David Stewart:   0:01
Happy new year from Tax Notes. Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: 2020 foresight. We'll continue our New Year's tradition of looking back on what happened in U.S. tax policy in the past year, and we'll look ahead at what we can expect in the coming year. Later on, we'll talk to Tax Notes legal reporters Stephanie Cumings and Andrew Velarde about what's happening on the regulatory front. But first, we'll review the biggest pieces of tax legislation on Capitol Hill in 2019 and what's in store for 2020. Joining me in the studio to look at what we can expect or not in legislation and tax policy this year is Tax Analysts Chief Content Officer Jeremy Scott. Jeremy, Welcome back.

Jeremy Scott:   0:57
Thank you. Glad to be here. 

David Stewart:   0:59
All right. Since we last talked, what sort of legislative developments have we seen during 2019?

Jeremy Scott:   1:04
Well, 2019 was not a banner year for tax legislation. The legislature obviously had its focus elsewhere on other issues, and a lot of the vehicles for moving tax law did not materialize until the very end of the year, so basically, we spent a lot of the year talking about extenders. We spent a lot of the year talking about tax returns. We spent a lot of the year talking about retirement legislation. And we spent a lot of the year talking about sort of presidential-type campaign tax plans, and nothing really happened on it until the very end. And so at the very end of the year in December, there was a deal struck to move the extenders package through Congress. It was a very small extenders package — mostly biodiesel energy credits, little bit of stuff involving railroads, a bunch of things that had expired the previous year and had not had another opportunity to be extended — and so they went ahead and did that. Nothing too unexpected was in it. Extenders obviously has taken on a much less critical nature in the wake of getting rid of the AMT or limiting the AMT, plus fixing the research credit, so without those two big items, you just don't get the push for  extenders that you used to get and they just don't get that time that they used to get. So while there was a talk from June through December of, 'Let's look at them in more depth, let's get these extended on a longer term basis,' that didn't happen. Basically, what we got was a very quick deal at the end of the year to put it into the spending legislation that extended a lot of them for one year. The biodiesel got a couple of years. The railroad got a couple of years just because those enjoyed favorite status in the Senate Finance Committee; they were a priority for Chairman Grassley. So that happened. Again, it's very small legislation, not as big as extenders used to be. The spending bill had a couple of other tax provisions kind of at the end of the year. A lot of it's just cleanup of old business. Obamacare taxes got the final stake in the heart. No more Cadillac plan taxes, so no more taxes on high value insurance plans. That had been expected. That tax had never taken effect, but now it's finally gone. The medical device excise tax, which had been controversial for a long time, the spending legislation killed it as well, so those are gone. A retirement package called the SECURE Act, which started as a bigger, broader reform of the retirement industry and then got narrowed as the year went on, that passed as part of the spending act. Not a lot in there that's huge, however, some changes to 401(k)s to make them more accessible to small employers, some automatic enrollment incentives to get more people involved in 401(k)s, annuities can now be in 401(k)s. That's a big change for the insurance industry. It's very popular with them to sell annuities. Some changes to how required minimum distribution rules work. This will be a big deal for estate tax planners. A lot of trusts that have been written prior to this law coming into effect, they're going to have to be rewritten now. So you're going to see some action on the estate planning side. It's not a big deal, but it does mean you have to rewrite a lot of trusts. It just means it's going to be some business there. It's not a major policy change, so that happened at the end of the year. Some things that didn't happen that people thought we're going to happen: TCJA fixes. We did not get too many TCJA fixes.  One small one did get included in the extenders package, and that is a fixed to nonprofits being taxed on fringe benefits. That was very unpopular when it came into effect. It's gone. The big glitch that the Republicans pushed all year to get fixed — it's called the retail glitch. It basically involves how retailers can write off improvements to their property. They used to be able to deduct 100 percent. Now they can deduct something like 2.5 percent. They wanted that fixed. Democrats said the only way we'll fix that as if you expand the earned income tax credit. Republicans said no. They could not work out a deal in December, and so it did not happen. So basically, 2019 was about very small scale tax legislation. Extenders was the word of the year when it happened. It was kind of small. So not a lot of tax movement in 2019. Lot of talk about taxes on the campaign trail [and] talk about broad policy changes, but it did not make its way to Congress.

David Stewart:   4:57
All right, so that brings us to to maybe looking ahead at what we can expect this year in legislation. It is an election year, so I assume that will play into whatever might be happening. So what are we expecting in 2020?

