Congress Passes Appropriations Bill with Several Tax Provisions

Early on March 23, 2018 Congress passed the Consolidated Appropriations Act, 2018 (H.R.1625 – “CAA” or the “Act”). This Act was a $1.8 trillion spending bill that also contained several tax provisions. While surprising many with a veto threat, President Trump reluctantly signed the Act into law and avoided another government shutdown.

The Act again is primarily a spending bill, however, it includes several tax measures, some of which relate to the tax reform legislation (the Tax Cuts and Jobs Act) enacted on December 22, 2017. The following should be noted for these tax items in the CAA:

• “Grain Glitch” Gone. The main tax item in the bill is a fix of the “grain glitch” involving the new 20% deduction for pass-through businesses as it applies to co-ops. This issue surfaced almost before the ink dried on the Tax Cuts and Jobs Act Members of Congress and certain Ag and Farm groups came up with a fix for this issue, but needed a “must pass” piece of legislation to attach the fix to. This CAA is that legislation.
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  Sikich has another Insights article on the CAA fix for the “grain glitch” in our continuing series on Tax Reform. Please click here for this article.
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• Low Income Housing Credit. As part of the CAA negotiations to secure passage of the above “grain glitch” fix, Congressional leaders also needed to make other changes, and this led to an increase in the low income housing tax credit.
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  Background. The low-income housing credit may be claimed over a 10-year credit period after each low-income building is placed in service. The amount of the credit for any taxable year in the credit period is the applicable percentage of the qualified basis of each qualified low-income building. In addition, a housing credit limit applies for each state. To be eligible for the low-income housing credit, a qualified low-income building must be part of a qualified low-income housing project. Further, a qualified low-income housing project is defined to cover a project that satisfies one of two tests (a “20-50” test and a “40-60” test) at the election of the taxpayer.
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  CAA Change. The CAA made changes in the low income housing credit that provides an increase in the State housing credit ceiling for the years 2018, 2019, 2020 and 2021. In each of those calendar years, the ceiling amounts are increased by multiplying the dollar amounts for that year by 1.125 (and this is after inflation adjustments). In addition, the CAA adds a new third optional test to the “20-50” and “40-60” tests for a qualified low-income housing project.
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  Effective Date. The provision relating to the State housing credit ceiling is effective for calendar years beginning after December 31, 2017, and before January 1, 2022.
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• Partnership Audit Rules. Also included in the CAA are changes to the new partnership audit rules which were enacted in 2015. These CAA revisions are more than minor technical corrections, but they are substantive changes in the new partnership audit regime. There were a number of changes made by the CAA to these audit rules. The IRS was planning to finalize the regulations for the partnership audit rules this year as the law becomes effective in 2018, however, these regulations will now need to be revised to reflect the changes made today by the CAA.
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• Technical Corrections. There are also several other relatively minor technical corrections from various tax bills over the past several years.
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• JCT Explanation. The Joint Committee on Taxation (“JCT”) provided a detailed explanation on the background of the above changes made by the CAA. The explanation includes a thorough analysis of the above mentioned fix for the “grain glitch” (along with some useful examples) and also of the partnership audit rules.  Please click here to review this JCT Explanation of the CAA.

While the above tax changes are minor in comparison to those enacted in last year’s comprehensive tax reform legislation, they will still impact many business and individual taxpayers. Please contact your Sikich Tax Advisor with any questions on the CAA.