INSIGHTi
“Technical Corrections” to Tax Reform
Updated March 31, 2020
For some in Congress
, ", “technical corrections
”" to the 2017 tax revision (commonly known as the
“Tax
"Tax Cuts and Jobs Act,
”" or TCJA; P.L. 115-97) have been a legislative priority. It is not always clear, however,
what is strictly a
“"technical correction.
”" This Insight highlights provisions that have been widely
discussed as
“"technical corrections
”" to the 2017 tax revision, starting with provisions in former Ways and
Means Committee Chairman Kevin Brady
’'s 2019
“"technical corrections
”" discussion draft. It then
highlights other
“fixes”"fixes" to the 2017 tax revision that might be considered, even if those fixes might fall
outside the scope of what would be considered by most to be a
“"technical correction.
”" Since this Insight
was first published on October 9, 2019,
fivesix of the provisions discussed have been addressed in recently
enacted legislation. These changes are noted below.
For some, there is an understanding that technical corrections are provisions that are generally
noncontroversial
changeschanges to the text of already enacted tax legislation to ensure that the law as enacted is
consistent with Congress
’'s original intent. What some might consider a true
“"technical correction
”" would
also not affect revenue. However, there is no formal definition of a technical correction.
The Technical Corrections Discussion Draft
On January 2, 2019, Representative Brady released the Tax Technical and Clerical Corrections Act
Discussion Draft. The preamble
of the draft notes that technical corrections are needed to
“properly
"properly reflect the original Congressional intent
”" of provisions that were included in P.L. 115-97 (as well as other
legislation). The discussion draft includes technical corrections that had been developed as of the January
2, 2019, release date, but acknowledges additional technical corrections may be identified in the future.
The Joint Committee on Taxation (JCT) also released a technical explanation of the discussion draft.
Representative Brady
’'s discussion draft would address some of the technical corrections that have
garnered widespread media attention. Lawmakers in the 116th Congress have introduced stand-alone bills
to address some of the technical corrections that were included in the discussion draft. Representative
Brady’s discussion draft also includes a number of “technical corrections” not included in stand-alone
legislation in the 116th Congress.
garnered widespread media attention.
The discussion draft would have made technical changes to the
“kiddie tax” that would address concerns
regarding how"kiddie tax" to address concerns about the taxation of certain military survivors
’' benefits
have been taxed post-P.L. 115-97. This issue was
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post-P.L. 115-97. This issue was addressed in the Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted as
Division O of P.L. 116-94
, which, which reversed the treatment in P.L. 115-97
.
.
Representative Brady
’'s discussion draft also would have made a technical correction to the applicable
recovery period for certain real property (the so-called
“"retail glitch
”"). Without a technical correction,
qualified improvement property (QIP) is generally subject to a 39-year cost recovery period, instead of
the intended 15 years. The 39-year recovery period makes QIP ineligible for bonus depreciation. The
Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 111-136) retroactively restored the
15-year life and eligibility for bonus depreciation.
A technical correction related to the Net Operating Loss (NOL) changes would ensure that the new NOL
carryforward and carryback modifications (which eliminated the pre-existing two-year carryback and
restricted the loss offset to 80% of taxable income) would be effective for NOLs arising in tax years
beginning after December 31, 2017 (and not tax years ending after December 31, 2017). This rule would
have allowed firms with tax years spanning 2017-2018 to use the prior law rules allowing a two-year
carryback and full offset against taxable income. The CARES Act made this
correction.
correction. A second technical correction would address the 80% of taxable income limitation (suspended for 2018-2020, but continuing in 2021 and after) by clarifying that pre-2018 loss carryforwards would fully offset taxable income, with the 80% limit applying to remaining taxable income for offsetting loss carryforwards from 2018 and after.
Another technical correction in Representative Brady
’'s discussion draft would limit the scope of
downward attribution rules, which can cause a foreign subsidiary owned by the foreign parent of a U.S.
subsidiary to be subject to current U.S. taxation of certain foreign source income, including the tax on
certainly easily shifted income (Subpart F income) and the minimum tax on global intangible low-taxed
income (GILTI). A change in these rules was originally aimed at corporate inversions (a corporation
moving the headquarters from the United States to foreign countries), but the scope of the enacted
provision was much broader. The technical correction would limit the scope of that provision to 50%
ownership for corporations. This provision was included in an earlier draft of the CARES Act considered
by the Senate, but not in the final
version.
enacted version.
Other Possible
“Fixes”"Fixes" and Potential Technical
Corrections
Corrections
Additional possible
“"technical corrections
”" have been proposed. For example, one that was not included
in Representative Brady
’'s discussion draft is the Travel Trailer and Camper Tax Parity Act (S. 1543
/H.R.
4349/H.R. 4349). This bill would modify the tax code to ensure that the floor plan financing exception to the limits
on interest deductions includes the financing of specific trailers and campers that are not self-propelled.
Other issues have been identified, for which legislation has not been introduced. For example, some have
concerns with respect to how the Social Security Number (SSN) requirement for claiming the Child Tax
Credit (CTC) affects populations like the Amish who do not have SSNs.
In some cases, legislation that might be more properly characterized as addressing an unintended or
unanticipated consequence is cast as a technical correction. For example, the
“"church parking tax
” is a
term used to refer" refers to the policy change
that requiresincreasing unrelated business taxable income (UBTI)
to be
increased by the amount of certain fringe benefit expenses paid by nonprofit employers. The requirement
that UBIT be increased for
certainthese fringe benefit expenses
paid by nonprofit employers was repealed in
the Taxpayer Certainty and Disaster Tax Relief Act, enacted as Division Q of P.L. 116-94
.
.
Changes to the characterization of state tax incentives in P.L. 115-97
threatened threatened the tax-exempt status of
some mutual or cooperative telephone or electric companies. A provision addressing this concern was also
included in the Taxpayer Certainty and Disaster Tax Relief Act, enacted as Division Q of P.L. 116-94
.
.
This Insight reflects the collaborative effort of CRS tax policy analysts. Specifically, contributions were
made by Margot L. Crandall-Hollick, Specialist in Public Finance
; ; Grant A. Driessen
, , Analyst in Public
Congressional Research Service
3
Finance; Finance; Gary Guenther
, , Analyst in Public Finance
; ; Mark P. Keightley
, , Specialist in Economics
; Sean Lowry, ; Sean
Lowry, Analyst in Public Finance; and Donald J. Marples
, Specialist in Public Finance.
, Specialist in Public Finance.
Author Information
Molly F. Sherlock, Coordinator
Specialist in Public Finance
Jane G. Gravelle, Coordinator
Senior Specialist in Economic Policy
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