Alex Hendrie

ATR Supports the Small Business Expense Protection Act

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Posted by Alex Hendrie on Thursday, June 4th, 2020, 9:39 AM PERMALINK

ATR President Grover Norquist today released a letter in support of S. 3612, the “Small Business Expense Protection Act.”

This legislation has been introduced by Senator John Cornyn (R-Texas), Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Finance Ranking Member Ron Wyden (D-Ore.), Senator Tom Carper (D-Del.), and Senate Small Business Committee Chairman Marco Rubio (R-Fla.).

This legislation restores congressional intent over the Paycheck Protection Program (PPP) by allowing small businesses to deduct business expenses paid using loans received through the program.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to provide small businesses impacted by COVID-19 with emergency liquidity so they could continue making payroll and meeting other business expenses.

However, on April 30, the IRS released Notice 2020-32, which prohibited businesses from deducting expenses paid with a PPP loan such as payroll, rent, and utility expenses, even though these expenses would otherwise qualify as ordinary, tax deductible business expenses.

Denying the ability of small businesses to deduct expenses paid with PPP loans will impose an additional tax burden on these businesses that will erode a portion of the financial assistance granted through the program. This will only harm small businesses across the country as they attempt to survive and re-engage in commerce in the wake of the pandemic.  A recent second tranche of PPP loans averaged just $79,000 per business, so the financial assistance businesses receive is relatively modest.

The IRS Notice clearly disregards Congressional intent as Section 1106(i) of the CARES Act clearly states that any PPP loan should be exempt from taxation if such loan is forgiven. Further, Congressional leaders from both sides of the aisle recently urged Treasury to reverse course, noting that the IRS Notice “ignores the overarching intent of the PPP, as well as the specific intent of Congress to allow deductions in the case of PPP loan recipients.”

Congress should pass the Small Business Expense Protection Act. This legislation will uphold Congressional intent by allowing small businesses to deduct business expenses paid by PPP loans, a measure that will ensure businesses do not face additional taxation from COVID-19 relief measures.

See the full letter here.

Photo Credit: Gabe Skidmore


Trump Admin Allows 401ks to Invest in Private Equity

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Posted by Alex Hendrie on Wednesday, June 3rd, 2020, 4:51 PM PERMALINK

The Trump administration is expanding options for retirement savings by allowing Americans with a 401k to invest in private equity funds.

The Department of Labor (DOL) today announced it is issuing guidance allowing private equity investments to be a component of professionally managed investment funds offered to Americans with a defined contribution benefit plan.

Previously, Americans with a 401(k) were unable to invest in private equity funds, even though this investment option was widely used by public pension funds and large investors. The Trump administration’s deregulatory action will open up private equity investment to the roughly 80 million American families and individuals that actively participate in a 401k or other defined benefit plan.

“The Trump Administration’s decision to allow Americans to invest in private equity with their 401(k)s is a big win that will give every family saving for retirement more options,” said Grover Norquist, President for Americans for Tax Reform. “Big pension plans already had this option. Now everyone does.”

Photo Credit: Gage Skidmore


ATR Leads Coalition Letter Urging Deferral of Alcohol Excise Taxes

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Posted by Alex Hendrie on Wednesday, June 3rd, 2020, 5:00 AM PERMALINK

Americans for Tax Reform today released a coalition letter signed by over 30 organizations and activists urging Treasury Secretary Steven Mnuchin to delay excise tax payments for beer, wine, and distilled spirit manufacturers and importers through the end of 2020. 

As the letter notes, COVID-19 has forced the closure of retail establishments, tasting rooms, restaurants and bars, a situation that has weakened consumer spending, and threatened the livelihood of small businesses. This decline in commerce has harmed alcohol manufacturers and importers, especially smaller breweries, distillers, and wineries. Delaying payments of excise taxes is a modest step toward helping manufacturers and importers:

“Deferring excise tax payments will help these businesses receive much needed emergency liquidity and allow them to prioritize paying workers and meeting expenses over making tax payments. This is a modest step toward helping businesses, as these taxes will eventually be repaid.”

Treasury has already utilized its legal authority to postpone excise taxes for the second quarter of 2020. Moving forward, this should be extended through the end of 2020.

