Trump announces short-term funding agreement to end partial government shutdown

Tax News & Views Capitol Hill briefing. In this issue: Trump announces short-term funding agreement to end partial government shutdown... 1 Deloitte Tax looks at latest section 199A guidance... 4 Neal cancels Ways and Means hearing after Mnuchin refuses to appear... 5 Trump announces short-term funding agreement to end partial government shutdown President Trump announced January 25 that he had reached an agreement with congressional leaders to fund currently shuttered federal departments and agencies through February 15 and allow a bipartisan House-Senate conference committee to pursue a separate deal on a Homeland Security package that would address border protections. The agreement would bring to an end the partial shutdown of the federal government that began at midnight on December 21. Trump said that he would sign the legislation once it is approved in the House and Senate. He indicated that Senate Majority Leader Mitch McConnell, R-Ky., would bring the measure to the floor in his chamber immediately but did not comment on timing for action in the House. The president cautioned that if the bipartisan conference committee does not reach what he considered to be a satisfactory deal on border security by February 15 he would shut down the government again or, in what appeared to be a veiled reference to an emergency declaration, invoke other powers available to him under the Constitution. Tax News & Views Page 1 of 6 Copyright 2019 Deloitte Development LLC

Little apparent progress earlier in the week The announcement capped a week in which lawmakers in the House and Senate this week laid down partisan markers for funding the federal government but made little apparent progress toward ending the long-running stalemate. GOP, Dem proposals fail to advance in Senate: Senate Majority Leader Mitch McConnell, R-Ky., broke his relative silence in the shutdown debate on January 24 when he teed up for a procedural vote more than 1,300 pages of legislative text reflecting the offer to reopen shuttered federal departments and agencies that President Trump had laid out several days earlier. That bill would have: Reopened the full government through September 30 (the end of fiscal year 2019); Provided $5.7 billion in funding for the president s proposed wall along the southern US border; and Granted three years of deportation protection to Deferred Action for Childhood Arrivals (DACA) recipients, among other immigration changes. As expected, that language offered as an amendment to an underlying funding bill (H.R. 268) failed by a largely party-line vote of 50-47, falling 10 short of the three-fifths majority, or 60 votes, needed to advance. Democrats, who largely opposed the measure, continued to insist that they would provide funds for border security but not a border wall. They also objected to some of the proposed immigration changes (such as restrictions on asylum seekers from certain Central American countries) and argued for a permanent DACA solution over a temporary fix. West Virginia Sen. Joe Manchin was the sole Democrat to vote in favor of the proposal. Two Republicans Arkansas Sen. Tom Cotton and Utah Sen. Mike Lee broke ranks to vote against it. That same day, a separate procedural vote on a so-called clean continuing resolution backed by Democrats that would have reopened the government through February 8 failed by a vote of 52-44. (Again, a 60-vote supermajority was required for the bill to advance.) The measure largely resembled a bill the Senate passed by voice vote in December, shortly before the president issued a veto threat due to its lack of wall funding. Six Senate Republicans Lamar Alexander of Tennessee, Susan Collins of Maine, Cory Gardner of Colorado, Johnny Isakson of Georgia, Lisa Murkowski of Alaska, and Mitt Romney of Utah crossed the aisle to join Democrats in supporting that measure. Despite the apparent lack of progress, some members seemed glad simply to be taking votes on alternative solutions something the Senate has not done throughout the impasse. I m at the point of being happy that we re going to the floor and having an opportunity to vote on anything. I m not very optimistic about the chance of passage, said Sen. Lisa Murkowski the day before the Senate took its votes. I think it offers us an opportunity to proceed. House-passed proposals hit dead-end: For their part, House Democrats this week voted to approve three different funding packages numbers nine, ten, and eleven since they claimed the majority on January 3 none of which stood any real chance of being taken up in the Senate: H.J.Res.28 (passed 229-184 on January 23) would reopen all shuttered federal agencies through February 28; H.R. 648 (passed 234-180 on January 23) would reopen all closed agencies except the Department of Homeland Security through September 30; and H.J.Res.31 (passed 231-180 on January 24) would fund the Department of Homeland Security through February 28. Appropriations for the Department of Homeland Security have been the most contentious aspect of the debate, as it is the agency through which any wall funding traditionally would be provided. Tax News & Views Page 2 of 6 Copyright 2019 Deloitte Development LLC

