The House Ways and Means Committee approved a sweeping tax bill early on May 14 that would make permanent most of the expiring provisions of the Tax Cuts and Jobs Act (TCJA) while paying for several new tax cuts through an aggressive package of revenue raising tax increases. Committee passage is an important step in the legislative process, but the bill is likely to continue to evolve as it moves forward.
Ways and Means Committee Chair Jason Smith, R-Mo., released the full tax title on May 12, offering the first comprehensive view of the technical details and legislative language behind the Republican tax agenda. The committee passed the bill on a 26 to 19 partisan vote after dismissing scores of Democratic amendments, but changes are likely to be needed before the bill goes to the House floor. Republicans are seeking to combine the tax title with spending reforms from other committees and pass a unified reconciliation bill this summer.
The tax package is estimated to cost $3.8 trillion, but that figure comprises approximately $6.8 trillion in extensions of favorable TCJA provisions and $1 trillion in other tax cuts. Those tax cuts are offset by extending approximately $3 trillion in revenue raising TCJA provisions and $1 trillion in new tax increases. The net effect of extending both the tax cut and revenue raising TCJA provisions is slightly under $4 trillion, with the other changes largely netting out.
The legislation would essentially make permanent all the expiring TCJA provisions with some adjustments, including:
- Increasing the Section 199A deduction from 20% to 23%
- Increasing the lifetime exemption for the estate, gift, and generation skipping transfer taxes to $15 million in 2026 (indexed to inflation thereafter)
- Increasing the cap on the state and local tax (SALT) deduction to $30,000 for taxpayers with income under $400,000
- Limiting taxpayers’ ability to use state pass-through entity workarounds for the individual SALT cap
- Changing the treatment of suspended losses under the active loss limit in Section 461(l)
The SALT cap provision is not final, and negotiations will continue as Republicans prepare for a House vote. An agreement is critical, as a handful of Republicans have threatened to block the bill unless they are satisfied with the level of SALT cap relief. With just a 220 to 213 House majority, Republicans can afford to lose only three votes.
The bill would also reinstate 100% bonus depreciation for property placed in service after Jan. 19, 2025, and before Jan. 1, 2029. In a significant expansion of the provision, full expensing would be offered for buildings (including new and improved/retrofitted property) that manufacture, produce, or refine tangible personal property. The bill would also restore expensing of domestic research expenses under Section 174 for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030. The limit on the interest deduction under Section 163(j) would be amended over the same five-year period to add back depreciation and amortization expenses in determining adjusted taxable income.
The bill includes $293 billion in new temporary tax cuts to fulfill four key promises made by President Donald Trump on the campaign trail: deductions for overtime pay, tips, seniors, and auto loan interest on domestic vehicles. The deductions would be in place from 2025 to 2028 and would be available regardless of whether taxpayers itemize their deductions. There are important limitations and income phaseouts for each provision, and employers and other entities would be required to provide new reporting.
The bill would raise $1 trillion with a series of new revenue raising tax increases (not including extensions of the SALT cap or the repeal of personal exemptions). Many of these provisions could face resistance from business lobbyists and sympathetic Republican members. Key provisions include:
- Repealing, phasing out, and restricting many of the energy credits created or enhanced by the Inflation Reduction Act (IRA)
- Increasing the university endowment tax from a rate of 1.4% to a top rate of 21%
- Increasing the tax rate on private foundations to a top rate of 10%
- Making several changes to increase the unrelated business taxable income (UBTI) of tax-exempt entities
- Creating a “floor” for corporate charitable deductions of 1% of taxable income
- Imposing new reciprocal taxes for “unfair” foreign taxes
- Adding new aggregations rules to the limit on deducting executive compensation under Section 162(m)
If any revenue raising provisions face resistance (or lawmakers push for deeper tax cuts), it could put pressure on Republicans to identify other tax savings options. The budget resolution gives Republicans a $4.5 trillion cap on tax cuts, but this cap is reduced by the amount that spending cuts fall short of $2 trillion. Because other committees are expected to achieve only the $1.5 trillion minimum in spending cuts, the Ways and Means Committee is anticipating a tax cap of just $4 trillion. As the process moves to the Senate, Republicans could gain relief by using the current policy baseline in the Senate reconciliation instructions. This baseline would allow Republicans to make the TCJA tax cuts permanent while scoring the nearly $4 trillion in extensions as having no revenue impact. The Senate instructions then allow for up to $1.5 trillion in new net tax cuts. Questions remain, however, over whether this could trigger procedural challenges or run into opposition from House deficit hawks.
