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Tax Administratiove Guidance in the First Year Following Enactment

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Tax Administratiove Guidance in the First Year Following Enactment Tax Reform – Tax Administrative Guidance in the First Year Following Enactment Supplement to KPMG Report on New Tax Law January 28, 2019 kpmg.com 1 Introduction On December 22, 2017, the president signed into law legislation originally known as the Tax Cuts and Jobs Act. Shortly after enactment of the new law (Public Law No. 115-97), KPMG LLP (“KPMG”) released an over 200-page report [PDF 10 MB] (“KPMG Book”) with discussion, analysis, and observations regarding the new law. This report serves as a supplement to the KPMG Book. Since the enactment of the new law, the Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) have been working to implement the new law through issuing significant guidance on many issues.1 This report summarizes federal administrative tax guidance issued in the first year following the law’s enactment, as well as federal tax legislation enacted in that year, with respect to provisions of the new law.2 The report also includes excerpts from select articles and other reports that KPMG professionals have prepared on the new law. Articles and reports by KPMG professionals reflect the views of those professionals only and do not necessarily reflect the views or advice of KPMG. Note that this supplement only addresses legislative changes to the extent those changes were enacted and modify provisions of the new law.3 For example, this supplement covers a legislative change to the new law’s treatment of cooperatives made by the Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141, enacted on March 23, 2018), as well as modifications made to a few new law provisions by the Bipartisan Budget Act of 2018 (Pub L. No. 115-123, enacted on February 9, 2018). The supplement, however, does not cover other changes made by Pub. L. No. 115-123—including the enactment of some provisions that had been dropped from the legislation as it moved through the legislative process in 2017.4 1 The IRS also has made available a tax reform webpage that includes sections highlighting how the new law may affect individuals, businesses (including international businesses), tax-exempt organizations, retirement plans, tax-advantaged bonds, and government entities. These webpage sections summarize some of the key changes made with respect to various issues and list relevant resources with respect to those issues. In addition, Treasury’s 2018-2019 priority guidance plan [PDF 123 KB] released on November 9, 2018, lists 62 guidance projects relating to the new law—including just under 30 proposed regulations, IRS notices, and other items that already had been issued by that date. The plan may continue to be updated throughout the plan year. 2 In most cases, this supplement refers to the date the IRS and Treasury released advance versions of guidance as the date of issuance of such guidance. Also, except to the extent specified otherwise, references to “sections” are to sections of the Internal Revenue Code of 1986, as amended, or to Treasury regulations promulgated thereunder. 3 Note that, on August 16, 2018, the U.S. Senate Finance Committee released a letter that then-Chairman Orrin Hatch (R-UT) and 12 other Republican members of the committee sent to the Treasury and IRS, identifying some issues in the new law that require technical corrections legislation or regulatory guidance. The letter [PDF 3.5 MB] focused on three provisions—depreciation of qualified improvement property, the effective date of net operating loss (NOL) deduction changes, and the deduction of legal fees in connection with sexual misconduct settlements. In addition, then-House Ways and Means Committee Chairman Kevin Brady (R0TX) included several technical corrections as amendments to a bill (H.R. 88) that the House passed in December 2018 but that did not become law during the 115th Congress. He also released a “discussion draft” of technical corrections legislation in January of 2019. Read TaxNewsFlash. Because technical corrections legislation with respect to the new law has not yet been enacted, it is not addressed further in this supplement. 4 Provisions that were dropped as the new law moved through the legislative process but that were enacted as part of Pub. L. No. 115-123 include provisions relating to modifications to user fee requirements for installment agreements, deduction for attorney fees and court costs to whistleblowers, and broadened scope of collected proceeds eligible for awards to whistleblowers. © 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 This supplement also does not address the General Explanation of Public Law 115-97 prepared by the staff of the Joint Committee on Taxation (JCS-1-18), which was issued on December 20, 2018. Nonetheless, this so-called “blue book” can be helpful to taxpayers in better understanding the new law, as well as to Treasury and the IRS as they continue to implement the law. In addition, the blue book indicates in footnotes areas in which technical corrections may be necessary to carry out Congressional intent. However, although a blue book can be relevant in interpreting a law, courts have found that it does not constitute official legislative history.5 This supplement only addresses U.S. federal tax matters. Further it only reflects developments through December 31, 2018. Please see TaxNewsFlash-Tax Reform for coverage of significant developments occurring after the issuance of this supplement. Finally, it is important to note that the summaries of developments in this supplement are drawn from TaxNewsFlash articles that were issued shortly after developments occurred. These summaries generally have not been updated to take into account developments that occurred after the underlying TaxNewsFlash articles were issued. Additional resources A host of additional resources relating to the new law are available on KPMG’s website (read.kpmg.us/tax-reform), including links to summaries and detailed reports, industry views, webcasts, insights on technical and practical business issues, and information about modeling and business impact analysis. 5 See, e.g., United States v Woods, 134 S.Ct. 557 (2013). © 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 Contents Business – General ....................................................................................................... 11 Corporate income tax rate and corporate AMT .......................................................... 11 Blended income tax rate for fiscal year C corporations: Notice 2018-38 and IR- 2018-99 .................................................................................................................. 11 Modified net operating loss deduction ........................................................................ 12 New 80% limitation: KPMG article .......................................................................... 12 Cost recovery ............................................................................................................. 12 Modification of rules for expensing depreciable assets ........................................... 12 “Qualified real property” expensing and alternative depreciation: Rev. Proc. 2019- 08 ........................................................................................................................ 12 Proposed bonus depreciation regulations ........................................................... 13 Section 382 recognized built-in gains, losses determined without regard to section 168(k) immediate expensing: Notice 2018-30 ..................................................... 19 Electing out of 100% bonus depreciation deduction for 2017; IRS reminder ....... 21 Depreciation limitations on luxury automobiles and personal use property: Rev. Proc. 2018-25 ......................................................................................................... 22 Expensing certain citrus replanting costs: Rev. Proc. 2018-35 ............................... 23 Other business-related deductions, exclusions, etc. .................................................. 23 Limit on deduction of net business interest expense .............................................. 23 Proposed regulations (and related IRS release) .................................................. 24 Infrastructure safe harbor and section 163(j) limitation: Rev. Proc. 2018-59 ....... 53 Interim guidance on business interest expense limitation under section 163(j): Notice 2018-28 and IR-2018-82 .......................................................................... 54 Draft Form 8990 and instructions ........................................................................ 55 The new section 163(j): KPMG report on selected issues ................................... 55 The new section 163(j): KPMG report on partnership issues .............................. 55 Entertainment and certain fringe benefits ............................................................... 55 Parking expenses: Notice 2018-99 and Notice 2018-100.................................... 55 Transitional guidance on deductibility of business meal expenses: Notice 2018-76 ...........................................................................................................................
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