Filing season concerns The impact of the shutdown continued to be felt at the Treasury Department and Internal Revenue Service, which are among the federal departments and agencies that have been unfunded. In anticipation of the 2019 tax filing season that is set to kick off on January 28, the IRS recently announced that it was calling back more than half of its workforce more than 46,000 employees to work without pay. (For prior coverage, see Tax News & Views, Vol. 20, No. 3, Jan. 18, 2019.) URL: http://newsletters.usdbriefs.com/2019/tax/tnv/190118_1.html But the success of that strategy was at least somewhat thrown in doubt this week in the wake of reports that hundreds of those recalled IRS employees were not returning to work and were availing themselves of so-called hardship provisions in their union contracts that enable them to miss work if they suffer a hardship during a shutdown. One report, for example, noted that a missed child care bill could be construed as a hardship under these provisions. AICPA weighs in: For its part, the American Institute of Certified Public Accountants in a January 24 letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig cited problems its members have encountered ahead of the filing season and offered recommendations to mitigate the long-term effect of the shutdown. Problems identified in the letter include, among others, lack of IRS staff to work with practitioners on issues related to collection notices, audits, and appeals; difficulties in accessing and using online systems and accounts; limited in-person assistance for taxpayers who are facing problems in preparing or filing their returns, are victims of identity theft, or are experiencing hardship issues; and a possible slowdown in the release of guidance related to the massive changes to the tax code that were enacted in 2017. URL: http://newsletters.usdbriefs.com/2019/tax/tnv/190125_1_suppa.pdf Neal cancels Ways and Means hearing on filing season impact: In related news, House Ways and Means Committee Chairman Richard Neal, D-Mass., late January 23 canceled a hearing scheduled for the next day that was to focus on how Treasury and the IRS would manage the tax filing season during the shutdown after the only invited witness for the hearing, Treasury Secretary Mnuchin, declined Democratic requests to testify. Mnuchin had suggested that lower level officials who may be more conversant with the details testify instead. (See separate coverage in this issue for additional details on Ways and Means Committee developments.) Neal noted on January 24 that he still intends to have Mnuchin testify and has offered alternative dates in early February for the hearing to occur. Mnuchin subsequently indicated, however, that his appearance before the panel may have to wait until the administration finalizes its budget request for fiscal year 2020. Impact on fiscal 2020 budget release? But exactly when the administration intends to release a fiscal 2020 budget blueprint laying out its spending and revenue priorities for the next fiscal year (and the follow-on nine years that are part of the 10-year budget window) remains unclear. Although there so far has been no official announcement from the White House, the weeks-long shutdown could mean that the budget release will be delayed. Under the Budget and Accounting Act of 1921, every administration is required to submit its budget request for the upcoming fiscal year no later than the first Monday of February. (The deadline for submitting the fiscal 2020 blueprint is February 4.) In practice, however, many presidential budgets in recent years have been delayed for various reasons: President Trump s fiscal 2019 budget, for example, was about one week late due in part to a three-day government shutdown during January 2018; and President Obama s fiscal 2015 budget was submitted four weeks after its statutory deadline a delay the Obama administration attributed to a protracted congressional appropriations process for the preceding fiscal year. (For prior coverage, see Tax News & Views, Vol. 19, No. 4, Jan. 26, 2018, and Tax News & Views, Vol. 15, No. 4, Jan. 24, 2014.) URL: http://newsletters.usdbriefs.com/2018/tax/tnv/180126_1.html URL: http://newsletters.usdbriefs.com/2014/tax/tnv/140124_2.html The Office of Management and Budget the agency that serves as a clearinghouse among the various executive branch departments and that coordinates and drafts the administration s budget is among the agencies that have been limited to carrying out essential functions only due to the partial government shutdown. Tax News & Views Page 3 of 6 Copyright 2019 Deloitte Development LLC

