News Type: Roundtable Weekly

Senate Banking Committee Holds TRIA Hearing; Coalition to Insure Against Terrorism Urges Long-Term Reauthorization

Posted on by Trey Jackson

A hearing on The Reauthorization of the Terrorism Risk Insurance Program  before the Senate Banking Committee was held on June 18 as the Coalition to Insure Against Terrorism  (CIAT) – including The Real Estate Roundtable – submitted  comments  urging Congress to pass a long-term reauthorization of the Terrorism Risk Insurance Act (TRIA). 

CIAT’s comment letter  to Chairman Mike Crapo (R-ID), above, and Ranking Member Sherrod Brown (D-OH) urges prompt congressional action for a long-term reauthorization of this critical program.
  • CIAT’s comment letter to Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) urges prompt congressional action for a long-term reauthorization of this critical program.  The letter states, “At almost no cost to the taxpayer, the Program has been the key factor in ensuring that the private insurance market has remained intact and continues to meet the needs of commercial policyholders during the on-going threat of a future terrorist attack – all while minimizing federal taxpayer exposure.”   
  • Senate Banking Committee Chairman Michael Crapo (R-ID) discussed reauthorization of the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) at The Roundtable’s Spring Meeting in April.  (Roundtable Weekly, April 12).  The Committee’s Ranking Member, Sen. Sherrod Brown (D-MA), acknowledged the need to extend TRIA before its expiration at The Roundtable’s Annual Meeting on June 11 in Washington.  (Roundtable Weekly, June 14) 
  • Testifying before the committee, Marsh’s property terrorism placement and advisory leader Tarique Nageer noted that the expiration of TRIPRA without a replacement could create capacity shortfalls, especially for firms with “significant workers’ compensation accumulations. 
  • Nageer stated, “We are already seeing an impact on policies that extend beyond 2020, with some insurers either seemingly unwilling to offer terrorism coverage beyond the expiration of TRIPRA or seeking to increase prices to cover the additional risk to their portfolios. Without a decision to reauthorize or extend TRIPRA, we expect to see more sunset provisions in policies and higher costs as we get closer to December 31, 2020.” (Nageer’s testimony, June 18)

    Marsh’s 2019 Terrorism Risk Insurance Report 

  • Chairman Crapo stated that he anticipates additional “balanced reforms” to TRIA that “reduce taxpayer exposure” without substantially increasing costs or decreasing take-up rates.  His focus was on what changes are necessary based on data, not whether the program is needed.  Only two Republicans attended the hearing, whereas the Democrats in attendance voiced unified support of TRIA. (Senate Banking Committee hearing video, statements and testimony)
  • Chairman Crapo and Sen. Brown agreed that it was important that reauthorization take place sooner rather than later to ensure a lapse in coverage does not happen again.   Sen. Menendez (D-NJ) noted during the hearing that a lapse in 2014 created uncertainty, resulted in sunset clauses on policies, and increased costs on long-term construction deals.  A similar situation could begin as early as January 1, 2020.  
  • Additional hearings on TRIA are expected that would include policyholder and insurer witnesses and could address issues such as the length of another reauthorization and the scope of TRIA regarding cyber, nuclear, biological, chemical, and radiological risks. 

A long-term authorization of TRIA continues to be a top policy priority of The Real Estate Roundtable.  (Capital and Credit sections of The Roundtable’s 2019 Policy Agenda and  FY2019 Annual Report) 

Other Resources:

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New York Overhauls Rent Regulations as Affordable Housing Shortage Attracts National Attention

Posted on by Trey Jackson

Major changes to New York City’s rent regulations passed in Albany last week have drawn attention to a nationwide resurgence of rent control laws considered by cities and states across the nation.  ( Wall Street Journal , June 14).