Jeremy Scott:   5:08
I think you're expecting an election year. And when you have an election year, what you see is big plans talked about, sometimes large bills introduced, nothing happening. And I think I think there's a reason Chairman Grassley got a couple of his favorite provisions extended beyond 2020. I think there's a good chance we won't even see a repeat of this type of extender stuff at the end of next year just because of the nature of how lame duck Congress works after an election. You know, if there's a change in administration or even a continuation of an administration, you don't have the push to do a lot of end of the year stuff that has a long-term effect. So I don't know that 2020 is going to be any more active than 2019. One thing you might see in 2020 that might get a lot more press: If the president's tax returns do make their way into the public, expect that to reinvigorate efforts to pass legislation to require the disclosure of presidential tax returns to avoid kind of the rancor and the court fights that this involved. Will that move through Congress in 2020? No, probably not. But you could start to see legislation like Senator Wyden's develop more along the lines of what might actually be acceptable to a bipartisan group— what it might actually clear the Senate. Not in 2020, maybe 2021, 2022. I just think in an election year and in particular in election year that might feature a change in administration or could see some upheaval in the House or even in the Senate, there's not going to be a lot of incentive to get things done. You're going to see a lot of plans taking shape, but you're not going to see a lot of hard core legislation. You might see more pushes to get corrections to the Tax Cuts and Jobs Act through on a bipartisan basis. But I don't know that either party is going to be willing to make the concessions necessary to get those actually through both houses. It's possible that retail fix — the retail glitch — is a big deal to a lot of businesses and there is a major lobbying effort behind it. Does that mean Democrats will soften their demands for any EITC expansion? Does that mean Republicans will throw up their arms and say, 'Who cares about any EITC expansion?' That remains to be seen. If they couldn't do it as part of end-of-the-year, crunch-time, keep-the-government-open spending legislation, the incentive to do it prior to an election is pretty slim. Maybe it resurfaces in a potential lame duck session. That's hard to speculate on this far out, so we'll see. I would be shocked if any major tax bill passes Congress in 2020 prior to the election.

David Stewart:   7:29
All right. Let's turn to the election itself. You know, as we're sitting here, there is an active Democratic primary going on. What sort of tax plans are we seeing out of the presidential candidates for 2020?

Jeremy Scott:   7:39
We're seeing a lot of tax plans being talked about on the Democratic side. That's primarily to pay for social spending that they'd like to see. It's also to kind of correct some of the injustices that some Democratic candidates alleged were unprecedented attacks on our tax system, particularly in the wake of the passage of the Tax Cuts and Jobs Act. So what you're seeing is you're seeing a lot of talk about wealth taxes. You're seeing a lot of talk about higher taxes on the wealthy, different forms, maybe higher income taxes. I think again these are difficult plans to put in legislative terms when they're just campaign rhetoric. Now Senator Warren, one of the Democratic frontrunners, has tried to do that and has sort of come under some criticism for the gaps in her plan. But that's going to be the talk this year. I think wealth taxes dominated a lot of the discussion in the middle part of 2019 and that's even before the primaries get going. I think now you're going to hear even more details about them. You're going to see candidates, particularly the last few that start to survive the Democratic process, have to reduce their plans into more tangible terms — the way Warren tried to do in the fall. I think that's going to be a lot of the discussion on the Republican side. Assuming the president is waging a reelection campaign, there's going to be a lot of talk about expanding the tax cuts that were in the TCJA, particularly for individuals. I think 2020 is going to be the year of individual taxation from a policy standpoint, particularly because the TCJA has those builtin expirations. Republicans are going to be talking about extending the current cuts and making them deeper. That's going to be a major part of the president's reelection tax plans. It's going to be a major part of House GOP candidates' plans to sort of try to retake the House [and] appeal to suburban districts. So I think what you're going to see is kind of a battle between 'Make the TCJA broader, expand what it's doing' and 'repeal parts of the TCJA on the Democratic side. I think that's what you're going to see. The corporate rate may get a little bit of discussion from the Democratic campaign primarily as a way to pay for some of these plans that they have, like expanded college credits or free tuition or debt forgiveness — whatever the Democrats are arguing there. Plus, expanded health care has to be paid for so you're going to see some things like a higher bracket for the top earners. So I think what you're going to see is talk about raising the corporate rate. It is not going to be feasible to return the corporate rate to 35 percent, but you could hear a lot of plans that talk about, say, a 28 percent [or] 29 percent corporate rate. And again, these are pay-fors for other priorities that Democrats have and how that influences a legislative calendar is going to depend on the outcome of the election.

