While we await the full details of the Senate bill, moments ago the House Ways and Means Committee released the Amended House GOP tax bill, as well as its summary.
Here are the key highlights from the Amendment (link), first in principle:
Amendment to the Amendment in the Nature of a Substitute to H.R. 1 Offered by Mr. Brady of Texas The amendment makes improvements to the amendment in the nature of a substitute relating to the maximum rate on business income of individuals, preserves the adoption tax credit, improves the program integrity of the Child Tax Credit, improves the consolidation of education savings rules, preserves the above-the-line deduction for moving expenses of a member of the Armed Forces on active duty, preserves the current law effective tax rates on C corporation dividends subject to the dividends received deduction, improves the bill’s interest expense rules with respect to accrued interest on floor plan financing indebtedness, modifies the treatment of S corporation conversions into C corporations, modifies the tax treatment of research and experimentation expenditures, modifies the treatment of expenses in contingent fee cases, modifies the computation of life insurance tax reserves, modifies the treatment of qualified equity grants, preserves the current law treatment of nonqualified deferred compensation, modifies the transition rules on the treatment of deferred foreign income, improves the excise tax on investment income of private colleges and universities, and modifies rules with respect to political statements made by certain tax-exempt entities.
And the details, from the summary (link):
- Maximum rate on business income of individuals (reduced rate for small businesses with net active business income)
The amendment provides a 9-percent tax rate, in lieu of the ordinary 12-percent tax rate, for the first $75,000 in net business taxable income of an active owner or shareholder earning less than $150,000 in taxable income through a pass-through business. As taxable income exceeds $150,000, the benefit of the 9-percent rate relative to the 12-percent rate is reduced, and it is fully phased out at $225,000. Businesses of all types are eligible for the preferential 9-percent rate, and such rate applies to all business income up to the $75,000 level. The 9-percent rate is phased in over five taxable years, such that the rate for 2018 and 2019 is 11 percent, the rate for 2020 and 2021 is 10 percent, and the rate for 2022 and thereafter is 9 percent. For unmarried individuals, the $75,000 and $150,000 amounts are $37,500 and $75,000, and for heads of household, those amounts are $56,250 and $112,500.
- Maximum rate on business income of individuals (eliminate provisions related to Self-Employment Contributions Act)
The amendment preserves the current-law rules on the application of payroll taxes to amounts received through a pass-through entity.
- Repeal of nonrefundable credits
The amendment preserves the current law non-refundable credit for qualified adoption expenses.
- Refundable credit program integrity
The amendment requires a taxpayer to provide an SSN for the child in order to claim the entire amount of the enhanced child tax credit.
- Rollovers between qualified tuition programs and qualified able programs
The amendment would allow rollovers from section 529 plans to ABLE programs.
- Repeal of exclusion for qualified moving expense reimbursement
The amendment preserves the current law tax treatment for moving expenses in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order.
- Reduction in corporate tax rate
The amendment lowers the 80-percent dividends received deduction to 65 percent and the 70- percent dividends received deduction to 50 percent, preserving the current law effective tax rates on income from such dividends.
The amendment provides an exclusion from the limitation on deductibility of net business interest for taxpayers that paid or accrued interest on “floor plan financing indebtedness.” Full expensing would no longer be allowed for any trade or business that has floor plan financing indebtedness.
- Modify treatment of S corporation conversions into C corporations
The amendment provides that distributions from an eligible terminated S corporation would be treated as paid from its accumulated adjustments account and from its earnings and profits on a pro-rata basis. The amendment provides that any section 481(a) adjustment would be taken into account ratably over a 6-year period. For this purpose, an eligible terminated S corporation means any C corporation which (i) was an S corporation on the date before the enactment date, (ii) revoked its S corporation election during the 2-year period beginning on the enactment date, and (iii) had the same owners on the enactment date and on the revocation date.
- Amortization of Research and Experimentation Expenditures
The amendment provides that certain research or experimental expenditures are required to be capitalized and amortized over a 5-year period (15 years in the case of expenditures attributable to research conducted outside the United States). The amendment provides that this rule applies to research or experimental expenditures paid or incurred during taxable years beginning after 2023.
- Uniform treatment of expenses in contingent fee cases
The amendment disallows an immediate deduction for litigation costs advanced by an attorney to a client in contingent-fee litigation until the contingency is resolved, thus creating parity throughout the United States as to when, if ever, such expenses are deductible in such litigation. Under current law, certain attorneys within the Ninth Circuit who work on a contingency basis can immediately deduct expenses that ordinarily would be considered fees paid on behalf of clients, in the form of loans to those clients, and therefore not deductible when paid or incurred. This provision creates parity on this issue throughout the United States by essentially repealing the Ninth Circuit case, Boccardo v. Commissioner, 56 F.3d 1016 (9th Cir. 1995), which created a circuit split on this issue.
- Surtax on life insurance company taxable income
The amendment generally preserves current law tax treatment of insurance company deferred acquisition costs, life insurance company reserves, and pro-ration, and imposes an 8% surtax on life insurance income. This provision is intended as a placeholder.
- Nonqualified deferred compensation
The amendment strikes Section 3801 so that the current-law tax treatment of nonqualified deferred compensation is preserved.
- Modification of treatment of qualified equity grants
The amendment clarifies that restricted stock units (RSU) are not eligible for section 83(b) elections. Other than new section 83(i), section 83 does not apply to RSUs.
- Treatment of deferred foreign income upon transition to participation exemption system of taxation
The amendment provides for effective tax rates on deemed repatriated earnings of 7% on earnings held in illiquid assets and 14% on earnings held in liquid assets.
- Excise tax on certain payments from domestic corporations to related
foreign corporations; election to treat such payments as effectively connected income. The amendment modifies the bill’s international base erosion rules in two respects. First, the provision eliminates the mark-up on deemed expenses. Second, the amendment expands the foreign tax credit to apply to 80% of foreign taxes and refines the measurement of foreign taxes paid by reference to section 906 of current law rather than a formula based on financial accounting information.
- Excise taxed based on investment income of private colleges and universities
The amendment ensures that endowment assets of a private university that are formally held by organizations related to the university, and not merely those that are directly held by the university, are subject to the 1.4-percent excise tax on net investment income.