Daily Tax Update - April 26, 2016: Senate Finance Committee Hearing Addresses Business Tax Reform

Senate Finance Committee Hearing Addresses Business Tax Reform:  Today the Senate Finance Committee held a hearing to explore options for business tax reform and to consider the findings of the committee’s bipartisan business income tax working group.  In his opening statement, Senate Finance Committee Chairman Orrin Hatch (R-UT) encouraged the committee to consider “corporate integration,” which means eliminating double taxation of certain corporate business earnings.  Citing the business tax working group’s report, Chairman Hatch noted that corporate integration “would reduce or eliminate at least four distortions built into the current tax code: (1) the incentive to invest in non-corporate businesses rather than corporate businesses; (2) the incentive to finance corporations with debt rather than equity; (3) the incentive to retain rather than distribute earnings; and (4) the incentive to distribute earnings in a manner that avoids or significantly reduces the second layer of tax.”

Prior to the hearing, Ranking Member Ron Wyden (D-OR) released proposed legislation that would simplify capital depreciation rules by replacing the current Modified Current Cost Recovery Program (MACRS) and Alternative Depreciation System (ADS) systems with a pooled depreciation system for personal property, condensing the more-than 100 current depreciation schedules with six depreciation “pools.”  The summary of the proposed legislation notes that the proposal “would radically simplify one of the most complex areas of today’s tax code and remove current barriers to businesses reinvesting in machinery and equipment on a revenue neutral basis, while maintaining accelerated depreciation.”  In his statement at the hearing, Ranking Member Wyden argued that his proposal is “based on common-sense and a realistic appreciation of how businesses operate today.”

Several witnesses also made statements, which can be found below:

  • Mr. Thomas A. Barthold
    Chief of Staff, Joint Committee on Taxation
  • Dr. James R. Hines, Jr.
    L. Hart Wright Collegiate Professor of Law; Richard A. Musgrave Collegiate Professor of Economics, University of Michigan at Ann Arbor
  • Mr. Sanford E. Zinman, CPA, PC
    Owner, Sanford E. Zinman
  • Ms. Gayle Goschie
    Vice President, Goschie Farms, Inc.
  • Dr. Eric Toder
    Institute Fellow and Co-director, Urban-Brookings Tax Policy Center

IRS Releases Final Rules Under the Multiemployer Pension Reform Act of 2014:  Today the IRS released final regulations regarding the suspension of benefits under the Multiemployer Pension Reform Act of 2014 (MPRA).  The MPRA relates to multiemployer defined benefit pension plans that are projected to have insufficient funds, within a specified timeframe, to pay the full plan benefits to which individuals will be entitled (referred to as plans in “critical and declining status”).  Under the MPRA, the sponsor of a plan in critical and declining status is permitted to reduce the pension benefits payable to plan participants and beneficiaries if certain conditions and limitations are satisfied (referred to in MPRA as a “suspension of benefits”).  MPRA requires the Secretary of the Treasury, in consultation with the Pension Benefit Guaranty Corporation and the Secretary of Labor, to approve or deny applications by sponsors of these plans to reduce benefits.  The final regulations affect active, retired, and deferred vested participants and beneficiaries of multiemployer plans that are in critical and declining status as well as employers contributing to, and sponsors and administrators of, those plans.  

The IRS also released Revenue Procedure 2016-27, which contains revised procedures for applications for a suspension of benefits under a multiemployer defined benefit pension plan that is in critical and declining status under section 432(e)(9).

IRS Releases Corrections to Final Rules on Reporting of OID on Tax-Exempt Obligations:  Today the IRS released corrections and a correcting amendment to final regulations (T.D. 9750) relating to information reporting by brokers for transactions involving debt instruments and options, including the reporting of original issue discount (OID) on tax-exempt obligations, the treatment of certain holder elections for reporting a taxpayer’s adjusted basis in a debt instrument, and transfer reporting for section 1256 options and debt instruments.