27 november 2018 10:00 am (u.s. et) - worldwide erc · – worldwide erc provided analysis...

© 2018 Worldwide ERC®

27 November 201810:00 am (U.S. ET)

Worldwide ERC® Government Affairs Update

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Peter K. ScottTax CounselWorldwide ERC®

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Today’s Presenters

Tristan NorthGovernment Affairs AdviserWorldwide ERC®

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• Government Affairs Update– U.S. Midterm Election Analysis– Moving Americans Privacy Protection Act– Brexit

• Tax Update– Post Election Issues– Tax Reform Issues

• Questions and Answers© 2018 Worldwide ERC®

Presentation Outline

• U.S. Midterm Election Analysis– Impact on Mobility

• Moving Americans Privacy Protection Act• Brexit


Government Affairs Update

Democrats Retake the House

Source: Politico

• 234 Democratic Seats vs. 201 Republican

• Dems gain flip 42 seats, gain 39 seats

• Largest Dem gain since Watergate

House Leadership (116th Congress)

Likely Democrats

Speaker of the HouseNancy Pelosi (D-CA-12)

Republicans

Minority LeaderKevin McCarthy (R-CA-23)

Majority LeaderSteny Hoyer (D-MD-05)

Majority WhipJim Clyburn (D-SC-06)

Minority WhipSteve Scalise (R-LA-01)

Chief Deputy WhipPatrick McHenry (R-NC-10)

Key House Committee Leadership (116th Congress)

Financial Services

ChairmanFrank Pallone (D-NJ-06)

Homeland Security

ChairmanBennie Thompson

(D-MS-02)

Energy & Commerce

ChairmanMaxine Waters (D-CA-43)

Judiciary

ChairmanJerry Nadler (D-NY-12)

Ranking MemberGreg Walden (R-OR-02)

Ranking Member: TBD

Ranking MemberMike Rogers (R-AL-03)

Ranking Member: TBDSteve Chabot (R-OH-01) –or–

Doug Collins (R-GA-09)

Key House Committee Leadership (116th Congress)

Science, Space & Tech

ChairmanRaúl Grijalva (D-AZ-03)

Transportation & Infrastructure

ChairmanPeter DiFazio

(D-OR-04)

Natural Resources

ChairmanEddie Bernice Johnson

(D-TX-30)

Ways & Means

ChairmanRichard Neal (D-MA-01)

Ranking MemberRob Bishop (R-UT-01)

Ranking Member: TBDFrank Lucas (R-OK-03) –or–

Randy Weber (R-TX-14)

Ranking Member: TBDSam Graves (R-MO-06) –or–

Jeff Denham (R-CA-10)

Ranking MemberKevin Brady (R-TX-08)

Republicans Expand Senate Majority

Source: Politico

Republicans Expand Senate Majority

New Senators

Josh Hawley (R-MO)

Marsha Blackburn(R-TN)

• Republicans have flipped 3 seats (FL, IN, MO, ND), likely gaining 3 overall

• Democrats flipped Nevada and Arizona

Mitt Romney(R-UT)

Mike Braun(R-IN)

Kevin Cramer(R-ND)

Jacky Rosen(D-NV)

Overview

Kyrsten Sinema(D-AZ)

Rick Scott(R-FL)

Senate Leadership (116th Congress)

Republicans

Majority LeaderMitch McConnell (R-KY)

Democrats

Minority LeaderChuck Schumer (D-NY)

Majority WhipJohn Thune (R-SD)

Republican Conference ChairJohn Barrasso (R-WY)

Minority WhipDick Durbin (D-IL)

Assistant Minority LeaderPatty Murray (D-WA)

Key Senate Committee Leadership (116th Congress)

Commerce

ChairmanPat Toomey (R-PA)

Energy & Natural Resources

ChairmanLisa Murkowski (R-AK)

Banking

ChairmanRoger Wicker (R-MS)

Finance

ChairmanChuck Grassley (R-IA)

Ranking MemberSherrod Brown (D-OH)

Ranking Member: TBDPending Election Results

Ranking MemberMaria Cantwell (D-WA)

Ranking MemberRon Wyden (D-OR)

Key Senate Committee Leadership (116th Congress)

Homeland Security

ChairmanLamar Alexander (R-TN)

Health, Education, Labor & Pensions (HELP)

ChairmanRon Johnson (R-WI)

Judiciary

ChairmanLindsay Graham (R-SC)

Ranking MemberPatty Murray (D-WA)

Ranking Member: TBDPending Election Results

Ranking MemberDianne Feinstein (D-CA)

Financial Services• Republican efforts to further reform Dodd-

Frank Act or Sarbanes-Oxley are now unlikely

• Increased oversight by House Financial Services Committee of practices of large financial institutions

• Possible legislation to regulate cybersecurity safeguards for financial institutions

©2017 Worldwide ERC®

Immigration• Possible deal on deferred action for

childhood arrives (DACA) in exchange for increased funding for wall along U.S.-Mexico Border

• Trump Administration expected to issue long-awaited proposed rule to no longer allow spouses of H-1B visa holders to be eligible for employment in U.S.

