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The Further Consolidated
Appropriations Act, 2020

Overview and What’s to Come

On December 20, 2019, the President of the United States signed into law an omnibus spending package, The Further Consolidated Appropriations Act (the “Act,” or H.R. 1865). In addition to funding the government through September 30, 2020, the Act addresses expiring and expired tax credits, repeals certain taxes enacted in the Affordable Care Act (“ACA”), provides disaster relief, and introduces new rules on estate and retirement planning.

 

In the next few weeks, our tax advisory group will release a series of “Tax Blasts” that are intended to take a deeper dive into what we identify as the most important tax topics that impact our clients. Each newsletter will contain a “before and after” summary of the law changes, the effective date or extended date for each change, and a brief explanation of how these changes may impact tax planning. For more information about any of these topics, please contact your tax compliance team or one of the tax advisory group members.

Now that you know what these “Tax Blasts” are all about, keep on reading for an overview of what is to come.

 

The SECURE Act: Retirement Planning

Division O of the Act, also known as the “Setting Every Community Up for Retirement Enhancement Act of 2019” (the “SECURE Act,” or H.R. 1994), is the first major piece of retirement legislation in a decade. With provisions affecting individuals and businesses, the SECURE Act will have a significant impact on family, estate, and retirement planning across the board.

 

To acknowledge that Americans are working past traditional retirement ages, the SECURE Act raises the age at which IRA owners must begin to take distributions from age 70.5 to age 72. It also removes the age restriction on IRA contributions, so investors can contribute (and receive a corresponding deduction) at any age. To benefit families, the SECURE Act permits, up to a dollar limit, tax and penalty-free distributions from Sec. 529 plans and retirement plans to repay student loans and pay for the birth or adoption of a child.

 

In addition to its impact on individuals and families, the SECURE Act contains two provisions that make it easier for small businesses to offer retirement plans to their employees. One change, which may require some administrative hassle, eliminates the so-called “bad apple rule” that tainted the tax benefits of multiple employer plans. Another change increases the maximum annual credit for retirement plan start-up costs from $500 to $5,000.

 

In a separate Tax Blast, we will explore a controversial provision that restricts an IRA beneficiary’s ability to “stretch” distributions over their lifetime to only 10 years. In accelerating distributions from inherited IRAs, this tighter timeline also accelerates the corresponding income tax liability, thereby throwing a major wrench into some estate plans. As a result, some investors may need to reconsider their designated IRA beneficiaries, especially when it is a trust or a child.

 

Tax Extenders: Deductions, Credits and Incentives

Division Q of the Act, also known as the “Taxpayer Certainty and Disaster Tax Relief Act of 2019” (the “Disaster Act”), extends over 30 Code provisions that expired in 2017 and 2018 or were set to expire in 2019, and provides relief for victims of national disasters (including hurricanes, wildfires, and severe rainstorms) that occurred in 2018 and 2019. This summary and related Tax Blasts will focus on the extension of certain tax provisions, especially the ones that apply to businesses.

 

Most of these provisions were extended through 2020, and a few were extended through 2022. The common thread seems to be encouraging job growth, especially in low-income communities, and facilitating a “green” economy by offering incentives to both individual and business taxpayers. One of the most enticing provisions is the extension of a look-through rule for payments between related controlled foreign corporations, which can assist U.S. multinationals in avoiding an immediate tax on undistributed foreign earnings.

 

Some of these provisions encourage continued investment in low-income and distressed communities, such as extending the empowerment zone incentives, the work opportunity tax credit, and the new markets tax credit. Other extenders are industry-specific, including tax credits and incentives for the energy and “oil and gas” industries to produce, use, buy, and sell alternative fuel, biofuels, and renewable electricity. Still other extenders apply to all businesses generally, such as an employer credit for offering paid family and medical leave to employees and a credit for energy efficient improvements to commercial buildings.

 

Subsequent Tax Blasts will address these major tax extenders and others that apply to both domestic and multinational businesses in the United States, across all industries. We will also address some important extenders that apply to both individual and corporate investors.

 

ACA Repeals: No More Excise Taxes

In Division N of the Act, Congress repeals several excise taxes put into place by the ACA in the past decade. The last batch of Tax Blasts will address these changes as well as other provisions in the Act that modify and repeal excise taxes on non-profit organizations.

 

Regarding the ACA, the Act repeals the 40% “Cadillac” tax on employer-sponsored health plans, which was set to take effect in 2022 and was projected to create administrative and financial strain on both health insurance companies and employers. The Act also repeals the 2.3% tax on the sale of medical devices, which negatively impacted a wide range of manufacturers in all areas of medicine.

We will also address legislation that decreases the excise tax on a private foundation’s net investment income from 2% to 1.39%, as well as the Disaster Act’s repeal of the unpopular “church parking” tax on certain fringe benefit expenses of a non-profit organization. There is a lot to unpack, so stay tuned for the deep dives.

 

For more information on this Tax Update, please contact any of the following individuals:

 

Name:          Meghan Andersson, JD, LLM
Office:          Irvine, CA
Phone:         (949) 623-0542

Email:          mandersson@singerlewak.com

Name:          Donna Sirois, CPA, JD, MBA, MST
Office:          Irvine, CA
Phone:         (949) 623-0546

Email:          dsirois@singerlewak.com

Name:          Mark Cook, MBA, CPA, CGMA
Office:          Irvine, CA
Phone:         (949) 623-0478
Email:          mcook@singerlewak.com
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