The tax title omits several key proposals that were under discussion. Some of these provisions could still be considered later in the process, including:
- Reduced 15% corporate rate for domestic manufacturing
- Limit on corporate SALT deductions
- Increase in the top individual rate
- Change in the taxation of carried interest
- Increase in the 1% stock buyback excise tax
The current tax title may be further refined before it is brought to the House floor. House Speaker Mike Johnson, R-La., is aiming to pass a bill through the House by Memorial Day, and Republicans have set a July 4 target date for enactment.
Those deadlines may be ambitious and key Senators have indicated that enactment before the August recess may be a more realistic goal. The debt limit could give that deadline more urgency. Republicans are currently hoping to address the debt limit through reconciliation to avoid negotiating with Democrats. Treasury Secretary Scott Bessent recently told lawmakers that the federal government could default in August unless the debt limit is raised. The technical deadline for the reconciliation bill under the budget resolution is Sept. 30, when the government’s current fiscal year ends.
Republicans still face many challenges to enacting a reconciliation bill, including narrow majorities in both chambers, potential Senate procedural hurdles, and competing priorities between Republican moderates and deficit hawks. The tax title is far from final, but the current version makes clear that nearly all businesses and investors would be affected. With legislative language now available, taxpayers should begin assessing the impact and considering planning options both before and after enactment. The following is a more detailed discussion of the provisions and their outlook for enactment.
Bonus Depreciation
The bill would restore 100% bonus depreciation for property placed in service after Jan. 19, 2025, and before Jan. 1, 2029. There would be no phasedown beyond these dates, so property placed in service in 2029 or later would not qualify for any bonus depreciation amount.
The legislation would also create a new elective 100% depreciation allowance under Section 168(n) for any portion of nonresidential real property that is considered “qualified production property.” Qualified production property must be original use depreciable property used by the taxpayer in the U.S. as an integral part of a qualified production activity. A qualified production activity includes the manufacturing of tangible personal property, agricultural production, chemical production, or refining. Qualified production property does not include any portion of building property that is used for offices, administrative services, lodging, parking, sales activities, research activities, software engineering activities, or other functions unrelated to qualified production activities.
There is an exception for the original use requirement if the property was not used in a qualified production activity between Jan. 1, 2021, and May 12, 2025. There are special recapture rules if the property is disposed of within 10 years after it is placed in service. This provision would apply if construction began on the property after Jan. 19, 2025, and before January 1, 2029. The property is required to be placed in service by the end of 2032.
The bill would also increase the Section 179 deduction to $2.5 million with a phaseout threshold of $4 million, indexed to inflation.
The ability for producers, refiners, and manufacturers to fully expense buildings rather than depreciate them over 39 or 15 years offers a significant benefit. Congressional staff told business representatives on a conference call that this provision is meant to fulfill the policy objective underlying Trump’s push for a 15% rate on domestic manufacturing. But taxpayers and the IRS may face challenges determining what fits under the provision’s definition of manufacturing. Taxpayers with buildings that house both qualified production activities and other administrative, office, or research functions will likely need to perform a cost segregation study or perform some type of reasonable analysis.
Section 174 Research Expensing
The bill would restore expensing of domestic research costs for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030. The legislation would not reinstate the expensing rules under Section 174 but would instead create temporary rules under new code Section 174A similar to the Section 174 rules before the TCJA changes. Taxpayers would retain the option of electing to capitalize domestic Section 174 costs and amortize such amounts over 10 years or the useful life of the research (with a 60-month minimum). Foreign research would still need to be amortized over 15 years.