By keeping more New York City apartments permanently in the regulated system, the new law will diminish the number of available market-rate units, drive-up market-rate rents, and perpetuate an imbalance in affordable housing supply and demand.  
  • The law signed by Governor Andrew Cuomo on June 14 directly impacts about 40 percent of New York City’s apartment stock and expands rent stabilization to counties across the state.  The law generally freezes “stabilized” NYC apartments from ever moving to market rental rates.  (New York Times ,June 12 and June 17).  
  • By keeping more apartments permanently in the regulated system, the new law will diminish the number of available market-rate units, drive-up market-rate rents, and perpetuate an imbalance in affordable housing supply and demand.  Affluent Manhattan residents in stabilized apartments who enjoy a rental windfall will stay in place, while lower-income residents in outer boroughs will likely bear higher rent burdens.  (Wall Street Journal, June 12) 
  • The New York law also dis-incentivizes owners from modernizing aging housing with new roofs, boilers, security systems, and other improvements.  By capping annual rent increases that an owner can charge for major building-wide capital investments, one critic has warned that the law could lead to a “shabbification of rental housing.”  (Citylab, June 13). 
  • Real Estate Board of New York (REBNY) President John Banks stated, “The harmful impact of this legislation will be profound for New York City’s economic future … This legislation will keep rent lower for some, but also significantly diminish housing quality and lead to less tax revenue to pay for vital government services.”  (REBNY statement, June 18) 

Affordable Housing: A National Issue

New York’s action is part of a growing trend of jurisdictions purporting to address skyrocketing housing costs though rent regulations.  Meanwhile, candidates on the 2020 campaign trail are offering plans to address the nation’s “affordable housing crisis.”  ( NPR,  June 18)  

    An  interactive national map provided by the National Multifamily Housing Council (NMHC) details the movement of state capitals eying rent control measures.   
    • An interactive national map provided by the National Multifamily Housing Council (NMHC) details the movement of state capitals eying rent control measures.  
    • A real estate industry coalition recently opposed a rent control measure under consideration in California.  In a letter to Sacramento lawmakers, the coalition explained that increasing housing supplies with new construction built by public-private partnerships will “help bring the price point down,” and that it is “more effective to tie assistance to a renter rather than a rental unit.” (NMHC, June 17) 
    • Proposals in Congress that aim to expand and incentivize the construction of affordable housing would be more effective in addressing the nation’s housing challenges (compared to government-mandated rental price-fixing).  Recently proposed measures would expand the low-income housing tax credit program (e.g., S. 1703,  H.R. 3077), and create a similar tax credit geared to moderate-income, workforce housing (S. 3365, 115th Cong.). 
    • Housing and Urban Development Secretary Ben Carson has offered a strategy to boost affordable housing by encouraging localities to ease their own building restrictions. Carson’s proposal has gained support of House Financial Services Committee Chair Maxine Waters (D-CA).  It would provide federal monetary incentives for local governments to ease land-use and zoning regulatory barriers that can feed into “NIMBY-opposition” against affordable housing and drive-up development and construction costs. (Politico, June 14) 

    “Although they are well-intended, we know from decades of experience that rent control regulations distort markets, create shortages, and depress business investments.  They often harm the communities they seek to help,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Policy makers should avoid rent control measures and rather seek solutions that grow America’s residential stock, to enable our communities to provide safe and decent housing for low-income families and the teachers and first-responders in our workforce.”

    House Committee Passes Bill Extending National Flood Insurance Program for Five Years

    Posted on by Trey Jackson

    The House Financial Services Committee on June 12 unanimously approved legislation that would reauthorize the National Flood Insurance Program (NFIP) for five years; spur the availability of private flood insurance; reduce costs for lower-income policyholders; and require updated flood zone maps for coverage.  (Wall Street Journal, June 12).  Next, the House of Representatives will consider the measure although the timing of a possible vote is not clear. ( Section-by-Section Committee Bill Summary )    

    The NFIP would be reformed and reauthorized for five years under H.R. 3167.

