Taxation & Representation - November 2018

Brownstein Hyatt Farber Schreck

Brownstein Hyatt Farber Schreck

Happy Thanksgiving to all from the Brownstein Tax Team!

While Congress has been out and T&R on hiatus, the Brownstein Tax Team has been out hunting and foraging for Thanksgiving news. We present to you a truncated “first course” of major developments and what to look forward to in what will be a feast of a lame duck session in the tax policy world.

Happy reading (and eating)!

—Russ Sullivan and the Brownstein Tax Team

Tax Turntable (Committee Edition)

The midterm elections have come and gone and left in its wake a House Ways and Means Committee and Senate Finance Committee with some notable reshuffling as lawmakers prepare for the 116th Congress. On the Ways and Means Committee, a combination of retirements, resignations, higher office ambitions, and unsuccessful reelection campaigns will result in 12 members –10 Republicans, two Democrats – formally departing the Committee in January.Rep. Richard Neal (D-MA) will swap places with Rep. Kevin Brady (R-TX) as chairman and ranking member, respectively. Meanwhile, Senate Finance Republicans and Democrats will bid farewell to two members each from their respective parties: Chairman Orrin Hatch (R-UT), Sen. Dean Heller (R-NV), Sen. Bill Nelson (D-FL), and Sen. Claire McCaskill (D-MO). Sen. Chuck Grassley (R-IA) formally announced Friday that he will replace retiring Senator Hatch as chairman of the committee, with Sen. Ron Wyden (D-OR) preserving his role as ranking member for the next Congress.

Steering the Ship

Last week, House Republicans and the Senate held leadership elections to determine the heads of the party for the next two years. Turnover was minimal in the Senate as Democratic leadership remained static while the term-limited departure of Sen. John Cornyn (R-TX) from majority whip saw a vertical shift among existing Republican leadership. Sen. John Thune (R-SD) will assume the majority whip position, while Sens. John Barrasso (R-WY) and Roy Blunt (R-MO) will become GOP conference chair and GOP policy committee chair, respectively. Senate GOP also elected Sen. Joni Ernst (R-IA) as the vice chair of the conference, marking the first GOP woman in Senate leadership in eight years. House Republicans followed a similarly easy path, with Rep. Kevin McCarthy (R-CA) defeating Rep. Jim Jordan (R-CA), 159-43, to become minority leader. Rep. Liz Cheney (R-WY) ran unopposed to replace Rep. Cathy McMorris Rodgers as House conference chair. Rep. Steve Scalise (R-LA) remains in his post as the party’s whip.

House Democrats will hold their elections the week after Thanksgiving. Despite rumblings of internal opposition, Rep. Nancy Pelosi (D-CA) seems likely to be the top candidate for speaker of the House while Reps. Steny Hoyer (D-MD) and James Clyburn (D-SC) look to hold their majority leader and whip designations. Assistant Democratic leader and Democratic caucus chair are likewise being closely watched as multiple members have declared their candidacies, with shifting allegiances within the Democratic House caucus.

Lame Duck Overview

The final stretch of the 115th Congress resumes next Monday, as both chambers wrestle with two to three final weeks to tie up outstanding appropriations deadlines, a slew of tax and non-tax legislative proposals, and any final sendoffs for the dozens of departing lawmakers.

We breakdown below the state-of-play of the appropriations debate and the likely contenders for tax legislation in the lame duck.