• House Democrats likely to develop package on comprehensive immigration reform to include business immigration provisions


Cybersecurity and Data Privacy

• Election Security will gain attention from Democrats in 2019

• Democrats will likely mirror California’s action in passing legislation on data privacy

• Democrats will take a more aggressive approach on cyber supply chain threats


Trade & Tariffs• Section 301 tariffs on Chinese goods and

232 tariffs on steel will not be largely impacted by the new Congress

• House Democrats will exert increased oversight of US Free Trade Agreements under negotiation in 2019

• Congress approval of renegotiated NAFTA agreement, the United States-Mexico-Canada Trade Agreement


Moving Americans Privacy Protection Act

• U.S. Customs and Border Protection (CBP) is required to release vessel manifests which can include personally identifiable information of transferees shipping goods

• Information can include Social Security numbers, passport numbers and addresses

• Data brokers purchase information compiled by CBP and use for marketing and analysis purposes and post on websites

• On May 1, 2017, Senators Daines (R-MT) and Peters (D-MI) introduced the Moving Americans Privacy Protection Act (S. 998). On November 15, 2017, Representatives Denham (R-CA) and Pascrell (D-NJ) introduced House companion bill (H.R. 4403)

• On April 14, 2018, House passed H.R. 4403 on voice vote• On November 14, Worldwide ERC®, American Moving & Storage

Association, International Association of Movers and eight other organizations sent letter to Senate leaders urging consideration of H.R. 4403/S. 998 this year


Brexit• On November 14, UK Prime Minister Theresa May

announced an agreement reached between UK and EU on Brexit

• Agreement supported by her Cabinet but two ministers resigned including Brexit minister

• Freedom of movement would stop following transition period ending December 31, 2020

• UK citizens living in the EU and EU citizens living in the UK until that date would maintain current rights

• UK would remain in the EU customs union until a compromise reached on maintaining an open border between Northern Ireland and the Republic of Ireland

• On November 26, EU leaders approved the agreement• UK Parliament is scheduled to debate agreement starting on

December 5 with vote on the 11th


• Post Election Issues– Extenders– Technical Corrections– More Tax Cuts?

• Tax Reform Issues


Tax Update

Post-Election• Lame Duck session short• Technical corrections to TCJA

– W&M Chair has over 80– Dems oppose (want hearings to discuss TCJA

flaws)– Senate Finance divided (issues with

state/local tax deduction limit)– Unlikely to move during lame duck

• No obvious vehicle, will not move stand alone• Disaster relief possible vehicle


Post-Election• Tax Extenders

– W&M Chair has draft 11/16• Repeal some, make some permanent• 50 Trade Associations urge action 11/13

– Senate Finance Chair wants 2-year extension• Possible combination of technical corrections, IRS reform bill,

pension reform– Democrats will not cooperate absent concessions by

Republicans– Movement during lame duck possible but not likely– Mobility industry cares about provision allowing tax-

free debt forgiveness for up to $2 million of mortgage


Post-Election• “Tax Reform 2.0” package dead for now

– House passed before election– Make temporary provisions of TCJA permanent– But included a bill making taxpayer-favorable

changes to retirement plan system, which could possibly move

• Democrats say they would consider raising corporate rate to 25% from 21%, roll back high-income tax cuts, to fund $1 trillion infrastructure improvement plan– Trump says he would consider as vehicle for further

middle class tax cuts


Mobile Workforce Act• Pending for years, would prohibit states

from taxing temporary workers until they had worked thirty days in the state

• Passed House (again), pending in Senate Finance with 61 co-sponsors

• Outgoing primary House sponsor sent letter to all Senators 11/15 urging action

• Probably won’t happen– NY Senator Schumer opposed


Tax Reform Issues• 2018 payments for 2017 moving expenses• Business/entertainment and meal

expenses• State conformity• State workarounds for state tax deduction

limitation• Loss of miscellaneous itemized deductions


2018 payments for 2017 moving expenses

• Major issue early in 2018– Worldwide ERC provided analysis generally

supporting exclusion, but no guidance from IRS

– Many companies chose conservative path and grossed up 2018 payments

• IRS Notice 2018-75, 9/21/2018– Resolves issue in favor of exclusion– Employers can go back and change under

standard procedures©2017 Worldwide ERC®

Notice 2018-75• Reimbursements an employer pays to an employee or a moving

company in 2018 for qualified moving expenses incurred in a prior year are not subject to federal income or employment taxes.

• Reimbursements must be for work related moving expenses and meet the prior qualifications of Section 217 and definition of Qualified Moving Expense. See Form 3903 or Publication 521 for 2017 rules. That is, they would have been deductible in 2017 if paid directly by employee.

