Pardon Our Dust
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LEGISLATIVE LANDSCAPE
House: More Extenders Passed. The House passed legislation to make permanent three expired tax provisions related to business expensing and tax benefits for S corporations. None of thebills contained offsets of their costs — a sticking point for the majority of Democrats in the House who voted against the provisions. H.R. 4457, America’s Small Business Tax Relief Act, would permanently extend the enhanced Section 179 expensing provision. H.R. 4453 wouldallow for a five-year recognition period for the tax on built-in gains, and, after subsuming H.R. 4454, provides for basis adjustments of S corporations’ stock for charitable contributions of property.
The House is continuing its piecemeal approach to make some of the expired provisions permanent, while letting others expire for good. Meanwhile, the Senate’s attempt at extending nearly all the expired provisions for two years has stalled and is not expected to be revisited until after the November mid-term elections.
Levin Bros.’ Legislation Fails to Deter New Inversions. Despite the recent introduction of anti-inversion legislation in both the House and Senate, U.S. multinational corporation Medtronic announced Sunday it will reincorporate in tax-friendly Ireland after it completes a $42.9 billion takeover of Covidien Plc. Covidien, which is run from Mansfield, Mass., is itself a spin-off from an inversion transaction that occurred in the late 1990s. It has been incorporated in Ireland since 2009. Medtronic’s move across the pond will allow it to access an estimated $20.5 billion in profits held by overseas subsidiaries without being subject to the U.S. 35 percent tax rate.
Senate: Holiday for Highways? It’s not a bumper sticker you’re likely to see anytime soon, but the Senate continues to negotiate over the possibility of using a repatriation “tax holiday” — allowing U.S. multinational companies to bring back earnings held overseas at a lower rate — in order to replenish the nearly depleted highway trust fund. Majority Leader Harry Reid (D-NV) continues to push for a 9.5 percent repatriation rate for one year. Opponents of the idea include the Democratic Chairman of the Senate Finance Committee, Ron Wyden (OR), and his Republican counterpart, Ranking Member Orrin Hatch (UT). The leaders of theSenate’s tax-writing panel say repatriation changes should be left for future negotiations over tax reform. Hatch also points to a recent Joint Committee on Taxation report that found a repatriation tax holiday would lose more than $95 billion in revenue over the 10-year budget window.
REGULATORY WORLD
BEPS Project on Track. The OECD announced that it is on track to submit the first seven BEPS actions to the Sept. 20-21 meeting of G-20 finance ministers and central bank governors in Cairns, Australia. After G-20 finance ministers approve the actions, G-20 leaders then are scheduled to consider the reports at their Nov. 15-16 summit in Brisbane, Australia. The organization is scheduled to deliver the remaining BEPS deliverables in 2015.
GAO Report Shines Tax Spotlight on S Corps and Partnerships. The Government Accountability Office released a new report June 13, 2014, announcing that the nation’s seven million S corporations and partnerships underreported their incomes by about $91 billion annually from 2006 through 2009. That translated into $19 billion in unpaid taxes, according to the report. The GAO recommends that Congress require more partnerships and S corporations to e-file their tax returns.
COURTS & LEISURE
Inherited IRAs Not Exempt in Bankruptcy. A unanimous U.S. Supreme Court ruled on June 12 that funds held in inherited individual retirement accounts aren’t “retirement funds” asdefined by the Bankruptcy Code and, thus, aren’t exempt from the bankruptcy estate.
LOOKING AHEAD
Relevant Congressional Activity
House Republicans
House Republicans will hold elections for majority leader and majority whip on Thursday, June 19, 2014.
House Appropriations Committee
On Wednesday, June 18, 2014, the House Appropriations Subcommittee on Financial Services and General Government will mark up its FY 2015 spending bill.
House Financial Services Committee
On Wednesday, June 18, 2014, the House Financial Services Committee will hold a hearing entitled “The Semi-Annual Report of the Consumer Financial Protection Bureau.” The sole witness will be CFPB Director Richard Cordray.
Senate Banking, Housing and Urban Affairs Committee
On Wednesday, June 18, 2014, the Senate Banking Subcommittee on Securities, Insurance and Investment will hold a hearing entitled “High Frequency Trading’s Impact on the Economy.” Witnesses will be:
- Hal S. Scott, Nomura Professor of International Financial Systems, Harvard Law School
- Jeffry Solomon, Chairman and CEO, Cowen Group, Inc.
Senate Homeland Security and Governmental Affairs Committee
On Tuesday, June 17, 2014, the Permanent Subcommittee on Investigations will hold a hearing entitled “Conflicts of Interest, Investor Loss of Confidence and High Speed Trading in U.S. Stock Markets.” Witnesses will be
- Bradley Katsuyama — President & CEO, IEX Group, Inc., New York, NY
- Robert H. Battalio — Professor of Finance, Mendoza College of Business, University of Notre Dame, Notre Dame, IN
- Thomas W. Farley — President, NYSE Group, New York, NY
- Joseph P. Ratterman — CEO, BATS Global Markets Inc., Lenexa, KS
- Joseph P. Brennan — Principal and Head of Global Equity Index Group, The Vanguard Group Inc., Malvern, PA
- Steven Quirk — Senior Vice President, Trader Group, TD Ameritrade, Omaha, NE
Relevant Agency Activity
Board of Governors of the Federal Reserve System
On Tuesday, June 17, 2014, and Wednesday, June 18, 2014, the Federal Open Market Committee (FOMC) will hold a closed meeting. Fed chair Janet Yellen will hold a news conference following the Wednesday meeting.
ERISA Advisory Council Meeting
The ERISA Advisory Council will meet June 17 through 19, 2014, at the Department of Labor headquarters in Washington, D.C. The topics to be covered include
- Outsourcing Employee Benefit Plan Services
- Issues and Considerations around Facilitating Lifetime Plan Participation
- PBM Compensation and Fee Disclosure