    • The NFIP has operated under a series of temporary extensions since 2017.  On June 6, President Trump signed a disaster relief bill that extended the program until Sept. 30, the end of the fiscal year.  
    • Following negotiations between Committee Chairwoman  Maxine Waters  (D-CA) and Ranking Member Patrick McHenry (R-NC), the House panel approved the flood insurance reauthorization bill ( H.R. 3167 ). (House Financial Services Committee News Releases,  June 5   and  June 10 ) 
    • “The ranking member and I are convinced we can do a lot better than short-term extensions,” Waters said. “So, we are very pleased we put forth a bill today that is supported by both sides.” (CQ, June 12) 
    • The Real Estate Roundtable and 14 other industry groups urged Congress in a  June 12, 2017 comment letter  to reauthorize and reform the NFIP to help protect the nation’s commercial and multifamily business-owners, their properties, residents and the jobs they create from the financial perils of flooding. 
    • Under the current NFIP, commercial property flood insurance limits are very low – $500,000 per building and $500,000 for its contents.  Lenders typically require this base NFIP coverage, and commercial owners must purchase Supplemental Excess Flood Insurance for coverage above the NFIP limits. A niche market of carriers typically provides this type of excess coverage. The Roundtable and its coalition partners support NFIP reauthorization with the inclusion of provisions that permit the “commercial exemption.” 
    • The Roundtable has long advocated for a voluntary exemption for mandatory NFIP coverage if commercial property owners have adequate flood coverage.
    • Sec. 402 of H.R. 3167 – Optional Coverage for Umbrella Policies – addresses commercial properties. 
    • John Smaby, President of the National Association of Realtors, commented on the importance of the legislation: “… including policies that address mapping, mitigation and private flood insurance, and we look forward to move responsible NFIP reforms through the House and Senate in the coming weeks” (NAR, June 13)

      The Roundtable will continue to work with lawmakers and our coalition partners to assist with NFIP reforms and a long-term reauthorization that help protect the nation’s commercial and multifamily business-owners, their properties and residents.

      House Committee Passes Beneficial Ownership Bill; Senate Hearing on June 20

      Posted on by Trey Jackson

      The House Financial Services Committee this week passed the  Corporate Transparency Act of 2019  ( H.R. 2513), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  The bill  – introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY)  – would shift the FinCEN reporting requirements from banks to the business community, requiring every business with fewer than 20 employees to register their beneficial owners with FinCEN . ( Roundtable Weekly , May 24)

      The  House Financial Services Committee this week passed the Corporate Transparency Act of 2019 ( H.R. 2513 ), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

      • H.R. 2513 would also mandate that businesses update beneficial ownership information with any changes (home or business address, driver’s license change, change in ownership) within 60 days, and annually for the life of the business.  Failure to comply with these reporting requirements would be a federal crime with civil penalties of up to $10,000 and criminal penalties of up to three years in prison.  
      • A coalition that includes The Real Estate Roundtable sent a letter June 10 to the committee’s leadership opposing the Maloney-King bill.  “This legislation would impose burdensome, duplicative reporting burdens on approximately 4.9 million small businesses in the United States and threatens the privacy of law abiding, legitimate small business owners,” the letter states. 
      • The coalition emphasizes that it supports the overall goal of preventing wrongdoers from exploiting United States corporations and LLCs for criminal gain.  Yet the coalition letter details significant problems with H.R. 2513. 
      • One major challenge is that the legislation would shift reporting requirements from large banks-those best equipped to handle the reporting requirements-to millions of small businesses-those least equipped to handle the reporting requirements. 
      • The coalition also notes the bill presents privacy, data breach and cybersecurity risks for millions of small businesses in the United States. 
      • On May 9, the House Financial Services Committee unanimously approved legislation entitled the “Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act” or the “COUNTER Act.”  The bill (H.R. 2514) would require financial institutions to determine the beneficial owners involved in certain commercial real estate transactions – similar to a FinCEN Geographic Targeting Order requirement affecting residential purchases. (CQ, May 9 and (Roundtable Weekly, May 24) 
      • The Roundtable also raised concerns in February about beneficial ownership reporting requirements and the potential burdens they place on the real estate industry. (Coalition letter – Feb. 6, 2018).   