In addition, it is imperative that any excise tax deferral apply equally to importers. As the letter notes, there is no reason to exclude or limit importers given they face the same excise taxes as products manufactured in the U.S, and face the same economic challenges.

The Q2 excise tax deferment imposed burdensome requirements on importers by requiring “significant financial hardship,” which U.S. Customs and Border Protection defined as a loss of more than 40 percent in revenue. This is the wrong approach – excise tax deferral should be available equally to all alcohol manufacturers and importers.

Deferring excise tax payments for distillers, breweries and wineries through the end of the year is a simple step that will help manufacturers and importers as they look to survive the damage caused by COVID-19.

The full letter can be found here.

Photo Credit: Erik Drost


Trump Admin Releases Plan to Reduce Insulin Costs

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Posted by Alex Hendrie on Tuesday, June 2nd, 2020, 12:16 PM PERMALINK

Last week, the Trump administration announced a plan to lower out of pocket insulin costs for American seniors. This proposal will drive significant savings to millions of seniors through negotiation with the private sector, not price controls.

Under the proposal, released by the Centers for Medicare and Medicaid Services (CMS), 1,750 Medicare Part D plans and Medicare Advantage Prescription Drug Plans have agreed to offer a range of insulin products at a maximum copay of $35 for a month’s supply.

According to CMS, seniors in all 50 states, the District of Columbia, and Puerto Rico will have access to a plan that offers insulin at this lower cost. Under the model, the average senior could see savings of 66 percent, or $446 in annual out of pocket costs. Over 3.3 million seniors take one or more forms of insulin, so this proposal could deliver significant savings.

This proposal also addresses a key flaw in the Part D coverage benefit. Currently, seniors can have different out of pocket costs depending on which phase of the coverage benefit they are in. The administration’s proposal will fix this and give seniors a stable copay for insulin regardless of which benefit phase they are in. This will be especially beneficial for seniors that are in the coverage gap threshold (between $4,020 and $9,719 in spending), who have to pay 25 percent of the costs of insulin and other medicines.

This proposal is a welcome example of the government working with the private sector to lower prices, instead of relying on government rules or mandates to dictate prices.  88 plan sponsors and major insulin makers Novo Nordisk, Eli Lilly, and Sanofi have signed up for this model, so there is significant support for the proposal amongst industry stakeholders.

In addition, this proposal draws a stark contrast with healthcare plans proposed by members of Congress that would expand the size of government. For instance, House Speaker Nancy Pelosi (D-Calif.) has a plan to impose a 95 percent excise tax on manufacturers that don’t accept government price setting. This proposal would harm American innovation and medical development, leading to fewer cures, and less R&D in the U.S. It would also serve as a stepping stone toward moving the American healthcare system toward a single payer, socialist system, a long-held goal of the Left.

The administration’s proposal to reduce insulin costs for seniors should be applauded. Instead of adopting price controls, this proposal builds upon the success of Medicare Part D by having the government facilitate competition between the private sector. This is the right way to reduce costs in America’s healthcare system and should be a model for future reform.

Photo Credit: Gage Skidmore


Trump Admin Finalizes Schedule B Regulatory Relief Rule

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Posted by Alex Hendrie on Wednesday, May 27th, 2020, 12:10 PM PERMALINK

Earlier this week, the Trump administration finalized a rule protecting free speech and donor privacy. Under the rule, many nonprofits including 501(c)(4)s, 501(c)(5)s, and 501(c)(6)s would no longer be required to submit a Schedule B form to the IRS.

President Trump, Treasury Secretary Mnuchin, and leaders in Congress including Senate Majority Leader Mitch McConnell (R-KY) and House Minority Leader Kevin McCarthy (R-Calif.) should be congratulated for their work defending free speech. 

Congress first required section 501(c)(3) organizations to send the IRS to personal information of their donors 50 years ago. This information, which includes the names and addresses of donors, is submitted to the IRS on the Schedule B form. The agency later extended this requirement to all other tax-exempt organizations including 501(c)(4)s and 501(c)(6)s.

Schedule B forms are not used for any official purpose and the IRS is prohibited from sharing or disclosing this sensitive information. Instead of serving a legitimate purpose, the disclosure requirement creates needless compliance costs on both non-profits and the IRS.

