Ways and Means Committee’s Tax Proposals
Updated: Sep 16, 2021
By: Inhyuk Yoo and William L. Bricker
On Monday, September 12, the House Ways and Means Committee released a summary of various tax hikes targeting corporations and the wealthiest Americans to fund a $2.9 trillion (reduced from $3.5 trillion) social infrastructure bill. The summary includes five parts. The Ways and Means Committee is scheduled to mark up the bill on Wednesday, September 14.
We separately discussed Part 2 of the summary, Tax Increases for High-Income Individuals, in our previous blog. Here, we outline several other notable provisions, comparing them to proposals made by the Department of Treasury last May (in the so-called “Green Book”).
Proposals Changed from the Green Book
· Corporate Tax Rate: Instead of increasing the corporate tax rate to 28%, the summary proposes a graduated rate structure with a top rate of 26.5%.
· Rules for “Carried Interest”: The Green Book proposed taxing carried interest (partnership interests received in exchange for performance of services) as ordinary income for taxpayers with AGIs over $400,000. The summary instead would (i) require a five-year holding period (instead of three) for carried interest to be treated as long-term capital gains but would (ii) keep the three-year rule for real property trades or businesses and taxpayers with an AGI less than $400,000.
· Limitation on Deduction of Qualified Business Income: This proposal would amend Section 199A to set the maximum allowable deduction at $500,000 for joint filers, $400,000 for individual filers, $250,000 for married taxpayers filing separately, and $10,000 for trusts and estates.
· Modification of Procedural Requirements for Assessment of Penalty: This proposal would eliminate the current requirement that any assessment of penalties must be approved by a supervisor of the IRS employee making such assessment. It would be effective for the penalties assessed after December 31, 2000.
· Limitation on Section 1202 Exclusion: The 75% and 100% exclusions from gross income of gain realized on sales of qualified small business stock would now be available only to taxpayers with an AGI less than $400,000. A 50% exclusion would remain available to all taxpayers.
Green Book Proposals No Longer Mentioned
· Repeal of Section 1031 (Like-Kind Exchanges).
· Elimination of the step-up in basis of property at death.
· Treating transfers of appreciated property by gift or at death as realization events.
_________________________________________________________________________________  The five parts are: (1) Corporate and International Tax Reform, (2) Tax Increases for High-Income Individuals, (3) Modification of Rules Relating to Retirement Plans, (4) Funding the Internal Revenue Service and Improving Taxpayer Compliance, and (5) Other Provisions