The House Ways and Means Committee this week released draft legislation advancing various tax change proposals. The House action follows several recent releases by the Senate Finance Committee, including proposals focused on international taxation, partnership taxation and the taxation of carried interests. The tax changes expected to be enacted this year could be substantial and far-reaching and include corporate, individual and capital gains tax rate increases; international and partnership tax changes; and estate and gift tax changes.

Expected Timing of Biden Administration Tax Changes and Effective Dates

Congressional leadership and more than a dozen committees in the House and Senate are working with Biden administration Treasury and White House officials on numerous tax and spending proposals expected to become part of the fiscal 2022 budget reconciliation bill. Many expect ultimate enactment of comprehensive tax changes in November or December. Only 51 votes are needed to pass budget reconciliation legislation in the Senate, which is expected to bypass any Senate Finance Committee markup and bring budget reconciliation directly to the Senate floor. The effective dates of the newly enacted provisions generally are expected to be Jan. 1, 2022, but certain provisions may have proposed effective dates tied to the date of announcement, committee action or enactment. For example, capital gains tax rate increases were proposed by the Biden administration to apply to “gains required to be recognized after the date of announcement [presumably late April 2021],” and are proposed by the House Ways and Means Committee generally to apply to sales occurring after Sept. 13, 2021 (unless pursuant to a binding contract in force on or before Sept. 13, 2021). Historically, proposed effective dates for capital gains increases often have slipped to the date of enactment of the legislation. We expect the same may occur this year. Certain provisions have delayed proposed effective dates, and others may be enacted on a temporary rather than permanent basis to help keep the scored cost of the legislation within acceptable parameters.

At a high level, it appears that Biden administration proposals to tax capital gains at death and to require carry-over basis at death each lack sufficient support and will be dropped from the reconciliation process. Stealth death taxes on certain techniques to help keep control of family businesses in the family remain in play. It appears that some relief will be included regarding the state and local tax (SALT) deduction cap (perhaps even a complete temporary repeal). Many proposals and discussion papers coming out of the Senate Finance Committee – including aggressive, even revolutionary proposals targeting ETF investors and transactional taxes on corporate stock buy-backs, to name just a few, can only be explained by a “let’s throw in the kitchen sink when it comes to revenue raisers and see what might stick” approach to finding revenue. Many of the Senate discussion proposals are not expected to advance at all. And given the massive amount of revenue raised by provisions contained in the Ways and Means draft proposal, significant cut-backs seem inevitable.

Depending on a taxpayer’s specific circumstances, significant tax savings may be achieved by those who anticipate the expected changes and take steps now to take advantage of existing tax provisions and rates. This alert addresses only a fraction of the tax changes expected to be enacted this fall; additional details will be released over time as congressional proposals and draft legislation evolve into final form.

Expected Corporate Tax Rate Increases, Section 199A Limitations, International Tax Changes and Related Proposals

The House Ways and Means Committee proposes to replace the flat 21 percent corporate income tax rate with graduated rates of 18 percent on the first $400,000 of income, 21 percent on income of up to $5 million, and 26.5 percent on income thereafter. These graduated rates phase out for corporations with taxable income in excess of $10 million. The House proposal differs from the Biden administration’s original proposal to increase the corporate tax rate from 21 percent to 28 percent. Most believe the corporate rate will increase to no more than 25 percent.

For noncorporate taxpayers, the House proposes that the Section 199A 20 percent pass-through deduction will be amended by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return, $250,000 for a married individual filing a separate return and $10,000 for a trust or estate.

The House also proposes to (i) amend Section 461(l) to permanently disallow excess business losses (i.e., net business deductions in excess of business income) for noncorporate taxpayers, and (ii) repeal the Section 1202 qualified business stock exclusion rates of 75 percent and 100 percent for taxpayers with income in excess of $400,000 (the 50 percent exclusion would remain for all).