      The Roundtable will continue to work with policymakers to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry. 

      Lawmakers and Industry Leaders Discuss National Policy Challenges; Roundtable Releases Annual Report

      Posted on by Trey Jackson

      House Ways and Means Committee Chairman Richard Neal (D-MA), Senate Banking Committee Member Sherrod Brown (D-OH) and other prominent lawmakers this week engaged Roundtable members on policies affecting the industry – including infrastructure, tax reform, the financial regulatory environment, and extending the Terrorism Risk Insurance Act – during The Real Estate Roundtable’s 2019 Annual Meeting in Washington, DC.

      Four Roundtable Chairs in attendance at the 2019 Annual Meeting to recognize the organization’s 20th anniversary –  left to right, Randall K. Rowe (1998-2000); Robert S. Taubman (2012-2015); Debra A Cafaro (current); and Nelson C. Rising (2000-2003). 
      – click to enlarge photo –
      • Roundtable Chair Debra A. Cafaro  (Chairman & CEO, Ventas, Inc.) launched the business meeting by recognizing the organization’s 20 th anniversary of effective industry advocacy efforts; its recent success in attracting greater diversity to its membership; and its newly-released FY2019 Annual Report, ” Building Strong Public Policy, Now and for the Future. ”   
      • Cafaro noted, “During these past 20 years, our mission has been to bring the top leaders in the real estate industry together with the industry’s 17 leading trade associations to identify significant policy issues affecting our industry, job creation and the overall economy.  We will continue to analyze the issues for their real world impact based on solid research and facts, then advocate a nonpartisan, unified position to national policymakers.” 

      Featured guests during the June 11-12 business and policy advisory committee meetings included: 

      • Ways and Means Chairman Richard Neal discussed his committee agenda for the year, including his efforts with the White House to develop a comprehensive infrastructure improvement program.  He also noted the need to reform or repeal the Foreign Investment Real Property Act (FIRPTA) of 1980.  Chairman Neal added that Ways and Means next week may address the extension of numerous expired or expiring tax provisions.  He also mentioned the committee’s agenda may include a tax overhaul technical corrections bill, which could include a correction to address a drafting error affecting qualified improvement property. (Roundtable Weekly, June 7) 

        Roundtable President and CEO Jeffrey DeBoer introduces House Ways and Means Committee Chairman Richard Neal (D-MA)

        – click to enlarge photo – 
      • Senate Banking Ranking Member Sherrod Brown acknowledged the urgency to address the reauthorization and extension of the Terrorism Risk Insurance Act (TRIA) before it expires at the end of 2020.  (The Senate Banking Committee will hold a  June 18 hearing on TRIA.)  He also said that housing finance reform, including reform of the Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac, also must address the urgent need for more affordable and workforce housing throughout the nation. 
      • Richard W. Fisher, former President & CEO of the Federal Reserve Bank of Dallas, discussed global and national monetary policy issues with former Roundtable Chair Robert Taubman (Chairman, President and Chief Executive Officer of Taubman Centers Inc.).  

      A panel discussion moderated by Roundtable Treasurer Thomas M. Flexner (Vice Chairman and Global Head of Real Estate, Citigroup) focused on market conditions and the economic outlook with:  

      • Jeff T. Blau, CEO, Related Companies   
      • Adam Gallistel, Managing Director, GIC Real Estate   
      •  Timothy J. Naughton, Chairman, Chief Executive Officer and President, AvalonBay Communities, Inc. 
      • Barry Sholem, Partner, MSD Partners, L.P.  
      Policymakers, congressional committee staff and regulatory officials also participated in The Roundtable’s policy advisory committee meetings for in-depth discussions about public policy issues in the areas of tax; capital and credit; energy and environment; and homeland security. 

