The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
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The 2017 Tax Revision (P.L. 115-97):
Comparison to 2017 Tax Law
(name redacted), Coordinator
Specialist in Public Finance
(name redacted)- Coordinator
Specialist in Public Finance
Updated February 6, 2018
Congressional Research Service
7-....
www.crs.gov
R45092
The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Summary
A tax revision enacted late in 2017 substantively changed the federal income tax system (P.L.
115-97). Broadly, for individuals, the act temporarily modifies income tax rates. Some
deductions, credits, and exemptions for individuals are eliminated, while others are substantively
modified. These changes are mostly temporary. For businesses, pass-through entities experience a
reduction in effective tax rates via a new deduction, which is also temporary. The statutory
corporate tax rate is permanently reduced. Many deductions, credits, and other provisions for
businesses are also modified. The act also substantively changes the international tax system,
generally moving the U.S. tax system towards a territorial system.
This report provides a brief summary of P.L. 115-97, comparing each provision in the act with
prior tax law. The report also provides a brief legislative history of activity leading to enactment
of P.L. 115-97, along with estimated revenue and distributional effects of the recently enacted
law.
Congressional Research Service
The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Contents
Introduction ..................................................................................................................................... 1
Legislative History .......................................................................................................................... 1
Cost Estimates ................................................................................................................................. 3
Macroeconomic Effects ................................................................................................................... 4
Distributional Effects....................................................................................................................... 5
Provisions in P.L. 115-97 ................................................................................................................. 7
Individual Tax Reform .............................................................................................................. 8
Tax Rate Reform .................................................................................................................. 8
Deduction for Qualified Business Income of Pass-Thru Entities........................................ 9
Tax Benefits for Families and Individuals ........................................................................ 10
Education .......................................................................................................................... 14
Deductions and Exclusions ............................................................................................... 15
Increase in Estate and Gift Exemption.............................................................................. 17
Extension of Time for Contesting IRS Levy ....................................................................... 17
Individual Mandate ........................................................................................................... 18
Alternative Minimum Tax ....................................................................................................... 18
Business-Related Provisions ................................................................................................... 19
Corporate Provisions ........................................................................................................ 19
Small Business Reforms .................................................................................................... 20
Cost Recovery and Accounting Methods .......................................................................... 22
Business-Related Exclusions and Deductions................................................................... 24
Business Credits ................................................................................................................ 27
Provisions Related to Specific Entities and Industries...................................................... 29
Employment ...................................................................................................................... 34
Exempt Organizations ....................................................................................................... 36
Other Provisions ............................................................................................................... 37
International Tax Provisions .................................................................................................... 41
Outbound Transactions ..................................................................................................... 41
Inbound Transactions........................................................................................................ 48
Other Provisions ............................................................................................................... 49
Figures
Figure 1. Estimated Budget Effects of the Conference Agreement for H.R. 1:
Conventional and Macroeconomic Analysis ................................................................................ 4
Figure 2. Estimated Percentage Change in After-Tax Income Under the Conference
Agreement for H.R. 1, by Year and Income Group ...................................................................... 6
Tables
Table 1. Estimated Budget Effects of the Conference Agreement for H.R. 1 ................................. 3
Table 2. Comparison of 2017 Tax Law to Changes in P.L. 115-97 ................................................. 8
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Table A-1. Married Individuals Filing Joint Returns and Surviving Spouses for 2018,
Current Law................................................................................................................................ 50
Table A-2. Married Individuals Filing Joint Returns and Surviving Spouses for 2018,
Before P.L. 115-97...................................................................................................................... 50
Table A-3. Heads of Households for 2018, Current Law .............................................................. 50
Table A-4. Heads of Households for 2018, Before P.L. 115-97 .................................................... 51
Table A-5. Unmarried Individuals Other than Surviving Spouses and Heads of
Households for 2018, Current Law ............................................................................................ 51
Table A-6. Unmarried Individuals Other than Surviving Spouses and Heads of
Households for 2018, Before P.L. 115-97 .................................................................................. 51
Table A-7. Married Individuals Filing Separate Returns for 2018, Current Law .......................... 52
Table A-8. Married Individuals Filing Separate Returns for 2018, Before P.L. 115-97 ................ 52
Appendixes
Appendix. Tax Brackets and Rates, Historical Tax Rates ............................................................. 50
Contacts
Author Contact Information .......................................................................................................... 53
Congressional Research Service
The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Introduction
P.L. 115-97 was signed into law by President Trump on December 22, 2017. The act substantively
changes the federal tax system. Broadly, for individuals, the act temporarily modifies income tax
rates. Some deductions, credits, and exemptions for individuals are eliminated, while others are
substantively modified, with these changes generally being temporary. For businesses, passthrough entities experience a reduction in effective tax rates via a new deduction, which is also
temporary. The statutory corporate tax rate is permanently reduced. Many deductions, credits, and
other provisions for businesses are also modified. The act also substantively changes the
international tax system, generally moving the U.S. tax system towards a territorial system. This
report provides a brief summary of P.L. 115-97, comparing each provision in the act with prior
tax law.1 The report also provides a brief legislative history of activity leading to the enactment of
P.L. 115-97, along with estimated revenue and distributional effects of the recently enacted law.2
Legislative History3
In October of 2017, the House and Senate agreed to a budget resolution for FY2018 (H.Con.Res.
71) which directed the House Committee on Ways and Means and the Senate Committee on
Finance to report legislation within their jurisdiction that would increase the deficit by no more
than $1.5 trillion over ten years.4 These directives triggered the budget reconciliation process
which stipulates that committee legislation developed in response to a reconciliation directive is
eligible to be considered under expedited procedures in both the House and Senate. These
expedited procedures are particularly noteworthy in the Senate, since debate on reconciliation
legislation is limited to 20 hours, and therefore does not require the support of three-fifths of
Senators to invoke cloture to avoid a filibuster and reach a final vote on the bill.5
In response to the reconciliation directive included in H.Con.Res. 71, the House Committee on
Ways and Means held a mark-up on proposed tax reform legislation,6 and subsequently reported
1 This report expands on CRS In Focus IF10796, Comparing Key Elements of H.R. 1 to 2017 Tax Law, by (name re
dacted) and (name redacted)
, which provides a summary of key elements of P.L. 115-97 compared with prior law.
See also CRS In Focus IF10792, Tax Cuts and Jobs Act (H.R. 1): Conference Agreement, by (name redacted) . For an
overview of the tax system for the 2017 tax year, see CRS Report R45053, The Federal Tax System for the 2017 Tax
Year, by (name redacted) and (name redacted)
.
2 This report does not summarize or compare any non-tax provisions in P.L. 115-97.
3 (name redacted), Specialist on Congress and the Legis lative Process, contributed to this section.
4 H.Con.Res. 71 (115th Congress). The budget resolution also directed the Senate Committee on Energy and Natural
Resources to report legislation that would reduce the deficit by not less than $1 billion over ten years.
5 For more information on the reconciliation process, see CRS Report R44058, The Budget Reconciliation Process:
Stages of Consideration, by (name redacted) and (name redacted) .
6 The House Ways and Means Committee held a committee mark-up on November 6 and 7, 2017. See U.S. Congress,
Joint Committee on Taxation, Description of H.R. 1, The “Tax Cuts and Jobs Act,” committee print, 115th Cong., 1st
sess., November 3, 2017, JCX-50-17; U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects Of H.R.
1, The “Tax Cuts and Jobs Act,” As Ordered Reported By The Committee On Ways And Means On November 9, 2017,
committee print, 115th Cong., 1st sess., November 11, 2017, JCX-54-17; U.S. Congress, Joint Committee on Taxation,
Distributional Effects Of H.R. 1, The “Tax Cuts And Jobs Act,” As Ordered Reported By The Committee On Ways And
Means On November 9, 2017, committee print, 115th Cong., 1st sess., November 14, 2017, JCX-55-17; and U.S.
Congress, Joint Committee on Taxation, Macroeconomic Analysis Of The “Tax Cuts And Jobs Act” As Passed By The
House Of Representatives On November 16, 2017, committee print, 115th Cong., 1st sess., December 11, 2017, JCX-6617.
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
H.R. 1 on November 13, 2017.7 On November 16, 2017, the legislation passed the House by a
vote of 227-205.8
In response to the reconciliation directive included in H.Con.Res. 71, the Senate Committee on
Finance held a mark-up on proposed tax reform legislation,9 and on November 16, 2017 voted to
submit legislative text to the Senate Committee on the Budget (as instructed in H.Con.Res. 71) by
a vote of 14-12.10 On November 28, the Senate Committee on the Budget reported S. 1, “an
original bill to provide for reconciliation pursuant to title II of the concurrent resolution on the
budget for fiscal year 2018” which included the legislative text reported from the Committee on
Finance, by a vote of 12-11.11
On November 29, the Senate voted to proceed to the consideration of H.R. 1, and after agreeing
to several amendments, one of which substituted the text of the bill, the Senate passed H.R. 1
with an amendment on December 2 by a vote of 51-49.12
On December 4, 2017, the House disagreed to the Senate amendment (the Senate version of H.R.
1) and requested a conference with the Senate by a vote of 222-192.13 On December 6, 2017, the
Senate agreed to the request for conference by a vote of 51-47.14 On December 15, 2017, the
conference committee filed a conference report.15 On December 19, 2017, the House agreed to
the conference report by a vote of 227-203.16 During subsequent Senate consideration of the
7 U.S. Congress, House Committee on Ways and Means, Tax Cuts and Jobs Act Report of the Committee on Ways and
Means, House of Representatives, on H.R. 1 Together with Dissenting and Additional Views, 115th Cong., 1st sess.,
H.Rept. 115-409 (Washington: GPO, 2017).
8 House of Representatives Roll Call vote number 637, http://clerk.house.gov/evs/2017/roll637.xml.
9 On November 13, 2017, in U.S. Congress, Joint Committee on Taxation, Description Of The Chairman’s Mark Of
The “Tax Cuts And Jobs Act,” committee print, 115th Cong., 1st sess., November 9, 2017, JCX-51-17; U.S. Congress,
Joint Committee on Taxation, Estimated Revenue Effects Of The Chairman’s Mark Of The “Tax Cuts And Jobs Act,”
Scheduled For Markup By The Committee On Finance On November 13, 2017, committee print, 115th Cong., 1st sess.,
November 9, 2017, JCX-52-17; U.S. Congress, Joint Committee on Taxation, Distribution Effects Of The Chairman’s
Mark Of The “Tax Cuts And Jobs Act,” Scheduled For Markup By The Committee On Finance On November 13, 2017,
committee print, 115th Cong., 1st sess., November 11, 2017, JCX-53-17; and U.S. Congress, Joint Committee on
Taxation, Macroeconomic Analysis Of The “Tax Cut And Jobs Act” As Ordered Reported By The Senate Committee
On Finance On November 16, 2017, committee print, 115th Cong., 1st sess., November 30, 2017, JCX-61-17.
10 U.S. Congress, Senate Committee on Finance, Results of Executive Session to Consider an Original Bill Entitled Tax
Cuts and Jobs Act, 115th Cong., 1st sess., 2017, https://www.finance.senate.gov/download/results-of-executive-sessionto-on-november-14-16-2017.
11 The Senate Committee on the Budget included in S. 1 not only the text submitted by the Senate Committee on
Finance in response to its reconciliation instruction, but also the legislative text submitted to the Senate Committee on
the Budget by the Senate Committee on Energy and Natural Resources in response to its reconciliation instruction
included in H.Con.Res. 71.
12 Senate Roll Call vote number 303, https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?
congress=115&session=1&vote=00303.
13 House of Representatives Roll Call vote number 653, http://clerk.house.gov/evs/2017/roll653.xml.
14 Senate Roll Call vote number 306, https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?
congress=115&session=1&vote=00306.