• The employee must not have deducted the expenses in 2017.

• Employers who have already treated the reimbursements or payments as taxable can follow the normal employment tax adjustment and refund procedures. Publication 15 – Section 13, or Form 941-X and its instructions.


Notice 2018-75: Issues• If company did in fact treat these amounts as taxable, it may

be difficult to go back and separate them from other 2018 payments– May require extensive reconstruction of records, additional

programming– Who will absorb those costs?

• States another difficult area– Many companies grossed up for all states for 2018, but nearly all

states permitted an exclusion in 2017– Should they try to go back and separate these costs?

• Does the move have to have been completed in 2017? – Notice is not clear– Could also apply to costs incurred in 2017 even if move not

completed until 2018


Business Entertainment & Meals• Tax Cuts and Jobs Act (TCJA) disallows any deduction for

business entertainment starting in 2018.– 50% was deductible previously– TCJA is silent on treatment of business meals associated with

entertainment– Not clear if buying hotdogs for client at the ballgame remains

50% deductible• Notice 2018-76, 10/3/2018, resolves issue

– Food and beverages provided during or at entertainment activity remain 50% deductible if:

• Purchased or billed separately from the entertainment• Must substantiate separate charge (receipt for the hotdogs, or a bill for

entertainment that separately lists food/beverage charges)– Will require establishment of new recordkeeping processes


Moving Expenses: States • Companies Do Not Know Whether to Treat

Reimbursements/Payments as Taxable in Many States– Most states follow federal law– About half do so automatically (called “rolling”

conformity), half based on a fixed date (called “static” conformity)

– In rolling conformity states, moving expense deduction/exclusion is no longer available unless they change their law to allow it

– In static conformity states, deduction/exclusion still in place unless state acts to update its conformity date without excluding that change


Moving Expenses: States• Next slide has details on all states• One change since data last compiled:

– Kentucky Revenue Department has interpreted conformity legislation to eliminate exclusion

– Not at all clear from actual legislation, but industry will need to follow Department’s interpretation


Moving Expenses: States• 16 Static States Have Acted:

– 13 now follow federal law: Georgia, Idaho, Indiana, Iowa, Kentucky, Maine, North Carolina, Ohio, Oregon, South Carolina, Vermont, West Virginia, Wisconsin. (But Iowa not effective until 2019) (Maine conformed 9/12/2018, and SC conformed 10/2/2018)

– 3 still allow exclusion: Arizona, Hawaii, Virginia (and Iowa for 2018)• 4 Static States Haven’t Acted, Moving Expense Still Excludable:

– Arkansas, California, Massachusetts, Minnesota One Rolling Conformity State Has Kept Exclusion– New York

• 18 Rolling Conformity States Exclusion Currently Not Allowable: – Alabama, Colorado, Connecticut, D.C., Delaware, Illinois, Kansas, Louisiana,

Maryland, Michigan, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Rhode Island, Utah

• 3 Non-conformity States: – New Jersey, Pennsylvania: allow exclusions; Mississippi: does not allow exclusions

• Current final score: – 11 states allow exclusion for 2018: Arizona, Arkansas, California, Hawaii, Iowa,

Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Virginia


State Workarounds• Four states have sued U.S. to reverse the $10,000 limit on state tax

deductions• Three (NY, NJ, and CT) have enacted “workarounds” (IL, and RI

considering)– Establish state or local charities to which taxpayers may

contribute– Full charitable contribution deduction on federal return– Taxpayer gets credit against state income tax or local property

tax for contribution• Programs mimic other state credit programs that have been

allowed in the past, at least where full credits were not allowed


State Workarounds• Treasury issued proposed regulations August 23

– Allowable federal contribution deduction reduced by the credit– Will affect not only new workaround programs, but numerous

existing programs (eg, school choice) allowing tax credits for donations

• These had generally been approved in the past– IRS said on September 5 that new regulations do not apply to

businesses that make contributions in exchange for credits• Those remain fully deductible as business expenses as long as there’s

a business reason for the contribution– By September 21, Treasury had already received over 1,500

comments on the proposed regulations– Issue will be litigated


Miscellaneous Itemized Deductions

• Previously deductible to the extent they exceeded 2% of Adjusted Gross Income

• Tax Reform eliminated deduction for 2018 through 2025

• Impact on mobility– No deduction for home office, other business expenses for

remote employees• Independent contractors not affected, puts additional pressure

on worker classification– No deduction for extra expenses incurred by employees

traveling on business– Probably no deduction for repayments under payback

agreements• Argument still deductible under claim of right provisions


Thank you for attending! Visit the Worldwide ERC® web site at www.worldwideERC.org, or contact

Worldwide ERC® for more information on these topics. +1.703.842.3400

27 november 2018 10:00 am (u.s. et) - worldwide erc · – worldwide erc provided analysis...

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