David Stewart:   10:07
Now you mentioned several of these plans that are meant to pay for specific priorities. Sitting here at with a deficit of near $1 trillion a year, is anybody talking about raising taxes to cut the deficit?

Jeremy Scott:   10:20
No. It's interesting. The deficit has become sort of a bugaboo of progressive slightly. But again, I think it's the party out of power generally criticizes the party in power for deficits, and so deficit reduction becomes a talking point in the sense that, 'look at the debt the administration is running up; it's irresponsible.' But no. A lot of the Democratic plans that are being presented now or sort of revenue neutral plans in the sense a candidate will propose Medicare for All and here's how I'm going to offset the cost. No major candidate is proposing, 'Here is Medicare for All, plus here's a pay-for that pays for that and cuts the deficit in half.' So it's a nice talking point when you say the deficit is out of control. But there aren't any serious plans out there to cut the deficit, and I don't expect there to be any serious plans to cut the deficit in a campaign year. It's just not an issue that's resonates with voters very often.

David Stewart:   11:07
On the feasibility question of some of these tax plans, the wealth tax is a very popular talking point on the campaign trail. Is that even possible in the U. S. system to implement a wealth tax?

Jeremy Scott:   11:20
It's possible. The question is: Is a constitutional? And I think prior to it becoming a serious talking point, if you had just sort of thrown out, 'Oh, I'd like to have a wealth tax,' I think a lot of people would have said, 'You can't have that. It's unconstitutional. It would have to be a direct tax, has to be apportioned among the states.' As people have looked at it more seriously, there's a lot of talk about what does that constitutional language even mean? What kind of plans would it prevent? How could we write a wealth tax in a way that gets around that? So the question of constitutionality becomes a little more nuanced. I still think most people would lean towards if you don't construct this incredibly carefully, it is going to run into a constitutional problem. I think a wealth tax faces a lot of hurdles before becoming law. Primarily because in the back of a lot of people's minds — back of a lot of lawmakers' minds — like why are we bothering to go through this exercise with something that could be scrapped by a court? So there are impediments to a wealth tax. It's a very nice talking point, and it makes a lot of sense when you're talking about wealth distribution, the accumulation of wealth to say 'Well, you can't just strike at their income. That's been in effect for decades. We have to strike at the accumulations of wealth that have happened in the United States.' But it's a very complicated issue. They are not really in vogue in Western tax systems anymore. Few European countries have them. A few European countries have gotten rid of them in the last few years. It faces a long road to becoming implemented. Even if you could clear the constitutional challenge, even if you could be assured that it's constitutional, I still think it's so different from anything that has been done before. It would be a struggle for Congress to build it, and it makes me think back to when Republicans were talking about tax reform. This idea of, 'Oh, the destination based cash flow tax. Here's an easy way to raise revenue that doesn't harm growth and will allow us to do all these different things.' But when it actually came to building it, it made a ton of people uncomfortable. It made a ton of lobbying groups uncomfortable [and] made a ton of constituents uncomfortable, and it ultimately fell apart. A wealth tax is sort of the Democratic equivalent in some ways. It's a very innovative idea that sounds very progressive. When you talk about it,  it's new, it could solve a lot of our problems, it could fix a number of issues at once. But to actually construct it is incredibly complicated, and will make a lot of people very uncomfortable.

David Stewart:   13:28
All right. The bottom line takeaway that we have here is that there's not much to look forward to tax legislation wise in 2020, but we could be looking at an active 2021 however the election comes out.

Jeremy Scott:   13:39
Certainly 2021 depends a lot on the election. It is guaranteed to be incredibly active if one party controls both houses of Congress and the presidency. What the TCJA has done is revived tax as a live area of reform. So if Republicans take control of government again, you expect them [at the] minimum to fix it, to pass a number of fixes when they could take their time doing so. If Democrats take control and control the presidency and Congress, you definitely expect them to look at the TCJA and put their own sort of version of tax reform in. So I think 2021 could be very, very active depending on how the election comes out. It will certainly be more active either way than 2020, which I think is gonna be a lot of policy talk, a lot of campaign type talk, but not a lot of legislative movement.

David Stewart:   14:22
All right. Jeremy, thank you for being here.

Jeremy Scott:   14:24
Thank you.

David Stewart:   14:25
Now joining me in the studio are Tax Notes senior legal reporters Stephanie Cumings and Andrew Velarde. Stephanie, Andrew, welcome back to the podcast.