Transition rules would require taxpayers to implement the new treatment with an automatic accounting method change on a cut-off basis. The legislation would also address an issue with Section 280C by definitively requiring taxpayers to reduce their deduction for research costs under Section 274A by the amount of any research credit.
Before the TCJA, Section 280C generally required taxpayers to reduce their deduction for research costs by the amount of any research credit or reduce their credit by an equivalent amount. Under changes made by the TCJA, many taxpayers took the position that they were only required to reduce their Section 174 capital account to the extent the research credit exceeded their current year amortization deduction. For most taxpayers, this meant the amortization deduction was allowed in full. The legislation would reverse this “double-dipping” treatment for tax years beginning after 2024 when Section 274A is in effect.
Section 163(j) Limit on the Interest Deduction
The bill would reinstate the more favorable calculation of the limit on the interest deduction under Section 163(j) for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030. Section 163(j) generally limits the interest deduction to 30% of adjusted taxable income (ATI). For tax years beginning after 2021, current law requires ATI to include amortization and depreciation. The bill would once again remove depreciation, amortization, and depletion from the calculation of ATI.
The temporary nature of this provision and the changes to bonus depreciation and research expensing would create lingering uncertainty for multiyear tax planning. There is interaction between the provisions and taxpayers should model out various scenarios, particularly because some outcomes could result in a permanent impact to taxpayers. For taxpayers that may still face interest expense limitations even after enactment, there may be options to apply planning strategies such as interest capitalization to utilize tax attributes aggressively.
Section 199A
The bill would make the deduction for pass-through income under Section 199A permanent with several enhancements. The deduction rate would increase from 20% to 23% for taxable years beginning after Dec. 31, 2025. The bill would also adjust the phaseout of the deduction for taxpayers who do not meet the wage expense and capital investment requirements or who participate in a disqualified “specified trade or business.” The deduction would be reduced by 75% of the amount that taxpayer’s income exceeds the phase out threshold (if greater than the deduction allowed by applying the regular limits). The bill would also allow dividends from business development companies to qualify for the deduction.
The increase in the deduction from 20% to 23% would bring the top effective rate on qualifying income down from 29.6% to 28.5%. The effective rate cut is somewhat modest, but there may be rate arbitrage opportunities to accelerate deductions to 2025 and defer qualifying income to 2026. If the top individual marginal rate were allowed to revert from 37% to 39.6%, then increasing the deduction to 23% would reduce the top effective rate from 31.7% to 30.5%.
SALT Cap
The bill would effectively create a permanent SALT cap, but with several important changes. The legislation removes the temporary $10,000 limit on SALT deductions under Section 164, and instead creates a new permanent limit of $30,000 for both single and joint filers under Section 275. The $30,000 limit would begin to phase down to $10,000 when modified gross income exceeds $400,000.
The Section 275 limit would apply to specified state income, sales, and property taxes (as well as foreign income taxes and taxes paid by cooperative housing corporations), and includes a provision designed to shut down state law pass-through regimes that allow “workarounds” to the SALT cap. The state laws generally allow pass-through entities to pay tax at the entity where it can be deducted in full, and then provide a credit or exclusion to the business owners so the income is not taxed again by the state at the individual level.
The bill would deny partnerships and S corporations the ability to deduct specified taxes under Section 275, and instead would require the taxes to be passed through to owners as separately stated items. The separately stated taxes would be subject to a $30,000 cap at the individual level as “substitute payments” if made in exchange for tax benefits provided to individual owners. There would be an exception for property taxes paid at the entity level and income taxes paid by a partnership or S corporation if at least 75% of the gross receipts are derived in a qualified trade or business under Section 199A.
The rules are complex and potentially omit an exception for sales taxes paid by pass-through entities. The provision appears to largely shut down state law SALT cap workarounds, though it also offers an important exception for businesses qualifying under Section 199A. Several Republican members in blue states remain unhappy with the current SALT provision and could push for a higher cap, the removal of the income phaseout, or the preservation of current state workarounds.
International
The bill would make permanent the current rate for the Section 250 deduction, which had been scheduled to decrease in 2026. This would preserve the current effective rate on foreign-derived intangible income at 13.125% (which was set to rise to 16.4%) and the current effective rate on global intangible low-taxed income (GILTI) at 10.5% (which was set to rise to 13.125%). The bill would also exclude from the definition of GILTI tested income any “qualified Virgin Islands services income.”