15 U.S. Congress, Conference Report to Accompany H.R. 1, 115th Cong., 1st sess., December 15, 2017, H.Rept. 115446; U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects Of The Conference Agreement For H.R. 1,
The “Tax Cuts And Jobs Act,” committee print, 115th Cong., 1st sess., December 18, 2017, JCX-67-17; U.S. Congress,
Joint Committee on Taxation, Distributional Effects Of The Conference Agreement For H.R. 1, The “Tax Cuts And
Jobs Act,” committee print, 115th Cong., 1st sess., December 18, 2017, JCX-68-17; and U.S. Congress, Joint Committee
on Taxation, Macroeconomic Analysis Of The Conference Agreement For H.R. 1, The “Tax Cuts And Jobs Act,”
committee print, 115th Cong., 1st sess., December 18, 2017, JCX-69-17.
16 House of Representatives Roll Call vote number 692, http://clerk.house.gov/evs/2017/roll692.xml.
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
conference report, points of order were sustained against certain language included in the
conference report, and that language was subsequently stricken from the bill.17 The Senate then
passed the amended bill by a vote of 51-48 on December 20.18 Later that day, the House agreed to
the legislation as amended by the Senate, by a vote of 224-201.19 On December 22, 2017,
President Trump signed into law the act to provide for reconciliation pursuant to titles II and V of
the concurrent resolution on the budget for FY2018 (P.L. 115-97).
Cost Estimates
The Joint Committee on Taxation (JCT) estimated that the conference agreement for H.R. 1
would reduce federal revenue by $1,456.0 billion between FY2018 and FY2027 (the 10-year
budget window).20 In total, tax reform for individuals was estimated to reduce federal revenues by
$1,126.6 billion over the 10-year budget window (see Table 1). Tax reform for individuals
includes two provisions for businesses taxed under the individual income tax system (passthrough businesses): the 20% deduction for qualified business income and the limit on passthrough losses. These two provisions account for a reduction in revenue of $264 billion. Tax
reform for businesses was estimated to reduce federal revenues by $653.8 billion over the 10-year
budget window, while international tax reform was estimated to raise $324.4 billion over the
same time period. The revenue losses are concentrated in the earlier years of the budget window.
JCT estimates suggest revenue would increase in 2027, reflecting the expiration of most
individual provisions and the phase-in of other provisions affecting businesses.
Table 1. Estimated Budget Effects of the Conference Agreement for H.R. 1
Billions of Dollars
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
20182027
Individual
-75.3
-188.8
-171.9
-156.3
-150.8
-144.0
-140.9
-139.2
-41.4
83.0
-1,126.6
Business
-129.3
-133.8
-112.9
-92.5
-50.4
-16.4
-15.9
-24.1
-28.4
-49.4
-653.8
68.9
42.6
26.0
28.0
22.9
22.5
36.7
48.7
29.1
-0.8
324.4
-135.7
-280.0
-258.8
-220.8
-178.3
-137.9
-120.1
-114.6
-40.6
32.9
-1,456.0
International
Total
Source: Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 1,
https://www.jct.gov/publications.html?func=startdown&id=5053.
Notes: Rows and columns may not sum due to rounding.
17 This language was stricken because it violated what is known as the Senate’s Byrd rule, a rule that prohibits
inclusion of “extraneous” matter in a reconciliation bill. For more information on the Byrd rule, see CRS Report
RL30862, The Budget Reconciliation Process: The Senate’s “Byrd Rule,” by (name redacted)
18 Senate Roll Call vote number 323, https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?
congress=115&session=1&vote=00323.
19 House of Representatives Roll Call vote number 699, http://clerk.house.gov/evs/2017/roll699.xml.
20 This is the JCT’s conventional revenue estimate. JCT also prepared a macroeconomic or “dynamic” estimate,
discussed below.
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Macroeconomic Effects
The JCT estimated that the conference agreement for H.R. 1 would increase economic output (as
measured by gross domestic product, or GDP) by 0.7% relative to the baseline over the 10-year
budget window.21 In other words, the level of GDP over the 10-year period is estimated to be
0.7% higher than it would have been had the proposal not been enacted. Higher economic output
can result in additional tax revenue and offset some of the revenue loss estimated using
conventional revenue estimating methods. After accounting for macroeconomic effects, the
conference agreement was estimated to reduce revenues (or increase the deficit) by $1,071.4
billion over the 10-year budget window.22 Figure 1 illustrates how incorporating macroeconomic
effects changes the revenue estimates over the budget window.
Figure 1. Estimated Budget Effects of the Conference Agreement for H.R. 1:
Conventional and Macroeconomic Analysis
Billions of Dollars
Source: CRS analysis of Joint Committee on Taxation, Macroeconomic Analysis Of The Conference Agreement For
H.R. 1, The “Tax Cuts And Jobs Act,” committee print, 115th Cong., 1st sess., December 18, 2017, JCX-69-17.
The feedback effects include demand-side effects (stimulus of the economy due to additional
spending), supply-side effects (increases in capital and labor as tax rates change), and crowdingout effects (which contract the economy by reducing private investment as the government
increases borrowing). The magnitude of the effects depend on the types of models used as well as
estimates of behavioral responses.
21 Joint Committee on Taxation, Macroeconomic Analysis Of The Conference Agreement For H.R. 1, The “Tax Cuts
And Jobs Act,” committee print, 115th Cong., 1st sess., December 18, 2017, JCX-69-17.
22 This estimate can be further decomposed into revenue due to increased economic growth, and revenue changes
associated with increased interest rates and the associated federal debt service. Economic growth associated with the
proposal was estimated to reduce revenue loss by $451 billion over the 10-year budget window. JCT’s estimated that
part of this would be offset by an increase in the cost of federal debt, resulting from higher interest rates, of $66 billion.
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
The JCT indicated that demand-side effects would not be important as the economy is at full
employment; thus, the effects are largely supply-side. The JCT revenue feedback effect is higher
than effects estimated by the Urban-Brookings Tax Policy Center and the University of
Pennsylvania’s Wharton School models, as well as some past JCT estimates.23 The larger effect in
the JCT estimate appears to reflect, in part, a greater reliance on life-cycle and infinite-horizon
models, which tend to produce larger supply-side effects, for 60% of the input into the estimate.24
It also reflects shifts of capital into the U.S. from abroad. The JCT estimate also reflects the
impact of temporary expensing for equipment for the first five years in the proposal, which shifts
investment into the present in these models (also a feature of the Wharton model), as well as the
expiration of the individual tax cuts, causing an intertemporal shift in labor supply into the period
before the tax cuts expire. The result is a more rapid growth than would be the case with
permanent provisions.
Distributional Effects
Distributional analysis can be used to illustrate how changes in tax policy affect the economic
well-being of taxpayers. The Joint Committee on Taxation (JCT) regularly prepares distributional
analyses of major tax proposals. On December 18, 2017, the JCT released its distributional
analysis of the conference agreement for H.R. 1.25 When the goal of distributional analysis is to
look at taxpayers’ economic well-being, one commonly used metric is the percentage change in
after-tax income.26 Figure 2 illustrates the estimated percentage change in after-tax income
resulting from the conference agreement for H.R. 1.27
Several observations can be made examining the distribution in Figure 2, including the
following:
The largest percentage increases in after-tax income tend to appear in the years
following enactment, with estimated increases in after-tax income decreasing (or
becoming negative) over time. This trend appears across the income distribution.
Higher-income groups tend to have the largest percentage increase in after-tax
income. The group with the largest percentage increase in after-tax income in
2019, 2021, 2023, and 2025 is the $500,000 to $1 million income group.
For low- and moderate-income taxpayers (taxpayers in income groups of $40,000
or less), after-tax income was generally estimated to fall in 2023 and later.
A number of factors help explain the trends observed in Figure 2. First, most individual income
tax provisions are set to expire at the end of 2025. Thus, any gains from changes to the individual
23 See CRS In Focus IF10632, Key Issues in Tax Reform: Dynamic Scoring, by (name redacted) .
24 For a discussion of the different types of models, see CRS Report R43381, Dynamic Scoring for Tax Legislation: A
Review of Models, by (name redacted) .
25 Joint Committee on Taxation, Distributional Effects of the Conference Agreement for H.R. 1, the “Tax Cuts and Jobs
Act,” JCX-68-17, Washington, DC, December 18, 2017, available at https://www.jct.gov/publications.html?func=
startdown&id=5054.
26 William G. Gale, The Right Way, And The Wrong Way, To Measure the Benefits Of Tax Changes, TaxVox,
November 20, 2017, available at http://www.taxpolicycenter.org/taxvox/right-way-and-wrong-way-measure-benefitstax-changes.
27 The estimated distributional effects of the conference agreement are similar to the distributional effects JCT
estimated for the Chairman’s Modification to the Chairman’s Mark of the Senate’s Tax Cuts and Jobs Act. For more on
the distribution of the earlier House and Senate proposals, see CRS Insight IN10824, The Distribution of the Tax Policy
Changes in H.R. 1 and the Senate’s Tax Cuts and Jobs Act, by (name redacted) and (name redacted) .
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
income tax system disappear after 2025. Second, one change that is permanent, as opposed to
temporary, is using a chained Consumer Price Index (CPI) to adjust parameters in the tax code for
inflation. This change tends to increase tax burdens over time, and the effect tends to be larger for
those in the lower part of the income distribution.28 These factors help explain why, by 2027,
after-tax income is estimated to fall for income groups of $75,000 or less. Third, the deduction for
pass-through business income tends to benefit taxpayers in the higher part of the income
distribution, as pass-through income tends to be earned by taxpayers with higher incomes.29
Reductions in the corporate rate also tend to benefit higher-income taxpayers.30 Finally, a factor
explaining the decline in after-tax income for taxpayers in the $10,000 to $30,000 income range
before 2027 is reducing the fee for not having health insurance to zero. The elimination of the
penalty causes fewer taxpayers to purchase insurance and reduces subsidies for purchasing
insurance by lower- and middle-income taxpayers. Thus, although the penalty reduction is a tax
cut, it is more than offset by the loss of these subsidies, a tax increase.31
Figure 2. Estimated Percentage Change in After-Tax Income Under the Conference
Agreement for H.R. 1, by Year and Income Group
Source: CRS calculations using Joint Committee on Taxation, Distributional Effects of the Conference Agreement for
H.R. 1, the “Tax Cuts and Jobs Act,” JCX-68-17, Washington, DC, December 18, 2017.
Notes: JCT provided estimates for odd years only. JCT’s distributional analysis does not reflect the increased
exemption amounts for the estate tax. The percentage change in after-tax income is calculated using JCT’s
average tax rate estimates as [(1 – proposal average tax rate) – (1 – present law average tax rate)] / (1 – present
law average tax rate).
28 CRS Report R43347, Budgetary and Distributional Effects of Adopting the Chained CPI, by (name redacted)
.
29 CRS Report R42359, Who Earns Pass-Through Business Income? An Analysis of Individual Tax Return Data, by
(name redacted) .
30 CRS In Focus IF10742, Who Pays the Corporate Tax?, by (name redacted) .
31 Further discussion of this effect can be found in Nicole Kaeding, Understanding JCT’s New Distributional Tables for
the Senate’s Tax Cuts and Jobs Act, Tax Foundation, November 16, 2017, available at https://taxfoundation.org/
understanding-jcts-new-distributional-tables-senates-tax-cuts-jobs-act/.
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Provisions in P.L. 115-97
Table 2 lists all tax provisions in P.L. 115-97. The table contains a brief description of 2017 law,
and describes how prior law was changed by P.L. 115-97. The content of this report is intended to
be descriptive, and to provide readers with a basic understanding of the provisions. The basic
descriptions provided generally do not identify exceptions or special rules that may be included in
the provision. The descriptions contained in Table 2 explain the law in plain language, and any
deviations from the statutory text are not intended to be legal interpretations of such text. Table 2
does not identify potential ambiguities in the statutory language or places where technical
amendments may be needed. The table includes primary citations to the Internal Revenue Code
(IRC) for each provision, but other IRC provisions and sources of law may be relevant. As a
general rule, Table 2 does not address the treatment of two uncommon types of tax filers: married
taxpayers who file separate returns and surviving spouses.
