United States: Tax Policy Update - 23 September 2014

Last Updated: October 2 2014
Article by Russell W. Sullivan and Danielle R. Dellerson


The number of news hits retrieved in a Google search of the phrase "our broken tax code," in the wake of the Treasury Department's announcement yesterday of new rules to deter U.S. companies from reincorporating in lower-tax countries. Read more on the inversion drama in the Regulatory World section.


Recess Recap. Before leaving D.C. for the campaign trail, the House and Senate passed a short-term extension of the moratorium on state and local taxes for accessing the Internet. The moratorium will now expire Dec. 11, along with the expiration of the stop-gap funding bill that will keep the government's lights on beyond the current fiscal year, which ends Sept. 30.

The Senate is now poised for a lame-duck showdown over future spending and on another Internet tax-related bill — the Marketplace Fairness Act (MFA), which would give states greater authority to tax Internet sales. Senate Majority Leader Harry Reid (D-NV) has said the MFA will be a priority in the lame-duck session, and we expect the controversial bill will be paired with the widely supported access-tax moratorium.

In addition, the House approved the Jobs for America Act (H.R. 4) — an omnibus bill that includes a number of previously passed House bills related to the 2010 healthcare law, tax cuts, financial services policy, regulatory procedures and forest management. The extenders legislation would:

  • Permanently extend and modify bonus depreciation;
  • Make the research and experimentation credit permanent;
  • Expand and make permanent business expensing under Section 179 of the tax code; and
  • Make permanent certain enhanced benefits for S corporations — including a reduced recognition period for built-in gains and basis adjustments to the stock of S corporations making charitable contributions.

The Jobs for America Act reflects the legislative priorities of House Republicans. The Senate chamber is not likely to take up the bill for consideration.

Politically Correct. House Ways & Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI) introduced a legislative unicorn on Sept. 18 — a bipartisan tax bill! The legislation, H.R. 5528, stays away from controversial policy issues, however, and merely makes "technical corrections" to already existing laws. The Joint Committee on Taxation's explanation of the bill can be found here.

Looking to the Lame Duck. When Congress returns Nov. 12, we expect lots of discussion over tax extenders, which members of both parties have said they will address during the lame-duck session. But the election results — particularly if Republicans take over the majority of seats in the Senate — could push action on extenders into 2015. Also keep in mind that the House and Senate have a number of legislative items to negotiate in a short window of time. The House is currently scheduled to adjourn for the year on Dec. 12.


Treasury Releases Anti-Inversion Notice. Treasury Department Secretary Jack Lew on Sept. 22 revealed the administration's plans for clamping down on corporate inversions. According to Lew and a fact sheet released yesterday, the new rules would apply to inversion deals occurring on Sept. 23 or later and would make inversions less economically appealing, as well as more difficult to accomplish. Deterrents include a prohibition on "hopscotch" intracompany loans and a strengthening of the requirement under Internal Revenue Code Section 7874 that former owners of the U.S. entity own less than 80 percent of the new combined entity. Notice 2014-52 lists the following specific modifications:

  • for purposes of Section 7874, disregard certain stock of a foreign acquiring corporation that holds a significant amount of passive assets;
  • for purposes of Sections 7874 and 367, disregard certain non-ordinary course distributions;
  • for purposes of Section 7874, provide guidance on the treatment of certain transfers of stock of a foreign acquiring corporation (through a spin-off or otherwise) that occur after an acquisition;
  • prevent the avoidance of Section 956 through post-inversion acquisitions by controlled foreign corporations (CFCs) of obligations of (or equity investments in) the new foreign parent corporation or its non-CFC foreign affiliates;
  • prevent the avoidance of U.S. tax on pre-inversion earnings and profits of CFCs through post-inversion transactions that otherwise would terminate the CFC status of foreign subsidiaries and/or substantially dilute the U.S. shareholder's interest in those earnings and profits; and
  • limit the ability to remove untaxed foreign earnings and profits of CFCs through related party stock sales subject to Section 304.

Additional guidance from the Treasury Department is forthcoming, and, in a call with reporters, Lew indicated that his staff would continue to examine "a broad range of authorities" to further deter companies from inverting. Many expect the next batch of anti-inversion rules will be aimed at "earnings stripping." The Senate Finance Committee and the House Ways and Means Committee were quick to issue responses, available here and here, respectively.

Proposed Changes to Roth Distributions. The Treasury Department and the Internal Revenue Service (IRS) issued proposed rules on Sept. 18 on the tax treatment of distributions from Roth accounts under tax-favored retirement plans. The proposed regulations would limit the applicability of the rule on allocating after-tax amounts when disbursements are made to several destinations. Under the proposed guidance, the rule on allocations would apply only to distributions made before Jan. 1, 2015, or a date chosen by the taxpayer that is on or after Sept. 18.

The IRS also released Notice 2014-54, providing "rules for allocating pretax and after-tax amounts among disbursements that are made to multiple destinations from a qualified plan described in" tax code Section 401(a), the IRS said. The notice also applies to disbursements from Section 403(b) plans and Section 457(b) plans.

Final Rules for Hybrid Retirement Plans. In addition, the agencies released final rules Sept. 18 on hybrid retirement plans, supplementing earlier rules issued in 2010, as well as proposed regulations that would allow certain defined benefit plans to come into compliance with the final hybrid plan rules by changing to an interest crediting rate allowed under the new rules, without violating the anti-cutback rules of Section 411(d)(6).


The House and Senate will not return until Nov. 12, after the mid-term elections.

International Tax Panel: OECD and BEPS Recommendations

The D.C. Bar is hosting a discussion Sept. 24 on the recently released set of recommendations from the Organisation for Economic Co-operation and Development (OECD) to address tax avoidance and base erosion on a global scale. The first set of OECD recommendations includes provisions related to hybrid mismatch arrangements, tax treaty abuse and intangibles. Panelists include:

  • Michael McDonald, Financial Economist, Office of Tax Analysis, U.S. Treasury
  • Philip Morrison, McDermott, Will & Emery LLP
  • Michael Plowgian, KPMG
  • Robert Stack, Deputy Assistant Secretary for International Tax Affairs, U.S. Treasury

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.