The legislation would also make permanent the current base-erosion and anti-abuse tax (BEAT) rate at 10%, preventing an increase to 12.5%. The bill repeals an unfavorable change to the BEAT treatment of credits that had been scheduled to take effect in 2026.
The legislation also adds new Section 899, which would impose retaliatory taxes on residents of “discriminatory foreign countries” that impose “unfair foreign taxes.”
The bill is based on H.R. 591 and H.R. 2423 with some modifications. The legislation would essentially raise the tax and withholding rates for affected foreign taxpayers on several types of income, including:
- Fixed, determinable, annual, or periodical (FDAP) income and other income of a nonresident alien under Sections 871(a)(1), 871(a)(2), and 1445(a)
- Effectively connected income (ECI) of a foreign corporation under Section 882(a) and a nonresident alien under Section 871(b)
- FDAP and other income imposed on U.S.-source income of foreign corporations under Section 881(a)
- Branch dividend equivalents under Section 884
- U.S.-source investment income of foreign private foundations under Section 4948
- Dispositions of U.S. real property interests under Section 1445(e)
The legislation would also modify how BEAT applies to corporations that are more than 50% owned by affected foreign taxpayers. These corporations are treated as meeting the BEAT’s applicability thresholds (gross receipts and base erosion tests) and are subject to a 12.5% BEAT rate instead of the 10% BEAT rate. Additionally, these corporations lose the ability to reduce the BEAT liability using tax credits. The legislation would also eliminate the services cost method exception from base erosion payments and treat capitalized payments of corporations that are more than 50% owned by affected foreign taxpayers as base erosion payments.
The definition of unfair foreign taxes is relatively broad and includes the undertaxed profits rule under Pillar Two, digital service taxes, and “any other tax with a public or stated purpose indicating the tax will be economically borne, directly or indirectly, disproportionately by United States persons.” The provisions also target “extraterritorial taxes” and “discriminatory taxes,” with fairly broad definitions for both.
The additional rates imposed under the legislation would not replace treaty rates, but would impose additional incremental tax on top of treaty rates.
Lawmakers appear to be trying to avoid overriding treaties, but it is unclear whether other countries would consider these taxes a treaty violation or how they will react to the proposal in general. The taxes would be significant and punitive and don’t offer many mechanisms for compromise with foreign countries. The provision is essentially self-executing for tax years beginning after the later of 90 days after enactment, 180 days after a foreign country enacts an “unfair” foreign tax, or when the “unfair” foreign tax begins to apply. The provisions could also pose some administrability issues and could be unpopular with some moderates.
Energy Credits
The bill would raise $561 billion by repealing, restricting, and phasing out many of the energy credits enacted as part of the Inflation Reduction Act. Several credits would be repealed at the end of 2025, including:
- Previously owned clean vehicle credit under Section 25E for purchases after 2025
- Clean vehicle credit under Section 30D for purchases after 2025 unless the manufacturer has sold fewer than 200,000 clean vehicles since 2010, in which case the credit expires for purchases after 2026
- Commercial clean vehicle credit under Section 45W for purchases after 2025 unless the vehicle was acquired pursuant to a written binding contract in place before May 12, 2025
- Alternative fuel refueling property credit under Section 30C for property placed in service after 2025
- Energy efficient home improvement credit under Section 25C for property placed in service after 2025
- Residential clean energy credit under Section 25D for property placed in service after 2025
- New energy efficient home credit under Section 45L for property acquired after 2025 unless construction began before May 12, 2025
Taxpayers and manufacturers would have a short runway to accelerate production, projects, and purchases before the end of 2025 to still qualify for the credits.
The legislation would repeal taxpayers’ ability to transfer the credits for projects beginning construction two years after the date of enactment. The credit transfer regime was created by the IRA under Section 6418, and allows taxpayers to transfer many of the IRA credits to unrelated third parties for cash. The bill does not repeal or restrict the direct payment option under Section 6417, which is available for several credits and tax-exempt entities.
