Treasury 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.
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