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Treasury Issues Proposed Regulations Permitting RIC Pass-Through of Qualified REIT Dividends, Reserves on Qualified PTP Income

On January 18, 2019, the Treasury Department and IRS issued proposed regulations (the “Proposed Regulations”) that generally permit regulated investment companies (“RICs”) to pass through to their non-corporate shareholders qualified REIT dividends eligible for the 20% deduction under Section 199A of the Internal Revenue Code of 1986, as amended (the “Code”). Taxpayers are entitled to rely on the portion of the Proposed Regulations permitting this “conduit treatment” for qualified REIT dividends immediately. The Proposed Regulations reserve on extending conduit treatment to qualified publicly traded partnership (PTP) income, citing as-yet-unaddressed complexities associated therewith, and solicit comments on whether and how future regulations could accommodate the extension of conduit treatment to qualified PTP income earned through RICs.

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Trump Administration Releases Tax Reform Framework

Time to Read: 1 minutes Practices: Tax

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On April 26, 2017, the Trump Administration announced several key tax reform proposals. Broadly resembling the Trump campaign platform, the proposals furnish only a high-level aspirational framework for wide-ranging reforms, the details of which the White House expects to develop through discussions with Congress and taxpayers. Notably, the framework does not include House Republican “Blueprint” proposals to expense capital investment, limit interest deductions, or implement “border adjustments.”

For businesses, the Trump Administration proposes to:

  • Lower the maximum corporate tax rate to 15%.
  • Apply the 15% rate to business income of pass-through entities, including S corporations and partnerships.
    • Complex implementation issues can be expected because the top individual rates will exceed the 15% business income rate.
    • Special rules would likely be needed to prevent regular compensation income from benefiting from the 15% rate. 
  • Provide a one-time deemed repatriation of existing earnings of foreign subsidiaries, taxable at a reduced rate. 
    • Treasury Secretary Mnuchin indicated the rate would be “competitive,” but did not recommit to the 10% rate described in Trump’s campaign plan. 
  • Going forward, adopt a territorial international tax regime.

For individuals, the Trump Administration proposes to:

  • Lower the top individual tax rate to 35%.
  • Repeal the 3.8% net investment income tax (NIIT) that was introduced as part of Obamacare. 
  • Retain the 20% maximum tax rate on dividends and capital gains (exclusive of NIIT). 
  • Double the standard deduction for individuals and married couples.
  • Eliminate most itemized deductions, including the deduction for state and local taxes (unfavorable for individuals in states with higher income tax rates). 
  • Preserve itemized deductions for mortgage interest, charitable contributions, and contributions to qualified retirement plans. 
  • Provide a new tax credit for the care of children and dependents.
  • Repeal the alternative minimum tax.
  • Eliminate the estate tax. 

Differences between the framework and previous Trump tax pronouncements:

  • Contains no commitment to budget-neutral tax reform. 
  • Does not mention budget offsets, such as limitations on interest expense deductions or the elimination of carried interest.
  • Contains no commitment to implement permanent tax reform, as opposed to tax cuts that would sunset in 10 years. 

The political prospects of these proposals, as well as the tax reform process, remain uncertain. For more information about these or other tax reform proposals, please consult Lee Allison, Kat Gregor, or David Saltzman, or your regular Tax Group contact.

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