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BPAA Federal Policy Update - May 21

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  • Bloomberg news reports: Tax Law's Pass-Through Deduction Guidance Coming In July: Kautter – The Internal Revenue Service will issue guidance to explain the tax law's 20 percent deduction for pass-through businesses by mid- to late July, acting IRS Commissioner David Kautter said. Guidance on the 2017 tax act's (Pub. L. No. 115-97) limitation on companies’ deduction of interest expenses under tax code Section 163(j) is expected in late summer or fall, while guidance on international provisions will stretch from late summer to December, he said at the May meeting of the American Bar Association Section of Taxation. More than two dozen pieces of guidance are expected before Aug. 15, Kautter, who is also the assistant secretary for tax policy at the Treasury Department, said May 12 at the conclusion of meeting. Pass-through businesses, which include sole proprietorships and partnerships, are eagerly awaiting guidance to see who qualifies for the deduction. Above certain income levels, the perk isn't allowed for owners of specified service businesses listed in Section 1202(e)(3)(A), including law, performing arts, health, consulting, accounting, or athletics. Engineering and architecture trades or businesses were left off the list of service types that aren't allowed to take the deduction after hitting the income limits. The pass-through guidance “won't cover everything or every question that taxpayers have,” Kautter said. Kautter said the upcoming guidance will explain the tax law's full expensing provision that allows businesses to immediately write off purchases of capital expenditures and certain kinds of property. On May 11, an IRS official said the agency is “anticipating” issuing those proposed rules under amended Section 168(k) by late June or early July. Guidance on global intangible low-taxed income (GILTI) should be out by the late summer, but guidance on the base erosion and anti-abuse tax (BEAT) won't be ready before November or December, he said. The GILTI provision is a tax on income from intangible assets, like patents and trademarks, and from other kinds of overseas assets. The BEAT is a 10 percent minimum tax to stop companies from shifting profits overseas through “excessive” deductible payments. The BEAT increases to 12.5 percent after 2025.
  • Bloomberg Government Reports: Want to Get a 20 Percent Deduction? Wrap Income in a REIT – Real estate investment trust income automatically qualifies for a 20 percent deduction under the new tax law, which could spur businesses to use the structure to claim the tax break, tax practitioners said. REIT dividends, from companies that own, operate, or finance income-producing real estate, qualify for the deduction and it isn't dependent on whether they are engaged in a qualified trade or business, Wendy L. Kribell, in the Internal Revenue Service Office of Associate Chief Counsel (Passthroughs and Special Industries), said May 11. The same applies to income from publicly traded partnerships, she said. “That's just a great result,” David H. Schnabel, a partner at Davis Polk & Wardwell LLP in New York, said at the May meeting of the American Bar Association Section of Taxation. The 2017 tax act (Pub. L. No. 115-97) includes a 20 percent deduction for pass-through businesses, entities that flow the income and tax liabilities they generate through to their investors. The deduction was included in the law to direct tax cuts to pass-throughs, such as partnerships, limited liability companies, and S corporations, in addition to corporations.
  • Bloomberg Government reports: IRS, Treasury Officials Unusually Quiet About New Tax Regulations – IRS and Treasury Department officials have been noticeably less forthcoming about the regulations the government plans to issue on the 2017 tax act, a change that comes as companies clamor for more clarity about how the law will affect them. At recent tax conferences, including the May meeting of the American Bar Association Section of Taxation, officials stuck to a variation of this refrain: “We understand the issue and are working on regulations.” If it seems as though Internal Revenue Service officials are more tight-lipped than usual, it's because they have been instructed to be exceptionally reserved when talking about tax reform, said an agency official who requested anonymity to speak candidly. In the past, officials have been more willing to talk about their thinking on issues and rulemaking challenges. The IRS and Treasury didn't immediately respond to requests for comment. It isn't unusual for speakers from the government to limit what they say about impending regulations, but the message of “we are aware of that issue and have it under consideration” was so consistent and prevalent at the ABA tax section panels that it would be hard to believe that it wasn't coordinated, Robert Ward, an attorney with WardChisholm P.C. in Bethesda, Md., said. The reticence about the agency's thinking comes as tax lawyers and their clients are planning their reactions to the changes in the law that lowered the corporate tax rate to 21 percent from 35 percent, overhauled how U.S. companies operating overseas are taxed, and provided a complex new deduction for pass-through businesses—companies where the owners pay the tax on their personal returns. Businesses are closely watching the IRS at the same time as the agency is closing the curtains. “It's like reading the tea leaves in the dark while wearing sunglasses,” said Stuart Gibson, counsel at Schiff Hardin LLP in Washington. “There may be some concern among career people that you don't want to get ahead of the political process.”
  • Bloomberg News reports: It’s a Great Time to Be a Wealthy Heir After Trump Tax Overhaul - The new law doubles the amount that can be passed to heirs without worrying about estate and gift taxes, to about $22 million for a married couple. But the thresholds are in place only until 2025, and the ultra-rich are turning to a key tool—the dynasty trust—to secure the financial futures of their grandchildren, great-grandchildren and beyond. “For the mega wealthy, it’s really a window of opportunity that’s limited,” said Joan Antoniello, a principal at Mazars USA Wealth Advisors. Dynasty trusts let the richest Americans protect and preserve wealth for generations, while minimizing tax bills. Treasury Secretary Steven Mnuchin appears to have used one prior to assuming his government role. They can be funded tax-free with assets up to the exemption limit, which was $10.98 million in 2017 for couples, even though complex tax-planning techniques can get around that threshold. About a dozen of the nation’s top wealth planners say they’re seeing increased interest in the trusts as clients look to capitalize on the additional $11 million they can now easily shift over. Some families want to transfer money out of their estates into the trusts in case Democrats take back control of Congress and pull the limits back down before 2025, while others say it’s best to move assets before they appreciate even more. Fewer than 2,000 families per year could be subject to the new estate tax limits, but billions of dollars are at stake. The richest 0.1 percent of families control a growing share of U.S. wealth, from an estimated 7 percent in 1978 to 22 percent in 2012, according to a University of California, Berkeley study. The net worth of the wealthy has zoomed even higher in recent years as values of stocks, real estate and private businesses have climbed.


