GOP tax writers push IRS to fix tax reform glitches

Tax Hot Topics newsletterRepublican members of the Senate Finance Committee sent a letter asking Treasury and the IRS to issue guidance to clarify technical glitches in the Tax Cuts and Jobs Act (TCJA) affecting bonus depreciation for qualified improvement property, the effective date for net operating loss changes for fiscal year taxpayers, and new limits on deducting settlements for sexual misconduct.

In the Aug. 16 letter, addressed to Treasury Secretary Steve Mnuchin and acting IRS Commissioner David Kautter, the 14 senators sought to explain Congress’s intent underlying the provisions, as reflected in the law’s legislative history. They also stated that they are conducting an on-going review of the law, which may warrant further regulatory guidance and technical corrections, and reaffirmed their intent to address these issues through legislation.

The Finance Committee requested three changes be made through guidance:
  • Designate Qualified Improvement Property (QIP), a consolidation of qualified leasehold improvement, qualified retail and qualified restaurant property as defined under prior law, as 15-year property, allowing it to be eligible for 100% bonus depreciation over the next five years.
  • Clarify that the modifications made to net operating loss (NOL) carryforwards and carrybacks apply to NOLs arising in taxable years ending after Dec. 31, 2017, as opposed to those beginning after Dec. 31, 2017, as stated in the bill. This fix would enable fiscal year taxpayers with a NOL that arises in a fiscal year spanning 2017 and 2018 to use that NOL for a refund against taxes paid in the two prior years.
  • Strike a provision that prevents an individual who receives a settlement stemming from sexual harassment or sexual abuse from deducting related attorney’s fees. While Congress sought to deny a deduction for such settlements when they are subject to a nondisclosure agreement, the letter states that it did not intend to deny a deduction for attorney’s fees at all.

While it isn’t unprecedented for federal agencies to address technical errors and ambiguities that tend to arise in legislation, they don’t often take action solely at the behest of one party within one chamber of Congress. IRS and Treasury officials recently said they may be open to providing favorable guidance on bonus depreciation, but that the agency would need to hear from the House Ways and Means Committee.

Dustin Stamper
Managing Director, 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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