By Sally P. Schreiber, J.D.
November 10, 2017
The House Ways and Means Committee voted 24–16 on Thursday to send the Tax Cuts and Jobs Act, H.R. 1, to the full House for a vote. However, the bill, as marked up by the committee, contains many changes from the original version of H.R. 1 released last week. Reportedly, some of these changes were made to reduce the 10-year cost of the bill, and according to a preliminary estimate by the Joint Committee on Taxation, the net effect of the bill as marked up would be to reduce federal revenues by $1.437 trillion over 10 years.
Here is a list of changes in the version of the bill that the House will consider:
- The amended bill would provide for a new 9% rate on the first $75,000 in net business taxable income passed through to an active owner or shareholder earning less than $150,000 in taxable income. The 9% rate would be phased out as taxable income approaches $225,000. The lower rate would be phased in over five years: It would be 11% in 2018 and 2019, 10% in 2020 and 2021, and 9% starting in 2022.
- The current law rules on self-employment income received from a passthrough entity would be preserved.
- The adoption tax credit would be preserved in its current form.
- Taxpayers would be required to provide Social Security numbers for children before claiming the enhanced child tax credit.
- Rollovers between Sec. 529 education savings accounts and Achieving a Better Life Experience (ABLE) Sec. 529A accounts would be permitted.
- The exclusion for qualified moving expense reimbursements would be reinstated but only for members of the Armed Forces on active duty who move because of a military order.
- The amendment would lower the dividend-received deduction from 80% to 65% and the 70% rate to 50%.
- The amendment would change the limitation on deducting interest by businesses, but only for floor plan financing indebtedness (short-term debt used by retailers to finance high-cost items such as cars). Full expensing would not be available to these types of businesses.
- The amendment would modify the treatment of S corporations that convert to C corporations after the bill is passed by allowing any Sec. 481 adjustment to be taken into account over a six-year period (Sec. 481 adjustments usually must be taken into account over four years).
- For tax years after 2023, taxpayers would be required to amortize Sec. 174 research and experimentation expenses over five years (15 years for research outside the United States).
- The amendment would disallow a current deduction for litigation costs advanced by attorneys representing clients on a contingent basis until the contingency is resolved.
- The amendment would preserve current law treatment of nonqualified deferred compensation.
- The amendment would clarify that holders of restricted stock units cannot make Sec. 83(b) elections.
- The amendment would change the 12% and 5% rates on repatriated foreign income to 14% and 7%.
- The amendment would eliminate the markup on deemed expenses for foreign purposes, permit a foreign tax credit of 80% of the foreign taxes paid, and make other changes to the foreign tax credit calculation provisions in H.R. 1.
- The amendment would subject to the 1.4% excise tax on investment income endowment funds held by organizations related to the universities and provide an exclusion from the excise tax for any educational institution unless the fair market value of the institution's assets (other than those assets used directly in carrying out its exempt purpose) is at least $250,000 per student.
- The amendment would change the repeal of the Johnson amendment to clarify that all Sec. 501(c)(3) organizations (not just religious organizations) are permitted to engage in political speech if the speech is in the ordinary course of the organization's business and the organization incurs de minimis expenses related to the political speech.
- The amendment would require earned income tax credit claims to properly reflect any net earnings from self-employment, require employers to provide additional information on payroll tax returns, and provide the IRS with additional authority to substantiate earned income amounts.
- The amendment would reinstate the $5,000 exclusion from income for employer-provided dependent care assistance through 2022 for children under 13 or spouses or other dependents who are unable to care for themselves.
- The amendment would reinstate capital gain treatment for self-created musical works.
- The amendment would require partners to hold their partnership interest received for performing services for three years to qualify for capital gain treatment.
- Employees who receive stock options or restricted stock units as compensation for services and later exercise them would be allowed to elect to defer recognition of income for up to five years, if the corporation's stock is not publicly traded.
- The amendment would change the foreign base erosion rules.
—Sally P. Schreiber (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.