TEI Roundtable No. 37: Lessons Learned From TCJA Implementation
What are the implications for Biden’s proposals? 

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This roundtable was conducted on October 27 as the closing plenary session of TEI’s 76th Annual Conference in Florida. The session, Lessons Learned From TCJA Implementation and Implications for Biden’s Proposals, featured four distinguished panelists who shared their perspectives on the practical implementation and administration of business tax reform legislation: the Honorable David Camp of PricewaterhouseCoopers LLP and former chairman of the House Committee on Ways and Means; the Honorable Mike Desmond of Gibson, Dunn & Crutcher LLP and former chief counsel for the Internal Revenue Service; Brian Kaufman, vice president and tax counsel at Capital One Financial Corporation and TEI vice president, Region IV; and Nancy Loube, a member of TEI’s US International Tax Committee and vice president and tax counsel at Brunswick Corporation. Ben Willis, contributing editor at Tax Analysts, moderated the session. The roundtable below represents selected highlights from the discussion.

Ben Willis: Good morning, everyone. I’ve got to start with a quick story. I was recently reminded of a childhood memory of mine. I was told as a teenager, “You know, I never realized you’re funny until just now.” I said, “Gee thanks, Mom.” TEI just made me feel the same exact way. I don’t know if you’ve seen the description for this roundtable discussion, but it starts off with “We’re concluding this year’s conference with a twist: Ben Willis will be moderating.” A twist? I mean, we’re all dedicated practitioners, right? I represented some of you. I now realize that it’s taken me three years to realize that I am a member of the media. Now, I hope it does not take Congress as long to realize the taxpayers, you, need to understand and implement reconciliation legislation. And that is the theme of today’s discussion. Before I introduce our incredible panelists for a great discussion, I want to thank TEI and Watson McLeish for putting together this incredible conference. Chairman Camp, how practical do you think Congress can be with reconciliation legislation and its implementation?

David Camp: First of all, it’s great to be here in person. Thanks to TEI for having me, and great to see so many people. I know a number of people are listening online as well. I would say that when you get to this point in the policymaking or legislating process there’s really two big factors that are driving. I would say that the tax administration portion is the least of the items that members of Congress are thinking about. But one is revenue and how will the policies fit within the revenue prescriptions, and clearly the Senate rules have a lot to do with this as well. The second part at this point in the process is, What are you hearing from members? You’ve spent months hearing from interested taxpayers and from businesses. What are members going to do in this case, with such narrow majorities? Are members are going to have problems with the policies that are being presented? If you had told me four months ago that the corporate tax rate increase was going to be off the table in this reconciliation process, I would bet that would not be, that there would be some corporate increase. It appears now that it may be off the table. So, what you’ve got are one or two members, particularly in the Senate, that can literally change policy. So, in past reconciliations you’ve been able to sort of set aside more members and not worry about just a couple of them. And so, I think that’s made this a much more complicated process. I guess my quick answer would be “not very practical.”

Willis: I know I’ve argued that there’s more influence in the executive branch when it comes to reconciliation legislation now because of the speed of things and the importance of the Green Book and budget proposals. Chairman Camp, is there a new avenue through Treasury or the executive branch generally to lobby their concerns?

Camp: Yeah, that’s a really good point. We have a three-legged stool: the Senate, the House, and the administration. Particularly when all three are the same party, the administration now has a tremendous voice. Obviously, its resources and Treasury expertise help. You know, when I was working on tax reform, I worked very hard to try to engage Treasury in the process. They weren’t particularly interested. That really came from the top. So, it wasn’t really any fault of the people in the Treasury Department. With the [Tax Cuts and Jobs Act] and the Build Back Better Act, I’d say the administration is more engaged and more forward-leaning on what their interests and concerns are. In the Trump administration, Treasury was very involved. And you need that help. The Ways and Means and Finance Committee staffs are still relatively small compared to the Treasury Department, and resources and knowledge are there. So yes, a lot of people have gone to the administration, certainly during the TCJA. This administration has a more academic approach to some of the tax policy with a lot of the people that have been brought into the administration, as opposed to more of a real-world approach in the Trump administration.

