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Senate tax writers seek to cut alternative fuel taxes and ease FIRPTA burdens on REITs

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Tax Hot TopicsThe Senate Finance Committee approved a package of 17 relatively noncontroversial bills last week that includes provisions to ease restrictions under the Foreign Investment Real Property Tax Act of 1980 (FIRPTA) for investments in real estate investment trusts (REITs) and cut the fuel tax rates on liquefied petroleum gas (LPG) and liquefied natural gas (LNG).

Finance Committee Chair Orrin Hatch, R-Utah, and ranking minority member Ron Wyden, D-Ore., invited committee members to offer bipartisan and noncontroversial bills with little or no revenue loss. The effort was meant to “clear the decks” and build bipartisanship before the committee turns to comprehensive tax reform. Hatch has named five working groups to develop recommendations on tax reform by the end of May.

Most of the 17 bills would result in little or no revenue loss, but several include significant provisions. One bill would ease FIRPTA restrictions on REITs to remove barriers to foreign investment in U.S. real estate. The legislation would increase the percentage of REIT stock a foreign shareholder could hold to 10% before FIRPTA withholding was applied to dividends and stock sales. (For a full description of the REIT proposals, see Tax Insights 2015-01.)

Another bill would peg the fuel tax rate for LNG and LPG (propane) to their energy equivalents of gas and diesel. The result would be to cut the LNG rate from 24.3 cents a gallon to 14.2 cents and LPG from 18.3 cents a gallon to 13.2 cents.

All but one of the 17 bills passed with unanimous consent, and Hatch and Wyden are pushing Senate leaders to move the bills as a package on the Senate floor. But Senate leadership hasn’t given them any assurances, and there are hurdles to enactment. It’s often difficult to move tax bills through the Senate without attracting controversial amendments. House Republican tax writers have offered no indication they plan to take up the bill.

Other bills approved by the committee include provisions that would do the following:
  • Clarify several rules on the Tax Court’s jurisdiction and administration
  • Modify alternative tax on property and casualty insurance companies
  • Waive bonding requirements when registering for alcohol excise taxes for taxpayers who expect to pay less than $50,000 in tax
  • Expand the definition of hard cider for purposes of the reduced excise tax rate for hard cider
  • Remove the extension for the IRS to collect tax for combat hospitalizations
  • Extend special charitable treatment for medical research organizations to agricultural research organizations
  • Provide an exception for the private foundation excess business holding tax for “philanthropic business holdings”
  • Expand the exception for exclusion for employer-provided accident or health plans to include certain medical trusts of government plans
  • Create a $500 credit for military spouses to change a state license in a profession
  • Exclude clean coal grants from income and reduce basis of the property
  • Require the IRS to provide notice to a tax-exempt organization if it fails to file a Form 990 for two consecutive years (three years results in revocation of tax-exempt status)
  • Exclude public safety office survivors and disability benefits from income
  • Exclude certain student work-learning-service program payments from income
  • Allow enrolled agents to use the “EA” or “E.A.” designation as a credential
  • Expand 10% combined heat and power credit to cover waste as a way to heat property

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