Over the last month, the U.S. Department of Treasury and Internal Revenue Service have issued several proposed rules that provide guidance and implement changes to the tax code under the Tax Cuts and Jobs Act. Signed into law nearly a year ago, the historic tax reform bill included several key provisions that affect the construction industry, and the recently issued proposals provide critical information for construction employers on how to comply with the law.
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Associated Builders and Contractors (ABC) President and CEO Michael D. Bellaman released the following statement after Congress passed The Tax Cuts and Jobs Act:
“This is a historic day for the construction industry. For too long, ABC’s 21,000-plus members have paid the highest effective tax rate of any sector of the economy. We are a capital-intensive, cash-flow challenged, domestically oriented industry comprised mostly of small, family owned and closely held merit shop construction companies employing hardworking Americans. Our members have waited for Washington to let them keep more money in their paychecks, which would enable them to invest back in their businesses, create new jobs in their communities and grow the economy. The wait is finally over.
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The U.S. Senate passed sweeping tax reform legislation on Dec. 2, overcoming a number of setbacks over the course of a long week. The effort to win over holdouts and cobble together the necessary votes led to a number of late-breaking changes to the bill, culminating in what was essentially a
party line vote, with Senator Bob Corker (R-Tenn.) as the only dissenting Republican.
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On Nov. 28, The Senate Budget Committee voted to advance S.1, the Tax Cuts and Jobs Act on a party line vote of 11-10. Senators Ron Johnson (R-Wis.) and Bob Corker (R-Tenn.) voted to send the bill to the Senate floor after originally withholding their support.
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On Nov. 29, President Trump delivered a strong defense of reducing the tax burden on businesses of all sizes in his “Bring Back Main Street” Speech in St. Charles, Mo. He urged Congress to push tax reform across the finish line as the U.S. Senate is expected to vote on their version of the Tax Cuts and Jobs Act this week.
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On Nov. 13, the U.S. Senate began the first day of an expected four-day process to amend and approve their version of tax reform legislation. The U.S. House of Representatives is expected to vote on their version of the bill on Thursday, Nov. 15. If both chambers pass their respective bills, conferees will be designated to negotiate an agreement between the House and Senate versions, which currently include a number of significant differences.
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On Oct. 4, the U.S. Treasury Department released a report announcing plans to withdraw its proposed regulations under Section 2704 of the Internal Revenue Code, entitled Estate, Gift and Generation-skipping Transfer Taxes: Restrictions on Liquidation of an Interest. The proposed rule was issued Aug. 4, 2016, during the Obama administration.
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The Internal Revenue Service last week identified the proposed Section 2704 regulations concerning the valuation of family businesses among eight unduly burdensome or complex rules that would be marked for rescission or modification. According to the notice, “these proposed regulations would create an additional category of restrictions that also would be disregarded in assessing the fair market value of an interest.” The notice also noted concerns from public commenters including the increased financial burden to family businesses and the difficulty in making accurate valuations.
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In the waning days of the Obama administration, the Treasury Department released proposed regulations under Section 2704 that could have a profound impact on the valuation and therefore taxation of family businesses. The regulations as written would institute back-door “family attribution,” a standard that has been rejected by the courts for decades, and that would jeopardize traditional discounts for minority ownership stakes, inflating tax bases by as much as 40 percent. As the regulations were not finalized by the time President Obama left office, there is no effective date, but the rule remains pending.
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The White House rolled out its tax proposal, which aides have billed as “the biggest individual and business tax cut in American history” on April 26. Treasury Secretary Steve Mnuchin and National Economic Council Chair Gary Cohn laid out President Trump’s principles for reform from behind the podium, and a one-page document was distributed to the press.
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