The repeal of transferability would take away an important monetization option for projects beginning construction more than two years after the date of enactment. If the provision is enacted, the credit transfer market is likely to remain robust in the short term, with more traditional tax-equity financing structures increasing in the future.
The legislation would impose strict new restrictions on most credits for projects that accept “material assistance” from a “prohibited foreign entity” or make certain payments to prohibited foreign entities.
The language on material assistance is fairly broad and includes components, subcomponents, or applicable critical minerals that are extracted, processed, recycled, manufactured, or assembled by a prohibited foreign entity and directly acquired from the prohibited foreign entity. In some cases, a prohibited foreign entity could include an even lower threshold “foreign influenced entity.” If enacted, these rules could present challenges for some supply chains.
The legislation would phase out the production tax credits under Sections 45Y and 45U and the investment tax credit under Section 48E over a series of years beginning in 2029. Taxpayers would receive only 80% of their credit for projects placed in service in 2029, 60% for 2030, and 40% for 2031, with no credit available for 2032 or later.
The hydrogen production credit under Section 45V would be repealed for projects beginning construction after Dec. 31, 2025. The advanced manufacturing credit under Section 45X would be repealed for wind energy components sold after 2027 and for all other components sold after 2031.
The credit phaseouts could prompt the acceleration of projects, particularly for clean hydrogen. The IRS has long-standing and well-understood rules on how to establish that construction has begun. It is also possible that Republican supporters of energy credits push back against some of these changes and succeed in maintaining more of the existing credit rules.
Deduction for Tip Income
The bill would provide taxpayers a deduction equal to the amount of qualified tips reported on Forms W-2, 1099-K, 1099-NEC, or 4317. The deduction would be allowed from 2025 through 2028 without regard to whether a taxpayer itemized deductions. There is no cap on the deduction itself, but it is available only to taxpayers whose income does not exceed the threshold of a highly compensated employee under Section 414 ($160,000 in 2025).
For tips to be deductible, they must be paid voluntarily in an occupation that “traditionally and customarily” received tips before 2025, as provided by the Secretary. The business in which the tips are earned cannot be a specified trade or business under Section 199A, and self-employed taxpayers, independent contractors, and business owners face additional limitations.
Employers would be required to report qualifying tips to employees on form W-2. The provision applies only to income taxes, and generally does not affect the employer’s FICA tip credit except to extend it to certain beauty services businesses.
The bill gives Treasury several specific grants of authority to provide regulations on specific issues. The IRS would need to adjust withholding tables and write regulations defining which occupations “traditionally and customarily” received tips in the past. The IRS would also need to provide rules for determining when a tip is voluntary. The impact of the provision on employers could be meaningful. Hospitality businesses would face new reporting requirements that depend on how the business and worker occupations are characterized. Employees’ ability to deduct tips could also depend on employer policies, such as mandatory tips, service charges, or other amounts that are not solely determined by the customer.
Deduction for Overtime Pay
The bill would provide a deduction equal to qualified overtime compensation. The deduction would be allowed from 2025 through 2028 without regard to whether a taxpayer itemized deductions. There is no cap on the amount of overtime that can be deducted, but it is available only to taxpayers whose income does not exceed the threshold of a highly compensated employee under Section 414 ($160,000 in 2025).
Qualified overtime compensation is defined as compensation paid to an individual required under section seven of the Fair Labor Standards Act (FLSA). Employers would be required to provide new information reporting to separately report overtime pay.
The determination of whether compensation is qualified overtime pay would not be made using tax rules, but would depend on the employer’s characterization of the pay under the FLSA.
Auto Loan Interest Deduction
The bill would create an above-the-line deduction for up to $10,000 of interest on a qualified passenger vehicle loan from 2025 through 2028. The deduction would begin to phase out once modified adjusted gross income exceeds $100,000 for single filers or $200,000 for joint filers.