Stephanie Cumings:   14:32
Thanks for having us, Dave.

Andrew Velarde:   14:33
Good to be here. Dave. Thank you.

David Stewart:   14:34
Stephanie, can you tell us about some of the regulatory trends that we've seen in 2019?

Stephanie Cumings:   14:38
So we had lots of guidance this year, and unsurprisingly, most of the important projects were related to the Tax Cuts and Jobs Act. But we still had a lot of non-TCJA guidance as well. I took a look at it and we actually had significantly more guidance this year than last year. We had about  — don't quote me on these exact numbers — but we had about 79 projects in total in 2019 that's posed in final regulations. As opposed to last year, we only had about 49. Now, in 2018 there were only about 13 TCJA projects, which kind of surprised me because we thought it seemed like such a big deal at the time. But this year there was a big spike in the number of TCJA projects. There were 36 this year in total. But there were also 43 projects that weren't related to tax reform this year. But again, a lot of those were sort of smaller projects, not nearly a significant as the TCJA projects were.  

David Stewart:   15:24
So what were some of the most notable regulations on the federal tax side?

Stephanie Cumings:   15:27
So we had a ton of them. We had proposed and final regs on the 199A passthrough deduction. We had a second set of proposed regs on the Opportunity Zone program. Proposed regs on the 1446(f) partnership withholding, proposed regs on 451(c) advanced payments, and 451(b) revenue recognition. Proposed 382(h) regs on building gains and losses and final regs on 168(k) bonus depreciation, along with another set of proposed regs on 168(k). Now most recently this month, we've had a lot more guidance. We had proposed regs on the state and local tax deduction cap. We had final regs on computing unrelated business income tax for voluntary employees beneficiary associations known as EBAs. And on December 16th this past Monday, we had three reg packages, which I don't know if I've ever seen before. We had final rules on spinoffs under 355(e). We had my long awaited proposed regs on 162(m) and the executive compensation deduction limitation. And then we had a short final rules package on 871( m). But more importantly, that came with a notice delaying with 871(m) rules for another year.  

David Stewart:   16:32
Andrew, what major regulations have we seen in 2019 on the international side?

Andrew Velarde:   16:36
So the TCJA gave us a lot of new international provisions, and guidance was still needed in 2019 to flesh out these provisions. We got a lot of notable projects throughout the year. Kicked off at the start of the year 2019 January with finalized guidance on the transition tax. This was the tax imposed on accumulated offshore earnings and profits. After that, a few months later, we had proposed regs on the foreign-derived intangible income provision. That was followed in the early summer by finalized guidance on the GILTI, the global intangible low-taxed income provision. And later, just this month in fact in December, we had finalized guidance —same day released —on the base erosion and antiabuse tax as well as the foreign tax credits. All of these final pieces of guidance reflected tweaks from what we saw earlier proposed regs, tweaks made from comments given by the public, by practitioners. But nothing was turned on its head completely, so there were no big surprises in these final guidance projects.

David Stewart:   17:32
All right, now, as we're recording this, it's late December. Are there any regs that we're expecting sometime in the near future?

Stephanie Cumings:   17:38
So we've got several projects under review right now at OIRA. There are final rules under review on 468A on nuclear decommissioning costs. Your guess is as good as mine what that's about. More importantly, we've got final Opportunity Zone regulations at OIRA right now. They went on December 6, so those could come out before the end of the year. And just today, which is December 18th, we found out that final regs on 1 63(j), the business interest deduction limitation, are now at OIRA.

Andrew Velarde:   18:03
And Dave, there's actually one project in the international realm, too, that just went to OIRA — the final hybrid mismatch rules. Those came to OIRA on December 16th. That would be about denying deductions for disqualified related party payments made on hybrid transactions or to a hybrid entity. Those could be out probably in the coming weeks as well. Whether or not it gets in before the new year, it's a little iffy at this point.

David Stewart:   18:26
Now, you've mentioned the review at OIRA and I understand that the process for regulations has been a bit unpredictable this year. Can you tell me about that?

Stephanie Cumings:   18:33
Right. So under the memo between IRA and Treasury, typically it could take 10 days for a TCJA project to get through IRA and then 45 days for a non-TCJA project. But that is not really what we've seen early on in the process. Last year, when the tax reform guidance first started coming out, it was kind of moving through OIRA pretty quickly, but things have slowed down this year. I actually wrote a story about this in August that showed that the average review time had roughly doubled for TCJA projects. And this year we had the built-in gain and loss rules and the 451(c) rules were both at OIRA or over 100 days.

