Navigating US Tax Reform

The US Department of the Treasury and Internal Revenue Service released much-anticipated guidance on investments in the new Opportunity Zone Funds. The regulations provide direction to taxpayers, investors, sponsors, and the private equity and real estate industry, all of which have been waiting to see how the IRS would implement this new statutory scheme introduced as part of the 2017 tax reform package. However, open questions remain unanswered and further guidance is still needed.

The US Department of the Treasury and the Internal Revenue Service provided guidance on the Global Intangible Low Taxed Income rules, answering some, but by no means all, of the questions raised by taxpayers and practitioners since the enactment of the Tax Cuts and Jobs Act in December 2017. This LawFlash discusses some of the more significant issues in the guidance in a detailed Q&A, and lists topics on which Treasury and the IRS are seeking taxpayer comments.

On August 1, 2018, the Internal Revenue Service took the first step in providing significant and detailed guidance on provisions of the Tax Cuts and Jobs Act with the issuance of proposed regulations (the Proposed Regulations) under Section 965 of the Internal Revenue Code of 1986, as amended, or the so-called “Repatriation Tax.”

Morgan, Lewis & Bockius LLP partner Mims Maynard Zabriskie spoke with Law360 on how the firm is counseling clients on the new tax deduction limits, especially for foreign companies that may never have had to think about tax restrictions on executive compensation in the past.

In a Law360 article, Morgan, Lewis & Bockius LLP partner Matthew Elkin and associate Shira Helstrom detailed how tax-exempt organizations can now change their state of organization and retain their current tax exemption. Revenue Procedure 2018-15 provides that, in most circumstances, tax-exempt organizations no longer need to file new exemption applications if they change their organizational forms or states of incorporation.

Many tax-exempt organizations can now change their state of organization and retain their current tax exemption.

The adoption of Internal Revenue Code Section 83(i) under recent US tax reform will allow certain private company employees to defer federal income tax on eligible stock options and restricted stock units for up to five years following their respective exercise or settlement. While additional clarification from the Internal Revenue Service is still needed, and there are a number of technical requirements under Section 83(i) that must be satisfied, Section 83(i) could be useful for bridging the gap between when an employee is subject to income tax and when the employee’s shares can be liquidated.

Morgan Lewis tax attorneys Casey August, Barton Bassett and Peter Daub authored an article in Law360 that breaks down additional guidance by the IRS and Department of Treasury.

Morgan Lewis tax attorneys Daniel A. Nelson, Richard S. Zarin, Sarah-Jane Morin, and Gabriel A. Quihuis, wrote an article for Law360 about the significant implications of the new tax legislation that introduces a 10 percent withholding tax on the sale of certain partnership interests.

Notice 2018-13 details the government’s intent to issue regulations addressing additional Section 965 computational issues. The new regulations will clarify, among other things, that US shareholders will be permitted to elect an “alternative method” of computing positive or negative aggregate post-1986 earnings and profits as of November 2, 2017. Notice 2018-13 also states that the IRS intends to amend the instructions to Form 5471 so as to provide an exception to the filing obligation for any US person that is a US shareholder with respect to a controlled foreign corporation, only as a result of “downward attribution” of stock ownership in the CFC.

Several employer deductions will be reduced or eliminated, including the cost of business-related entertainment expenses and qualified transportation fringe benefits, but employers may be able to claim a credit for a percentage of wages paid to qualifying employees on family and medical leave. Among other changes, the law repeals the deduction of alimony payments, and employees can no longer exclude moving expense reimbursements they receive from employers or deduct moving expenses they pay themselves.

HR 1 makes Roth IRA conversion recharacterizations a thing of the past, but is silent on whether recharacterizing 2017 Roth IRA conversions in 2018 will be permitted.

Earlier today the IRS issued new withholding tables for 2018, along with an explanatory news release and a frequently asked questions document.

New tax provisions have significant impact on structuring mergers and acquisitions.

The tax bill formerly known as the Tax Cuts and Jobs Act (the Act) reduces tax rates for individuals, lowering the top marginal tax rate from 39.6% to 37%, effective January 1, 2018. Employers should make sure that the tax rates used for federal tax withholding on equity awards are reduced to correspond to the lower rates under the Act, in order to avoid adverse financial accounting consequences.

Tax-exempt bond financing, an anticipated impact to philanthropic donations, repeal of the individual mandate, and taxation of highly compensated executives are among the changes for 2018.

Today, US President Donald Trump signed H.R. 1, enacting fundamental changes to the US tax law that affect all sectors of the economy, including nonprofits.

We expect that the Tax Cuts and Jobs Act (the Act) will be signed into law by the end of this week. The Act would make significant changes to Section 162(m) of the Internal Revenue Code, all of which would be effective for taxable years beginning on and after January 1, 2018. These changes potentially affect all awards payable in and after 2018, unless the company takes action now.

Morgan Lewis partner Alex Reid discusses the potential benefits of UBTI allocations.

Morgan Lewis partner Alex Reid was quoted by Bloomberg Law about how nonprofit hospitals and universities could be the most adversely affected by the change in the tax law that eliminated advance refunding bonds.

Partner Alex Reid spoke to Bloomberg BNA on the biggest tax law provisions that could affect tax-exempt groups—including changes to unrelated business income and excise taxes, which have caused some exempt organizations to ask about potential revisions.

Morgan Lewis partner Alex Reid was quoted in Tax Notes drawing parallels between tax reform efforts in the 1980s and today’s Tax Cuts and Jobs Act, specifically citing the Economic Recovery Tax Act of 1981.

Morgan Lewis partner John Ryan spoke with Bloomberg BNA about the foreign-derived intangible income (FDII) provision of the 2017 tax law, which some say fall within the World Trade Organization’s definition of prohibited export subsidies.

Morgan Lewis partner Alex Reid spoke to Accounting Today about potential legislation that would reshape the Internal Revenue Service. One of the changes suggested is the creation of an enhanced IRS Appeals, which Mr. Reid said would be welcome to practitioners.

Partners Jonathan Zimmerman and Mary “Handy” Hevener spoke with Law360 about novel trends in benefits.

Tax partner Alex Reid was quoted speaking to the Alliance for Charitable Reform program in Washington, urging charitable organizations to reach out to lawmakers to enact legislation protecting tax incentives for donations.

Law 360  Quoted: Joshua Richardson, Adam Beckerink, Michael Liu, and Matt Mock

Morgan Lewis tax partner Scott Farmer discusses with Law360 how he is advising clients on the impact the US Tax Cuts and Jobs Act is likely to have on transfer pricing cases.

The Wall Street Journal  Quoted: Mary B. “Handy” Hevener

CNN Money  Quoted: Jonathan Zimmerman

The Wall Street Journal  Quoted: Mary B. “Handy” Hevener

Law360  Quoted: Alexander Reid

Vox  Quoted: Alex Reid

The Wall Street Journal  Quoted: Mary B. “Handy” Hevener

Route Fifty  Quoted: Richard Zarin

The Wall Street Journal  Quoted: Bart Bassett