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Table 2. Comparison of 2017 Tax Law to Changes in P.L. 115-97
Topic
2017 Tax Law
P.L. 115-97
Individual Tax Reform
Tax Rate Reform
Individual income tax brackets
Seven individual income tax rates: 10%, 15%, 25%, 28%, 33%,
35%, and 39.6%. Top rate of 39.6% applies to taxable income
over $480,050 for married joint filers, $453,350 for head of
household filers, or $426,700 for single filers in 2018.
See Appendix A for full bracket and rate tables.
A “kiddie tax” is imposed on the net unearned income of a
child. If a child meets certain conditions, the net unearned
income of a child (over $2,100 for 2018) is taxed at the
parents’ tax rates if the parents’ tax rates are higher than that
of the child.
Capital gains and qualified dividends are not taxed if the
taxpayer is in the 15% bracket or below, taxed at 20% if the
taxpayer is in the 39.6% bracket, and taxed at 15% otherwise.
(There are special rates for certain categories of capital gains).
IRC Section 1
Seven individual income tax rates: 10%, 12%, 22%, 24%, 32%,
35%, and 37%. Top rate of 37% applies to taxable income over
$600,000 for married joint filers, or $500,000 for single and
head of household filers.
See Appendix A for full bracket and rate tables.
The tax on unearned income of children is simplified by
effectively applying ordinary and capital gains rates applicable to
trusts and estates to the net unearned income of a child.
The links to the old brackets are retained for capital gains and
dividends. Thus, they are not affected by the law (except for
the change in the inflation measure discussed below).
Provision expires 12/31/25
(Section 11001 of P.L. 115-97)
Alternative inflation measure
Selected tax parameters (including tax rate brackets and the
value of the standard deduction) are adjusted on an annual
basis for changes in the price level.
The adjustment is made using the Consumer Price Index for
All Urban Consumers (CPI-U). The CPI-U is an index that
measures prices paid by typical urban consumers on a broad
range of products and is developed and published by the
Department of Labor.
IRC Section 1
The adjustment for inflation is made using the Chained
Consumer Price Index for All Urban Consumers (C-CPI-U).
The C-CPI-U differs from the CPI-U by allowing individuals to
alter their consumption patterns in response to relative price
changes. The chained CPI-U results in lower estimates of
inflation than the CPI-U does.
(Section 11002 of P.L. 115-97)
CRS-8
Topic
2017 Tax Law
P.L. 115-97
Deduction for Qualified Business Income of Pass-Thru Entities
Deduction for pass-through business
income
Pass-through business income generally is taxed according to
ordinary individual income tax rates.
IRC Sections 1, 701, and 1366
Taxed according to ordinary individual rates. Taxpayers may
deduct 20% of qualified pass-through income. Deduction
limited to the greater of 50% of W-2 wages, or 25% of W-2
wages plus 2.5% multiplied by depreciable property (equipment
and structures). Specified service businesses generally may not
claim the deduction (health, law, accounting, actuarial science,
performing arts, consulting, athletics, financial services,
brokerage services, and services consisting of investment and
investment management, and trading of securities, partnership
interests, or commodities). Specified service business definition
does not include architecture or engineering firms. Deduction
limitation and specified service business limitation do not apply
if taxable income is less than $157,500 (single) or $315,000
(married). These limits are phased in over a $50,000 (single)
and $100,000 (married) range, and thus apply fully at $207,000
(single) and $415,000 (married).
Adds Sections 4 and 199A to IRC
Provision expires 12/31/25
(Section 11011 of P.L. 115-97)
Limitation on losses for noncorporate
taxpayers
Businesses are generally permitted to carry over a net
operating loss (NOL) to certain past and future years. Under
the passive loss rules, individuals and certain other taxpayers
are limited in their ability to claim deductions and credits from
passive trade and business activities, although unused
deductions and credits may generally be carried forward to the
next year. Similarly, certain farm losses may not be deducted in
the current year, but can be carried forward to the next year.
IRC Section 461(l)
For taxpayers other than C corporations, disallows a
deduction in the current year for excess business losses and
treats such losses as a NOL carryover to the following year.
An excess business loss is the amount that a taxpayer’s
aggregate deductions attributable to trades and businesses
exceed the sum of (1) aggregate gross income or gain
attributable to such activities and (2) $250,000 ($500,000 if
married filing jointly), adjusted for inflation. For partnerships
and S corporations, this provision is applied at the partner or
shareholder level.
Provision expires 12/31/25
(Section 11012 of P.L. 115-97)
CRS-9
Topic
2017 Tax Law
P.L. 115-97
To calculate taxable income, taxpayers subtract from their
adjusted gross income (AGI) the appropriate number of
personal exemptions and, if the taxpayer does not itemize their
deductions, the standard deduction.
The standard deduction is the sum of the basic standard
deduction and, if applicable, the additional standard deduction
for the blind or elderly. The basic standard deduction amount
varies by the taxpayer’s filing status and is adjusted annually for
inflation. Before passage of P.L. 115-97, the basic standard
deduction amounts for 2018 would have been $6,500 for single
filers, $9,550 for heads of household filers, and $13,000 for
married taxpayers filing jointly.
IRC Section 63
Increases the dollar amounts of the basic standard deduction.
Specifically, for 2018, the basic standard deduction amounts are
$12,000 for single individuals, $18,000 for heads of household;
and $24,000 for married individuals filing jointly. After 2018,
these amounts are adjusted for inflation using the chained-CPI.
The additional standard deduction for the blind and elderly is
unchanged by P.L. 115-97.
Provision expires 12/31/25
The child tax credit allows a taxpayer to reduce their federal
income tax liability by up to $1,000 per qualifying child.
Taxpayers with little or no federal income tax liability may be
eligible to receive the child tax credit as a refundable credit—
the additional child tax credit, or ACTC. The maximum ACTC
is $1,000 per child. The ACTC equals 15% (“the refundability
rate”) of the family’s earnings in excess of $3,000 (“the
refundability threshold”).
The child tax credit begins to phase out for taxpayers with
income over a phase-out threshold: $75,000 for single parents
and $110,000 for married taxpayers filing joint returns.
None of the parameters of the child credit are indexed for
inflation.
Taxpayers claiming the child credit (including the ACTC) must
provide the identification number for each child claimed for the
credit. This ID number is generally the child’s Social Security
number (SSN) or individual taxpayer identification number
(ITIN). The ID number must have been issued before the due
date of the return.
IRC Section 24
Increases the child credit to $2,000 per qualifying child and
increases the ACTC to $1,400 per qualifying child.
The ACTC refundability threshold is reduced to $2,500.
The phaseout thresholds are increased to $200,000 for
unmarried taxpayers and $400,000 for married taxpayers filing
jointly.
The maximum ACTC amount is adjusted for inflation beginning
in 2019. All other parameters of the child credit are not
indexed for inflation.
The act modifies the ID requirement for the credit. Taxpayers
claiming the child credit (including the ACTC) must provide
the SSN for each child claimed for the credit. The SSN must
have been issued before the due date of the return.
Provision expires 12/31/25
(Section 11022 of P.L. 115-97)
Tax Benefits for Families and Individuals
Standard deduction
Child tax credit
CRS-10
(Section 11021 of P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Family credit
No credit in current law.
Creates a new “family credit” for non-child credit-eligible
dependents (children ineligible for the child tax credit or older
non-child dependents). Non-child credit-eligible dependents
excludes otherwise eligible dependents who are not U.S.
citizens and are residents of Mexico or Canada.
The credit is equal to $500 per non-child credit-eligible
dependent. The amount is not annually adjusted for inflation.
The phase out parameters of the child credit (e.g., phaseout
thresholds of $400,000 married filing jointly, $200,000 other
taxpayers, 5% phaseout rate) apply to the family credit.
Taxpayers do not have to provide an SSN for non-child crediteligible dependents.
Provision expires 12/31/25
(Section 11022 of P.L. 115-97)
Charitable contributions deduction
Taxpayers who itemize their deductions can deduct charitable
donations of cash or property to certain organizations
including public charities; federal, state, local and Indian
governments; private foundations; and other less common
types of qualifying organizations.
There are limitations on the total dollar amount that can be
deducted by a taxpayer in a given tax year. The limitations are
defined as a percentage of the taxpayer’s adjusted gross
income, or AGI. Most cash contributions are generally limited
to 50% of the taxpayer’s AGI. (The limit is generally 30% of
AGI for cash contributions to non-operating private
foundations.)
IRC Section 170
Increases the percentage limit for charitable contributions of
cash to public charities and other qualifying organizations to
60% of AGI. The 30% AGI limitation of cash donations to
private non-operating foundations is unchanged.
Provision expires 12/31/25
(Sections 11023 of P.L. 115-97)
CRS-11
Topic
ABLE account contribution limit
2017 Tax Law
P.L. 115-97
ABLE accounts are tax-favored savings accounts intended to
benefit qualifying disabled individuals (referred to as
“designated beneficiaries”). Generally, in a given year an ABLE
account cannot receive aggregate contributions in excess of
the annual gift tax exemption, which was scheduled to be
$15,000 in 2018 before passage of P.L. 115-97.
IRC Section 529A
Increases the annual contribution limits of ABLE accounts in
certain circumstances. Specifically a designated beneficiary can
contribute an additional amount to their ABLE account (above
the annual gift-tax exclusion amount) equal to the lesser of (1)
the federal poverty level for a one-person household or (2) the
individual’s compensation for the year.
While the base gift tax exclusion amount is unchanged by P.L.
115-97, the inflation adjustment is changed to chained-CPI
which may result in a slightly different exclusion amount in
2018.
The law also temporarily allows a designated beneficiary of an
ABLE account to claim the saver’s credit for contributions
made to their ABLE account.
Provisions expire 12/31/25
(Section 11024 of P.L. 115-97)
Taxpayers who make qualified retirement savings contributions
may be eligible for a nonrefundable saver’s credit of up to
$2,000 per individual. Contributions to an ABLE account are
not eligible for this credit.
IRC Section 25B
529 to ABLE account rollover
CRS-12
Rollovers from a 529 plan to an ABLE account (even amounts
below the annual ABLE account contribution limit) are taxable.
IRC Section 529
Allows tax-free rollovers from a 529 account to an ABLE
account that are equal to or less than the annual ABLE
contribution limit. These rollovers are not subject to taxation
provided that the ABLE account is that of the designated
beneficiary of the 529 account (or a member of the designated
beneficiary’s family). The portion of the rollover in excess of
the annual contribution limit is taxable.
Provision expires 12/31/25
(Section 11025 of P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Combat zone tax exclusion
Members of the Armed Forces serving in a combat zone (and
their families) are entitled to several tax benefits including (but
not limited to):
(1) an exemption from income tax on military pay received
during any month in which the member served in a combat
zone (IRC Section 112);
(2) an exemption from taxes on death while serving in a
combat zone (IRC Section 692);
(3) special estate tax rules where death occurs in a combat
zone (IRC Section 2201);
(4) special benefits to surviving spouses (IRC Sections 2(a)(3)
and 6013(f)(1));
(5) an extension of tax filing deadlines (IRC Section 7508);
(6) an exclusion of telephone excise taxes (IRC Section
4253(d)).
Currently, the Department of Defense does not consider the
Sinai Peninsula a combat zone.
Grants combat zone tax benefits to members of the Armed
Forces in the Sinai Peninsula of Egypt, if as of the date of
enactment, any member of the Armed Forces of the United
States is entitled to special pay under Section 310 of Title 37 of
the U.S. Code (relating to special pay and duty pay subject to
hostile fire or imminent danger) as a result of serving in this
area. This provision is generally effective beginning June 9, 2015
and remains in effect while this condition is met or the
statutory sunset, whichever comes first.
Provision expires 12/31/25
(Section 11026 of P.L. 115-97)
Medical and dental expense deduction
Individual taxpayers who choose to itemize their deductions
instead of claiming the standard deduction can deduct
combined medical and dental expenses in excess of 10% of
their AGI (2017 law was changed in P.L. 115-97).