Ending the collection of Schedule B forms will significantly streamline tax compliance. The Institute for Free Speech estimates that nonprofits would save about $63 million per year compliance costs if Schedule B were fully repealed. 

Opponents of the rule have falsely stated that it allows a flood of “foreign dark money” into the political system. This is not true. As Secretary Mnuchin has noted in the past, this proposal does not limit transparency as the same information will be available to the public as before.

There are already measures in place to track foreign donations, and it is highly unlikely that anyone will admit to funneling illegal money on the form. Even if the IRS did suspect laws were being broken, it has no authority to share the information it collects with the FCC and the DOJ, the two agencies with the ability to enforce campaign finance laws.

Ending the collection of Schedule B forms will instead remove a tool of the left to chill political speech.

Under the Obama administration, there were several cases where agency officials leaked the sensitive information contained on Schedule B forms for political purposes, such as leaking of the schedule B belonging to the National Organization for Marriage.

The IRS record of protecting taxpayers is poor in this space – a 2016 report by the Government Accountability Office warned that the IRS may still be unfairly targeting non-profits “based on an organization’s religious, educational, political, or other views.”

Ending the collection of sensitive taxpayer data for non-profits is a huge victory for free speech and will stop future administrations from targeting these organizations.

Democrats have already tried to block this proposal through the Congressional Review Act process and will undoubtedly continue trying to oppose it in Congress.

Moving forward, further efforts by Democrats to oppose this rule in Congress should be rejected. Instead, lawmakers should follow the lead of the administration and ensure that the prohibition on collecting Schedule B forms is expanded to all non-profits and codified in law.

Photo Credit: Gage Skidmore


Democrats Supported 5-Year Net Operating Loss Carrybacks Before They Opposed Them

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Posted by Alex Hendrie on Tuesday, May 19th, 2020, 2:31 PM PERMALINK

House Democrats and the media are taking aim at a tax cut enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The tax cut allows businesses to carryback net operating losses (NOLS) incurred in 2018, 2019, and 2020 back five years. Democrats now want to retroactively impose tax increases on these struggling companies.

However, Democrats used to vocally support this tax cut. In 2009, Congress passed and President Obama signed into law the “Worker, Homeownership, and Business Assistance Act of 2009,” which allowed businesses to carryback losses incurred by businesses in 2008 and 2009 back five years. Many Democrats including House Speaker Nancy Pelosi (D-Calif.) spoke in support of the NOL provision on the House Floor.

Despite this past support, Pelosi's “Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act,” seeks to repeal this tax cut by preventing losses from being carried back before 2018 and imposing a number of other restrictions on NOLs, a move that will deny businesses liquidity, speed up job losses, and endanger the economic recovery.

[See more: Pelosi Proposes Retroactive Tax Increase on Struggling Companies]

Meanwhile, the press is incorrectly arguing that NOLs are a “handout for big business”. For instance, a recent Bloomberg article argues that this tax cut was a “stealth bailout” for oil and gas companies.

This is not true. As leading Democrats noted a decade ago, NOL carrybacks are available to any industry, help provide businesses emergency liquidity in an economic downturn, and are largely a timing shift in taxes paid, not a bailout.

A list of Democrat quotes in support of NOLs are below:

The Obama White House  

“Business losses incurred in 2008 or 2009 can now be used to recoup taxes paid in the prior five years. This provision is a fiscally responsible economic kick-start, putting $33 billion of tax cuts in the hands of businesses this year when they need it most, while enabling Treasury to recoup the majority of that funding in the coming years as these businesses regain their strength and resume paying taxes.”

Speaker Pelosi

“The bill also has the net operating loss carryback, which businesses tell us is necessary for them to succeed and to hire new people, and also to mitigate some of the damage that has been done to the economy from past policies.”

Ways and Means Chairman Richie Neal (D-Mass.)

“Finally, the bill provides net operating loss relief for many businesses that have been simply hanging on in this country over the last year. It is particularly important to retailers. Based on a bill that I filed with Representative Tiberi which became the basis for this provision, this relief for businesses, big and small, will provide quick capital at a time when it is currently impossible to find.”