Trump accedes to Pelosi on State of the Union delay Also this week, a shutdown-related dispute between President Trump and House Speaker Nancy Pelosi, D-Calif., over the date and venue for the president s State of the Union message ended late January 23 after Trump agreed to postpone his address until after the government reopens. The State of the Union address traditionally delivered to members of Congress, the Supreme Court, and other highranking government officials from within the House chamber had been tentatively scheduled for January 29; but Speaker Pelosi, citing concerns about security (as many federal law enforcement agencies remain shuttered because of the shutdown) had urged Trump to either delay his delivery of the address or submit it to the Congress in writing. (For prior coverage, see Tax News & Views, Vol. 20, No. 3, Jan. 18, 2019.) URL: http://newsletters.usdbriefs.com/2019/tax/tnv/190118_3.html Earlier in the week, President Trump appeared intent on delivering his address in the Capitol as scheduled. But in order for the address to occur in the Capitol before members from both chambers, Congress must pass a joint resolution calling for the House and Senate to come together in a so-called joint session to receive the president. Pelosi, who as speaker controls what legislative items are brought to the House floor, made clear in a January 23 letter to Trump that the House of Representatives [would] not consider a concurrent resolution authorizing the President s State of the Union address in the House Chamber until government has opened. The president subsequently responded in a statement on Twitter that as the Shutdown was going on, Nancy Pelosi asked me to give the State of the Union Address. I agreed. She then changed her mind because of the Shutdown, suggesting a later date. This is her prerogative I will do the Address when the Shutdown is over. I am not looking for an alternative venue for the SOTU Address because there is no venue that can compete with the history, tradition, and importance of the House Chamber. Assuming the proposed three-week funding deal is quickly approved and signed into law and the government is fully operational by Monday, January 28, Trump conceivably could deliver his address in the House on January 29 as originally planned. Specific details around plans for the State of the Union message in the wake of the new funding agreement were not available at press time, however. Alex Brosseau Tax Policy Group Deloitte Tax LLP Deloitte Tax looks at latest section 199A guidance The Treasury Department and IRS on January 18 released final regulations and other guidance items addressing the deduction for qualified business income of certain passthrough entities under section 199A, which was enacted as part of the massive 2017 tax cut law known informally as the Tax Cuts and Jobs Act (P.L. 115-97). Included in the release are: Final section 199A regulations, including a number of clarifying changes and new aggregation rules for relevant passthrough entities; URL: https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf New proposed regulations covering (1) the treatment of previously suspended losses that constitute qualified business income and (2) the determination of the section 199A deduction for taxpayers that hold interests in regulated investment companies, charitable remainder trusts, and split-interest trusts; URL: https://www.irs.gov/pub/irs-drop/reg-134652-18.pdf Notice 2019-07, which proposes new trade or business safe harbor rules for rental real estate enterprises; and URL: https://www.irs.gov/pub/irs-drop/n-19-07.pdf Rev. Proc. 2019-11, which provides methods for calculating W-2 wages for purposes of section 199A. URL: https://www.irs.gov/pub/irs-drop/rp-19-11.pdf Tax News & Views Page 4 of 6 Copyright 2019 Deloitte Development LLC