The House Ways and Means Committee also is proposing:

• For the global intangible low-taxed income (GILTI) regime:
  • Raising the GILTI tax rate from 10.5 percent to 16.5625 percent through a combination of the increased corporate tax rate and a reduced deduction applicable to GILTI.
  • Reducing the exemption from GILTI for the 10 percent return on foreign tangible property (referred to as qualified business asset income or QBAI) to 5 percent for controlled foreign corporations that are not located in a U.S. territory.
  • Imposing a country-by-country method for calculating GILTI (thus eliminating the ability of a U.S. shareholder to blend high-taxed GILTI against low-taxed GILTI).
  • Amending GILTI to allow for a carryover of the country-specific “net tested losses” to the following tax year.
  • Increasing the deemed paid credit for taxes attributable to GILTI under Section 960(d)(1) from 80 percent to 95 percent (and from 80 percent to 100 percent in the case of taxes paid or accrued to U.S. territories).
• Raising the foreign-derived intangible income (FDII) regime tax rate from 10.5 percent to 20.7 percent through a combination of the increased corporate tax rate and a reduced deduction applicable to FDII.
• Modifying the foreign tax credit rules and their limitation provisions as follows:
  • Requiring foreign tax credits to be determined on a country-by-country basis for purposes of Sections 904, 907 and 960 thus preventing taxpayers from using excess foreign taxes paid to high-tax countries to reduce their U.S. tax liability on income earned in low-tax countries..
  • Repealing the foreign branch income basket.
  • Reducing the carryforward period for an excess foreign tax credit limitation from 10 years to five years, and repeal the current one-year carryback.
• Amending the dividends-received deduction under Section 245A so that it only applies to dividends received from controlled foreign corporations rather than a specified 10-percent-owned foreign corporation.
• Retroactively restoring former Section 958(b)(4), which prevented downward attribution of stock from a foreign person to a U.S. person in determining whether a person is a U.S. shareholder under Section 951(b) and whether a foreign corporation is a controlled foreign corporation.
• Amending the base-erosion and anti-abuse tax (BEAT) by:
  • Raising the rate to 10 percent after 2021, then to 12.5 percent after 2023, and finally to 15 percent after 2025.
  • Taking tax credits into account when calculating the base erosion minimum tax amount.
  • Modifying the scope for determining which corporations are subject to BEAT for taxable years beginning after December 31, 2023 by eliminating the three-percent base erosion percentage requirement (thus, corporations that meet the gross receipt threshold are potentially subject to BEAT).
  • Modifying the scope of what constitutes a base erosion payment to include amounts paid to related foreign parties that are capitalized under Section 263A and amounts paid for inventory that exceed the cost of property to the foreign related party (e.g., the current cost of goods sold exemption).
  • Including an exception to base erosion payments for payments subject to U.S. tax and payments to foreign parties if the taxpayer establishes that such amounts were subject to an effective rate of foreign tax not less than the applicable BEAT rate.
• Modifying the interest expense limitation rules by:
  • Adding Section 163(n) to limit the available deduction of certain domestic corporations that are members of an international financial reporting group and which has averaged business interest expense for the three-year reporting period ending with such reporting year of more than $12M annually to 110 percent of the net interest expense. The allowable percentage is the ratio of the domestic corporation’s allocable share of the group’s net interest expense to such corporation’s reported net interest expense, with the allocable share of the group’s net interest expense calculated based on an EBITDA ratio. The interest limitation applies to domestic corporations for which the average excess interest expense over interest includible over a three-year period exceeds $12 million.
  • Modifying Section 163(j) with respect to partnerships and S corporations by generally applying the limitation to a partner or shareholder, rather than to the partnership or S corporation.
  • Adding Section 163(o) to allow for a five-year carryforward of interest expense disallowed under Section 163(j) or Section 163(n).
• Removing the ability of a specified foreign corporation to have a taxable year beginning one month earlier than the tax year of its majority U.S. shareholder. This amendment applies to taxable years of specified foreign corporations beginning after Nov. 30, 2021.
• Modifying the definition of a 10 percent shareholder under the exemption to portfolio interest.
• Amending Section 871(m) to treat as dividend equivalent payments certain payments made under a sale-repurchase agreement, specified notional principal contracts or any other similar payment as determined by the IRS with respect to publicly traded partnerships.
• Extending the constructive sale rules under Section 1259 to certain digital assets.
• Modifying the wash sale rules under Section 1091 to include commodities, currencies and digital assets.

Details of these proposals are still being refined, and certain of these proposals may be difficult to draft or administer. Others may be enacted only in part. Many believe the combined effect of these proposals creates a corporate tax system so onerous and with such high tax rates that changes are inevitable.

Changes in Social Security taxes, the minimum wage, and many other Biden administration or congressional proposals do not qualify for consideration as part of budget reconciliation legislation. Somewhat surprisingly, the Ways and Means proposals and even Treasury’s 2021 Green Book contain almost none of the corporate tax changes proposed in the Obama administration’s fiscal 2017 budget, released on Feb. 9, 2016. That Obama administration budget included more than 140 tax proposals, including a repeal of the last-in, first-out (LIFO) method of accounting for inventories. A copy of that 2016 Democrat Treasury Green Book is available here.

