Treasury won’t fix TCJA error; Dems hint at helping

Tax Hot Topics newsletterTreasury officials recently concluded that they do not have the authority to fix a drafting error in the Tax Cuts and Jobs Act (TCJA) which excludes qualified improvement property (QIP) from bonus depreciation. A technical correction by Congress will be needed, and a recent letter from Democrats indicates there should be bipartisan support for the idea.

The Treasury decision comes despite numerous calls from Capitol Hill and industry for the issue to be addressed through regulatory guidance. Senate Republicans sent a letter in August to Treasury Secretary Steve Mnuchin and then-acting IRS Commissioner David Kautter citing the TCJA’s legislative history in explaining that Congress intended for QIP to be defined as 15-year property, allowing it to be eligible for 100% bonus depreciation over the next five years.

In a Sept. 24 letter signed by 16 senators, three of which sit on the Senate Finance Committee, Democrats made a similar ask of Mnuchin. The senators urged Treasury to issue interpretive guidance, warning of extensive harm to the nation’s economy as a result of “improper implementation” of the law. The letter pointed to the TCJA Conference Agreement and Joint Committee on Taxation score in justifying the request, both of which assumed a 15-year recovery period for QIP.

Treasury issued proposed regulations in early August that allow bonus depreciation on QIP that was acquired and put into service between Sept. 27 and Dec. 31, 2017. The comment period, which ended Oct. 9, 2018, elicited calls for a more expansive fix. A coalition of more than 200 businesses and trade groups representing retailers, restaurants, real estate companies, manufacturers and suppliers submitted a letter listing possible negative consequences ranging from cash flow disruptions to delays in investment and improvement projects.

The coalition requested interim guidance pending enactment of technical corrections legislation, but to no avail. Treasury determined it does not have the authority to give QIP a 15-year recovery period, placing the issue firmly in Congress’s hands. Democrats have been reluctant to allow technical corrections to TCJA, but the letter from 16 Senate Democrats in support of a guidance fix indicates there could be strong support for a technical correction on a year-end tax package after the election.

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

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.