Former Ways and Means member Rep. Shelley Berkley (D-Nev.)

“Additionally, this bill includes important tax provisions, extending and expanding the homebuyer tax credit and allowing businesses to carryback losses in 2008 or 2009 for 5 years… The net operating loss provision will help keep businesses afloat during the tough times, preventing further layoffs.”

Former Ways and Means Chairman Sander Levin (D-Mich.)

“As to growth, there are two provisions here. I am surprised that the previous speaker says nothing is being done to create jobs when we have two provisions here that are aimed to do that. The homeowners’ tax credit is extended and is also expanded, and the net operating loss provision is inserted here to create jobs. This is a bill that combines equity and, hopefully—and I think it will—create jobs.”

Photo Credit: Chambre des Députés


Treasury Should Defer Alcohol Excise Tax Payments for 2020

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Posted by Alex Hendrie on Tuesday, May 19th, 2020, 10:24 AM PERMALINK

The Coronavirus pandemic has caused extensive damage to the American economy, businesses and workers.

Almost 37 million Americans have filed for unemployment in the past eight weeks and Federal Reserve Chair Jerome Powell has said the unemployment rate could reach 25 percent during the peak of the pandemic. 

Alcohol manufacturers are not immune from this damage. The slowdown in commerce and forced closure of restaurants and bars has hit the industry hard. Smaller wineries, distilleries, and breweries are particularly vulnerable to collapse, with some fearing thousands of these businesses may go under.

Fortunately, there are simple steps that the Trump administration can take to help the industry without massive bailouts, like deferring payment of excise taxes on wine, beer, and distilled spirits through the end of the year.

This will provide breweries, distillers, and wineries with liquidity so they can prioritize paying workers and meeting other expenses over tax payments.

The Treasury has already postponed these taxes for the second quarter of 2020 due to the adverse impact of COVID-19 on businesses, and is just one of many tax deadlines that the Trump administration has delayed. Extending this deferral through the end of the year will help alcohol manufacturers as the economy starts to reopen in the coming weeks and months.

It is almost important to note that these taxes will be repaid. Ideally, an excise tax deferral could be modeled off the recently enacted payroll tax deferral which permits businesses to delay paying a portion of employer payroll taxes through the end of the year with half repayable in 2021 and the other half in 2022. 

However, this deferral should apply equally to imports, given they face the same excise taxes as products manufactured in the U.S, and face the same economic challenges.

The Q2 excise tax deferment imposed burdensome requirements on importers by requiring “significant financial hardship,” which US Customs and Border Protection defined as a loss of more than 40 percent in revenue. Future excise tax deferral should be available equally to all alcohol manufacturers and importers.

Deferring excise tax payments should not be viewed as a handout to the industry because these taxes are discriminatory. Federal excise taxes on wine, beer, and spirits are a form of double taxation as they are imposed in addition to federal income taxes as well as state and local taxes. Excise taxes are widely acknowledged to be economically inefficient and increase prices for consumers.

An excise tax deferral for distillers, breweries and wineries through the end of the year is a simple step that will help manufacturers as they look to survive the damage caused by COVID-19.

It will provide liquidity for taxpayers and will build upon past action taken by the Trump administration to mitigate the economic pain being felt by American workers and businesses.


Pelosi Proposes Retroactive Tax Increase on Struggling Companies

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Posted by Alex Hendrie on Thursday, May 14th, 2020, 1:29 PM PERMALINK

House Speaker Nancy Pelosi (D-Calif.) is proposing a retroactive tax increase on struggling American businesses in her recently released “Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act.” If enacted into law, it will speed up job losses by denying businesses the liquidity they need to continue paying workers and keep the lights on.

The bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March allowed corporations to carry back net operating losses (NOLs) incurred in 2018, 2019, and 2020 back five years. It also allowed businesses organized as passthrough entities to use NOLs to offset against non-business income.

These provisions were designed to help workers by ensuring businesses had cash to meet expenses and make payroll. This legislation was also supported unanimously by Democrats in the House and Senate.

Pelosi and House Democrats are now trying to retroactively reverse this policy and restrict net operating losses.