Expected Individual and Capital Gains and Dividend Tax Rate Increases

Capital gains and dividend tax rates are proposed by the House to increase for certain higher-income taxpayers from their current level of 23.8 percent (a 20 percent tax rate plus the 3.8 percent tax on net investment income) to as high as 31.8 percent (a 25 percent capital gains (and dividends) rate plus an additional surtax of 3 percent (discussed below) plus the 3.8 percent tax on net investment income). For many taxpayers, the capital gains tax rate will be 28.8 percent (25 percent plus 3.8 percent tax on net investment income). The 3 percent surtax proposed by the House would apply to both ordinary and capital gains income in excess of $5 million ($2.5 million for married individuals filing separately and $100,000 for estates and trusts) and is proposed to be effective beginning in 2022.

The Biden administration proposed that its capital gains tax increase apply to “gains required to be recognized after the date of announcement [presumably late April 2021].” The House proposes that its capital gains increase apply to sales on or after Sept. 13, 2021 (unless pursuant to a written binding contract effective on or before Sept. 13, 2021). Many believe, based on history, that the effective date for increased capital gains and dividend tax rates may slip and ultimately may apply to sales occurring on or after the date of enactment of the legislation.

Individual tax rates are proposed by the House to increase from 37 percent to 39.6 percent. The House also proposes to apply the 39.6 percent rate at a lower income threshold than the current 37 percent rate. The 3 percent surtax described above would apply to high-income individuals, trusts and estates.

End of S Corporation/‘Active Income’ Medicare Tax Loophole

The Green Book explained that high-income workers (generally those earning more than $250,000 for joint filers) and investors generally pay a 3.8 percent tax on net investment income and a 3.8 percent Medicare tax (2.9 percent plus an additional 0.9 percent on wages over $250,000 for joint filers) on employment earnings. Application of these taxes is inconsistent across taxpayers, which the Biden administration states is “unfair … and provides opportunities … for those with high incomes to avoid paying their fair share of taxes.” The Biden administration proposed that all such taxes apply consistently to those making over $400,000. Specifically, the definition of net investment income would include gross income and gain “from any trades or businesses that are not otherwise subject to employment taxes”; further, certain partnership income and S corporation income would be subject to employment taxes (and therefore to the Medicare tax).

The House proposes to apply the net investment income tax to all net income from pass-through businesses for taxpayers with income greater than $500,000 for joint filers, trusts, and estates, and $400,000 for single filers. The House proposed effective date is for tax years beginning after Dec. 31, 2021.

Allow Certain S Corporations to Convert to Partnerships

The House proposes to allow S corporations that were taxed as S corporations on May 13, 1996 (prior to publication of the check-the-box regulations) to reorganize as partnerships with no tax consequences during a two-year period beginning Dec. 31, 2021.

Expected Carried Interest Changes

Carried interest has been targeted by both the House Ways and Means Committee and Chairman Wyden of the Senate Finance Committee (as well as by the Biden administration in the Green Book).

The Ways and Means proposal generally extends the long-term capital gain holding period for gain attributable to an “applicable partnership interest” (API) to five years. The holding period is reduced to three years (i) for income with respect to an API that is attributable to a real property trade or business (for this purpose, a real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business) or (ii) if the taxpayer’s adjusted gross income is less than $400,000. The proposal generally retains existing definitions of API, “applicable trade or business” and “specified assets.” In other words, amended Section 1061 would apply to a partnership interest transferred in connection with the performance of services in a trade or business that consists of raising or returning capital and either (i) investing in securities, commodities, real estate held for rent or investment, cash or cash equivalents, and certain other assets or (ii) developing those assets. Notably, the proposal extends Section 1061 to all assets that could give rise to long-term capital gain (as currently drafted, certain exclusions apply to specified items of long-term capital gain, including Section 1231 gain).

Chairman Wyden’s carried interest proposal would repeal Section 1061 and generally would require the holder of an API to recognize ordinary income annually (subject to self-employment tax) in an amount equal to the “deemed compensation amount.” The proposal is based on a deemed loan construct; the “deemed compensation amount” generally is determined by applying a specified rate of return to the portion of investor capital that is deemed to be invested for the API holder’s benefit. In addition to recognizing imputed “interest” with respect to the deemed loan, the API holder would recognize long-term capital loss in the same amount.

