Treasury Department Issues Guidance on Key Provisions of the
Tax Cuts and Jobs Act
In December 2017, Congress passed the "Tax Cuts and Jobs Act" ("TCJA"), the most significant federal tax legislation enacted in over 30 years (See
Whitley Penn Tax Alert: Major Tax Reform Passed by Congress- December 20, 2017). Even though this legislation was generally effective for tax years beginning after December 31, 2017, the Treasury Department issued very little guidance regarding the new law during the first several months of 2018. This lack of formal guidance provided a considerable amount of uncertainty for taxpayers as they evaluated how to implement the new tax law.
In the last two weeks, the Treasury Department issued proposed regulations on several key provisions of the TCJA. Subject to certain exceptions, the proposed regulations will apply for tax years ending after the date the Treasury Department publishes a decision in the Federal Register adopting the regulations as final. However, taxpayers and practitioners may rely on the regulations for guidance pending finalization.
The key TCJA provisions for which regulations have been issued include:
The 20 percent deduction for pass-through entities under new Internal Revenue Code ("IRC") Section 199A. Specific rules addressed by the regulations include the definition and calculation of qualified business income ("QBI"), calculation of the wage limitation for QBI, definition of disqualified trades or businesses, and aggregation rules for multiple trades or businesses.
The 100 percent expensing allowance for qualified business property under revised IRC Section 168(k). Specific rules addressed by the regulations include the definition of qualified property, requirements for original and used property, and acquisition and placed in service dates for eligible property.
The deemed repatriation tax under new IRC Section 965 (See Whitley Penn Tax Alert: Deemed Repatriation Tax - February 13, 2018). Specific rules addressed by the regulations include the recognition and reporting of deemed repatriation income from an applicable foreign corporation, payment of the related tax liability, determination of foreign tax credits related to IRC Section 965 income, treatment of the corporation's previously taxed earnings and profits ("E&P") attributable to IRC Section 965 income, and adjustments to the corporation's stock basis and E&P.
In addition, the IRS recently issued Revenue Procedure 2018-40 which updates procedures certain small business taxpayers may implement to change their overall accounting method, long-term contract accounting method, and inventory capitalization methods to take advantage of the more favorable definition of a small business enacted by the TCJA.
Whitley Penn will issue more detailed tax alerts regarding each of these key TCJA provision in the near future. In the interim, if you have any questions or require any additional information, please do not hesitate to contact your Whitley Penn tax advisor.