IRC Section 213
Reduces the AGI threshold from 10% to 7.5% for individual
taxpayers claiming an itemized deduction for unreimbursed
medical and dental expenses in 2017 and 2018.
Provision expires 12/31/18
(Section 11027 of P.L. 115-97)
CRS-13
Topic
2017 Tax Law
P.L. 115-97
Generally, distributions from certain tax-favored retirement
accounts are included in income for the year distributed.
Distributions from certain retirement plans received before
age 59½ may be subject to a 10% early withdrawal tax.
In 2016 and 2017, casualty losses are generally deductible if
they exceed $100 per casualty, and to the extent aggregate net
casualty losses exceed 10% of adjusted gross income (AGI).
IRC Sections 72(t) and 165(h)
Provides tax relief related to 2016 disasters declared major
disasters by the President under Section 401 of the Robert T.
Stafford Disaster Relief and Emergency Assistance Act. The tax
relief is related to (1) distributions from retirement plans; and
(2) casualty losses.
For retirement plan distributions, the provision provides an
exception to the 10% early withdrawal penalty for up to
$100,000 in disaster distributions related to 2016 disasters.
The provision also allows income from 2016 disaster
distributions to be recognized over three years. Taxpayers are
also allowed up to three years to make recontributions for
2016 disaster distributions.
Under the provision, disaster losses arising in 2016 or 2017
may qualify for an enhanced deduction. Specifically, losses are
deductible to the extent that they exceed $500 per casualty.
Losses are not subject to the 10% of AGI threshold. Further,
losses may be claimed in addition to the standard deduction.
(Section 11028 of P.L. 115-97)
Student loans discharged for death or
disability
Generally, gross income includes discharged student loan debt,
hence these amounts are generally taxable. There are
exceptions to this general rule, but these exceptions do not
include the death or disability of the student.
IRC Section 108
Expands the categories of non-taxable discharged student loan
debt to include student loan debt that is discharged on account
of the death or permanent and total disability of the student.
Provision expires 12/31/25
(Section 11031 of P.L. 115-97)
Education savings accounts
Generally, taxpayers are not subject to taxation on
distributions from 529 savings accounts if these distributions
are used for qualified higher education expenses at most higher
education institutions. For the purposes of 529 accounts,
qualified higher education expenses include tuition and
required fees, room and board, books, supplies, equipment,
and additional expenses of special needs beneficiaries. For the
purposes of 529 plans, qualified higher education expenses do
not include K-12 expenses.
IRC Section 529
Allows taxpayers to withdraw up to $10,000 per year tax-free
from a 529 account for a beneficiary’s K-12 education
expenses in connection with enrollment or attendance at
public, private, or religious elementary or secondary school.
The $10,000 cap is per student (as opposed to per 529
account).
(Section 11032 of P.L. 115-97)
2016 disaster areas
Education
CRS-14
Topic
2017 Tax Law
P.L. 115-97
Personal exemptions
To calculate taxable income, taxpayers subtract from their
adjusted gross income (AGI) the standard deduction or sum of
their itemized deductions (whichever is greater) and the
appropriate number of personal exemptions for themselves,
their spouse (if married), and their dependents. For 2018,
before enactment of P.L. 115-97, the personal exemption
amount would have been $4,150.
IRC Section 151
Repeals personal exemptions for the taxpayer, their spouse (if
married), and their dependents.
Provision expires 12/31/25
(Section 11041 of P.L. 115-97)
State and local tax deduction
State and local (and foreign) income and property taxes are
deductible as an itemized deduction. State and local sales taxes
paid may be deducted in lieu of income taxes.
IRC Section 164
Limits itemized deductions for state and local income, sales,
and property taxes to $10,000. No deduction is allowed for
foreign real property taxes. Property taxes associated with
carrying on a trade or business are fully deductible.
Provision expires 12/31/25
(Section 11042 of P.L. 115-97)
Mortgage interest deduction
Mortgage interest is deductible on the first $1 million of
combined (first and second home) acquisition debt, plus
interest on $100,000 of home equity debt.
IRC Section 163(h)
Limits the amount of mortgage interest that may be deducted
to the interest paid on the first $750,000 of mortgage debt.
The limitation applies to new loans incurred after December
15, 2017. Mortgage debt that is the result of a refinance on or
before December 15, 2017, is exempt from the reduction to
the extent that the new mortgage does not exceed the amount
refinanced. No interest deduction for new or existing home
equity debt.
Provision expires 12/31/25
(Section 11043 of the P.L. 115-97)
Personal casualty loss deduction
Taxpayers can generally claim an itemized deduction for noncompensated personal casualty losses. Casualty losses are
generally deductible if they exceed $100 per casualty, and to
the extent aggregate net casualty losses exceed 10% of
adjusted gross income (AGI).
IRC Section 165(h)
Repeals itemized deduction for casualty losses, except for
losses associated with a disaster declared by the President
under Section 401 of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act.
Provision expires 12/31/25
(Section 11044 of P.L. 115-97)
Deductions and Exclusions
CRS-15
Topic
2017 Tax Law
Itemized deduction for miscellaneous
expenses
Individual taxpayers who itemize their deductions can deduct
miscellaneous expenses to the extent that they collectively
exceeded 2% of AGI. Expenses subject to the 2% floor include
unreimbursed employee expenses, tax preparation fees, and
certain other expenses.
IRC Sections 62, 67, and 212
Repeals the itemized deduction for miscellaneous expenses.
Provision expires 12/31/25
(Section 11045 of P.L. 115-97)
Overall limitation on itemized
deductions
For taxpayers with AGI above certain thresholds (inflation
adjusted; $320,000 for married taxpayers filing jointly and
$266,700 for singles in 2018), the total amount of itemized
deductions is limited. For affected taxpayers, the total of
certain itemized deductions is reduced by 3% of the amount of
AGI exceeding the threshold. The total reduction, however,
cannot be greater than 80% of the deductions. The itemized
deductions not subject to the limitation include deductions for
medical and dental expenses, investment interest, qualified
charitable contributions, and casualty and theft losses.
IRC Section 68
Repeals the overall limitation on itemized deductions.
Provision expires 12/31/25
(Section 11046 of P.L. 115-97)
Bicycle commuter reimbursement
Up to $20 per month in employer reimbursements for
qualifying bicycle commuting expenses are excludable from the
employee’s income and wages and hence not subject to income
or employment taxes.
IRC Sections 132(f)
Repeals the exclusion for employer-provided bicycle
commuter fringe benefits.
Provision expires 12/31/25
(Section 11047 of P.L. 115-97)
Moving reimbursements exclusion
Qualified moving expense reimbursements from an employer
are generally excludable from an employee’s gross income and
hence not subject to income or employment taxes.
IRC Sections 132 and 82
Repeals the exclusion for employer-provided qualified moving
expense reimbursements (other than for members of the
Armed Forces).
Provision expires 12/31/25
(Section 11048 of P.L. 115-97)
Moving expenses deduction
Taxpayers can claim an above-the-line deduction for moving
expenses incurred as a result of work at a new location,
subject to certain conditions dealing with the individual’s
employment status as well as the distance of the move. Special
rules apply to members of the Armed Forces.
IRC Section 217
Repeals the deduction for moving expenses (other than
members of the Armed Forces).
Provision expires 12/31/25
(Section 11049 of P.L. 115-97)
CRS-16
P.L. 115-97
Topic
2017 Tax Law
P.L. 115-97
Wagering losses deduction
A taxpayer may deduct gambling losses to the extent gambling
winnings are included in gross income.
IRC Section 165(d)
Provides that gambling losses include deductible expenses
incurred in carrying on the gambling activity.
Provision expires 12/31/25
(Section 11050 of P.L. 115-97)
Tax treatment of alimony payments
Alimony payments (and separate maintenance payments) are
deductible by the payor spouse and includible in the income of
the recipient spouse. Child support payments are not treated
as alimony payments.
IRC Sections 61(a)(8) and 215
Repeals the deduction for alimony payments by the payor and
corresponding inclusion in income by the recipient. Applicable
to divorce or separation agreements entered into after
12/31/2018 or divorce or separation agreements modified after
12/31/2018 if they specifically mention this provision.
(Section 11051 of P.L. 115-97)
Increase in Estate and Gift Exemption
Estate and Gift Tax
Estate and gift taxes are levied on transfers after applying a
cumulative exclusion that would have been a $5.6 million per
decedent exclusion in 2018 (the $5 million per decedent
amount in statute adjusted annually for inflation). The tax rate
is 40%.
IRC Sections 2001 and 2010
Increases the federal estate and gift exclusion to $10 million
per decedent (adjusted for inflation).
Provision expires 12/31/25
(Section 11061 of P.L. 115-97)
Extension of Time for Contesting IRS Levy
IRS levy
CRS-17
If the Internal Revenue Service (IRS) determines that it
wrongfully levied property to collect a tax debt, the agency can
return to the taxpayer an amount of money equal to the
money levied upon or proceeds from a property’s sale within
nine months of the date of the levy.
In addition, a person other than the taxpayer against whom the
levy was imposed who claims a financial interest in levied
property can file a civil suit to challenge the levy as wrongful
and to recover levy proceeds. The suit has to be filed no later
than nine months after the date of the levy, which can be
extended by a period of 6-12 months depending on the
circumstances.
IRC Sections 6343 and 6532
Increases from nine months to two years the period for
returning money or sales proceeds.
Extends from nine months to two years the period for filing a
civil suit to contest a wrongful levy by a person other than the
taxpayer (the existing 6-12 month extensions are unchanged).
Provision applies to levies made after the date of enactment
and to levies made within the nine months before that date.
(Section 11071 of P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Most individuals must maintain health insurance coverage or
pay a penalty for noncompliance. To avoid the penalty,
individuals needed to maintain minimum essential coverage for
themselves and their dependents, which includes most types of
public and private health insurance coverage, for any month of
noncompliance within a given tax year. Some individuals are
exempt. The penalty is generally the greater of (1) 2.5% of
applicable income (generally, household income in excess of
filing thresholds); or (2) $695 per taxpayer and dependent in
2017 and 2018 (adjusted for inflation), capped at 300% of the
flat dollar amount.
IRC Section 5000A(c)
Reduces the individual penalty to $0 effective with the 2019 tax
year.
(Section 11081 of P.L. 115-97)
Individual Mandate
ACA individual penalty
Alternative Minimum Tax
Corporate alternative minimum tax
CRS-18
A flat 20% tax imposed on a corporation’s alternative minimum
taxable income (income with a disallowance of certain
preferences) less an exemption amount of $40,000. The
exemption is phased out when corporate minimum taxable
income exceeds $150,000. Small corporations with gross
receipts of less than $7.5 million are exempted. Prior-year
AMT amounts can be credited against regular tax.
IRC Sections 53 and 55
Repeals the corporate AMT and allows prior-year corporate
AMT credits to reduce regular tax liability.
(Sections 12001 and 12002 of P.L. 115-97)
Topic
Individual alternative minimum tax
2017 Tax Law
P.L. 115-97
A tax is imposed at 26% on an individual’s alternative minimum
taxable income (primarily income without a standard
deduction, state and local income deduction, or deductions for
personal exemptions) less an exemption amount. For 2018 the
exemption is $55,400 for singles and $86,200 for married
couples. The exemption phases out beginning at $123,100 for
singles and $164,100 for married couples. A higher rate of 28%
applies to taxpayers with incomes above $95,750 for single
filers and $191,500 for married taxpayers filing joint returns.
These amounts are indexed for inflation. Prior-year AMT
amounts can be credited against regular tax.
IRC Section 55
Increases the AMT exemption amounts to $70,300 for
unmarried taxpayers (single filers and heads of households) and
$109,400 for married taxpayers filing joint returns. Exemption
phases out at $500,000 for singles and $1,000,000 for married
taxpayers filing jointly. These amounts are indexed for inflation.