Sports Betting

  • “Supreme Court Blows Door To Sports Betting Wide Open” - The U.S. Supreme Court’s decision Monday to strike down a federal ban on sports betting was perhaps more forceful than even the gambling industry anticipated, potentially giving states wide latitude to offer mobile and online betting options without running afoul of other federal laws. In a 7 to 2 ruling, the high court found the Professional and Amateur Sports Protection Act, or PASPA, a 1992 law that had blocked states from authorizing sports betting, violated the anti-commandeering principle of the Tenth Amendment. But the decision was divided on what may be the most significant point: whether both provisions enacted through PASPA — one restricting state governments, and the other, private individuals and companies, from promoting or sponsoring sports betting — had to be struck down, too. Six justices agreed that the provisions were not severable, handing a major win to the gambling industry and sports betting proponents that will allow states to now move forward with sports betting bills to enact whatever type of legalization they want.
  • “Legal Betting on NBA Finals After High Court Flushes Federal Ban?” - Experts and lawyers are certain that New Jersey—among other states—is just weeks away from offering legalized sports betting now that the U.S. Supreme Court has ruled to undo a 26-year-old law. The high court ruled in favor of New Jersey May 14 in Murphy v. NCAA, repealing the Professional and Amateur Sports Protection Act of 1992 (PASPA), which formally prohibited states from “authorizing” gambling related to professional and amateur sports leagues. New Jersey is ready to take its high-court win to the bank as soon as possible, according to Marc Dunbar, a partner at Jones Walker LLP in Tallahassee, Fla. Dunbar told Bloomberg Tax he expects people will be able to place sports bets in the Garden State by the end of the week, if not sooner.
  • Bloomberg client news reports, “Legal Sports Betting Means States Will Bet on Compliance Tools” – The U.S. Supreme Court's decision to end a 26-year precedent that prohibited statewide sports betting means states must now follow stringent legal regulations, especially online. The high court ruled in favor of the petitioner in Murphy v. NCAA, repealing the Professional and Amateur Sports Protection Act of 1992 (PASPA), a federal law that formally prohibited states from “authorizing” gambling related to professional and amateur sports leagues. Many states are scrambling to implement, or enact, laws to tap into this new potential revenue stream. However, Anna Sainsbury, CEO of GeoComply, an online-gaming compliance company, told Bloomberg Tax that New Jersey and other states that have legalized sports betting will need to integrate software that ensures online bets are only placed in-state. “Many states have already reached out to us for training and instructions on how to identify fraud,” Sainsbury said. “States seeking to legalize sports betting must be sure to follow regulations. This is a good bandwagon to jump on.” Murphy v. NCAA was originally New Jersey's attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region. The ruling sets up five states—Mississippi, New Jersey, New York, Pennsylvania, and West Virginia—which have already enacted legislation to legalize sports betting pending the high-court decision, to hit the ground running. Many other states aren't far behind. Currently, 32 proposals to legalize sports betting are active in 12 states, according to the American Gaming Association (AGA). Proposed tax rates range from 6.25 percent to 30 percent.