       The Roundtable’s newly-released FY2019 Annual Report, “ Building Strong Public Policy, Now and for the Future “

      • During a joint meeting of the Real Estate Capital Policy Advisory Committee (RECPAC) and Research Committee, Rep. French Hill (R-AR) provided insights on housing finance reform efforts as a member of the House Financial Services Committee.  Federal Housing Finance Agency Director Mark Calabria also shared his views on reform efforts from a regulatory perspective.  ( Politico , June 12, ” Housing regulator seeks power from Congress to overhaul mortgage finance “) 
      • An evening dialogue with former White House Chiefs of Staff Denis McDonough (2013-2017, President Barack Obama) and Reince Priebus (January 2017-July 2017, President Donald Trump) included their perspectives on current and future policymaking efforts. 
      • During the meeting, The Roundtable membership also approved three proposed FY2020 Roundtable Board members , effective July 1: 
      • Scott Jones , Vice President of Jacobs Engineering and Chair-Elect of Building Owners and Managers Association (BOMA), International 
      • Amy Rose , President & CEO, Rose Associates
      • Robert Spottswood , President of Spottswood Companies and Chair of the American Resort Development Association (ARDA)  
      The Roundtable’s FY2019 Annual Report will be sent to the membership in early July.  Next on The Roundtable’s calendar is the Fall Meeting on October 30 in Washington, DC (Roundtable-level members only). 

      House Tax Writers Air Priorities, Address Technical Correction for Qualified Improvement Property Provision

      Posted on by Trey Jackson

      The House Ways and Means Committee on June 4 held a Members’ Day Hearing to address tax legislative priorities for the remainder of the year – including technical corrections to the Tax Cuts and Jobs Act (TCJA) that would correct a drafting error affecting qualified improvement property (QIP).  Numerous other tax priorities are also expected to crowd the congressional agenda, including expired or expiring tax provisions; repeal of the state and local tax deduction cap; the national debt limit; and budget spending caps.

      The House Ways and Means Committee held a Members’ Day Hearing to address tax legislative priorities for the remainder of the year – including technical corrections to theTax Cuts and Jobs Act(TCJA) that would correct a drafting error affecting qualified improvement property (QIP).

      • A coalition of businesses and trade groups, including The Real Estate Roundtable, urged all members of Congress in April to cosponsor the Restoring Investment in Improvements Act (H.R. 1869 /  S. 803) – a bill that would correct the QIP drafting error.  The legislation would give qualified improvement property a 15-year depreciation period and restore its eligibility for accelerated bonus depreciation. (QIP Policy Comment Letter and Roundtable Weekly, April 26)
      • The QIP error has resulted in a significantly longer 39- or 40-year cost recovery period for interior improvements to nonresidential property, such as tenant build-outs.  The intent of Congress was to allow the immediate expensing of QIP – or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest.
      • During the hearing, Rep. Adrian Smith (R-NE) said that QIP should be addressed as soon as possible and technical corrections should reflect the intent of lawmakers.  Rep. Roger Marshall (R-KS) discussed how QIP’s 39 depreciation adversely impacts small businesses, suggesting it should be dropped to 15 years.  And Rep. Jackie Walorski (R-IN) emphasized the need for a QIP fix, advocating for H.R. 1869. 
      • Reps. Walorski and Jimmy Panetta (D-CA) introduced the Restoring Investment in Improvements Act on March 26. The Senate companion bill (S. 803) was introduced earlier that month by Sens. Pat Toomey (R-PA) and Doug Jones (D-AL).  (Roundtable Weekly, March 15) 

        Ways and Means Chairman Richard Neal (D-MA) will discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.

      • Beth Bell, Democratic tax counsel for Ways and Means, acknowledged many committee members are interested in TCJA technical fixes, including QIP.  Yet she emphasized during a May 30 Federal Bar Association meeting, “I think we need to get through processing or considering what to do with an extenders package before we get to a technical corrections package.” (BGov, May 30)
      • In the Senate, Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) last month announced the formation of several bipartisan taskforces to examine and help permanently resolve the fate of 42 expired and expiring tax provisions.  (Senate Finance Committee Announcement, May 16 and Roundtable Weekly, May 17)
      • A preliminary draft of House legislation obtained by Bloomberg Tax last week would pay for the extension of temporary tax provisions through 2019 by changing the expiration date of estate tax relief included in TCJA. 