State and Local Tax (SALT) Deductions

The House proposals so far do not include any specific relief regarding the $10,000 cap on SALT deductions, though Ways and Means Chairman Richard Neal committed to include “meaningful” SALT relief in any final package. The leading proposals being discussed include raising the SALT cap (perhaps to $40,000) and eliminating the SALT cap for some period (perhaps two years).

Expected Estate and Gift Tax Increases and Changes

The estate tax and lifetime gift tax exemption (which was temporarily doubled through 2025) is currently $11.7 million per person ($23.4 million for married couples). In addition, there is a $15,000 per donee gift tax exclusion ($30,000 if spouses agree). The current estate tax rate on amounts in excess of the exemption amounts is a flat 40 percent, and the tax basis in inherited assets is “stepped up” to the fair market value upon the death of the decedent.

During the presidential campaign and as recently as announcement of the Biden administration’s budget proposals, there were suggestions that the estate tax rate should be increased and that capital gains should be recognized upon gift, transfer and death – a substantial departure from current law. There would be some relief – a $1 million per person ($2 million per married couple) exclusion from recognition of unrealized capital gains would be allowed and would be portable to a decedent’s surviving spouse. It also was proposed that the payment of tax on the appreciation of certain family-owned businesses would not be due until the interest in the business is sold or the business ceases to be family owned. The proposal would have allowed a 15-year fixed-rate payment plan for the tax on appreciated assets transferred at death, other than liquid assets.

Both the proposed imposition of capital gains taxes at death and the proposal for carry-over basis at death seem to lack support from Democrats and are expected to be dropped from the budget reconciliation legislation. The portability of exemption amounts between spouses generally is expected to continue. There appears to be support at the moment in the House for:

• Accelerating to the end of 2021 the end of the temporary doubling of the estate and gift tax exemption. This will encourage utilizing the “extra” exemption this year before it expires.
• Changing the estate and gift tax rules that apply to grantor trusts so that they are similar to the income tax rules for grantor trusts (for example, pulling grantor trusts into a person’s taxable estate when that person is deemed to own the trust assets), causing many such trusts to be included for estate tax purposes. These rules would apply to future trusts and to future transfers to existing trusts. The House also proposes to tax sales between grantors and grantor trusts the same way a normal sale of assets is taxed. These proposals could make it much more difficult and expensive, if not impossible, for many family businesses to keep control of those businesses in the family. Opposition to these proposals is expected to be strong.
• Modifications to estate tax valuation rules to ignore discounts from partial ownership or lack of control of an asset in determining its value, but only with respect to so-called passive assets, not assets that are used in a business.

Retirement Plan and Related Proposed Changes

Ways and Means Chair Richard Neal indicated last week that the intent is to get the Securing a Strong Retirement Act “over the goal line this year.” That draft legislation (Secure 2.0) was voted unanimously out of the House Ways and Means Committee on May 5, 2021, and aims to increase retirement savings and simplify retirement plans with changes that include:

• Requiring automatic enrollment for 401(k) and 403(b) plans. Initial automatic enrollment must be at least 3 percent of pay, with 1 percent increases each year up to at least 10 percent. Participants may opt out at any point. The proposed legislation exempts existing plans in some cases, SIMPLE 401(k) plans, small businesses with 10 or fewer employees, and new businesses.
• Increasing the mandatory-distribution age for retirement plans from 72 to 73 in 2022, to 74 in 2029 and to 75 in 2032.
• Increasing the catch-up contribution limit for individuals ages 62 to 64 from $6,500 to $10,000 for non-SIMPLE plans and from $3,000 to $5,000 for SIMPLE plans. Both limits would be indexed to the cost of living.
• Requiring qualified plans, as well as 403(b) and 457(b) plans, to designate catch-up contributions as Roth contributions.
• Allowing qualified plans, as well as 403(b) and 457(b) plans, to provide participants with the option of treating matching contributions as Roth contributions.
• Allowing plans to treat student-loan payments as elective deferrals for the purpose of making matching contributions under 401(k), 403(b), SIMPLE IRA and 457(b) plans.
• Reducing the waiting time before plans are required to allow long-term, part-time workers into 401(k) plans from three consecutive years of service to two.

The bill also reduces required notices to unenrolled retirement plan participants and makes other changes aimed at increasing retirement savings and simplifying retirement plan administration.

