Category: News

Without a last-minute funding deal before midnight tonight, much of the federal government will shut down on the one-year anniversary of President Trump’s inauguration. The budget affects issues of importance to commercial real estate such as the National Flood Insurance and  EB-5 foreign investment programs.

In an effort to identify temporary or immediate guidance that would provide a boost to economic growth and jobs, Real Estate Roundtable President & CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Mnuchin, offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

Despite White House talks today between Minority Leader Chuck Schumer (D-NY) and President Trump, disagreements on immigration policies such as the Deferred Action for Childhood Arrivals (DACA, or “Dreamers”) program threaten to scuttle a possible Senate vote on a government funding bill.  If a deal is reached, the House is prepared to act again – after passing a fourth “Continuing Resolution” (CR) in FY2018 last night, which would extend government funding through Feb. 15. 

The budget battle comes on the heels of last December’s enactment of the largest overhaul of the tax code in 31 years. As businesses and individuals adjust to the new tax law’s various provisions, it is expected that the IRS will issue guidance on technical questions affecting commercial real estate and other industries.  

In an effort to identify temporary or immediate guidance that would provide a boost to economic growth and jobs, Real Estate Roundtable President & CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Mnuchin, offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

The Jan. 18 Roundtable letter is based on input received from real estate leaders across the country, who share the goals of avoiding economic disruptions and reducing inefficient business restructuring or inactivity pending the issuance of final rules.  

The Roundtable letter identifies several areas where rulemaking would reduce uncertainty and  facilitate continued investment, including: 

• the scope of the real estate exception to the new limitation on business interest deductibility;
• the requirements that apply when calculating a taxpayer’s eligibility for the new 20% deduction for pass-through business income; and 
• the applicable cost recovery periods under the new tax law.    

The letter describes each issue and suggests clarifications that would be useful, in the short term, to ensure the new tax law spurs investment, growth and job creation. 

In conjunction with next week’s Roundtable State of the Industry Meeting in Washington, DC, the Tax Policy Advisory Committee (TPAC) will analyze these areas in detail.  Additionally, The Roundtable’s business meeting will feature key congressional leaders, including Senate Minority Leader Schumer, who will engage attendees in a variety of policy discussions, including the current budget situation.

House Republicans this week said efforts on a two-year budget deal to fund government programs and agencies are progressing as the current, short-term government funding extension is set to expire on Jan. 19. 

Consensus on outstanding policy disagreements did not emerge this week, despite a bipartisan meeting at the White House on Tuesday between President Trump and congressional leaders.  (  White House video  , Jan. 9)

Congress may pass a fourth “Continuing Resolution” (CR) for FY2018 to fund the government until mid-February and buy time to address spending limits on military and nondefense programs – including immigration policies such as border security and the Deferred Action for Childhood Arrivals (DACA, or “Dreamers”) program. 

The budget affects other issues of importance to CRE such as the National Flood Insurance and  EB-5 foreign investment programs.  If an agreement among policymakers is not forged next week and another CR cannot be passed, the government will shut-down. 

House Minority Leader Nancy Pelosi (D-CA) told reporters yesterday that a negotiated solution on both spending caps and Dreamers is uncertain. “There is no point in having another CR unless we have an agreement on DACA and funding, disaster aid, a number of issues that have to be dealt with,” Pelosi said.  

House Majority Leader Kevin McCarthy (R-CA) this week said, “I believe we can get to a solution here in the next day or two so we can move forward.  If we’re able to have that budget agreement, we’ll need some time for appropriators to do their work, so we’d have a continuing resolution.” (CQ, Jan. 11) 

Consensus on outstanding policy disagreements did not emerge this week, despite a bipartisan meeting at the White House on Tuesday between President Trump and congressional leaders.  (White House video, Jan. 9)  

Other issues under discussion include the fate of a bill introduced by Senate Finance Committee Chairman Orrin Hatch (R-UT) late last year that would extend various expired energy and other temporary tax provisions. (Wall Street Journal, Dec. 21, 2017) 

A separate tax “technical corrections” bill to address gaps and inconsistencies in last year’s landmark Tax Cuts and Jobs Acts is expected this quarter.