      House Ways and Means Chairman Richard Neal (D-MA) will discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.  QIP and tax extenders will be among several tax policy issues discussed in detail during The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting on June 12.

      Real Estate Coalition Opposes FCC’s Notice That May Permit Broadband Equipment on Private Property Without Owner Consent

      Posted on by Trey Jackson

      Installation of certain communications equipment on leased property to enable expansion of wireless networks should not be allowed without owner consent.  That is the message submitted on June 3 to the Federal Communications Commission (FCC) by an industry coalition that includes The Real Estate Roundtable.  (Joint Industry Comments to FCC).

      The installation of certain communications equipment on leased property to enable expansion of wireless networks should not be allowed without owner consent.  (Joint Industry Comments to FCC, June 3)

      • The coalition’s comments come as the FCC considers whether to expand its interpretation of federal law regarding consumer home antennas, spurred by the development of 5G technology for the next generation of advanced communications equipment. 
      • Current FCC rules allow residential and commercial tenants to install in leased spaces certain types of “customer-end” antennas and satellite dishes known as Over-the-Air-Reception Devices (“OTARD”).  The current scope of the OTARD rules is designed to enable consumer choice for tenants to select the kinds of cable and broadband services they desire. 
      • The FCC’s Notice of Proposed Rulemaking (announced on March 22) suggests a regulatory expansion outside the existing scope of “customer-end” devices in leased residential apartments and indoor office spaces.  The agency’s proposal would confer a broad grant of rights on broadband providers to access rooftops and other common areas – without the building owner’s consent – for the dense deployment of “hub and relay” antennas and other fixed wireless devices attendant to 5G infrastructure. 
      • The real estate coalition believes new FCC rules are not necessary because apartment residents, commercial tenants, and other customers demand fast and reliable Internet service in the 21st century marketplace.  “[C]ompetitiveness … has driven property owners to ensure that broadband infrastructure is available in their communities and other buildings,” the industry’s comments state.  “This deployment has taken place without government mandates, and the Real Estate Associations strongly believe that government intervention is not needed.”   

        The Real Estate Associations’ opposition to the Over-the-Air-Reception Devices (“OTARD”) rule’s expansion is detailed in expansive comments. 

         

      • According to the coalition, property owners have invested in excess of half a billion dollars over the past decade – a low-ball estimate – of their own capital to deploy broadband infrastructure in their assets.  Additionally, a basic exercise of building management is to enter into mutually beneficial arrangements with broadband providers to provide tenants with Internet access.  Government intervention – and regulation of rooftops and other building spaces – is not necessary because the market is already functioning and thriving. 
      •  The real estate groups’ comments acknowledged that broadband deployment in the nation’s rural areas (81.7 percent coverage) lags considerably behind urban coverage (99 percent).  Strides need to be made to “close the gap between urban and rural deployment.  But we also think it is important to note that existing rates of deployment were achieved with cooperation of the real estate industry,” the groups explained to the FCC.         

      The Real Estate Associations’ opposition to the OTARD rule’s expansion is detailed in its expansive comments.  For more information, see the National Multifamily Housing Council’s resources on telecommunications issues.

      Treasury Releases Proposed Regulations on FIRPTA Foreign Pension Fund Exemption

      Posted on by Trey Jackson

      The Treasury Department yesterday issued proposed tax regulations clarifying the scope and operation of the foreign pension fund exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  (Federal Register, June 7)  The proposed rules appear to be overwhelming positive and likely to resolve most, if not all, of foreign investors’ remaining concerns.

      The Treasury Department  issued proposed tax regulations clarifying the scope and operation of the foreign pension fund exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  (Federal Register, June 7)  The proposed rules appear to be overwhelming positive and likely to resolve most, if not all, of foreign investors’ remaining concerns.

