chair Richard Neal, D-Mass., has appeared in no hurry.

Republicans and Democrats also don’t yet appear close to any agreement on corrections for the Tax Cuts and Jobs Act (TCJA). Democrats have made clear they are unwilling to approve a full package of technical corrections for a bill they generally oppose. They are expected to negotiate for potential fixes for smaller number of provisions. These could include allowing qualified improvement property to qualify for bonus depreciation, fixing an effective date issue for net operating loss carrybacks for fiscal year taxpayers, and possibly allowing refunds for Section 965 overpayments that the IRS applied to future installments.

But Democrats will expect concessions from Republicans for any of these fixes, and negotiations don’t appear to have begun yet in earnest. Neal said he would not consider any TCJA provisions until his members had a chance to discuss the bill thoroughly. The first TCJA hearing was held on March 27, so it is possible discussions could accelerate going forward.

Dustin Stamper
Head of Tax Legislative Affairs
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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