The vehicle must be manufactured primarily for use on public streets, roads, and highways, and final assembly of the vehicle must occur in the United States. The deduction does not apply to lease financing and the loan cannot be to finance fleet sales, purchase a commercial vehicle, purchase a salvage title, purchase a vehicle for scrap or parts, or be a personal cash loan secured by a vehicle previously purchased by the taxpayer.
Auto loan financing companies would face additional reporting requirements and would be required to furnish a return with specific information on loans.
Deduction for Seniors
The bill would provide a $4,000 deduction for all individuals aged 65 and above. The deduction would be allowed from 2025 through 2028 without regard to whether a taxpayer itemized deductions. The deduction would phase out for taxpayers with modified adjusted gross income exceeding $150,000 for joint filers and $75,000 for all other taxpayers.
The deduction is meant to fulfill Trump’s pledge to remove tax on Social Security payments, but reconciliation rules preclude changes to Social Security. The provision instead provides a general income tax deduction.
Transfer Taxes
The bill would permanently set the lifetime exemptions for the gift, estate, and generation skipping transfer taxes at $15 million for 2026, indexing them for inflation thereafter. The change represents a modest increase from the exemptions under the TCJA, which were initially set at $10 million, but reached $13.99 million in 2025 with inflation adjustments.
Active Business Losses
The legislation would make the active loss limit under Section 461(l) permanent, with an important unfavorable change. The provision was created by the TCJA and was originally set to expire after 2025. It was suspended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act for three years, but then extended through 2026 by the American Rescue Plan Act of 2021 and extended again through 2028 by the Inflation Reduction Act.
The legislation would not only make Section 461(l) permanent, but would require taxpayers to include net operating losses (NOLs) created in prior years as a result of Section 461(l) into the calculation of Section 461(l) in subsequent years. Under current law, all NOLs are removed when the Section 461(l) limitation is computed in subsequent years. This allowed taxpayers to utilize an NOL that was created by Section 461(l) against other sources of income in a subsequent year, which effectively produced a one-year deferral on the utilization of a limited loss under Section 461(l).
This change was originally considered by Democrats as part of IRA negotiations, and could make it much harder for taxpayers to deduct suspended losses in future years. Under the proposal, a taxpayer’s NOL carryover would have to be bifurcated between NOL ‘dollars’ created under Section 461(l) from NOL ‘dollars’ unrelated to Section 461(l). The NOL dollars created under Section 461(l) remain limited under Section 461(l) in subsequent tax years.
Individual TCJA Extensions
The bill would make most of the TCJA provisions permanent without change, including:
- Repeal of personal exemptions
- Increased alternative minimum tax thresholds
- Limits on the deductions for mortgage interest, personal casualty losses, wagering losses, and moving expenses
- Repeal of miscellaneous itemized deduction and the Pease phaseout on itemized deductions
- Exclusion for bicycle commuting reimbursements
The legislation would also make permanent the increased standard deduction and child tax credit with enhancements. The standard deduction would be further increased by $1,000 for single filers and $2,000 for joint filers from 2025 to 2028. The child tax credit would increase by $500 from 2025 to 2028. It would be indexed to inflation after reverting to $2,000 in 2029. Social Security numbers would also be required.
The bill would make permanent the individual rate cuts and bracket adjustments, while adding a slightly more favorable inflation adjustment for every bracket except the 37% bracket.
The legislation does not increase the top individual rate despite Trump reportedly pushing Republicans to revert the top rate to 39.6%. Trump’s public comments have been mixed. He initially said he opposed increasing the top rate because it would cause the wealthy to flee the country. In a subsequent interview, he said he liked the idea of raising taxes on the “wealthy” to “take care of the middle class,” adding, “I actually love the concept but I don’t want it to be used against me politically because I’ve seen people lose elections for less.” In a later social media post, he said he would “graciously accept” a tax increase on the “rich,” adding that “Republicans should probably not do it, but I’m okay if they do.” Influential conservative and House Freedom Caucus Chair Andy Harris, R-Md., has expressed interest in the idea, but the proposal has generally been unpopular with congressional Republicans, including Johnson.