The Pelosi bill contains several restrictions. First, it prevents any businesses from carrying back losses before 2018.

This would mean 2018 losses could not be carried back at all, 2019 losses could be carried back just one year (to 2018) and 2020 losses could be carried back just two years (2018 and 2019). The CARES Act provision allowing passthroughs to offset business losses against non-business income would also be suspended.

In addition, the Pelosi bill prohibits businesses from taking NOLs if they make “excessive” stock buybacks and dividend payments. This restriction is triggered if the total amount of dividends and repurchased shares since 2018 exceeds 5 percent of the value of the stock in the last day of any taxable year. The average annual dividend yield of a S&P 500 company is around 2 percent so this threshold can easily be triggered by dividend payments alone.

Finally, the bill denies carrybacks if a company triggers section 162(m) or 280(g) – provisions that limit the ability of businesses to deduct compensation payments to executives.

These provisions are all effective retroactive to enactment of the CARES Act.

There is nothing controversial about expanding net operating loss carrybacks. Variants of this proposal have been enacted into law repeatedly over the past 20 years by Republican and Democrat presidents. For instance:


President Obama even highlighted NOL expansion as a “fiscally responsible economic kick-start,” in a 2009 press release:

“The Economic Recovery Act included a provision that allowed small businesses to count their losses this year against the taxes they paid in previous years. "Today, the President extended that benefit for an additional year and expanded it to medium and large businesses as well. Business losses incurred in 2008 or 2009 can now be used to recoup taxes paid in the prior five years. This provision is a fiscally responsible economic kick-start, putting $33 billion of tax cuts in the hands of businesses this year when they need it most, while enabling Treasury to recoup the majority of that funding in the coming years as these businesses regain their strength and resume paying taxes.”

Some have raised concerns that allowing businesses to carryback losses before 2018 will provide a windfall or excessive benefits because businesses will be able to apply losses incurred today from the post-TCJA 21 percent rate against the pre-TCJA 35 percent rate that existed in 2017.

First, it is important to note that there is precedent for this. In 2002, Congress allowed passthroughs to carryback losses despite the fact that the tax rates had been reduced the year before through the Economic Growth and Tax Relief Reconciliation Act.

In addition, this criticism does not change the fact that businesses desperately need help surviving the pandemic, which has restricted commerce and forced businesses to shutter. In the past eight weeks, almost 37 million people have filed for unemployment and the unemployment rate has risen from a 50-year low of 3.5 percent earlier this year to 14.7 percent in April. The Congressional Budget Office now projects that GDP will decline by 12 percent during the second quarter of 2020. 

Dozens of businesses are already using NOLs and other tax provisions enacted by the CARES Act to help them survive the damage caused by COVID-19, according to a report from the Wall Street Journal.

If these tax cuts are taken away, job losses and business failures will only accelerate.

Rather than denying tax cuts to struggling businesses, Pelosi and Democrats should focus on enacting proposals that help businesses weather the Coronavirus storm so that workers can keep getting paid and keep their jobs.

Photo Credit: Gage Skidmore


Full Business Expensing is Key to Ensuring Post COVID-19 Economic Recovery

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Posted by Alex Hendrie on Wednesday, May 13th, 2020, 2:54 PM PERMALINK

In the coming months, Congress will debate numerous policies in response to the economic damage caused by the Coronavirus. 

One of the most important policies to ensuring a strong recovery is full business expensing.

The Tax Cuts and Jobs Act moved in the right direction on expensing by allowing most assets (those with 20 years or less of depreciable life) to be expensed in the year of purchase until 2022. After 2022, the provision begins phasing out through the end of 2026. 

Moving forward, Congress should make expensing permanent and expand it, as proposed by Senator Pat Toomey (R-Pa.) and Rep. Jodey Arrington (R-Texas) in the Accelerate Long-Term Investment Growth Now (ALIGN) Act.  

What is Expensing?

Full business expensing reduces taxes by allowing businesses to deduct the cost of new investments (machinery, equipment etc.) in the year they are made. 

There are several benefits to this policy. First, it incentivizes new investment, leading to greater economic productivity, job growth and higher wages. Second, it simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs.

