Bipartisan consensus builds for NOL, bonus depreciation fixes

Tax Hot Topics newsletterRepublicans and Democrats are finding common ground on two technical fixes to the Tax Cuts and Jobs Act (TCJA) involving the effective date for new net operating loss (NOL) rules and the eligibility of qualified improvement property (QIP) for bonus deprecation, according to a staffer at the Joint Committee on Taxation (JCT).

Democrats have so far been stingy in allowing changes to the TCJA. They agreed to fix a TCJA provision that provided a bias toward grain cooperatives, but have otherwise opposed most changes based on their general opposition to the underlying bill. A hearing last week at the Ways and Means Committee reiterated how divided the two parties remain over the legislation. 

House Republican Majority Leader Kevin McCarthy, R-Calif., confirmed that the full House will vote on a “Tax Reform 2.0” bill that is currently being written by Ways and Means Chair Kevin Brady, R-Texas, and is expected to propose making the temporary aspects of TCJA permanent. Democrats have criticized TCJA by claiming it is ballooning the deficit and benefiting the wealthy, and are campaigning this year on promises to roll back parts of it. 

With only 51 seats in the Senate, Republicans have no real chance at enacting a second round of major tax reform this year, and need at least nine Senate Democrats even to pass technical corrections. Democrats are not expected to agree on a comprehensive technical corrections bill addressing all the glitches, but could agree to limited changes if they receive concessions. 

The JCT staffer indicated Democrats are close to agreeing to fix the issues with QIP and NOLs. The legislative history of TCJA indicates that lawmakers clearly intended to consolidate the special provisions for qualified retail, restaurant and leasehold improvement property into a single definition of QIP that would be eligible for 100% bonus depreciation. But the statutory language omits the definition of QIP in the intended location, causing considerable confusion. In addition, the legislative history indicates that lawmakers clearly intended to make a change to the NOL carry-back rules effective for tax years beginning after Dec. 31, 2017, but the actual language makes the change effective for years ending after Dec. 31, 2017.

Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

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