Willis: Thank you, Chairman Camp. The title of this discussion includes lessons learned from the TCJA. So, its implications and practical implementation are obviously of concern to everybody in this room and in their homes watching this right now. And so, I ask our former chief counsel, Mike Desmond, what was it like implementing the TCJA, and what are your thoughts on the implementation of tax legislation generally?

Mike Desmond: It’s interesting when you hear Chairman Camp speak about what’s happening on the Hill, because obviously, as we all know, the focus will shift very quickly to what’s happening at Treasury and the IRS once legislation is enacted.

I think what happened after the TCJA is a good lesson, which this whole panel is focused on, as to how the implementation will roll out at Treasury and the IRS. A couple of points that Chairman Camp made I think are worth emphasizing. One is that if you look at the nature of the changes that are being proposed, at least in the Ways and Means Committee version of the reconciliation bill, there are certainly some heavy lifts in there, particularly the green energy portion. There are a lot of things in that tax legislation. But relative to TCJA, it’s probably not going to be as heavy a lift on the implementation side. You don’t have as much of a sea change in the cross-border provisions. So there probably won’t be as much work to do on the implementation side. A lot of the Build Back Better Act is adjusting provisions in the TCJA—it’s not an entirely new regime as we had with the Section 965 transition tax, the Section 245A dividends received deduction, and the GILTI regime. So, there’ll be some changes to that, but I don’t think the lifting will be quite as much as with TCJA. But we’ll have to wait and see what’s in the final legislation, and I think Treasury in particular and, to some extent, the IRS are already obviously reading the same legislation.

Camp: I think that’s part of the legacy of the [Affordable Care Act] where Republicans didn’t help Democrats with technical corrections there. The Democrats said we weren’t part of the TCJA and we’re not going to help with that. I think you could have that dynamic again, because Republicans aren’t part of this tax reconciliation process. I think it’s unfortunate that we’re not able to move forward on some of these complicated tax measures in a bipartisan way, particularly the international provisions when we’re competing against the rest of the world. 

Brian Kaufman: I was fortunate enough to be able to meet with Treasury very shortly after the TCJA’s enactment; I think TEI came in in February, and we met with Chip Harter and the team. You know, they had already recognized some of the problems, some of the gaps in the legislation. And there were issues we struggled with. What can we effectively fix with regulations? What has to be a technical correction? Where can we kind of push the envelope with notices? Taxpayers want this to work, and the administration wants it to work. Treasury worked with IRS really hard to try to address everything they possibly could, whether it was with notices or frequently asked questions. But there were a few areas that just couldn’t be fixed.

Desmond: I think some of these things only become apparent sometime after enactment. And I don’t know, Brian, you’ve got a better sense of the timing, like on the repeal of downward attribution. When did taxpayers first realize that that was going to be a problem? Obviously not the intent of legislation to create all these kinds of accidental CFCs. And there was the GILTI and the GILTI high-tax exception, which ultimately became a regulation project to try to deal with the issue. I think at some point after enactment, companies started to realize that in some situations, because of the intersection with the foreign tax credit rules and other technical elements, the GILTI was actually hitting them at a much higher rate than it was intended to. So those things start to come in over time.

Kaufman: I think to their credit Treasury and IRS really knew what was coming, and they sought stakeholder input. Everyone on the technical side was handing out their business cards. 

Nancy Loube: These corrections and clarifications are very helpful and should be made. This is complicated legislation, and there’s going to be a lot to rework. So, for the in-house community, it’s multiple filings and changes and amended returns, and it creates a lot of activity that isn’t particularly efficient. To the extent that we can try to have cleaner legislation through collaborative effort, that’s great. Later effective dates will also be very helpful. 

Camp: Unfortunately, I believe revenue issues will drive much of that as opposed to tax administration.

Loube: I think in the TCJA we saw, as the forms came out, our service providers really struggled to integrate all of the regulations and the guidance that was coming out. This was a herculean effort then that needed to be updated in taxpayer systems. In order for us to report, for 2018 there was a lot of work done on spreadsheets and a lot of data. Then that creates rework for 2019 and 2020. That is something that we have to do manually. So, we’ll be looking for guidance there. The changes to apply GILTI and foreign tax credit baskets on a country-by-country basis will not be easy. Transition periods and relief will be needed there and guidance allowing for best efforts in what will be certain to change. I think foreign tax credits will be a really important issue. I imagine a lot of folks carried some losses back to prior years, and credits are now moving forward. There’ll need to be a very practical assessment of your foreign tax credits at the end of the year, including basket changes. We really should be talking to the IRS on these implementation complexities for everyone’s benefit.