In a post COVID-19 world, expensing will help businesses make vital investments in the coming months and years as they seek to bring workers back, onshore manufacturing capabilities, and ramp up production in a post COVID-19 world. 

Full Business Expensing Creates Jobs and Grows the Economy 

Allowing immediate expensing gives businesses the equivalent of a zero percent rate on new investments. This has two benefits – it means more money for businesses to create jobs and increase pay, and it creates an incentive to increase capital investment, which leads to stronger economic growth, more jobs, and higher wages.

A 2018 Tax Foundation study estimates that making full business expensing permanent will increase GDP by 0.9 percent, creating over 172,000 jobs over the next decade. It is also important to note that this estimate accounts for only a fraction of the full benefits of expensing, because expensing is already law for much of the 10-year budget baseline.

Previous research by the Tax Foundation has estimated that over a decade, expensing can increase GDP by five percent  and increases wages by 4 percent, creating more than one million jobs.

Expensing Makes the Tax Code Fairer and Simpler

By allowing businesses to write off the cost of new investments immediately, full business expensing removes a bias in the tax code. Prior to the enactment of expensing, businesses were forced deduct, or “depreciate” the cost of new investments over multiple years depending on the asset they purchase, as dictated by complex and arbitrary IRS rules. 

These rules create needless complexity and increase compliance costs. A business could write off a box of paper clips immediately but had to wait five years to recover the full cost of purchasing a computer, or seven years to recover the full cost of purchasing a desk.

This forced business owners to make decisions based on tax reasons, while full business expensing treats all assets and business expenses equally.

There is Strong Support for Full Business Expensing

Expensing has the support of conservative groupseconomists, and key House Republicans such as Ways and Means Ranking Republican Kevin Brady (R-Texas).

The ALIGN Act introduced by Senator Toomey and Rep. Arrington also has significant support. Co-sponsors include Senators Mike Braun (R-Ind.), Shelley Moore Capito (R- W.Va.), Kevin Cramer (R-N.D.), Ted Cruz (R-Texas), Cory Gardner (R-Colo.), Jim Inhofe (R-Okla.), James Lankford (R-Okla.), Jerry Moran (R-Kan.), David Perdue (R-Ga.), Rob Portman (R-Ohio), Jim Risch (R-Idaho), Marco Rubio (R-Fla.), Tim Scott (R-S.C.), Thom Tillis (R-N.C.), John Thune (R-SD), and Kelly Loeffler (R-Ga.). 

The House version is supported by Rep. Drew Ferguson (R-Ga.), Rep. Jason Smith (R-MO), Rep. Guy Reschenthaler (R-Pa), Rep. Tom Rice (R-SC), Rep. David Schweikert (R-Ariz.), and Rep. Brad Wenstrup (R-Ohio)

While many on the left equate full business expensing as a “loophole,” this was not always the case. Former Obama Economic Adviser Jason Furman has long supported full business expensing, and the policy was included in several Obama budgets (albeit as part of a net tax increase).

The Obama White House correctly noted that the provision would help businesses and workers in press releases and fact sheets:

“If a business bought an additional $1 million worth of equipment next year, they would be able to deduct the full $1 million up front, potentially accelerating hundreds of thousands of dollars in tax cuts.  That’s real money that businesses… could use to expand or hire new workers right now, and provides a strong incentive to increase investment now, creating even more jobs.”

President Obama is right. Full expensing helps workers, businesses, and the economy. As lawmakers look to turn the economy around, they must preserve and enhance expensing. 

Photo Credit: Gage Skidmore


Congress Should Reject Retroactive Conservation Easement Tax Increases

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Posted by Alex Hendrie on Wednesday, May 13th, 2020, 8:00 AM PERMALINK

In a letter to members of Congress, ATR urged lawmakers to reject efforts to retroactively increase taxes on taxpayers claiming the conservation easement deduction in future legislation.

While conservatives have rightly called on Congress to offset future spending proposals, this should not be an excuse for lawmakers to offset spending proposals with tax increases, especially retroactive tax increases. 

Congress has repeatedly declined to limit the conservation easement deduction in the past, so there is little justification for retroactively raising taxes now. Doing so would undermine confidence in the tax system and the legal agreements made between taxpayers and land trusts.

The full letter is below and here.

