Tax Reform

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In a radio segment on Marketplace, partner David Miller comments on tax reform and the impact of the new $10,000 cap on the state income, property and sales tax that individuals can deduct. The segment also explores the loopholes and workarounds that states could implement to allow their residents to …

On Friday, December 15, the U.S. House of Representative and Senate conferees reached agreement on the Tax Cuts and Jobs Act (H.R. 1) (the “Final Bill”), and released legislative text, an explanation, and the Joint Committee on Taxation estimated budget effects (commonly referred to as the “score”).  Next week the House and Senate are each expected to pass the bill, and it is expected to be sent to the President for signature the following week.  As the conferees actually signed the conference text, changes (even of a limited and/or technical nature) are extremely unlikely at this point.

The Final Bill largely follows the Senate bill, but with certain important differences.  We outline some of the most significant differences between the Final Bill, the earlier House bill, and the Senate bill.  We then discuss in detail some of the most significant provisions of the Final Bill.  The provisions discussed are generally proposed to apply to tax years beginning after December 31, 2017, subject to certain exceptions (only some of which are noted below).  While we discuss some of these provisions in detail, we do not address all restrictions, exclusions, and various other nuances applicable to any given provision.

Under both the House and Senate versions of the Tax Cuts and Jobs Act, Internal Revenue Code Section 162(m) would be modified to expand the scope of companies and executive officers subject to the limitation on deductibility of compensation over $1 million, as well as to eliminate the exception to non-deductibility under Section 162(m) for qualified performance-based compensation. The changes would be effective for tax years after 2017, but under the Senate bill, binding contracts in effect on November 2, 2017 would be grandfathered if not materially modified on or after that date).  Each version of the Tax Cuts and Jobs Act would also generally lower the corporate tax rate to 20%.  The House bill reduces the corporate tax rate beginning in 2018 and the Senate reduces it beginning in 2019.

On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act, which contains proposals modifying certain executive compensation provisions of the Internal Revenue Code. The Senate’s approval of the executive compensation provisions follows substantively the same provisions proposed by the Senate Finance Committee’s bill, and…

The tax reform bills introduced in the House of Representatives and the Senate dramatically reduce the corporate tax rate from 35% to 20% and create added incentives for taxpayers to invest capital into U.S. businesses with expanded expensing and reduced flow-through rates.

But the bills were drafted quickly, Congress is rushing to get them passed by the end of the year, and the Internal Revenue Code is a complicated thing. Unintended consequences result, and pass-throughs offer opportunities.  In fact, a drafting glitch may provide hedge and lending fund investors with an inadvertent tax reduction.

Over the last several days, there have been significant developments relating to the Tax Cuts and Jobs Act, the pending tax reform legislation in Congress.[1]  On Thursday, a detailed summary of the Senate Finance Committee’s proposal was released (the “Senate Markup”),[2] and the House Ways and Means Committee voted (in a 24-16, party-line vote) to advance their bill for consideration by the full House of Representatives (the “House Bill”).[3]  This post describes provisions of the Senate Markup and House Bill that would have the most significant impact on the sports industry, including important differences between the two proposals.  Unless otherwise noted, all proposals described below would be effective for taxable years beginning after December 31, 2017.

Today, the Republicans in the U.S. House of Representatives released their long-anticipated tax reform bill, entitled the “Tax Cuts and Jobs Act”. While there have been multiple statements from the Republican majority in the House that swift action is expected on this bill, the text proposed today all but certainly will be extensively revised in the legislative process. Further, the Republicans in the U.S. Senate are expected to introduce their own tax reform bill as early as next week, and that bill is anticipated to diverge from the House bill in many respects and, in order for tax reform to be enacted, the House and Senate will have to pass a single piece of agreed legislation, which the President must in turn sign into law.

Yesterday, the Trump Administration, the House Committee on Ways and Means, and the Senate Finance Committee proposed a “unified framework” for tax reform. The members of the working group are House Speaker Paul Ryan (R-WI), Senate Finance Chairman Orrin Hatch (R-UT), Senate Majority Leader Mitch McConnell (R-TN), House Ways and Means Chairman Kevin Brady (R-TX), Treasury Secretary Steven Mnuchin, and National Economic Council Director Gary Cohn.  These individuals are known as the “Big Six”.