January 11, 2017
By Michael Cohn
Published in Accounting Today
Even though Congress passed the biggest tax overhaul in more than 30 years only a few weeks ago, there’s likely to be more tax-related legislation coming out in the very near future.
The continuing resolution that lawmakers have been debating to fund the government could contain some tax provisions.
“Immediately there’s a look at the CR coming up in the next week or two having a tax bill attached to that, which will have some of the energy extender provisions that have been on the to-do list for quite a while,” said Dean Zerbe, national managing director at alliantgroup, a former senior counsel and tax counsel for the Senate Finance Committee, during an interview last week. “I think that’s part of it. There’s a cleanup of a number of provisions that have bipartisan support that are small ball, but that would be included as well in that package.”
Congress is also likely to take up a technical corrections bill to fix some of the errors in the hastily drafted Tax Cuts and Jobs Act, although that probably won’t come until later.
“They might do some kind of early bird technical corrections as well,” predicted Zerbe. “They might not quite call it that or draw a lot of attention to it, but I think if they have some early cleanup that they think they need to do, then they might look at doing that. But I think the idea is with the energy provisions, and with the small ball provisions, that they’ll get Democratic support. This is meant to be a bipartisan bill, and this is being attached to a much bigger bill. I think the working plan is to engage with the Democrats and see if they can find some common ground.”
For right now, many Democrats aren’t going to be in the mood to cooperate on helping Republicans patch up the Tax Cuts and Jobs Act after they felt shut out of the process of drafting the far-reaching legislation. But Democrats might agree to do some fixes, especially if it helps them pass some of the endangered tax extender provisions related to renewable energy.
“I think the Democrats are still probably not in the happiest of moods at the end of last session, but we’ve had the holidays,” said Zerbe. “Coming back, I think you may find some folks who always want to stay in their fight corner and not engage. But I think the Republicans are trying to get a bill that attracts Democratic support. At least the early versions of what I’ve seen seem to indicate that. I think that will get a number of Democrats to engage. That doesn’t mean they’re doing handsprings. But if you’ve got a bill that’s bipartisan, you do have to let things go. The tradition of the committee is to work bipartisan. You just can’t keep complaining about the fact that you didn’t invite me to the last dance.”
The energy-related provisions in particular might help Republican lawmakers attract some support from the other side of the aisle. “They don’t wake up thinking warm and fuzzy thoughts,” said Zerbe. “They’re clearly designed to garner Democratic support, and I think they’ll get that. Are they going to get every Democrat voting for it? No, they may not be getting every Republican voting for it either. But I think they can find some things in there.”
Some Democrats may even agree to go along with a larger technical corrections bill eventually.
“I haven’t seen an early bird list, separating out the provisions that people don’t like vs. provisions that were poorly drafted or, more importantly, were drafted in error, that may lead to an unintended bad result,” said Zerbe. “That’s really what you’re looking for. I see people are still wringing their hands about I don’t like this or I don’t like that. Relitigating that really isn’t in the cards. Republicans aren’t going to open that back up. But to say, ‘We had this unintended impact or we didn’t clarify this cross-reference,’ those kinds of things that are traditional, I think if they had an early list, they would do it.”
He thinks the technical fixes are likely to involve some of the business-related provisions for corporations and pass-through businesses. “If Republicans are trying to close something up, it’s probably something in the corporate or the high dollar pass-through level,” said Zerbe. “When you think about it, do you really think Democrats are going to sit down and say, ‘We want to keep this poorly constructed provision in place to create a loophole for corporations to do X’? I’m just talking theoretically. That’s not where they’re going to be. They’re not going to want to make the word safe for sharp-eyed accountants and their pencils to do something. It’s one thing if Republicans screwed something up to make the child credit more generous. I could see something like that, but I don’t think that’s where they’re going to have hiccups. I think they’ll come on the international provisions or the other provisions, and they’ll be trying to maybe look at phase-ins or transition rules.”
He anticipates the two parties will initially be able to find some common ground with some of the energy-related tax extenders.
“There were a number of provisions that were dropped because of the Byrd rule and other rules and didn’t make it that the House cares about, that the Senate care about, that people care about on a bipartisan basis,” said Zerbe. “The energy provisions are very important to the Democrats. That will certainly get them engaged. So it will be nice to have a small-ball bipartisan tax bill that can get some needed clarification on the energy provisions. There are a number of good provisions that were dropped in the tax bill that aren’t controversial, that should be included. I think they’ll do that.”
Afterward there may be an IRS reform bill that some Republicans have pledged to do, though Zerbe doubts there will be any tax increases in the infrastructure bill. “I see that people are already wishing on a star and saying they should raise taxes to pay for the infrastructure bill,” he said. “I don’t think that’s going to happen at all. All the Republicans just went through cutting taxes. They’re not going to turn around and raise taxes for that, so that’s kind of a nonstarter. I think the other business will then be an IRS reform package. I think they’ll file it moving forward in the spring. I would expect that to go forward as well.”
Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.