House Ways and Means Chairman Kevin Brady (R-TX) said this week that several extenders may be included in an upcoming CR. “I think it’s important for Democrats and Republicans to really come together on a lot of key issues … I’m hopeful they all stay at the table and bring us either in one or two steps what we need to do,” Brady said. 

It is unclear whether Senate Majority Leader Mitch McConnell (R-KY), with only a slim one-vote majority in the chamber, will be able to attract enough votes to pass a budget resolution. 

A separate tax “technical corrections” bill to address gaps and inconsistencies in last year’s landmark Tax Cuts and Jobs Acts is also expected this quarter.  Republicans would need to attract Democratic votes to reach a 60-vote threshold to pass another tax measure. (Roundtable Weekly, Jan. 5) 

The Roundtable and its Tax Policy Advisory Committee will discuss these issues in detail during The Roundtable’s Jan. 24-25 State of the Industry Meeting in Washington. Among the prominent policymakers who will engage Roundtable members during the business meeting is Senate Finance Committee Ranking Member Ron Wyden (D-OR) and the Treasury Department’s Deputy Assistant Secretary for Tax Policy Dana Trier.

New partnership audit rules will allow real estate investors to continue using tiered partnership structures without the risk of a new entity-level tax on the partnership. 

Proposed Treasury regulations published on Dec. 19 end the two-year uncertainty over whether new partnership audit rules would create a significant tax liability for investors in real estate partnerships.  [  link to regulations  ]

Proposed Treasury regulations published on Dec. 19 end the two-year uncertainty over whether new partnership audit rules would create a significant tax liability for investors in real estate partnerships.  At issue was the question of whether the IRS could require partnerships to pay taxes that are appropriately owed by its individual partners.  The tax code has long recognized that partnerships are “pass-through” entities, and that partners in partnerships are only subject to tax on their share of the partnership’s income.  But under the new partnership audit reform law, some argued that the IRS could impose an entity-level tax burden in certain cases. 

The Treasury regulations clarify that tiered partnerships will be permitted to use the “push-out” method, in which a partnership is relieved of the entity-level tax after an audit as long as it timely transmits revised K-1 tax statements to its partners, including other partnerships.  [link to regulations] [IRS Guidance on Partnership Audit Regime Eases Some Concerns, Accounting Today (Dec. 26, 2017)] 

Real Estate Roundtable Tax Policy Advisory Committee (TPAC) Member Donald Susswein testified specifically on this issue on behalf of The Roundtable at a September IRS hearing.  At the hearing, Susswein stated that, “the most urgent thing is that prospective investors know that they’re only going to be subject to tax on their own tax liability, correctly determined.”  He further testified that, “In order to ensure that this new law does not create a hindrance on the economy, it is very important to reassure investors that there is going to be a push-out method for tiered partnerships.  And that can be done now, in 2017, even if other aspects of the regulations are reserved.”  [Roundtable Weekly, Sept. 22, 2017)  

Real Estate Roundtable Tax Policy Advisory Committee (TPAC) Member Donald Susswein, left, testified on behalf of The Roundtable about the new partnership audit rules at a Sept. 2017 IRS hearing.

Congress enacted new rules for auditing partnerships and collecting partnership tax adjustments in the Bipartisan Budget Act of 2015  (BBA).  An early version of the legislation would have shifted partnership tax liability to the entity level and imposed joint and several liability on individual partners and the partnership for the full amount owed.  

The Roundtable successfully argued, at the time, that entity level taxation of partnerships would disrupt capital formation and discourage business activity, ultimately hurting job creation and economic growth.  The Roundtable was heavily involved in developing the final BBA approach, which allows partnerships to “push out” tax adjustments through partnerships to the appropriate partner.  The legislation was silent, however, on how the rules would apply to tiered partnerships.  

Although enacted in late 2015, the new partnership audit rules will only take effect for audits of 2018 and later years.  The audits themselves are unlikely to start until 2019 or 2020.  Clarity on the application of the new rules for tiered partnerships is important, however, because of the impact on real estate investor decisions and partnership formations.