  • “Labor Department Has Health Care Pitch for GOP Candidates” - – The Trump administration’s fast-tracked effort to bolster small business health coverage is poised for release just in time for GOP candidates to tell midterm voters that relief from Obamacare is on the way after all. For the past seven months, Labor Department officials have been rocketing the association health plan rulemaking through the typically plodding regulatory process. Now one bureaucratic step removed from final publication, the rule is on the cusp of helping 11 million people sign up for employer-sponsored benefits as an alternative to the Affordable Care Act’s individual marketplace, according to administration estimates. But Americans complaining about soaring ACA premiums aren’t the only constituency the administration may be trying to help out. Republican lawmakers who discuss the rule on the campaign trail can “absolutely” help convince voters that the GOP-controlled Congress hasn’t failed on its promise to repeal Obamacare, Sen. Rand Paul (R-Ky.) told Bloomberg Law in April. The rule will expand access to a type of small-business health option, known as association health plans, by changing the agency’s interpretation of the word “employer.” The new definition would allow small businesses and self-employed individuals to band together in associations by industry or geography and purchase group health insurance.

Food & Beverage

  • FDA Issues Guidance on Federal Menu Labeling Rule – Menu Labeling: Supplemental Guidance for Industry
  • “For Calorie Counters, The Wait Is Over: Menu Labeling Quietly Goes Into Effect After 8 Years” - After an eight-year-long game of kicking the ball down the road, the FDA’s menu labeling rule finally – and quietly – went into effect on Monday. The regulations, part of former President Barack Obama’s Affordable Care Act passed in 2010, experienced numerous delays as restaurant and grocery trade organizations pushed for exemptions and clearer guidelines relative to the disparities within their vast industries. For restaurants, the obligation to display calorie counts on menus and menu boards applies to chains with more than 20 locations. Many large chains, including McDonald’s and Starbucks, already post this information. Others were just waiting for the trigger to be pulled.
  • “RPT-Delayed calorie disclosure rule takes effect for U.S. food sellers”- The rule - part of the Affordable Care Act of 2010, popularly known as Obamacare - affects restaurants, grocery stores and other food sellers with 20 or more locations that sell ready-to-eat foods. The rule also requires calorie labeling on more than 99 percent of the nation’s 5 million to 6 million vending machines. The U.S. Food and Drug Administration last year extended the date for national compliance by a year. Chains like Panera Bread Co, McDonald’s Corp and Starbucks Corp have been displaying such information for years in compliance with rules set by New York City, the state of California and other jurisdictions. Opponents to the rule included companies like Domino’s Pizza Inc and industry groups such as the Food Marketing Institute, or FMI, which represents food retailers and wholesalers.
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