Provision expires 12/31/2025
(Section 12003 of P.L. 115-97)
Business-Related Provisions
Corporate Provisions
Corporate rate
CRS-19
Corporate taxable income is subject to a graduated rate
structure. The top corporate rate of 35% generally applies to
taxable income above $10 million. If taxable income is not over
$50,000, the tax rate is 15%. If taxable income is over $50,000
but not over $75,000, the tax rate is 25%. If taxable income is
over $75,000 but not over $10 million, the tax rate is 34%.
The corporate tax rate increases above 35% for two income
brackets. Corporations with taxable income between $100,000
and $335,000 are subject to a 39% tax rate, and corporations
with income between $15,000,000 and $18,333,333 are subject
to a 38% tax rate. These “bubble” brackets increase the
effective tax rate for higher-income corporations by offsetting
any tax savings they would realize from having the first $75,000
in income taxed at lower rates.
Personal service corporations pay the 35% rate on all taxable
income.
IRC Section 11
Corporate taxable income is taxed at a flat rate of 21%.
Special rules are provided for certain taxpayers, such as public
utilities.
(Section 13001 of P.L. 115-97)
Topic
Dividends received deduction
2017 Tax Law
P.L. 115-97
Corporations can generally deduct 70% of dividends received
from other taxable domestic corporations. 80% of dividends
received from a 20%-owned corporation (a corporation where
the taxpayer owns at least 20% of the stock) can generally be
deducted. 100% of dividends can be deducted for dividends of
an affiliated group, which requires 80% ownership.
IRC Section 243
The 70% dividends received deduction is reduced to 50% and
the 80% dividends received deduction is reduced to 65%.
(Section 13002 of P.L. 115-97)
Section 179 permits a business to deduct as a current expense
up to $500,000 of the cost of qualified assets placed in service
in a tax year. That amount starts to phase out (but not below
zero) when the business’s spending on such assets during the
year totals $2 million. Both amounts have been indexed for
inflation since 2016. Generally, qualified assets consist of
machinery, equipment, off-the-shelf computer software, and
certain real improvement property.
IRC Section 179
Increases the Section 179 expensing allowance to $1 million,
sets the phaseout threshold at $2.5 million, and indexes both
amounts for inflation beginning in 2019.
Expands the definition of qualified property to include
improvements to the interior of any non-residential real
property, as well as roofs; heating, ventilation, and air
conditioning systems; fire protection and alarm systems; and
security systems installed on such property.
Eliminates the exclusion for tangible personal property used in
connection with lodging facilities.
Indexes for inflation starting in 2019 the $25,000 expensing
limit for sport utility vehicles.
Provision applies to property placed in service in 2018 or later.
(Section 13101 of P.L. 115-97)
Small Business Reforms
Section 179 expensing
CRS-20
Small business accounting methods
CRS-21
A business may generally choose the method of accounting it
uses to calculate its taxable income, provided the method
accurately reflects income. Two widely used methods are the
cash method and the accrual method.
Section 448 generally bars C corporations, partnerships with C
corporations as a partner, and two other entities from using
the cash method for tax purposes. But all four entities may do
so if their annual gross receipts have never exceeded $5
million.
Businesses must use the accrual method to compute their
taxable income if they have to account for inventories. This
especially applies to firms that derive income from the
purchase, production, or sale of merchandise. But companies
that satisfy at least one of the following two conditions may
use a different method (e.g., the cash method), even though
they maintain inventories: (1) their average annual gross
receipts in the past three years do not exceed $1 million; or
(2) they belong to industries that are allowed to use the cash
method under Section 448 and had no more than $10 million
in average annual gross receipts in the past three years.
The uniform capitalization (UNICAP) rules under Section 263A
require businesses that produce real or tangible personal
property, or that acquire such property for sale to others, to
capitalize their direct costs and a portion of their indirect costs
attributable to such property. Capitalized costs may be
recovered in several ways, including depreciation and cost-ofgoods sold. Certain small producers and resellers are exempt
from these rules.
Under Section 460, income from a long-term contract is
generally determined using the percentage-of-completion
method of accounting. An exception is made for qualified small
construction contracts. Income from these contracts may be
reported using the completed contract method. Under this
method, a company can report income and direct costs from a
contract only after it has been completed, but the company has
the option of reporting indirect costs in the year they are paid
or incurred.
IRC Sections 263A, 448, 460, and 471
Expands the range of companies that may use the cash method
of accounting to include firms with average annual gross
receipts in the previous three tax years that do not exceed
$25 million. This amount is indexed for inflation starting in
2019. This limit applies regardless of whether the production
or purchase of property for resale is a significant source of
income. It also applies to C corporations involved in farming.
Companies that meet the gross receipts test are not required
to account for inventories under Section 471.
Exempts from the UNICAP rules any producer or reseller that
meets the $25 million gross receipts test.
Excludes small construction contracts from the requirement to
use the percentage-of-completion method of accounting under
Section 460 if they meet two conditions: (1) the contracts are
expected to be completed within two years at the time they
are entered into; and (2) the contracts are performed by a
company that meets the $25 million gross receipts test in the
year when the contract is signed.
(Section 13102 of the P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Expensing
Assets such as equipment and buildings are depreciated over
time. Bonus depreciation for equipment allows an immediate
deduction of 50% for equipment placed in service in 2017, 40%
in 2018, and 30% in 2019. Long-lived property is not eligible.
The phase down is delayed for certain property, including
property with a long production period.
IRC Section 168(k)
Full and immediate expensing (100% bonus depreciation) for
equipment through 2022; percentage reduced by 20% per year
for four years starting 2023. Phase down is delayed for
property with a long production period.
Provision expires 12/31/26
(Section 13201 of P.L. 115-97)
Luxury automobile depreciation
limitation
The maximum allowable depreciation on luxury passenger
automobiles is limited.
IRC Sections 168(k)(2)(F) and 280F
The allowable depreciation limits for luxury passenger
automobiles are increased.
(Section 13202 of P.L. 115-97)
Recovery period for farm equipment
Farm equipment is generally depreciated using the 150%
declining balance method.
IRC Sections 168(b) and 168(g)
Repeals the requirement to use the 150% declining balance
method for farm equipment and shortens the recovery period
of 7-year property to five years for property placed in service
after December 31, 2017.
(Section 13203 of P.L. 115-97)
Recovery period for real property
Under the Modified Accelerated Cost Recovery System
(MACRS) the recovery period for nonresidential real property
is 39 years, and 27.5 years for residential real property.
Under the Alternative Depreciation System (ADS) the
recovery period is 40 years for nonresidential and residential
real property.
IRC Sections 168
Maintains 2017 MACRS recovery periods for nonresidential
and residential real property.
For businesses that elect out of 30% interest expense
deduction limitation, the ADS recovery periods are 30 years
for residential real property and 40 years for nonresidential
real property.
(Section 13204 of P.L. 115-97)
Cost recovery for farming equipment
Business property is generally depreciated using the modified
accelerated cost recovery system (MACRS). Certain property
is required to use the alternative depreciation system (ADS) if
it meets specific criteria.
IRC Section 168
Requires a farming business electing out of the limitation on
the deduction for interest to use ADS to depreciate any
property with a recovery period of 10 years or more.
(Section 13205 of P.L. 115-97)
Cost Recovery and Accounting Methods
Cost Recovery
CRS-22
Topic
2017 Tax Law
P.L. 115-97
Research expenditures
Under Section 174, a business has three choices for recovering
its qualified expenditures for qualified research. One is to
deduct as a current expense some or all of its qualified
spending in a tax year. A second option is to capitalize that
spending and recover it over the useful life of any asset
resulting from the research; this life cannot be less than five
years. Finally, a business may elect to amortize its research
expenditures over 10 years. Research expenditures not
deductible under Section 174 must be capitalized under
Sections 263(a) or 263A.
The following expenses qualify for the Section 174 deduction:
(1) wages and salaries of employees directly engaged in
qualified research, (2) the cost of operating and maintaining
research facilities (e.g., utilities and depreciation), and (3)
expenditures for materials and supplies used in qualified
research. No deduction is allowed for expenditures on land
and depreciable or depletable property used in such research.
IRC Section 174
Requires “specified research or experimental expenditures”
related to domestic research to be capitalized and amortized
over five years, beginning with the midpoint of the tax year
when the expenditures were incurred or paid. The recovery
period rises to 15 years for qualified expenditures related to
foreign research.
Repeals the option to amortize qualified research expenditures
over 10 years and the option to deduct those expenditures in
full as a current expense.
“Specified research and experimental expenditures” are the
expenses eligible for the Section 174 deduction under 2017
law, as well as depreciable or depletable property used in
connection with qualified research.
The new provision applies to amounts paid or incurred in
taxable years beginning after December 31, 2021.
(Section 13206 of P.L. 115-97)
Citrus plants lost by casualty
The uniform capitalization (UNICAP) rules address the method
for determining costs that taxpayers are required to capitalize
or treat as inventory. They generally apply to property
produced in a trade or business or acquired for resale. One
exception is for edible plants lost or damaged by reason of a
casualty or similar event. The exception may apply to (1) the
taxpayer’s cost of replanting such plants and (2) costs paid or
incurred by other persons if the taxpayer has more than a 50%
equity interest in the plants at all times during the year and the
other person owns any of the remaining interest and materially
participates in the planting or similar activities.
IRC Section 263A
Expands the existing edible plants exception for costs paid or
incurred after December 22, 2017, for citrus plants lost due to
a casualty. Under the provision, the existing exception also
applies to persons other than the taxpayer if: (1) the taxpayer
has an equity interest of at least 50% in the replanted plants at
all times during the year and the other person owns any of the
remaining interest, or (2) the other person acquired the
taxpayer’s entire equity interest in the land on which the plants
were located and the replanting is on such land.
Expires 12/22/2027
(Section 13207 of P.L. 115-97)
CRS-23
Topic
2017 Tax Law
P.L. 115-97
For accrual method taxpayers, income is generally required to
be included for tax purposes in the year in which the “all
events test” is met (generally when the right to receive such
income is fixed and the amount can be determined with
reasonable accuracy). Exceptions exist that permit deferred
recognition.
IRC Sections 451
Generally provides for accrual method taxpayers that the all
events test will not be treated as met any later than when an
item is taken into account on applicable financial statements.
(Section 13221 of P.L. 115-97)
Accounting Methods
Taxable year of inclusion
Business-Related Exclusions and Deductions
Deduction for interest paid
Deduction for net interest limited to 50% of adjusted taxable
income (income before taxes, interest deductions, and
depreciation, amortization, or depletion deductions) for firms
with a debt-equity ratio above 1.5. Interest above limitation
may be carried forward indefinitely.
IRC Section 163(j)
Generally limits deductible interest to 30% of adjusted taxable
income for businesses with gross receipts greater than $25
million. For years beginning after December 31, 2021, adjusted
taxable income does not allow a deduction for depreciation,
amortization, and depletion. The provision also has an
exception for floor plan financing. Certain businesses can elect
out of this limit.
(Section 13301 of P.L. 115-97)
Modification of net operating loss
deduction
Net operating losses (NOLs) are generally allowed to be
claimed against the prior 2 years income (carryback) or the
subsequent 20 years income (carry forward).
IRC Section 172
Generally limits NOLs to 80% of taxable income, with the
remainder carried forward indefinitely. Only farm and certain
insurance companies retain option to carryback NOLs.
(Section 13302 of P.L. 115-97)
Like-kind exchanges
Like-kind exchanges allow for the deferral of taxes when
eligible personal and real property used for business purposes
is sold and the proceeds are reinvested in a similar type of
property.
IRC Section 1031
Like-kind exchanges are limited to only real property.
(Section 13303 of P.L. 115-97)
CRS-24
Topic
2017 Tax Law
P.L. 115-97
Employer deduction for certain fringe
benefits
Employers can deduct expenses associated with entertainment,
amusement, or recreational activities, if the activity is directly
related to the active conduct of the employer’s trade or
business or a facility (e.g., an airplane) used in connection with
such activity. Deductions for entertainment expenses are
generally limited to 50% of otherwise deductible amounts.
