Bench & Bar

JAN 2018

The Bench & Bar magazine is published to provide members of the KBA with information that will increase their knowledge of the law, improve the practice of law, and assist in improving the quality of legal services for the citizenry.

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| JANUARY/FEBRUARY 2018 10 T he table was set beautifully for comprehensive tax reform. 1 First, it had been a while—over 30 years to be exact—since Congress last took up serious tax reform. e bipartisan-sup- ported Tax Reform Act of 1986, enacted under then-President Ronald Reagan, represented the United States Congress' last com- prehensive overhaul of our federal tax rules. Second, nearly everyone agreed that the Internal Revenue Code was "broken" and required an overhaul. Even on an increasingly polarized Capitol Hill where it can be challenging to find common ground, Democrats and Republicans alike agreed that the current corporate tax rules were not working. Both parties complained about the corporate tax rate structure and our worldwide system of international taxation. Many agreed that these tax rules had been detrimental to the United States' interests, citing the movement of U.S. companies' headquar- ters overseas and the stashing of their foreign earnings offshore. 2 ird, the window of opportunity for large-scale reforms is typically open widest during a president's first term in office. 3 Regardless of the attention paid to repealing the Affordable Care Act, Presi- dent Donald Trump and his administration had been focused on reforming the Internal Revenue Code, holding numerous meetings among the "Big Six" 4 and releasing a nine-page outline for tax reform's framework on Sept. 27, 2017 (the "Framework"). 5 With a budget outline approved for 2018, Chairman of the House Ways and Means Committee, Rep. Kevin Brady (R-Tex.), released an initial draft of tax reform legislation on Nov. 2, 2017 (the "Tax Cuts and Jobs Act"). 6 e Senate Finance Committee released its statutory text of the Tax Cuts and Jobs Act on Nov. 20, 2017. House and Senate conferees approved the Tax Cuts and Jobs Act, sending it back to both chambers for approval before being signed into law on Dec. 22, 2017 by President Trump. Tax reform's basic structure addresses the following: (i) reduces the corporate tax rate from 35 percent to 21 percent, (ii) reduces the estate tax's imact, (iii) cuts marginal tax rates, (iv) modernizes our international tax regime by replacing the worldwide tax system with a territorial approach, and (v) doubles the standard deduction. But how will Congress pay for these tax cuts? As with any legislative machination, there are opportunities for winners and losers. Based on the Tax Cuts and Jobs Act's text, one "loser" will be the nonprofit, tax-exempt sector. 7 Relatively unscathed in 1986, tax-exempt organizations have been in the crosshairs of Congress's tax-writing committees for many years. For example, the United States Senate's Committee on Finance members have been considering dramatic changes for tax-exempt organizations for many years. 8 e House of Representatives' Com- mittee on Ways and Means has held a series of hearings and has considered draft proposals, including then-Chairman Dave Camp's (R-Mich.) 900+ page proposal known as the Tax Reform Act of 2014 (the "Camp Proposal"). 9 is article considers how certain reforms, like eliminating the estate tax's reach, increasing the standard deduction, and adjusting the Unrelated Business Income Tax ("UBIT") rules, will impact nonprofit, tax-exempt organizations in the Commonwealth and beyond. KILLING THE "DEATH TAX" e Internal Revenue Code currently imposes a 40 percent tax on the value of an individual's estate that exceeds $5.49 million ($10.98 million for a couple), indexed for inflation. Because of these exemption amounts, today fewer than two out of every 1,000 estates pay federal estate tax. Nonetheless President Trump wanted to eliminate the "the crushing, the horrible, the unfair…death tax," which had long been a goal of its conservative opponents. 11 e Framework sought repeal of the estate tax and the generation-skip- ping transfer tax. 12 e Ways and Means Committee's initial tax reform bill would have doubled the current exemption amounts and then phased-out the estate tax over six years, repealing it after Dec. Features: NONPROFIT LAWS & REGULATIONS

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