Deloitte Tax summary available A high-level outline of some key points and observations from the guidance is available from Deloitte Tax LLP. URL: http://newsletters.usdbriefs.com/2019/tax/tnv/190125_2_suppa.pdf Michael DeHoff Tax Policy Group Deloitte Tax LLP Neal cancels Ways and Means hearing after Mnuchin refuses to appear House Ways and Means Committee Chairman Richard Neal, D-Mass., on January 23 canceled a planned hearing to address the impact of the ongoing partial government shutdown on taxpayers and the upcoming tax filing season after Treasury Secretary Steven Mnuchin, the sole invited witness, refused to appear. The hearing, which had been scheduled for January 24, would have been the taxwriting panel s first since the 116th Congress convened earlier this month. The Treasury Department offered to send less senior officials to answer the taxwriting committee s questions, but in his statement announcing the cancelation, Neal said Ways and Means need[s] to hear directly from the Secretary to gain greater clarity regarding the IRS capabilities during the shutdown. The Trump administration has designated just over 46,000 of the Internal Revenue Service s roughly 80,000 employees to work without pay in support of the filing season which begins on January 28 and other activities deemed essential. The shutdown workforce includes 30,000 IRS employees who were recalled last week. (The president has signed a bill authorizing full back pay for federal employees once agencies reopen, but workers will not receive paychecks in the meantime.) In his statement, Neal cited a January 22 Washington Post article reporting that hundreds of recalled IRS employees had invoked a financial hardship exemption clause in their union contract and will not be returning to work. The Post noted that absences are impacting IRS locations across the country, including at least one site where a majority of employees are calling out under hardship. This year s filing season will be the first one for which most of the vast array of individual tax changes enacted in the 2017 tax cut law (P.L. 115-97) will be in effect, including significant modifications to exemptions, deductions, and the formula for paycheck withholding. Neal and Mnuchin spoke by phone on January 23, and Neal told reporters that he presented new potential dates for the secretary to appear before the committee in early February. In a letter to Neal on January 24, however, Mnuchin reiterated the offer to make available the most experienced and knowledgeable senior Treasury and [IRS] officials, adding, I look forward to identifying an agreeable date to testify before the committee, as is customary, once the president s budget has been released. The president s fiscal year 2020 budget request is due to Congress by the first Monday in February February 4 this year but it has often been delivered late in recent years, and it is not clear whether the ongoing shutdown will impact this year s release. Employees at the White House Office of Management and Budget, which coordinates the request, are among those furloughed. (See separate coverage in this issue for additional details on the government shutdown and its impact on the upcoming tax filing season.) Getting organized While the planned hearing on the tax filing season did not occur on January 24, the Ways and Means Committee Congress oldest standing committee, marking its 230th year did hold its opening organizational meeting for the 116th Congress that day, providing Neal the opportunity to outline his agenda for the panel. Tax News & Views Page 5 of 6 Copyright 2019 Deloitte Development LLC

The new chairman spoke of broad ambitions that included work to promote policies that will put our nation on a sustainable path forward and improve the lives of middle-class families, as well as more targeted policy areas he intends to address. In terms of my priorities as Chairman, I plan to focus on: strengthening Americans retirement security; lowering health care costs, including prescription drug prices; and ensuring the tax system benefits middle-income Americans and small businesses, Neal said in his opening statement. He also identified infrastructure legislation as a priority, stating that [w]e must ensure our infrastructure systems are both safe and efficient it s essential for our global competitiveness. Neal emphasized that he hopes Ways and Means can do much of its work in a bipartisan manner, but he also noted that the panel will closely examine the Republicans tax law and its various problems, oversight that has been anticipated since Democrats won the House majority in last November s midterm election. The 2017 tax overhaul was passed without any Democratic support in either the House or the Senate. The committee welcomed its 14 new members during the organizational meeting 11 Democrats and 3 Republicans, which brings the panel s total headcount in the 116th Congress to 42. URL: http://newsletters.usdbriefs.com/2019/tax/tnv/190118_4_suppa.pdf Storme Sixeas Tax Policy Group Deloitte Tax LLP About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Copyright 2019 Deloitte Development LLC. 36 USC 220506 Tax News & Views Page 6 of 6 Copyright 2019 Deloitte Development LLC