Entertainment expenses may be deductible if employees report
such benefits as wages or other non-employee recipients
include the benefits in gross income.
Generally, gross income includes the value of employerprovided fringe benefits. Certain fringe benefits are excluded
for employment tax purposes, such as transportation benefits
(e.g., parking, transit passes, vanpool benefits, and bicycle
commuting reimbursements) and meals that are provided for
the convenience of the employer.
Deductions for food or beverages are also generally limited to
50% of expenses (with certain exceptions). Meals provided for
the convenience of the employer can be excluded from an
employee’s gross income.
IRC Section 274
Disallows employer deductions for (1) activities generally
considered to be entertainment, amusement, or recreation; (2)
membership dues for clubs organized for business, pleasure,
recreation, or other social purposes; or (3) a facility used in
connection with the above items, even if the activity is related
to the active conduct of trade or business.
Generally disallows deductions for expenses associated with
transportation fringe benefits or expenses incurred providing
transportation for commuting (except as necessary for
employee safety).
The deduction for 50% of meals expenses associated with
operating a trade or business (e.g., meals consumed on work
travel) in generally retained. For 2018 through 2025, the 50%
limit is expanded to include employer expenses associated with
providing meals to employees through an eating facility meeting
de minimis fringe requirements for the convenience of the
employer.
(Section 13304 of P.L. 115-97)
Domestic production activities
deduction
The domestic production activities deduction allows a
deduction equal to 9% of the lesser of taxable income derived
from qualified production activities, or taxable income.
Qualified production activities include manufacturing, mining,
electricity and water production, film production, and domestic
construction, among other activities. For oil- and gas-related
activities, the deduction is limited to 6%.
IRC Section 199
Repeals the deduction for income attributable to domestic
production activities.
(Section 13305 of P.L. 115-97)
CRS-25
Topic
2017 Tax Law
P.L. 115-97
Deduction for fines and penalties paid
to a government
No deduction is allowed for fines or penalties paid to a
government for violating a law.
IRC Section 162(f)
Expands the provision relating to the non-deductibility of fines
and penalties to expressly deny deductibility for amounts paid
or incurred to or at the direction of a government or certain
non-governmental entities in relation to the violation of any
law or the investigation or inquiry into the potential violation
of any law.
Government agencies (or similar entities) are required to
report to the IRS and the taxpayer the amount of each
settlement agreement or order (of at least $600 or other
amount as specified by the Secretary of the Treasury).
Adds Section 6050X to the IRC
(Section 13306 of P.L. 115-97)
Deduction for settlements subject to
a nondisclosure agreement in
connection with sexual harassment
Taxpayers are generally allowed a deduction for ordinary and
necessary expenses associated with their trade or business.
Deductions are disallowed is certain instances. For example, no
deduction is allowed for fines or penalties paid to a
government for violating a law.
IRC Section 162(q)
Provides that no deduction is allowed for settlements
payments, or attorney fees related to sexual harassment or
abuse if the settlement or payments are subject to a
nondisclosure agreement.
(Section 13307 of P.L. 115-97)
Deduction for local lobbying expenses
Expenses for lobbying and political activities generally are not
deductible. There are exceptions for local legislation and de
minimis ($2,000 or less) expenditures.
IRC Section 162(e)
Repeals the exception allowing a deduction for local lobbying
expenses.
(Section 13308 of P.L. 115-97)
Carried interest
Gains in partnership interest derived from the performance of
investment services (carried interest) treated as long-term
capital gains if held for at least one year.
IRC Sections 83 and 1061
Requires carried interest to be held for three years in order to
be treated as a long-term capital gain.
Adds Section 1062 to the IRC
(Section 13309 of P.L. 115-97)
Deduction for employee achievement
awards
Employers can deduct the cost of certain employee
achievement awards, with this deduction subject to limitations.
Deductible awards are excludible from employee income.
Employee achievement awards are tangible personal property
given in recognition of length of service or safety achievement.
IRC Section 74(c) and 274(j)
Provides that employee achievement awards do not include
cash, gift cards, vacations, meals, event tickets, stocks or
securities, or other similar items.
(Section 13310 of P.L. 115-97)
CRS-26
Topic
2017 Tax Law
P.L. 115-97
Deduction for living expenses of
Members of Congress
Members of Congress are allowed to deduct up to $3,000 for
meals and lodging expenses incurred while on official business
in the District of Columbia.
IRC Section 162(a)
Repeals the deduction for living expenses of Members of
Congress.
(Section 13311 of P.L. 115-97)
Treatment of contributions to capital
of corporations
Contributions to the capital of corporations are generally not
included in the gross income of the corporation, and thus not
treated as taxable income.
IRC Section 118
The following contributions are not considered contributions
to capital: (1) any contribution in aid of construction or any
other contribution as a customer or potential customer, and
(2) any contribution by any governmental entity or civic group
(other than a contribution made by a shareholder as such).
(Section 13312 of P.L.115-97)
Capital gains from the sale of a
publically traded security
The capital gain realized from the sale of a publically traded
security may be rolled over without being subject to tax if the
proceeds are used to purchase an interest in a specialized small
business investment company.
IRC Section 1044
Repeals IRC Section 1044.
(Section 13313 of P.L. 115-97)
Property treated as a capital asset
Certain self-created items, such as a copyright, are excluded
from the definition of capital asset.
IRC Section 1221
The following are excluded from the definition of capital asset:
patent, invention, model or design (whether or not patented),
secret formula or process.
(Section 13314 of P.L. 115-97)
A company may claim a tax credit equal to 50% of its qualified
spending for the clinical testing of orphan drugs. An orphan
drug is defined as a drug designed to treat a disease or
condition that affects fewer than 200,000 persons in the United
States, or that affects more than 200,000 persons but for
which there is no reasonable expectation that a company could
recover its costs of developing the drug from sales in the
United States. Expenditures used to claim the orphan drug
credit cannot also be used to claim the Section 41 research tax
credit.
IRC Section 45C
Reduces the credit rate to 25% for qualified expenses paid or
incurred in 2018 and thereafter.
(Section 13401 of P.L. 115-97)
Business Credits
Orphan drug credit
CRS-27
Topic
2017 Tax Law
P.L. 115-97
Rehabilitation tax credit
Certified historic structures are eligible for a tax credit equal
to 20% of qualified rehabilitation expenditures. Qualified nonhistoric rehabilitated buildings are eligible for a tax credit equal
to 10% of qualified rehabilitation expenditures. Tax credits are
claimed in the year the building is placed in service.
IRC Section 47
Retains the 20% credit for historic structures, but requires
credit to be claimed over five years. Repeals the 10% credit for
non-historic buildings.
(Section 13402 of P.L. 115-97)
Employer credit for paid family and
medical leave
No credit under current law
Provides a tax credit for employers paying wages to employees
on family and medical leave. If the employer is paying wages of
50% of wages normally paid to an employee not on leave, the
credit is 12.5% of wages paid. The credit is increased by 0.25
percentage points (up to 25%) for each percentage point the
ratio of leave wages to wages normally paid exceeds 50%.
Employers may claim the credit for up to 12 weeks of paid
leave per employee. Leave required by state or local law is not
taken into account for purposes of the credit.
Eligible employers are those that allow all full-time employees
at least two weeks of paid family and medical leave (with leave
time pro-rated for part-time employees) and provide family
and medical leave separate from vacation or personal leave. A
qualifying employee is one who has been employed by the
employer for at least one year, and who, during the preceding
year, had compensation not in excess of 60% of the
compensation threshold for highly compensated employees
($120,000 for 2017 and 2018, effectively limiting the credit to
employees who were paid no more than $72,000).
Adds Section 45S to the IRC
Provision expires 12/31/2019
(Section 13403 of P.L. 115-97)
CRS-28
Topic
Tax credit bonds
2017 Tax Law
P.L. 115-97
Tax credit bonds are state and local debt issuances that
typically must be designated for a specific purpose such as for
financing public school construction and renovation or for
economic development. In lieu of the exclusion of interest
income provided under the IRC to holders of tax-exempt
bonds, tax credit bond holders are provided a tax credit or
direct payment proportional to the bond’s face value. Most tax
credit bonds were not eligible for new issuances in 2017, due
either to the expiration of issuing authority or to full
subscription of the issuing limit. Bonds that are no longer
issued may still be held by the public.
Repeals all authority to issue tax credit bonds after December
31, 2017.
(Section 13404 of P.L. 115-97)
IRC Sections 54 and 6431
Provisions Related to Specific Entities and Industries
Partnership Provisions
Gain on the sale of a partnership
interest
When a foreign person receives income that is effectively
connected to a U.S. trade or business, that income is generally
subject to tax. There has been uncertainty about the
circumstances under which the sale of a foreign-owned
partnership interest would generate gain effectively connected
to the United States.
IRC Sections 864 and 1446
Provides that a gain or loss stemming from the sale or
exchange of a partnership interest is considered to be
effectively connected to a U.S. trade or business to the extent
that the amount does not exceed the partner’s distributive
share of gain or loss that would have been effectively
connected had the partnership sold all of its assets at fair
market value as of the date of the sale or exchange. Generally
requires the transferee or partnership to withhold and remit
10% of any gain on the sale or exchange.
(Section 13501 of P.L. 115-97)
Definition of substantial built-in loss
for transfers of partnership interests
When a partnership interest is transferred, the partnership
adjusts the basis of its property if it either (1) made a one-time
election to make basis adjustments or (2) has a substantial
built-in loss immediately after the transfer. A substantial built-in
loss occurs if the partnership’s adjusted basis in its property
exceeds the property’s fair market value by more than
$250,000.
IRC Section 743
Expands the definition of substantial built-in loss so that such
loss also occurs if the transferee partner would have been
allocated a loss of more than $250,000 had the partnership’s
assets been hypothetically sold at fair market value immediately
after the transfer.
(Section 13502 of P.L. 115-97)
CRS-29
Topic
2017 Tax Law
P.L. 115-97
Charitable contributions and foreign
taxes and partner’s share of loss
A partner’s distributive share of a partnership loss is allowed
only to the extent of the adjusted basis of his partnership
interest at the end of the year in which the loss occurred. If
the loss exceeds the adjusted basis, then the excess may be
deducted at the end of the year in which the excess is repaid
to the partnership.
IRC Section 704
Requires that, when determining the partnership loss, the
partner’s distributive share of the partnership’s charitable
contributions and foreign taxes be taken into account. Provides
a special rule for charitable contributions of appreciated
property.
(Section 13503 of P.L. 115-97)
Technical termination of partnerships
A partnership is considered to be terminated if there is a sale
or exchange of 50% or more of the total interest in the
partnership capital and profits within a 12-month period.
IRC Section 708(b)(1)(B)
The technical termination rule under IRC Section 708(b)(I)(B)
is repealed.
(Section 13504 of P.L. 115-97)
Net operating losses of life insurance
companies
Life insurance companies’ net operating losses (NOLs) are
generally allowed to be claimed against the prior three years
income (carryback) or the subsequent 15 years income (carry
forward).
IRC Sections 810
Generally limits NOLs to 80% of taxable income, with the
remainder carried forward indefinitely.
(Section 13511 of P.L. 115-97)
Small life insurance company
deduction
Small life insurance companies are allowed a deduction of 60%
of tentative taxable income subject to several limitations.
IRC Section 806
Repeals the small life insurance company deduction.
(Section 13512 of P.L. 115-97)
Adjustment for change in computing
reserves
Income or losses realized when an insurance company changes
its method used to compute required reserves are generally
recognized over 10 years.
IRC Section 807(f)
Generally requires the income or loss to be recognized ratably
over four years.
(Section 13513 of P.L. 115-97)
Special rule for distributions to
shareholders from pre-1984
policyholders surplus account
Certain surplus accounts established prior to 1984 are allowed
a deferral of taxes due, until the proceeds were disbursed.
IRC Section 815
Repeals Section 815 and requires tax due on existing surplus
accounts to be paid ratably over eight years.
