Tax Reform Proposal: Overview and Small Business Highlights

Tax Reform Background

The last major tax reform legislation was passed in 1986. Since then the tax rules – Internal Revenue Code amendments, regulations, procedural guidance and court case law – have morphed into a tax system that is complex and often burdensome to taxpayers. 

On November 9th The House of Representatives Ways and Means Committee approved, H.R. 1 – Tax Cuts and Jobs Act (HR1 or TCJA). The legislative language of H.R. 1 and the two amendments made to H.R. 1 in the mark up process can be downloaded here. On the same date the Senate Finance Committee released its conceptual mark version of proposed legislation for the Tax Cuts and Jobs Act.  The full text of the Senate's Description of the Chairman's Mark of the Tax Cuts and Jobs Act can be downloaded here.

Whether an enacted law is sweeping tax reform or a more modest tax rate cut, the consensus is clear.  Income tax rates are expected to decrease for many businesses and individuals. With any bill affecting a broad array of taxpayers, there will be ‘winners’ and ‘losers’. Certain industries and taxpayers will not see their preferred tax deductions or credits survive the legislative process. 

It’s important to keep in mind that HR1 is like the first pitch in a baseball game. The debate and “mark-up” process of the bill has just been completed. Debate and vote by the full House of Representatives has yet to occur. Meanwhile, the Senate has just released its conceptual version of proposed legislation which must undergo mark up by the Finance Committee before making its way to the Senate floor. The Senate Finance Committee is scheduled to begin the mark up process on Monday, November 13. Both the House and Senate have publicly expressed an intention to have their tax bills passed before the Thanksgiving holiday. Once the Senate and House of Representatives debate, vote and pass a bill, the two bills must be reconciled and voted on again before a final bill is sent to the President for his signature. There are many more innings to this game where we may see provisions eliminated, added and modified.

One good way to prepare for the passage of a final bill is to pay attention to and determine the potential tax impact of the current proposals that affect you or your organization's tax situation.

Summary of HR1 Proposal

A structural theme of HR1 is reducing tax rates and simplifying the tax code. HR1 proposes changes to the following subsections of the internal revenue code, as follows:

  • Individual Tax Reform
  • Repeal of the Alternative Minimum Tax (AMT)
  • Business Tax Reform
  • International Tax Reform
  • Exempt Organizations

This tax alert focuses on several of the more prominent business tax reforms other than just the rate reductions, the current tax treatment of the affected items and observations for each topic. Because certain HR1 topics are industry specific, not as broadly applicable or not otherwise covered in this alert, it is recommended that you read through the table of contents at the beginning of HR1.  Doing so provides a good overview for areas of tax law that are affected by HR1.

Subsequent alerts will focus on other areas or industry specific tax reforms.  Please refer back to the DHG Tax Reform home for more alerts as they are published.

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