Willis: I can’t help but think that the theme of this conference, “Embracing the Certainty of Change,” is very relevant for our discussion today. One thing that hasn’t changed in this massive sea of change that we’re seeing on a daily basis is IRS funding for the tax gap. Mike, you’ve talked about the fact that the Chief Counsel was able to hire additional attorneys who, as Brian and Nancy mentioned, were very helpful in answering questions and implementing some of this guidance. Would you share your thoughts on where additional IRS funding money should go?

Desmond: As part of the TCJA, Congress did have special funding for the IRS to implement the new legislation. And some of that trickled down to the Chief Counsel’s office. By the time I got there in early 2019 the office had been hiring and saw a net increase in attorneys for the first time in about ten years. So, it was really on a number of fronts in particular, just getting staff on board. We were able to bring on a number of lateral hires, people from the outside. Attorneys from law firms, accounting firms, and the industry came in, very experienced attorneys to bring into the technical offices and really lend a hand on the implementation. We saw that again with the COVID relief legislation and funding for the IRS to implement things like the economic impact payments. The IRS was able to really implement it in a much more efficient way, because Congress did include funding for some of the mandates and the changes. I don’t know where this will land, but the Ways and Means Committee reconciliation bill does have $80 billion in additional long-term funding for the IRS. We’ll see where that lands. But even if it’s a small fraction of that, it will be instrumental in getting staff in place to help with implementation. 

Kaufman: Massive improvements in IRS technology and the ability to communicate and interact will be invaluable. Updating the systems will ensure the IRS doesn’t fall further behind taxpayers. Artificial intelligence and machine learning could help analyze information quickly and help [us] find out where the potential tax gap is. 

OECD, Pillar One, and Pillar Two 

Willis: We’ve talked about some of the tension between the executive and legislative branches. One of the issues that I can’t help but think of is all the action that’s going on with respect to the [Organisation for Economic Co-operation and Development] right now in Pillar One and Pillar Two. Treasury Secretary [Janet] Yellen said that as much as could be done on the Hill through legislation, many are doubtful that much can be done with respect to treaties and implementing a country-by-country approach. I’ve heard several creative ideas floated for Treasury’s implementation of some of these goals. I’d be curious as to thoughts on this.

Desmond: I think, from the Chief Council’s perspective, one of the creative ways to deal with those issues is not to go through a treaty process, and there’s going to be some risks around that and that just builds instability into the system. So, the IRS is there on the front end and will do what it takes to implement. If there’s legislation, there’s the last-in-time rule. And arguably there’s a treaty override. Maybe that’s the approach. But there’s going to be risk associated with that. You know, taxpayers aren’t going to take that lying down. There’s going to be litigation over that. That’s going to go on for years. There’s litigation now over a number of TCJA provisions and things that were addressed by regulation.

Camp: Yeah, I have trouble figuring out how Pillar One is not going to require a treaty, which is sixty-seven votes in the Senate. I just have trouble understanding how that can happen without that. Could there be a proliferation of [digital service taxes]? We’ll have to see where this reconciliation bill ends up. Does it end up where the OECD is, or does it end up at a higher rate? There is going to have to be a lot more information on the technical side of where the OECD is going. That’s why I think you’re hearing maybe a one-year delay in implementation on what the USA does in the reconciliation bill to kind of see where this goes and [what] other countries then [do].

Loube: You know, when I think about global minimum tax, I wonder whether a year is really enough—maybe two years might be more appropriate. Because we are still at this political stage, and we don’t yet know how other member states are going to be implementing the global minimum tax. And we want to make sure that there’s parity. American companies want to compete on a level playing field. Most of our competitors who manufacture engines are in different countries. They do have lower effective tax rates than we do. 

Willis: I can’t help but make a plug right now for an article/letter to TEI members, to all of you, that I recently authored on “Embracing the Certainty of Change.” One of the themes inside of that article is the power that TEI has collectively. I think it’s very important for TEI members to be considering this to make sure their voices are heard. These issues that we’re talking about bring to mind the litigation that taxpayers will most certainly be having. Brian, what are your thoughts on Treasury’s attempts to help with implementation? 