      • FIRPTA imposes U.S. capital gains tax on the sale of a U.S. repeal property interest by a foreign investor.  FIRPTA results in a discriminatory tax on foreign investment in US real estate and infrastructure that does not apply to any other asset class.  The FIRPTA regime is an anti-competitive outlier that deflects global capital to other markets.
      • With the strong support of The Real Estate Roundtable, Congress passed in 2015 the first major reforms to FIRPTA since its enactment in 1980.  The changes included a new exemption from FIRPTA for qualified foreign pensions funds and doubled the amount a foreign interest may invest in a U.S. publicly traded REIT.  (Roundtable Weekly, Dec. 18, 2015) 
      • After passage of the 2015 PATH Act, some questions remained regarding whether certain foreign entities and arrangements would qualify for the foreign pension fund exemption.  The Roundtable encouraged Congress to clarify that the foreign pension fund definition covers a number of number of different arrangements, including:  governmental, Social Security-type plans; plans established for the self-employed; multi-employer plans; plans sponsored by political subdivisions; and situations where an entity pools retirement assets from multiple pension plans.
      • In March 2016, the Joint Committee on Taxation provided support for a broad interpretation of the FIRPTA foreign pension fund exemption with its “Blue Book” on tax legislation enacted in 2015.  (Roundtable Weekly, March 18, 2016)  In March 2018, Congress passed FIRPTA technical corrections legislation codifying many of The Roundtable’s recommendations.  (Roundtable Weekly, Mar. 23, 2018; The Blue Slip, Mar. 2018)
      • The newly proposed regulations adopt a broad view on what constitutes a qualified foreign pension fund.  According to the regulations’ preamble, “[t]he Treasury Department and the IRS have determined that the purpose of section 897(l) is best served by permitting a broad range of structures to be eligible to be treated as a qualified foreign pension fund.”  This sentiment is then extended in the proposed rules to a wide range of pension arrangements, including multi-employer and government-sponsored public pension funds, as well as retirement funds organized by trade unions, professional associations, or similar groups. 
      • Additionally, the proposed regulations confirm that entities wholly owned by multiple foreign pension funds can qualify for the exemption.  Similarly, entities can qualify for the exemption indirectly through a chain of ownership.  These were important clarifications for common foreign pension fund structures.  

      Building on the success of the PATH Act reform, The Roundtable and other stakeholders are encouraging Members of Congress to repeal FIRPTA entirely by passing the bipartisan Invest in America Act sponsored by Representatives John Larson (D-CT) and Kenny Marchant (R-TX).  (Roundtable Weekly, Apr. 12, 2019)  FIRPTA will be one of several tax topics discussed during The Roundtable’s Annual Meeting on June 11 in Washington, DC and at the Tax Policy Advisory Committee meeting on June 12.

      Roundtable Urges Treasury to Clarify Tax Consequences of Transition Away from LIBOR as Reference Rate

      Posted on by Trey Jackson

      The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate.  Over $200 trillion of LIBOR contracts are outstanding, including roughly $1.3 trillion of commercial real estate debt. (Roundtable LIBOR letter, June 6)

      The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate. (Roundtable LIBOR letter, June 6). 
      • The United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced in 2017 that it is phasing out the global borrowing index by the end of 2021.  LIBOR will need to be replaced in both new agreements and innumerable existing legacy contracts.
      • Several factors may necessitate or accelerate parties’ adoption of alternative reference rates on existing contracts well before the end of 2021.  To facilitate the transition, the Federal Reserve Bank of New York in 2018 began publishing an alternative U.S. benchmark to work alongside LIBOR – the Secured Overnight Financing Rate (SOFR).  (See: A User’s Guide to SOFR  and SOFR: A Year in Review)
      • However, several issues may be contributing to the reluctance of market participants to use SOFR, including the absence of necessary internal infrastructure to support its accounting and trading, and the lack of tax guidance. 
      • Roundtable President and CEO Jeffrey DeBoer noted in the comment letter, “If the terms of a debt instrument are significantly modified, for Federal income tax purposes there is a deemed exchange of the old debt for a new (modified) debt instrument.”  Without relief, this deemed exchange could trigger the recognition of taxable gain or loss for the lender, or debt discharge income for the borrower.
      • “Moreover, the tax consequences of the deemed exchange can arise without generating actual cash to pay any ensuing tax liability,” wrote DeBoer. 

