28 March 2018

Federal spending bill includes tax provisions

By Alistair M. Nevius, J.D. 
March 23, 2018

 

The Consolidated Appropriations Act, 2018, H.R. 1625, which is the $1.3 trillion spending bill that Congress passed on Friday, contains a few tax-related provisions, including funding for the IRS and technical corrections to various recent pieces of tax legislation. It also amends the centralized partnership audit regime and changes the Sec. 199A deduction for farmers who sell grain to agricultural cooperatives.

The bill passed the House of Representatives on Thursday by a 256–167 vote. It passed the Senate early Friday on a 65–32 vote. President Donald Trump signed the bill into law on Friday afternoon.

IRS funding

The bill appropriates just over $11 billion for the IRS.

The bill appropriates $2.5 billion to the IRS for taxpayer services (compared with $2.2 billion last year). Of that amount, $9.9 million is earmarked for the Tax Counseling for the Elderly Program, $12 million for low-income taxpayer clinic grants, $15 million for Volunteer Income Tax Assistance matching grants, and $206 million for the Taxpayer Advocate Service. Of the money designated for the Taxpayer Advocate Service, $5.5 million is earmarked for identity theft casework.

The bill appropriates $4.9 billion for IRS enforcement activities (similar to last year), of which $60 million is earmarked for the Interagency Crime and Drug Enforcement program.

The IRS also gets $3.6 billion for its operations (similar to last year).

For business systems modernization, the IRS gets $110 million (a cut from last year’s $290 million). The bill directs the IRS to make improvements to its 1-800 help line a priority and to allocate resources to improve its response time when communicating with taxpayers, “particularly with regard to victims of tax-related crimes.”

The bill also makes $320 million available to the IRS for carrying out changes made by P.L. 115-97, last year’s tax overhaul legislation, but the IRS must submit to the House and Senate appropriations committees a spending plan for those funds before it can spend them.

Low-income housing credit

The bill amends the low-income housing credit by adding an average income test to Sec. 42(g).

Technical corrections

The bill makes a variety of technical corrections relating to several recent tax acts, but generally not including last year’s tax reform act, P.L. 115-97, except that the bill amends Sec. 199A to change the incentive that section gave farmers to sell grain to agricultural cooperatives. Under the amendment, the Sec. 199A deduction for such sales is reduced to 9% (instead of 20%).

The bill also makes changes to the new centralized partnership audit regime.

The partnership audit technical changes include a change to the definition of “partnership adjustment” in Sec. 6241(2). Under the new definition, a partnership adjustment means “any adjustment to a partnership-related item,” and “partnership-related item” means:

(i) any item or amount with respect to the partnership (without regard to whether or not such item or amount appears on the partnership’s return and including an imputed underpayment and any item or amount relating to any transaction with, basis in, or liability of, the partnership) which is relevant (determined without regard to this subchapter [Secs. 6221–6241, the new partnership audit regime]) in determining the tax liability of any person under chapter 1, and

(ii) any partner’s distributive share of any item or amount described in clause (i).

The bill also coordinates the new partnership audit regime with other parts of the Internal Revenue Code, specifying that the new regime does not apply to taxes imposed under Chapters 2 (self-employment income), 2A (unearned income Medicare contribution), 3 (withholding on nonresident aliens and foreign corporations), or 4 (FATCA), “except that any partnership adjustment determined under this subchapter for purposes of chapter 1 [normal taxes and surtaxes] shall be taken into account for purposes of determining any such tax to the extent that such adjustment is relevant to such determination.”

The bill also introduces a special statute of limitation in Sec. 6501(c) for taxes attributable to partnership adjustments. For partnership adjustments relating to self-employment or Medicare tax, the period of assessment will last for one year after, in the case of an adjustment made pursuant to a court order, the court’s decision under Sec. 6234 becomes final or, in other cases, 90 days after the date on which the notice of final partnership adjustment was mailed under Sec. 6231.

The bill also introduces a method for determining partnerships’ imputed underpayments. This generally involves netting all partnership adjustments for the reviewed year and applying the highest individual or corporate tax rate in effect for that year.

New rules are introduced for the treatment of passthrough partners in tiered structures, including a requirement that such partners file a partnership adjustment tracking report with the IRS if they receive a statement from the IRS under Sec. 6226(a)(2).

— Alistair M. Nevius (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.

 

 

https://www.journalofaccountancy.com/news/2018/mar/federal-spending-bill-tax-provisions

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