(Section 13514 of P.L. 115-97)
Insurance Reforms
CRS-30
Topic
2017 Tax Law
P.L. 115-97
Proration rules for property and
casualty insurance companies
Property and casualty insurance companies are required to
reduce their deductible reserves for losses by 15% of certain
tax favored items: tax exempt interest, deductible dividends,
and unrealized appreciation in life insurance, endowment and
annuity contracts.
IRC Sections 832(b)(5)
Increases the percentage reduction to 25%.
(Sections 13515 and 13523 of P.L. 115-97)
Special estimated tax payments
Insurance companies are required to make special estimated
tax payments equal to the tax benefit from discounted reserves
for unpaid losses.
IRC Section 847
Repeals Section 847.
(Section 13516 of P.L. 115-97)
Computation of life insurance
reserves
Net increases in reserves are a deductible expense for life
insurance companies. Methods for computing required
reserves are generally prescribed by the National Association
of Insurance Commissioners (NAIC).
IRC Section 807
Life insurance reserves will be the greater of net surrender
value or 92.81% of the NAIC required reserves, among other
changes.
(Section 13517 of P.L. 115-97)
Rules for life insurance proration for
purposes of determining the dividends
received deduction
Life insurance companies are required to reduce dividends
received and reserve deductions to account for the portion
used to fund reserves. The proration between the company’s
share and the policyholder’s share is determined using formulas
based on net investment income.
IRC Section 812
Sets the company’s share as 70% and the policyholder’s share
as 30%.
(Section 13518 of P.L. 115-97)
Capitalization of certain policy
acquisition expenses
Life insurance companies are required to capitalize certain
specified net premiums and realize the income over 10 years
using set rates per type of contract.
IRC Section 848
Increases the rates by roughly 20% and extends the
amortization period for certain policies to 15 years.
(Section 13519 of P.L. 115-97)
Tax reporting for life settlement
transactions
Life insurance death benefits paid to the insured are generally
excluded from federal income taxes. This exclusion is generally
limited, if the contract is sold or transferred with any excess
treated as ordinary income.
IRC Section 101
Places reporting requirements on the purchase of certain
existing life insurance contracts and on the payor for payments
of death benefits. The provision also provides rules for
reporting the basis of certain contracts and the transfer of an
interest in certain policies.
Adds Section 6050Y to the IRC
(Section 13520 of P.L. 115-97)
CRS-31
Topic
2017 Tax Law
P.L. 115-97
Tax basis of life insurance contracts
The basis of a life insurance or annuity contract is generally
allowed to be reduced by the cost of the insurance.
IRC Section 1016
States that in determining the basis of a life insurance or
annuity contract, no adjustment is made for mortality, expense,
or other reasonable charges incurred under the contract
(known as “cost of insurance”) for contracts after August 25,
2009.
(Section 13521 of P.L. 115-97)
Exception to transfer for valuable
consideration rules
Death benefits received by a buyer of a life insurance contract
are generally not included as taxable income.
IRC Section 101
Modifies the transfer of value rules for reportable policy sales
such that some of the death benefits received by a buyer would
be included as taxable income.
(Section 13522 of P.L. 115-97)
Property and casualty insurance
company discounting rules
The discount rate used to discount unpaid losses is based on
the average of the federal mid-term rates over a 60-month
period.
IRC Sections 832(b)(5) and 846
Sets the discount rate using the corporate yield curve over a
60-month period.
(Section 13523 of P.L. 115-97)
Deduction for FDIC premiums
Federal Deposit Insurance Corporation (FDIC) premiums are
considered as ordinary and necessary expenses and therefore
deductible.
IRC Section 162
The deduction for FDIC premiums is limited based on the
consolidated assets of the institution. No deduction is allowed
if assets are $50 billion or more. If assets are between $10
billion and $50 billion, the deduction is reduced (as a
percentage) by the ratio of assets in excess of $10 billion to
$40 billion. No limit applies if assets are $10 billion or less.
(Section 13531 of P.L. 115-97)
Advanced refunding bonds
Advanced refunding bonds are bonds that are sold to refund
(or retire) outstanding bonds that have not yet reached full
maturity. Generally, an issuer will use proceeds from an
advanced refunding bond with a lower interest rate to pay off
an outstanding bond with a higher interest rate. Bonds with a
governmental purpose (for which interest income is excluded
from federal income taxation) may generally be advance
refunded once. Private activity bonds (for which interest
income is also excluded from federal income taxation) typically
may not be advance refunded.
IRC Section 149
Repeals the federal income exclusion of interest income
earned from an advanced refunding bond for bonds issued after
December 31, 2017.
(Section 13532 of P.L. 115-97)
Banks and Financial Instruments
CRS-32
Topic
2017 Tax Law
P.L. 115-97
S Corporations
Small business trusts qualifying
beneficiaries
A nonresident alien may not be a beneficiary of an electing
small business trust (ESBT).
IRC Section 1361
A nonresident alien individual may be a potential current
beneficiary of an ESBT.
(Section 13541 of P.L. 115-97)
Small business trusts charitable
contribution deduction
If an electing small business trust (ESBT) is a shareholder of an
S corporation, the treatment of a charitable contribution
passed through the S corporation is determined by the rules
applicable to trusts, not the rules applicable to individuals.
Trusts are allowed a charitable contribution without limit,
whereas an individual is subject to a limit equal to a percentage
of adjusted gross income.
IRC Sections 641, 642, and 170
The charitable contribution deduction of an ESBT is
determined by the rules applicable to individuals.
(Section 13542 of P.L. 115-97)
S corporations conversions to C
corporations
Taxpayers who change their method of accounting must
generally make certain adjustments in order to prevent
amounts from being duplicated or omitted due to the change.
When an S corporation converts to a C corporation,
distributions of cash by the C corporation to its shareholders
during a post-termination transition period (generally one year
after the conversion) are, to the extent of the amount in the
accumulated adjustments account, tax-free to the shareholders
and reduce the stock’s basis.
IRC Sections 481 and 1371
Makes two modifications to existing law for existing S
corporations that convert to C corporations so long as: (1) the
entity revokes its S corporation status on or before December
22, 2019, and (2) the entity has the same owners, and in
identical proportion, on the date of revocation as on
December 22, 2017. For such entities, any required change-inaccounting adjustment attributable to the conversion is taken
into account ratably over a 6-year period. Additionally, for any
distributions of cash after the post-transition period, the
accumulated adjustments account must be allocated to the
distribution and the distribution must be chargeable to
accumulated earnings and profits (E&P) in the same ratio as the
account bears to the E&P.
(Section 13543 of P.L. 115-97)
CRS-33
Topic
2017 Tax Law
P.L. 115-97
Limitation on excessive employee
remuneration
Employers who are publicly traded corporations can deduct
not more than $1 million per year as compensation for
covered employees. Covered employees are the chief
executive officer and the 4-highest paid employees. Certain
types of compensation are excluded when determining if the
$1 million limit applies, including certain commission and
performance-based compensation, as well as payments to taxfavored retirement plans or amounts that are excluded from
the executive’s gross income (employer provided health
benefits and other fringe benefits, for example).
IRC Section 162(m)
Exclusions for commission-based and performance-based
compensation are repealed. The definition of covered
employee is modified to include the principal financial officer,
as well as the principal executive officer and the other three
most highly compensated employees, as well as any individual
who was a covered employee for any year beginning after
2017. Applies the limitation to brokers and dealers. A
transition rule is provided.
(Section 13601 of P.L. 115-97)
Excise tax on excess executive
compensation paid by tax-exempt
organizations
No current provision. Compensation paid by tax-exempt
organizations must generally be considered to be reasonable.
Imposes a new 21% excise tax on excess tax-exempt
organization executive compensation (compensation in excess
of $1 million per year) of the five highest paid employees.
Exceptions are provided for non-highly compensated
employees and employees providing certain medical services.
Adds Section 4960 to the IRC
(Section13602 of P.L. 115-97)
Deferral for certain equity grants
Generally, the value of property, including employer stock,
transferred to an employee for the performance of services is
included in gross income in the tax year the property becomes
substantially vested.
IRC Sections 83, 3401, and 6051
Certain employees of private companies (generally, employees
other than executives or highly-compensated officers) who are
granted stock options or restricted stock units (RSUs) may be
able to elect to defer recognition of income for up to five
years. The value of stock transferred may no longer be
deferred if any stock of the employer becomes tradable on an
established security market, among other reasons. Qualified
stock includes that issued by companies where 80% of
employees are granted stock options. A deferral election
applies only for income tax purposes. The application of
Federal Insurance Contributions Act (FICA) and Federal
Unemployment Tax Act (FUTA) are not affected.
(Section 13603 of P.L. 115-97)
Employment
Compensation
CRS-34
Topic
Excise tax on stock compensation in
an inversion
2017 Tax Law
P.L. 115-97
Stock compensation to insiders in a corporate inversion is
subject to a 15% excise tax.
IRC Section 4985
Sets the excise tax rate at 20%.
(Section 13604 of P.L. 115-97)
Recharacterization of IRA
contributions and conversions
There are two basic types of individual retirement accounts
(IRAs): traditional IRAs and Roth IRAs: the former allow a
deduction up front and taxation when funds are withdrawn (or
in the case of a nondeductible traditional IRA a deferral of tax
on earnings), while the latter exempts earnings. The timing of
income tax inclusion differs for these two types of IRAs.
Taxpayers may convert and reconvert between the two types
to reduce their tax liability. For example, if a Roth is converted
to a traditional and then reconverted to a Roth, deductions can
be increased and income decreased by choosing assets based
on their gains and losses in value.
IRC Section 408A
Repeals the special rule permitting recharacterization of prior
Roth conversion contributions. Other recharacterizations are
still permitted.
(Section 13611 of P.L. 115-97)
Length of service awards for public
safety volunteers
Plans paying length of service awards of up to $3,000 to certain
volunteers, including firefighters, emergency medical, and
ambulance service volunteers, are not subject to the
requirements for deferred compensation plans and the awards
are excluded from gross income until paid or made available.
Such awards also are generally not subject to payroll taxes.
IRC Section 457(e)
Increases the limit on the length of service award treatment
from $3,000 to $6,000 and allows for a cost-of-living
adjustment over time.
(Section 13612 of P.L. 115-97)
Plan loan offset rollover period
Defined contribution retirement plans may permit loans. If
loans are not repaid when the plan terminates or employment
terminates, the account balance may be used to repay the loan.
The amount repaid may be subject to any tax imposed on early
distributions. Plan loan offset amounts can be rolled over into
an eligible retirement plan within 60 days.
IRC Section 402
Employees have until the tax filing due date to roll over any
plan loan offsets (amount of accrued retirement plan benefits
used to repay a loan from the plan) that result from either the
termination of the retirement plan or severance of
employment.
(Section 13613 of P.L. 115-97)
Retirement Plans
CRS-35
Topic
2017 Tax Law
P.L. 115-97
Exempt Organizations
Excise tax on net investment income
of college and university endowments
Generally, private colleges and universities qualify for taxexempt status as public charities. Net investment income of
such institutions is not generally subject to tax.
No provision in current law.
Imposes an excise tax of 1.4% on investment income of certain
private colleges and universities. Institutions subject to the tax
are ones that have at least 500 students (with more than 50%
located in the United States) and assets (other than assets
directly related to the tax-exempt purpose) of $500,000 per
student.
Adds Section 4968 to the IRC
(Section 13701 of P.L. 115-97)
Unrelated business taxable income
Tax-exempt organizations having income from a trade or
business that is regularly carried on, but not substantially
related to the purpose for which the organization is tax
exempt, may be subject to tax on the unrelated business
taxable income (UBTI). UBTI for organizations regularly
carrying on two or more unrelated businesses is generally
aggregated across such businesses, and any deductions applied
to the aggregated income.
IRC Section 512
Tax-exempt organizations with more than one unrelated
business are required to calculate UBTI separately for each
unrelated trade or business. Unused deductions may be carried
forward to offset future tax liability.