Andrew Velarde:   19:09
We had the BEAT and FTC regs, which came out on December 2nd. Both of those projects were at OIRA for a while during the review as well. In fact, BEAT arrived at OIRA on September 16th, so it was several months before we actually saw it. Now, not all of that was time at OIRA. They cleared the rules and then we just sat in anticipation, waiting for weeks for them to finally come out. What the cause of that delay is a little behind the curtain, we can't say, but it's definitely certainly correct that the whole process has seemed to have slowed down this year.

David Stewart:   19:36
All right, so given this new slow process, what sort of regulations are we expecting to see in 2020?

Stephanie Cumings:   19:41
So still plenty of Tax Cuts and Jobs Act guidance on the horizon. There should be more proposed regs on 163(j), proposed regs on the 172 net operating loss deduction, proposed regs on carried interest in section 1061, proposed regs on 512 that deals with unrelated business income tax for separate trades or business — the siloing rules. I'm really looking forward to seeing proposed regs on 274 dealing with parking and meals as well as the 4960 guidance on the excise tax on executive compensation for nonprofits. And then one sort of major non-TCJA project I'm looking for the proposed 355 regs on spinoffs that deal with the active trader business requirement.

Andrew Velarde:   20:23
And in the international realm, for the third year in a row, the focus really will be on the TCJA guidance in 2020. You look at the priority guidance plan, there's only eight non-TCJA general guidance international projects listed there that were not already published before the plan's release. So on tap for early next year, we're expecting final rules on the GILTI high-tax exclusion. That guidance would allow domestic shareholders of a CFC —  controlled foreign corporation —to elect to exclude from gross tested income amounts that have been subject to foreign tax at an effective rate that exceeds 90 percent of the U.S. tax rate. Proposed regs were released along with the earlier final GILTI regs last summer. Practitioners are looking at this closely. They want to see retroactive application of the exclusions. Hopefully, that could change. They would like to see that. Eligibility determined on a CFC by CFC basis rather than qualified business unit by qualified business unit and a shorter timeframe in which an election to take the high-tax exclusion would lock a taxpayer in. On top of that, we're expecting early next year proposed regs on previously taxed earnings and profits — PTEP. We got a notice back in December 2018. It promised proposed regs very shortly. In that notice, we see a lot of extreme complexity with PTEP accounts. We have 16 separate ones. Practitioners are looking to see what Treasury might do to reduce that complexity. We are also looking to see how the guidance will account for some basis adjustments as well as the application to partnerships. We're hoping to get final FDII regs —foreign-derived intangible income regs. Practitioners there are very concerned with documentation rules. The documentation you need in order to take advantage of the deduction for deemed intangible income earned for the sale of property or services for foreign use. Finally, also expected somewhat in the near future [are] final 245A regs restricting the participation exemption to some related party transactions. Practitioners here have accused Treasury of overstepping their authority when they issued temporary regs several months ago, so we'll see what happens there. Additionally, there's a few more months out in the future, but still in 2020, final regs on the BEAT and foreign tax credits, in addition to the final regs we already got in December at the same time they released additional proposed regs. We're hoping that we finalized as well.

David Stewart:   22:26
All right. Well, it sounds like we've got a lot to watch for in the next year. Andrew, Stephanie, thank you being here.

Stephanie Cumings:   22:31
Thanks for having us.

Andrew Velarde:   22:31
Thank you, Dave.

David Stewart:   22:32
And now, instead of coming attractions, we're joined by Content and Acquisitions Manager Faye McCray with a special announcement.

Faye McCray:   22:40
Thank you, Dave. The submissions period for the Christopher E. Bergin Award for Excellence and Writing is open. This annual award recognizes superior student writing on unsettled questions in tax law or policy. Eligible students must be enrolled in an accredited undergraduate or graduate program during the 2019-2020 academic year. Visit taxnotes.com/students for more details. The year 2020 marks Tax Analysts' 50th anniversary. We will celebrate this milestone at a gala event at the National Portrait Gallery, April 29, 2020 in Washington, D.C. We will be honoring former IRS commissioner and longtime leader in the tax world Lawrence Gibbs and discussing the future of tax policy. We hope that you will join us in celebrating our first half century. For more information or to purchase tickets, email galainfo@taxanalysts.org.

David Stewart:   23:32
That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us a podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.