Press Room: Tax Release
Congress Passes Spending Bill With Limited Tax Provisions
Congress has passed the $1.3 trillion spending bill that not only averts another government shutdown, but also fixes a technical glitch in the new tax reform legislation and provides funding necessary for Internal Revenue Service (IRS) to implement the new tax reform law. The 2,232 page spending bill provides funding for the remainder of fiscal year 2018 (September 30, 2018) to federal departments and agencies pursuant to the two-year budget agreement reached in February. Please see our prior Tax Release for more information on the prior budget deal.
20% Deduction – Grain Glitch Fix
The grain glitch is a provision in the new tax reform legislation that favored farmer-owned cooperatives over traditional agricultural corporations by providing a larger tax benefit for sales to cooperatives under the Sec. 199A 20% deduction provision that was included in the Tax Reform Act of 2017 (TCJA). Lawmakers from farming states and farming groups asserted that without a fix this new measure could disrupt the farm economy and cause significant economic harm. The spending bill retroactively revises the provision by reinstating the prior-law Sec. 199 deduction for 9% of qualifying income for specified agricultural or horticultural cooperatives and removing the 20% deduction for cooperative dividends. The provision is generally retroactive to the beginning of 2018.
Other Tax Measures
Democrats were able to get on board with the grain glitch fix in exchange for a 12.5% increase in annual allocations for a low-income housing tax credit for four years. Lawmakers also granted $11.43 billion to IRS that included $320 million to implement the changes enacted as part of the GOP tax overhaul legislation. This is a $196 million year-to-year increase for the agency.
Tax Technical Corrections
Beside the grain glitch fix, the bill did not include any other tax corrections with respect to the TCJA. The bill did, however, include other tax technical corrections, which will be known as the Tax Technical Corrections Act of 2018. Technical corrections that were included related to the PATH Act of 2015, the Bipartisan Budget Act of 2015 (notably related to partnership audit rules) and various other tax legislation dating back as far as 2004.
With the passage of this latest spending bill, several tax issues have been resolved, including uncertainties with respect to the new partnership audit regime. As expected, the bill did not address any technical issues that have been raised with respect to the TCJA, with the exception of the grain glitch fix. Members of Congress will continue to shift their focus to the mid-term elections, leaving Treasury Department and IRS officials to proceed with the regulatory process. At this time, a tax technical corrections bill related to the TCJA continues to be in limbo until at least after the 2018 elections.