Treasury’s Attempt to Help With Implementation

Kaufman: It’s going to be a challenge, as it was with the TCJA. There wasn’t a lot of guidance. Consider the [Section 965] transition tax. My company had to implement it in real time as a CAP taxpayer who’s being audited before we file a return, and we’re expected to take a position on the GILTI, BEAT, and transition tax early in 2018. We’ve got the technical advisors and Chief Counsel involved in a lengthy process. FAQs came out, and notices, and we got to an answer. I think that’s going to be the same thing here. For us, some things ended up not being consistent with later guidance. We agreed to tweak the calculation the second year. The IRS should allow that type of reasonableness down to the exam level. There aren’t always answers right away, and you still have to file returns. So penalty relief for true-ups and not having to file amended returns will be appreciated.

Willis: Your comment on reasonableness reminded me of some changes that we’ve had recently to sub-regulatory guidance. It’s actually reminiscent of the Trump Treasury Department’s March 5, 2020, policy statement, in which they said they wouldn’t argue sub-regulatory guidance has the force and effect of law. Just a couple of weeks ago an IRS release was published informing taxpayers they could rely on certain FAQs for the reasonable cause exception for penalty relief. 

I question the logic of Treasury and the IRS to promote and demote sub-regulatory guidance, such as certain FAQs, to accomplish [their] goals on an informal basis in what could otherwise be viewed as final decisions. I’d be curious on your thought on IRS releases and designated FAQs controlling the likelihood of litigation outcomes effectively.

Desmond: I think there are kind of two elements of that. And to pick up on Brian’s point earlier, I think that the IRS generally has positive intent with taxpayers, and organizations like TEI are very well respected inside the building. Whatever guidance you can get is very helpful. And even informal discussions and guidance can steer the direction of your reporting position. I think a lot of the noise around FAQs and sub-regulatory guidance is at the back end. So people that take more aggressive positions that are looking to plan into something, it’s not really necessarily trying to get something out at the end. There’s a legitimate concern that there was something you relied upon such as informal FAQs or even an email or a statement made at a meeting or something like that. The IRS doesn’t come back later and change its mind and say, “Well, we’ve got a different position.” We were always aware of the consequences of that. But I think, for the most part, that’s more of a theoretical issue. I mean, it’s a very significant general policy concern, but there aren’t that many instances that I’m aware of it. I’ve asked throughout my tenure as Chief Counsel. When has a taxpayer been held accountable or penalized for taking a position consistent with an FAQ that was later overturned or changed? And I think you can count on basically one hand the cases where a court has ultimately said, yeah, you know when a publication said something or an FAQ said something we’re going to hit you with a penalty anyway. So it’s theoretically possible. But I think it’s really more of a theoretical issue. When an FAQ or notice comes out, you should be able to rely on things regardless of how formal they are, particularly in a very dynamic environment. Like what we’re talking about right now.

Willis: I certainly appreciate the taxpayer-friendly nature of this recent guidance. But I can’t help but think of the recent IRS release. Think of the negative inference that is there, which is that we have a policy statement from prior Treasury issued that defined sub-regulatory guidance as including a number of items. Whereas this piece of guidance focuses solely on FAQs. And so, does that mean [that] for other informal guidance, litigation is now a heightened concern and we have to address anything that is not an FAQ with skepticism?

Desmond: Yeah, and I appreciate others’ views on that. There are all sorts of other forms and publications out there that taxpayers will rely on. There really hasn’t been a history of that being a problem. There’s one case out of the Tax Court from a couple of years ago that involved somebody taking a position on the ability to roll over IRAs and do serial IRA rollovers in the same year. And that was a position consistent with what had been in the instructions for, like, twenty years. So it’s not something I would be losing a whole lot of sleep over.

Willis: My apologies for my skepticism. 

Desmond: Well, I’ve only been out of the government for less than a year. 

Willis: Well, closing the tax gap is a big revenue raiser, right? The IRS is going to be looking for ways to increase taxes, and unless you’re a taxpayer with less than $400,000 of income, perhaps, I think you should be concerned. 

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