Two senators – one Republican and one Democrat – have introduced a comparable bill in the Senate. A few key differences are that the Senate-proposed legislation would (i) not require automatic enrollment; (ii) increase the mandatory-distribution age only once, to 75 in 2032; and (iii) increase the catch-up limits at age 60 (rather than at age 62).

We expect these proposals to be included in the fall 2021 budget reconciliation bill or otherwise enacted within the next year or so.

The House Ways and Means Committee proposes further steps to boost retirement savings. Under the retirement section of the Build Back Better Act, the House proposes to require companies that don’t already offer a retirement plan to automatically enroll workers for IRAs or 401(k)-type retirement plans. The proposals include:

• Starting in 2023, employers with five or more employees would be required to offer their employees (via automatic enrollment) either IRAs or 401(k)-type retirement plans.
• Unlike Secure 2.0, which requires the implementation of auto-enrollment only for certain new retirement arrangements that employers voluntarily establish, under the new legislation, employers (that don’t already offer a retirement plan) are mandated to offer these retirement arrangements.
• The auto-enrollment provision of these required retirement arrangements would initially divert 6 percent of an employee’s pay to an employee’s retirement account.

• By year five of participation in the retirement arrangement, an automatic escalation clause would increase the automatic contribution to 10 percent.
• If contributions are made to an IRA, the employee can specify whether the contributions will be made on a pretax or Roth basis, with the default (e.g., in the event of no election) being a Roth IRA invested in a target-date fund.
• While this is mandatory for employers, employees would be able to opt out of the arrangement altogether.
• Companies that fail to comply with the new legislation face an excise tax of $10 per employee per day.

Separate from the retirement expansion discussed above, the House Ways and Means Committee also released draft legislation relating to retirement accounts that includes:

• Limits on high-value IRAs – New contribution limits are imposed, essentially prohibiting new contributions for certain taxpayers whose aggregate retirement account balance exceeds $10 million in the prior tax year.

• These limits apply to married couples with taxable income over $450,000 or singles with taxable income over $400,000.
• Impacted individuals would have to take a special minimum withdrawal (50 percent of the amount over $10 million) from their IRA in the year following any year the balance exceeds $10 million.
• Further rules apply for those whose accounts exceed $20 million.

• Limits on “backdoor” Roth IRAs – Eliminates Roth conversions for both IRAs and 401(k) plans.

• These limits apply to married couples with taxable income over $450,000 or singles with taxable income over $400,000.
• The limits are effective for distributions, transfers and contributions made in taxable years beginning after Dec. 31, 2031.
• Further, the limits prohibit all employee after-tax contributions in qualified plans and prohibit after-tax IRA contributions from being converted to Roth IRAs regardless of income level, proposed to be effective for distributions, transfers and contributions made after Dec. 31, 2021.

Senate Finance Partnership Tax Rule Changes

On Sept. 10, 2021, Senate Finance Committee Chairman Ron Wyden released a discussion draft and legislative text that would dramatically change existing partnership tax rules.[1] According to the discussion draft, the proposals are intended to remove unnecessary optionality and ambiguity, close loopholes, and facilitate taxpayer compliance and IRS audits.

A number of the proposals included in this discussion draft, including an attack on ETF investors, are novel and even revolutionary. It seems that many of these proposals may not be ready for “prime time” (as the White House has described many Senate Finance Committee proposals) and may not advance as part of the ongoing reconciliation process. Various proposals include proposed effective dates tied to date of enactment or to Jan. 1, 2022.

Taxpayers should nevertheless carefully consider the potential impact of all proposals on their business arrangements and consider whether transaction documents should be amended or whether restructuring would be advisable.

Some of the Wyden proposals are relatively narrow in scope. Others, such as those relating to allocation of income, gain, loss and deduction; allocation of partnership liabilities; and the tax treatment of publicly traded partnerships (PTPs), would change the partnership tax landscape significantly. The discussion draft proposals include:

