(Updated 11/27/18) This bill has been amended to extend expiring tax code provisions to prevent tax hikes, expand retirement savings opportunities, modernize the Internal Revenue Service’s (IRS) IT services to improve taxpayers’ experience, provide tax relief to individuals affected by disasters, and make technical corrections to the tax code. In its original form, the bill adjusted the boundary of the Shiloh National Military Park and designated the Parker’s Crossroads Battlefield, but those provisions have been removed. A breakdown of the bill’s current contents can be found below.
This section of the bill would extend, make permanent, and/or phase-out a variety of provisions in the tax code. The $1 per gallon biodiesel and renewable diesel credit would be extended through 2021, gradually reduced each year over the 2022-24 period, and phased-out entirely starting in 2025. The Railroad Track Maintenance Credit would be made permanent and modified to give short- and medium-line railroads a 30% credit for spending on track maintenance.
Extensions for the 2018 Tax Year:
The treatment of mortgage insurance premiums as interest for the mortgage interest deduction;
The exclusion from gross income the discharge of indebtedness on a principal residence.
The above-the-line deduction of qualified higher education tuition and related expenses capped at $4,000 for those earning up to $65k and $2,000 for earners up to $80k.
Non-business home energy efficiency improvement credits and the deduction for commercial energy efficiency projects;
Credits for fuel cell motor vehicle & 2-wheeled plug-in electric vehicles;
Empowerment zone tax incentives;
Electricity produced from biomass, geothermal, landfill gas, trash, hydropower, or marine & hydrokinetic renewable energy; and coal produced by Indian tribes;
Rules allowing the classification of racehorses as 3-year property for depreciation purposes;
Expensing of advanced mine safety equipment & the mine rescue team training credit;
The credit for employing members of Indian tribes;
Expensing rules for qualified film, television, and live theatrical productions.
The American Samoa economic development credit.
For the 2019 tax year, the Oil Spill Liability Trust Fund financing rate would be extended, as would the Black Lung Liability Trust Fund Excise Tax.
RETIREMENT & SAVINGS
Multiple employer retirement plans that have a pooled plan provider that administers it and ensures it meets applicable tax-law and ERISA requirements would be considered “pooled employer plans”. If one employer in the pooled provider plan violates a tax-law requirement, the other employers in the pool would be unaffected. Additionally, the ERISA requirement that all pool participants be related in some fashion (such as industry or region) would be eliminated, which would make it easier for employers to join pooled plans. These provisions would be effective for plan years starting in 2020.
Employers would have until the 30th day before the close of the plan year to choose to use the non-elective contribution safe harbor for the year. Employers would have until the end of the following plan year to choose the safe harbor if the employer picks an enhanced non-elective contribution of at least 4% of the employee’s compensation (instead of 3% which is generally required under the safe harbor).
Fellowship grants, scholarships, or other amounts paid to an individual to help their pursuit of graduate or postdoctoral study or research and are includable in their taxable income would be treated as income for IRA-contribution purposes effective starting in the 2019 tax year.
Other provisions of this section would:
Repeal the maximum age for traditional IRA contributions to allow individuals over age 70.5 years of age to make contributions starting in 2019.
Prohibit employer-sponsored retirement plans from offering account loans that can be accessed through credit cards starting on the date of this bill’s enactment.
Allow current employees who have defined-contribution accounts invested in annuities to choose to keep their investment by rolling the annuity into an IRA if the employer discontinues the annuity as an investment option starting in 2019.
Require the Treasury Dept. to issue guidance to ensure there’s no disruption when an employer terminates at 403(b) plan so its assets are contributed to a custodial account with an IRS-approved nonbank trustee starting in 2019.
Clarify that certain employees can participate in retirement plans for church organizations, including ordained, commissioned, or licensed ministers regardless of the source of their compensation for plans year beginning after 2009.
Increase by $500 per year the small employer retirement plan start-up tax credit for employers creating new 401(k) and SIMPLE IRA plans that include automatic enrollment features.
Require employers sponsoring defined contribution plans to provide a lifetime income disclosure to each plan participant that includes information about the lifetime income stream equivalent of their account balance if they were to purchase an annuity.
DISASTER TAX RELIEF
Benefits would be provided for individuals and businesses affected by Hurricanes Florence and Michael, Typhoons Mangkhut and Yutu, California fires, Kilauea volcanic eruptions and earthquakes, and Hawaii severe storms, flooding, landslides, and mudslides.
Special rules would allow beneficiaries access to retirement funds, temporary suspension of limits on deductions for charitable contributions, allowance of deductions for personal casualty disaster losses, special rules for measurement of earned income for purposes of qualification for tax credits, and a special credit for employee retention.
TAXPAYER FIRST ACT
This section of the bill would aim to modernize the Internal Revenue Service’s (IRS) information technology systems, infrastructure, and services to improve taxpayers’ experience with the agency. It would codify an independent appeals process for taxpayers, bolster enforcement of tax laws, and reform the tax court.
