Press Room: Tax Release

February 09, 2018

Congress Approves Budget Deal Containing Disaster Area Tax Relief and Tax Extenders

Following a second brief government shutdown in the last several weeks, Congress approved the Bipartisan Budget Act of 2018 to fund the federal government through March 23, 2018. The bill resolves many looming non-tax issues for the federal government on a bipartisan basis. The debt ceiling was lifted until 2019, and a bipartisan agreement has been reached with respect to various contentious budget issues, including domestic and military spending, community healthcare and disaster relief. The bill includes tax relief for certain disasters, a retroactive one-year tax extenders package for items that expired at the end of 2016, and various other tax provisions. The bill includes several items that were proposed in tax reform, but were ultimately excluded for procedural reasons. Also included in the bill’s funding measures is an increase in expenditures for IRS to implement and administer the recent tax reform legislation. 

Tax Relief for Certain Disasters

The bill provides disaster relief tax benefits for individuals and businesses affected by the California wildfires, including access to retirement funds, temporary suspension of limits on deductions for charitable contributions, allowance of deductions for personal casualty disaster losses, etc. The bill also extends tax relief previously provided for hurricanes Harvey, Irma and Maria to include disaster areas that were declared between September 21, 2017 and October 17, 2017. 

Tax Extenders Package

The tax extenders package provides an extension of expiring provisions for individuals and businesses, and the extension and phasedown of certain energy tax credits. The covered provisions had expired at the end of 2016 but were retroactively extended for one year, and now expire at the end of 2017.

Select tax provisions now covered by the latest extension are described below:

  • Individual provisions include the exclusion from gross income of discharge of indebtedness on a principal residence, exclusion of mortgage insurance premiums treated as qualified residence interest, and above-the-line deduction for qualified tuition and related expenses for higher education.
  • Various business provisions include a three-year recovery period for race horses, a seven-year recovery period for motorsports entertainment complexes, expensing for films and qualified theatrical productions, extension of the Sec. 199 deduction to include Puerto Rico, extension of the 23.8% qualified timber gain rate, and credits for railroad track maintenance, mine safety, and empowerment zone tax incentives.
  • The temporary components of the residential energy property credit for fuel cells, distributed wind property, and geothermal heat pumps were retroactively extended. This change now matches the extension that was provided in the 2015 PATH Act for solar property (which excluded these other components). 
  • Numerous credits for energy production and conservation were extended, including geothermal heat pumps, fuel cell motor vehicles and refueling property, combined heat and power system property, energy-efficient new homes, and small wind turbines.

Other Tax Provisions

The bill also includes several items that were not ultimately included in the tax reform package enacted in late 2017 for procedural reasons. These provisions violated the Byrd rule that applies to legislation passed through a budget reconciliation process. The Bipartisan Budget Act of 2018 is not subject to these restrictions. Selected other tax provisions are described below. 

  • An exception from the excess business holdings rule for independently operating philanthropic business holdings was provided for private foundations meeting the requirements. The excess business holdings rule prevents private foundations from owning more than a 20% stake in a for-profit company after the founder’s death. This new exception was championed by the foundation that owns the Newman’s Own company and will open new opportunities for charitable planning with family controlled businesses where the excess business holdings rule has been a major impediment.
  • An exemption from the 1.4% excise tax on sizeable college endowments for colleges that don’t charge tuition to students was included. Colleges with sizable endowments are now only subject to the tax if there are at least 500 tuition-paying students and more than 50% of the tuition-paying students are in the U.S.
  • Various other changes were included, such as relief from improper levy by IRS on IRA retirement accounts, clarification of whistleblower awards and related attorney’s fees, and the repeal of the corporate estimated tax shift for corporations with assets in excess of $1 billion.

The Takeaway

Funding for the federal government has been extended, the debt ceiling raised, and a bipartisan agreement has been reached with respect to various important budget issues. Tax extenders that had expired in 2016 are now extended until the end of 2017 and a number of additional tax provisions have been enacted. IRS has also been provided with some additional funding to implement the recent tax reform legislation. Having completed their required tasks on the tax front, members of Congress are shifting their focus away from tax reform and towards the mid-term elections, leaving Treasury Department and IRS officials to proceed with the regulatory process in the wake of tax reform legislation. As expected, the bill did not address any technical issues that have been raised with respect to the 2017 tax reform legislation. At this point in time, a tax technical corrections bill appears to be in limbo until at least after the 2018 elections.