  • Appropriations: The Dec. 7 expiration of the continuing resolution (CR) will undoubtedly be the legislative focus for Congress and the White House as both branches negotiate agency spending levels and steps to avoid a government shutdown. Currently, only five of the 12 government appropriations bills have been fully-funded for FY 2019, while the other seven are temporarily coasting at FY 2018 levels as part of the CR. Funding for a border wall within the Department of Homeland Security’s (DHS) bill will remain the likeliest determinant for a shutdown, and is largely dependent on President’ Trump’s bullish demands and congressional Democrats’ willingness to engage in negotiations. As of now it is anybody’s guess what will transpire, with several lawmakers expressing optimism, while House Speaker Paul Ryan (R-WI) in October underscored a realistic possibility for negotiations to stall before the Dec. 7 deadline. Funding for both the Treasury Department and IRS was extended as part of the CR and would be subject to any government shutdown.
  • Tax Extenders: Senate Finance Chairman Orrin Hatch (R-UT) on Thursday suggested that expired tax extenders would probably be renewed in the coming weeks, while House Ways and Means Committee Chairman Kevin Brady (R-TX) likewise suggested that his staff is in the process of developing a draft extenders bill. Despite Brady’s historical opposition to tax extenders and the process, he is expected to include end dates for anything that might be extended. The roughly 30 extender provisions in question have repeatedly been renewed over the past several years by lawmakers. Senate Agricultural Committee Chairman Pat Roberts (R-KS) added that  there is “a lot of support for the [extenders] package,” however, they’ll have to “light a fire” on the support as soon as the farm bill is finished.
  • TCJA Corrections: A technical corrections bill to last year’s Tax Cuts and Jobs Act has a seemingly much more difficult track to passage. Provisions related to the “retail glitch” remain the primary target, as unintended expenses related to the timing of select business investment write-offs have propelled backlash from several trade associations and industry leaders. Chairman Brady this week indicated that legislation is being crafted to fix it in addition to approximately 75 minor corrections to the law. However, Democrats seem unwilling to support the technical corrections effort, citing the partisan passage of last year’s bill, and any such bill will likely depend on Republican concessions elsewhere. Ranking Member Ron Wyden (D-OR) of the Senate Finance Committee noted this week that he hasn’t received anything from Republicans regarding the proposed fixes, and stated there needs to be better correspondence to “jump start a serious effort.”
  • Retirement Savings & IRS Reform: Outside of extenders and the TCJA, the lame duck may provide an opportunity for retirement savings and IRS reform legislation. The Retirement Enhancement and Savings Act (RESA) is a prospective piece of legislation that has garnered bipartisan support and is a bill that exiting Senate Finance Chairman Hatch (R-UT) has championed as a top priority for the lame duck. Considering that retirement savings provisions of the House’s tax reform 2.0 legislative package (H.R. 6757) generated the greatest bipartisan support, there remains optimism that an agreement could be reached. Reforming the IRS’ technology, customer service, and operations infrastructure similarly continues to be an ongoing focus for lawmakers in both chambers. Both House (H.R. 5444) and Senate (S.3246 & S.3278) bills have progressed in their respective chambers and include enough similar language that the 60-vote Senate threshold could be reached, if taken up.

Regulation Station All Aboard

Regulation Latest Action Regulation Link Comment Countdown Brownstein Commentary
Sec. 956 Nov. 5 REG-114540-18 16 Days  
Meal Deductibility

Oct. 3

Notice 2018-77

Market Discount
Sept. 27 Notice 2018-71 7 Days  
Opportunity Zones Oct. 19 REG-115420-18 39 Days Washington Update


Sept. 21 REG-130244-17 35 Days  
Dividend Equivalency Sept. 20 Notice 2018-72 N/A  
GILTI I Sept. 13 REG-104390-18 7 Days  
SALT Aug. 23 REG-112176-18 Deadline Passed Oct. 11 Washington Update
Executive Compensation Aug. 21 Notice 2018-68 Deadline Passed Nov. 9 Washington Update


Aug. 8

Notice 2018-64

Deadline Passed Sept. 30 Washington Update
Full Expensing Aug. 3 REG-104397-18 Deadline Passed Oct. 7  
Education Savings July 30 Notice 2018-58 No Comment Period Washington Update
Higher Education Excise Tax June 8 Notice 2018-55 Deadline Passed Sept. 6  
Carried Interest March 1 Notice 2018-18 N/A  
Health Savings
March 5

Rev. Proc. 2018-18
Rev. Proc. 2018-27



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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