Dear Member of Congress:

As you consider proposals to mitigate the economic damage that COVID-19 has caused, I urge you to reject efforts to impose retroactive tax increases on American workers and businesses.

Many conservatives, including Republican Study Committee Chairman Mike Johnson (R-La.), have rightly called on Congress to offset new spending in future Coronavirus legislation.

While this is the right approach, it should not be an excuse for lawmakers to offset spending proposals with tax increases.

This is especially true when it comes to retroactive tax increases, which would simultaneously raise taxes on income taxed and earned in prior years and on income earned going forward.

Some lawmakers have proposed retroactively increasing taxes on taxpayers claiming the conservation easement deduction, a move with little justification that would undermine confidence in the tax system. This proposal should be rejected.

Retroactive tax policy should be rejected. The tax code relies on consistency, certainty, and fairness. Taxpayers routinely make decisions based on a reasonable interpretation of the law with the expectation that future changes to the law will not be applied looking backwards.

Retroactively changing the tax code undermines these principles by changing the rules after the fact. This can have significant financial consequences for taxpayers in the form of thousands or millions of dollars in additional tax liability from past years’ individuals or businesses.

It can also increase costs prospectively given that financial decisions would have been made based on the prior interpretation of the law.

This undermines confidence in the tax system and discourage taxpayers from taking advantage of explicit tax incentives (e.g., for charitable contributions, business investments, and energy efficiency) if they fear Congress might retroactively eliminate these incentives in the future.

What is the conservation easement deduction? The conservation easement deduction has existed for decades and incentivizes property owners to conserve land and historic sites by offering a charitable deduction. In order to claim the deduction, the taxpayer must agree to restrict their right to develop or alter the property. Organizations known as land trusts agree to monitor the restrictions placed on the property. 

In exchange for foregoing the opportunity to develop the land, the taxpayer is allowed to deduct the “fair market value” of the property, limited to 50 percent of adjusted gross income (AGI) in any given year with the ability to carry forward any unused deductions for up to 15 years.  

There is no justification for a retroactive conservation easement deduction tax increase. One proposal, S. 170, the “Charitable Conservation Easement Program Integrity Act of 2019,” would make changes to the conservation easement deduction effective to “contributions made in taxable years ending after December 23, 2016.”

This would restrict or disallow deductions from donations made as far back as January 2016 – imposing tax increases on taxpayers retroactively for tax years 2016, 2017, 2018, and 2019 and imposing tax increases prospectively.

Not only would this significantly increase taxes, it would undermine the legal agreement that taxpayers enter into with a land trust to not develop the land. Under S.170, the taxpayer would still be bound by this agreement, even though their ability to claim the tax deduction would be reduced or eliminated.

The December 23, 2016 date coincides with the release of IRS Notice 2017-10, a notice released without prior stakeholder input that subjected taxpayers to burdensome new filing requirements and onerous compliance costs. While this notice signaled the intent of the IRS to scrutinize transactions, there is no basis for it to be used as justification to narrow the deduction.

Any legislative changes to the provision are in the domain of Congress, which has repeatedly declined to limit the deduction both before and after the IRS Notice:

  • Since the 2016 notice, Congress has passed several substantive pieces of tax legislation including the Tax Cuts and Jobs Act and tax extenders legislation. In each case, Congress declined to impose limitations on the deduction.
  • There is significant legislative history affirming the intent of Congress to expand the deduction. Most recently, In 2006, the deduction was temporarily enhanced with strong bipartisan, bicameral support to allow taxpayers to deduct up to 50 percent of their adjusted gross income and carry forward any unused deductions for up to 15 years.  This enhancement was made permanent in 2015, a year before Notice 2017-10.
     

If lawmakers determine that the conservation easement deduction or any statutory provision is being used by taxpayers in a way that is inconsistent with its original intent, Congress should disallow or modify the provision on a prospective basis.

As lawmakers consider proposals to offer further relief from the economic damage caused by COVID-19, it is crucial they reject retroactive tax increases on American workers and businesses, including efforts for a retroactive conservation easement deduction tax increase.

Onward,

Grover Norquist
President, Americans for Tax Reform

Photo Credit: Peter Schultz


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