Independent Appeals Process
This part would codify the IRS Independent Office of Appeals into law and provide for additional congressional oversight over decisions to withhold taxpayers from the administrative review process. The IRS had been required to establish an independent appeals process, but after doing so increasingly withheld certain taxpayers from accessing the review process.
The IRS would be required to provide taxpayers with their case file prior to the start of any dispute resolution process. Under current law taxpayers have to file a Freedom of Information Act (FOIA) request to access their file.
The IRS would be required to develop and submit to Congress a comprehensive customer service strategy which addresses how the IRS will assist taxpayers, which will include metrics and benchmarks for measuring success.
The existing Free File Program, which offers free tax preparation software and electronically fillable forms, would be codified into law. Programs providing free tax return assistance for low-income populations, persons with disabilities, taxpayers with limited English proficiency, and other underserved communities would be permanently -- rather than temporarily -- funded with matching grants.
The existing Free File Program, which offers free tax preparation software and electronically fillable forms, would be codified into law. Programs providing free tax return assistance for low-income populations, persons with disabilities, taxpayers with limited English proficiency, and other under-served communities would be permanently -- rather than temporarily -- funded with matching grants.
The IRS would only be permitted to deem seized property as “perishable” if it’s liable to perish, as current law allows it to be so deemed if the property would lose value by being kept or can’t be kept without great expense. That leads to property being sold without minimum bid requirements and for significantly less than could be received at auction.
A taxpayer under audit would have to be notified by an IRS employee before the IRS initiates third party contacts during the audit. Currently, this notice typically occurs at the beginning of an audit, early enough that it doesn’t function as a notice of impending contact.
It would be prohibited for a person other than an IRS officer or employee from examining books, records, and witness testimony as part of an examination other than when serving as an expert.
Cyber Security & Identity Protection
Recent IRS efforts aimed at combating identity theft tax refund fraud (IDTTRF) through public-private partnerships would be codified into law. Recommendations by the Electronic Tax Administration Advisory Committee to address the threat of IDTTRF.
The IRS would also participate in an IDTTRF information sharing and analysis center (ISAC) with state and private sector partners. Limited return information could be shared, such as IP address and the speed at which the return was filed, with paid return preparers who are members of the ISAC.
The IRS would require individuals filing 10 or more returns would be required to file them electronically, with the requirement phased in between 2021 and 2024 (the current threshold for this requirement is 250 returns). All tax-exempt organizations that are required to file annual returns would have to submit them electronically. The IRS would be allowed to directly accept credit and debit card payments for taxes as long as the fee is paid by the taxpayer.
The IRS would be required to develop and implement an IT strategic plan in alignment with the IRS’s overall goals to ensure adequate consideration and planning for the IRS’s long-term IT needs. Robust and secure online accounts for taxpayers and their preparers would have to be developed by 2023 in order to supplement (not replace) other taxpayer services offered by the IRS, in addition to an internet portal for filing Forms 1099.
The Office of the National Taxpayer Advocate (NTA) issues Taxpayer Advocate Directives (TADs), and this bill would strengthen TADs by requiring the IRS Commissioner or Deputy Commissioner to respond within a specified timeframe. Any TADs not honored by the IRS would have to be reported to Congress. The IRS Oversight Board, which has been ineffective because of the lack of a quorum for a few years, would be permanently eliminated.
Judges in the Tax Court would be subject to the same grounds for disqualification as judges of other federal courts to ensure independence and impartiality. The judicial terminology of “opinion”, “judgment”, and “magistrate judges” used by other federal courts would be adopted by the Tax Court to provide greater clarity. References in current law to the Board of Tax Appeals would be eliminated as they’re “deadwood” (ie obsolete).
Several provisions of the tax code would be modified as they relate to the Tax Cuts and Jobs Act:
Attorneys’ fees involved in non-disclosure agreements related to sexual harassment or abuse claims wouldn’t be deductible for defendants.
Carryovers and carrybacks of net operating losses (NOLs) would apply to NOLs beginning in the 2018 tax year.
The cost recovery period for qualified improvement property would be 15 years under the modified accelerated cost recovery system and 20 years under the alternative depreciation system.
Individual shareholders of a regulated investment company (RIC) that owns stock in a real estate investment trust (REIT) or interests in a publicly traded partnership who receive dividends or income from an RIC would be attributable to qualified REIT dividends.
The low-income housing tax credit’s general public use requirement would be clarified to include veterans’ housing.
Taxpayers would be able to deduct up to $20,000 in start-up and organizational costs (indexed for inflation) to the extent that total start-up and organizational costs don’t exceed $120,000 (also indexed). Start-ups that change ownership wouldn’t be subject to the “section 382 limitation”, which limits the amount of pre-change losses that can be counted in the lookback period for tax purposes.