        Randal Quarles – the Fed’s vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR. 

      • The Roundtable’s June 6 comments recommend that a safe-harbor rule confirm that a replacement index or formula identified by regulators, broad industry groups, or similar objective sources-or by the parties themselves in good faith-is not considered an alteration or modification of the original instrument.  The Roundtable letter states, “Instead, the replacement should be treated for Federal tax purposes as a continuation of the instrument’s original terms.”
      • This week, Randal Quarles – the Fed’s vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR:  “I believe that the ARRC has chosen the most viable path forward and that most will benefit from following it, but regardless of how you choose to transition, beginning that transition now would be consistent with prudent risk management and the duty that you owe to your shareholders and clients …. With only two and a half years of further guaranteed stability for LIBOR, the transition should begin happening in earnest.”  (Bloomberg, June 3)
      • The Wall Street Journal reported last July that companies were adopting SOFR sparingly –  despite regulators urging banks and traders to stop launching new Libor-based contracts ahead of the 2021 deadline. (WSJ, July 12 and Roundtable Weekly, July 13, 2018) 

      The Roundtable letter was developed by a task force that included Tax Policy Advisory Committee (TPAC) Chairman Frank Creamer Jr., TPAC member Don Susswein, and chair of the Real Estate Capital Policy Advisory Committee (RECPAC) Working Group on LIBOR, Joseph Philip Forte.  On June 11, at The Roundtable’s Annual Meeting in Washington DC, Joseph Forte will lead a RECPAC discussion on real estate’s concerns with the LIBOR transition. 

      President Trump Requests Democrats Pass USMCA Before Infrastructure Bill; House Ways and Means Member Introduces Gas-Tax Infrastructure Bill

      Posted on by Trey Jackson

      On the eve of a May 22 White House meeting to discuss a national infrastructure improvement package, President Trump sent a letter to Democratic congressional leaders requesting they first approve his trade deal with Canada and Mexico before taking up infrastructure legislation. (Bloomberg, May 21)

      Legislation introduced May 22 by Rep. Earl Blumenauer (D-OR) would gradually increase gasoline and diesel taxes to invest in the nation’s infrastructure.  Blumenauer is a member of the tax-writing House Ways and Means Committee.

      • “Before we get to infrastructure, it is my strong view that Congress should first pass the important and popular [United States-Mexico-Canada Agreement (USMCA)] trade deal,” Trump wrote. “Once Congress has passed USMCA, we should turn our attention to a bipartisan infrastructure package,” he added.
      • Democrats and Trump agreed during a meeting last month to pursue a $2 trillion infrastructure package and meet again this week to discuss funding.  (Roundtable Weekly, May 3).  Trump cancelled the May 22 White House meeting and the talks failed to move forward.
      • In the House, legislation introduced May 22 by Rep. Earl Blumenauer (D-OR) would gradually increase gasoline and diesel taxes to invest in the nation’s infrastructure.  Blumenauer is a member of the tax-writing House Ways and Means Committee.
      • The Rebuild America Act would raise the fuels’ tax by five cents a year over five years, index it to inflation, and aim to replace it with a more stable source of funding within 10 years. (Blumenauer press release, May 22) 
      • The Roundtable on April 29 submitted infrastructure policy recommendations to House Committee on Transportation and Infrastructure Chairman Peter DeFazio (D-OR) and Ranking Member Sam Graves (R-MO).  As part of a suite of infrastructure recommendations, The Roundtable also proposed a gas “user fee” increase that aligns with Blumenauer’s bill.  (Roundtable Weekly, May 3)

      House Ways and Means Committee Chairman Richard Neal (D-MA) is scheduled to discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.