• Repeal the “substantial economic effect” rules for partnership allocations in Section 704(b) and require that all allocations satisfy the “partner’s interest in the partnership” (PIP) standard (PIP generally turns on the facts and circumstances associated with the parties’ economic agreement). The discussion draft assumes that the Treasury Department and IRS would update and simplify existing PIP regulations. Certain partnerships composed of related persons would be required to allocate partnership items based on the partners’ net contributed capital. These allocation provisions are proposed to be effective for taxable years beginning after Dec. 31, 2023.
• Require that all partnerships apply the “remedial method” under Section 704(c) when a partner contributes appreciated property to a partnership and when a partnership “revalues” its property for Section 704(b) book purposes. Under existing regulations, partnerships have flexibility to choose a “reasonable” Section 704(c) method, including the “traditional method” and “curative method.” The required use of the remedial method generally would accelerate recognition of income and gain with respect to depreciable property contributed to a partnership and would apply to property contributions and revaluation events occurring after Dec. 31, 2021.
• Require that partnerships “revalue” their assets for Section 704(b) book purposes when the partners’ economic arrangement changes. Presently, revaluations are permitted, but not required, in certain circumstances enumerated in Treasury regulations. It would appear that the remedial method would be required with respect to “reverse” Section 704(c) allocations that result upon a revaluation event. Revaluations would be mandatory for events occurring after Dec. 31, 2021.
• Repeal the seven-year testing period for the anti-mixing bowl rules so that Sections 704(c)(1)(B) and 737 apply to contributions of appreciated property and certain related distributions occurring at any time during a partnership’s life. The amended rules would be effective for property contributed after Dec. 31, 2021.
• Repeal Sections 707(c) and 736, which provide rules for certain partnership-to-partner payments. More particularly, the proposal eliminates guaranteed payments (under the proposal, payments to a partner for services or for the use of capital, and which are not distributions, generally would be treated as payments to a nonpartner) and rules that apply to certain payments to retiring partners, and would appear to allow a partner to be treated as an employee of the partnership. These changes generally would take effect after Dec. 31, 2021.
• Amend the disguised sale rules of Section 707(a)(2), which generally apply to certain transfers between a partnership and partner, to clarify that the disguised sale of partnership interest rules are self-executing and to repeal the exception for reimbursements of capital expenditures. The amendments would apply to services performed or property transferred after the date of enactment.
• Require that all partnership debt is allocated among partners for Section 752 purposes in accordance with the partners’ profit shares. Loans to a partnership by a partner (or a person related to a partner) are excepted. Under existing Treasury regulations, recourse debt is allocated to the partner that bears economic risk of loss with respect to the liability and nonrecourse debt is allocated based on a three-tiered approach that can take profit sharing into account. Changes to Section 752 would apply to taxable years beginning after Dec. 31, 2021, and could result in recognition of taxable gain with respect to negative capital account balances where allocations are based on economic risk of loss or a partner’s share of partnership minimum gain or certain Section 704(c) gain under the existing rules for nonrecourse liabilities. At the taxpayer’s election, tax liability resulting from the change in law would be payable over an eight-year period.
• Require mandatory adjustments to the tax basis of partnership property under Sections 743 and 734 to account for disparities between a partner’s tax basis in its partnership interest and the partnership’s tax basis in property (presently, these basis adjustments are optional except in limited circumstances), and revise the computation of Section 734 adjustments to preserve each remaining partner’s gain or loss that would be recognized if the partnership had sold all of its property for fair market value. Correspondingly, Section 754 would be repealed. Mandatory basis adjustment would be effective for transfers occurring after Dec. 31, 2021.
• Amend the Section 163(j) business interest expense limitation rules to provide that a stricter entity-level approach applies to partnerships and S corporations. Current law, in contrast, requires a hybrid approach. Amended Section 163(j) would apply to taxable years beginning after Dec. 31, 2021.
• Repeal the exception from corporate treatment for PTPs that have certain passive income under Section 7704(c). This change effectively would mean that all PTPs would be taxable as corporations. The repeal would be effective for taxable years beginning after Dec. 31, 2022.

Expected Changes to Existing Timeline for Certain Tax Cuts and Jobs Act Provisions

Many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that currently are scheduled to change or expire in the coming years will be addressed in the budget reconciliation package and, as a result, may change or expire earlier than previously provided. The larger standard deduction and many other provisions of the TCJA currently are scheduled to expire at the end of 2025.

The House proposal delays until 2026 the TCJA requirement regarding capitalization of research expenditures and makes permanent the excess business loss rules (both scheduled to apply in 2022 under current law).

Expected Additional Clarifications, Details and Changes

As the administration and congressional committees continue to work on tax and budget proposals, clarifications and details regarding the various proposals will emerge. Some of the initial proposals may be abandoned and revised, and additional proposals are expected. As noted above, depending on a taxpayer’s specific facts and circumstances, significant tax savings may be achieved by taxpayers who anticipate expected tax changes and take steps regarding their business plans, transaction pipelines, restructurings, operational affairs and estate plans in a manner that takes advantage of current tax provisions.