Opportunity Zones
The bill would extend the deadline for making an opportunity zone investment from Dec. 31, 2026, to Dec. 31, 2028. The legislation would also modify the rules for designating opportunity zones, creating a new category of rural opportunity zones with more favorable rules. The mandatory recognition date for deferred gain for investments made in 2027 or 2028 would be Dec. 31, 2033, and taxpayers would receive a 10% increase in basis for holding onto the property for five years. Taxpayers could also designate up to $10,000 of their aggregate investments to offset ordinary income, with no recapture. The provision would impose new reporting requirements on taxpayers making investments.
Form 1099 Reporting
The bill would amend Section 6050W to reinstate the 200 transaction and $10,000 threshold for reporting third-party payment network transactions on Form 1099-K. The American Rescue Plan Act (ARPA) of 2021 repealed that threshold and required reporting when aggregate payments exceeded $600 without regard to the number of transactions. The IRS offered transition relief delaying the implementation of the change for two years, and then provided a $5,000 threshold for payments made in 2024 and a $2,500 threshold for payments made in 2025. The bill would restore the old threshold retroactively so that reporting would be required only if aggregate transactions exceeded 200 and aggregate payments exceeded $10,000.
The bill would also increase the threshold for reporting payments under Sections 6041 and 6041A on Forms 1099-MISC and 1099-NEC from $600 to $2,000, indexing that figure to inflation.
Tax Exempt Entities
The legislation includes numerous provisions targeting tax-exempt entities, and colleges and universities in particular. Key provisions would:
- Replace the endowment tax rate of 1.4% with graduated brackets based on the size of the endowment per student, reaching a top rate of 21% (while providing a new exception to the tax for certain religious universities)
- Replace the 1.39% excise tax on private foundations with graduated brackets based on assets reaching a top rate of 10%
- Expand the rules for determining unrelated business taxable income (UBTI) to include disallowed parking deductions, transportation fringe benefits, sales or licensing of names or logos, and income from research the results of which are not freely available to the general public.
Employee Retention Credit
The legislation would make several changes to the employee retention credit (ERC), including:
- Barring ERC refund claims filed after Jan. 31, 2024
- Extending the statute of limitation on ERC claims to six years
- Increasing preparer and promoter penalties on ERC claims
The IRS has been slow to process claims filed after Jan. 31, 2024, in anticipation of these provisions resurfacing, which were included in a failed tax extenders bill from 2024. The provisions were originally proposed while the IRS had a moratorium in place suspending claims filed after Sept. 14, 2023. In August of 2024, the IRS began “judiciously” processing claims filed between Sept. 14, 2023, and Jan. 31, 2024. It is unclear how the IRS is currently treating claims filed after Jan. 31, 2024, or how those claims would be treated under this bill if the IRS has already issued refunds.
Other Provisions
The bill includes many other potentially important provisions for taxpayers, including
- Increasing the threshold for certain taxpayers to use the cash method of accounting and other favorable accounting rules from $25 million in gross receipts to $80 million, but applying a more expansive aggregation rule
- Amending numerous health care tax rules
- Expanding the aggregation rules for the limit on executive compensation under Section 162(m)
- Increasing and modifying the low-income housing tax credit for 2026 through 2029
- Repealing the excise tax on indoor tanning services
- Allowing taxpayers purchasing professional sports franchises to amortize only 50% of intangibles under Section 197
- Creating new tax-preferred “money accounts for growth and advancement” for children, with a pilot program offering a $1,000 contributory credit for qualifying children
Outlook
House Republicans hope to vote on the bill the week of May 19, but changes to the language are possible before a vote. Republicans are continuing to negotiate over contentious issues such as the SALT cap, energy credits, and spending cuts. Significant changes are also likely once the bill reaches the Senate. Senate Republicans have not publicly scheduled any mark-ups and appear content for now to wait to see what the House can pass first.
Next Steps
The tax title is not final, but the current draft bill offers important insight into Republican priorities and the technical operation of various proposals. Taxpayers should assess the potential impact of major provisions when considering the tax efficiency of transactions and investments. There may be planning opportunities that should be considered now, such as accelerating energy credit projects or investments or modeling the impact of changes to the limit on the interest deduction under Section 163(j), bonus depreciation, and research expensing under Section 174.
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