(Section 13702 of P.L. 115-97)
Unrelated business taxable income
increased by certain fringe benefits
In calculating UBTI, ordinary and necessary business expenses
are generally tax deductible
IRC Section 512(a)
UBTI will be increased by the amount of certain nondeductible
fringe benefit expenses paid by an exempt organization. Fringe
benefits for which a deduction is not allowed include
transportation or parking benefits, and on-premises athletic
facility benefits.
(Section 13703 of P.L. 115-97)
Charitable deduction for gifts in
exchange for the right to purchase
tickets to college athletic events
80% of charitable contributions made to a college or university
in exchange for the right to purchase tickets to athletic events
are generally deductible. The cost of tickets is not deductible.
IRC Section 170(l)
No deduction is allowed for charitable contributions made in
exchange for college event ticket purchase or seating rights.
(Section 13704 of P.L. 115-97)
CRS-36
Topic
Substantiation requirements for
donee-reported charitable
contributions
2017 Tax Law
P.L. 115-97
To claim a charitable deduction, donors must maintain written
records on the contribution. For contributions of $250 or
more to be deductible, the donation must be substantiated
with contemporaneous written acknowledgement from the
donee organization. An exception may be available if the donee
files a return with the IRS reporting the information to be
included in an acknowledgement.
IRC Section 170
The substantiation exception for charitable contributions
reported by a donee organization is repealed. Generally, any
contribution of $250 or more is only deductible if the donation
was substantiated with a contemporaneous written
acknowledgement.
(Section 13705 of P.L. 115-97)
Other Provisions
Craft Beverage Modernization and Tax Reform
Exemption of the aging period for
beer, wine, and spirits from UNICAP
rules related to interest
The uniform capitalization (UNICAP) rules require some costs
that would otherwise be immediately deductible (such as
interest and overhead) to be added to inventory or to the cost
of property and deducted in the future when goods are sold or
assets depreciated. In the case of interest costs, the rules apply
only if the asset is long-lived or has a production period over
two years or a production period over one year and a cost or
more than $1 million. The production period includes any
customary aging period.
IRC Section 263A
Exempts the aging periods for beer, wine, and distilled spirits
from the production period for the UNICAP interest
capitalization rules, thus leading to shorter production periods.
Provision expires 12/31/19
(Section 13801 of P.L. 115-97)
Excise tax rate on beer
The excise tax rate on beer producers is $18 per barrel (31
gallons). Small brewers that domestically produced no more
than 2 million barrels annually are subject to a rate of $7 per
barrel on the first 60,000 barrels.
IRC Section 5051
For small brewers (producing no more than 2 million barrels),
the excise tax rates are: $3.50 per barrel on the first 60,000
barrels and $16 per barrel on the remaining production. Beer
importers and large producers meeting certain requirements
may also be eligible for the reduced rate of taxation. For all
other producers or importers, the excise tax rates are $16 per
barrel on the first 6,000,000 barrels.
Provision expires 12/31/19
(Section 13802 of P.L. 115-97)
CRS-37
Topic
2017 Tax Law
P.L. 115-97
Excise tax rules concerning the
transfer of beer between bonded
facilities
The tax on beer is due when the beer is removed from the
brewery for sale. Beer can be transferred between breweries
that are commonly owned (and released from customs)
without paying the tax (although tax would be paid on the
eventual sale).
IRC Section 5414
The provision also allows transfer without payment of tax to
an unrelated brewer if the transferee accepts responsibility for
paying the tax.
Provision expires 12/31/19
(Section 13803 of P.L. 115-97)
Credit against excise tax on certain
wine
Excise taxes are imposed at different rates on wine, depending
on the wine’s alcohol content and carbonation levels. Still
wines are taxed at $1.07 per wine gallon (w.g.) if they were
14% alcohol or less, $1.57/w.g. if they were 14% to 21%
alcohol, and $3.15 per w.g. if they were 21% to 24% alcohol.
Naturally sparkling wines are taxed at $3.40 per w.g. and
artificially carbonated wines are taxed at $3.30 per w.g.
Up to a $0.90 credit against excise tax liability ($0.056 per w.g.
for hard cider) may be available for the first 100,000 w.g.
removed by a small domestic winery producing not more than
150,000 w.g. per year. The per w.g. tax credit rate is phased
out on production in excess of 150,000 w.g. for wineries
producing not more than 250,000 w.g. per year. This small
winery credit does not apply to sparkling wine.
IRC Section 5041
The credit for small domestic wineries is modified to allow the
credit to be claimed by domestic and foreign producers,
regardless of the gallons of wine produced. The credit is also
made available to sparkling wine producers.
In general, a $1.00 credit against excise tax liability may be
available for the first 30,000 w.g. removed annually by any
eligible wine producer or importer. The credit is reduced to
$0.90 on the next 100,000 w.g., and $0.535 on the next
620,000 w.g. This credit is not phased out based on production
like the credit under permanent law.
For hard cider, the credit rates, above, are adjusted to $0.062
per gallon, $0.056 per gallon, and $0.033 per gallon,
respectively.
Provision expires 12/31/19
(Section 13804 of P.L. 115-97)
Alcohol content level for application
of wine excise tax rates
Still wines are taxed at a rate of $1.07 per w.g. if they are 14%
alcohol or less, $1.57/w.g. if they are 14% to 21% alcohol, and
$3.15 per w.g. if they are 21% to 24% alcohol.
IRC Section 5041
The lowest rate of excise tax on still wine ($1.07 per w.g.)
applies to wines with 16% alcohol or less. Wines with an
alcohol content >16% are taxed at the same rate as they were
before the act (before accounting for other provisions, such as
the modified credit against wine excise tax liability).
Provision expires 12/31/19
(Section 13805 of P.L. 115-97)
CRS-38
Topic
2017 Tax Law
P.L. 115-97
Definition of mead and low alcohol by
volume wine
Mead is taxed according to wine excise tax rates depending on
its alcohol and carbonation content.
Naturally sparkling wines are taxed at $3.40 per w.g. and
artificially carbonated wines taxed at $3.30 per w.g.
IRC Section 5041
Mead and certain sparkling wines are to be taxed at the lowest
rate applicable to still wine of $1.07 per wine gallon. Mead
contains not more than 0.64 grams of carbon dioxide per
hundred milliliters of wine, which is derived solely from honey
and water, contains no fruit product or fruit flavoring, and
contains less than 8.5% alcohol.
The sparkling wines eligible to be taxed at the lowest rate
contain no more than 0.64 grams of carbon dioxide per
hundred milliliters of wine, which are derived primarily from
grapes or grape juice concentrate and water, which contain no
fruit flavoring other than grape, and which contain less than
8.5% alcohol.
Provision expires 12/31/19
(Section 13806 of P.L. 115-97)
Excise tax on certain distilled spirits
Producers and importers of distilled spirits are taxed at a rate
of $13.50 per proof gallon (ppg) of production.
IRC Section 5001
The rate of tax is lowered to $2.70 ppg on the first 100,000
proof gallons, $13.34 ppg for proof gallons in excess of that
amount but below 22,130,000 proof gallons, and $13.50 ppg
for amounts thereafter. The provision contains rules so as to
prevent members of the same controlled group from receiving
the lower rate on more than 100,000 proof gallons of distilled
spirits.
Provision expires 12/31/19
(Section 13807 of P.L. 115-97)
Transfer of distilled spirits in bottles
Distilled spirits are taxed when removed from the distillery, or,
in the case of an imported product, from customs custody or
bonded premises. Bulk distilled spirits may be transferred in
bond between bonded premises without being taxed, but may
not be transferred in containers smaller than one gallon.
IRC Section 5212
Allows transfer of spirits in approved containers other than
bulk containers without payment of tax.
Provision expires 12/31/19
(Section 13808 of P.L. 115-97)
CRS-39
Topic
2017 Tax Law
P.L. 115-97
Tax treatment of Alaska Native
Corporations and Settlement Trusts
Alaska Native Corporations generally are required to include
in gross income certain payments described in the Alaska
Native Claims Settlement Act (ANCSA).
IRC Section 646
Allows (1) an Alaska Native Corporation to exclude from its
gross income certain payments described in ANCSA so long as
the payments are assigned in writing to a Settlement Trust and
not received prior to such assignment, (2) a Native
Corporation to elect annually to deduct contributions made to
a Settlement Trust, and (3) requires any Native Corporation
which has made an election to deduct contributions to a
Settlement Trust as described above to furnish a statement to
the Settlement Trust.
Add Sections 139G and 247 to the IRC
(Section 13821 of P.L. 115-97)
Excise taxes on domestic air
transportation
An aircraft management services company manages aircraft
owned by other corporations or individuals, and provides
administrative and support services (such as scheduling, flight
planning, and weather forecasting), aircraft maintenance
services, the provision of pilots and crew, and compliance with
regulatory standards. Aircraft owners generally pay
management companies a monthly fee to cover fixed expenses
and a variable fee to cover the cost of using the aircraft (such
as the provision of pilots, crew, and fuel).
There has been uncertainty as to whether amounts paid to
aircraft management service companies are subject to the air
transportation tax under IRC Section 4261.
IRC Section 4261
Fixed payments are exempt from the air transportation taxes
and variable fees are exempt if they involve the use of the
aircraft owners own aircraft (but not if on a charter or leased
aircraft).
(Section 13822 of P.L. 115-97)
Qualified opportunity zones
No current provision. In general, capital gains are taxed when
realized.
Allows a temporary deferral of capital gains taxation if
reinvested in a qualified opportunity fund and the permanent
exclusion of capital gains from investments in a qualified
opportunity fund. The designation of census tracts as
opportunity zones is made by a state’s Governor with the
number of tracts capped by statue.
No election for deferral of gain allowed after 12/31/2026.
Adds IRC Sections 1400Z-1 and 1400Z-2
(Section 13823 of P.L. 115-97)
Miscellaneous Provisions
CRS-40
Topic
2017 Tax Law
P.L. 115-97
International Tax Provisions
Outbound Transactions
Establishment of Participation Exemption System for Taxation of Foreign Income
Deduction for dividends received by
domestic corporations from certain
foreign corporations
CRS-41
The United States imposes taxes on a worldwide basis so that
income earned in other countries is subject to U.S. tax.
Domestic shareholders of foreign corporations are, however,
not subject to tax on earnings until they are repatriated, that is,
paid as dividends to the U.S. owner. The deferral of tax on
foreign source income does not apply to certain passive or
easily mobile income of U.S. controlled foreign corporations
(called Subpart F income), which is taxed as earned, whether
or not repatriated. Income from branches is taxed currently
and losses are recognized. A controlled foreign corporation
(CFC) is a corporation that is at least 50% owned by U.S.
corporations that each own at least 10% of the shares. The
anti-deferral rules that tax this income currently are called
CFC rules. There are other anti-deferral rules, most
importantly rules relating to passive foreign investment
companies (PFICs) that are not CFCs and whose income is
primarily passive. Foreign source income subject to U.S. tax is
eligible for a credit for foreign taxes paid up to the amount of
the U.S. tax due. This limit is calculated on an overall basis so
that taxes paid in high tax countries can be used to offset U.S.
tax in low tax countries. The limit is, however, computed
separately for passive income and other income.
Moves toward a territorial (source-based rather than
worldwide) profits tax. It allows a deduction for the foreign
derived dividends of corporations that own at least 10% of the
shares of a foreign corporation. Subpart F income continues to
be taxed. The deduction does not apply to dividends from
PFICs that are not CFCs. No foreign tax credit is allowed for
amounts paid on the income generating the dividend. The
deduction is also not allowed for hybrid dividends which have
received a deduction or other relief for foreign taxes. The
shares must be held for a year to be eligible.
Adds Section 245A to the IRC
(Sections 14101 of P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Sales or transfers involving certain
foreign corporations
A number of rules govern the treatment of the transfers of
assets in foreign corporations. When a 10% shareholder in a
CFC sells shares, any gain is treated as a dividend. The basis of
stock in CFCs is increased (so any future gain is reduced) when
any income is taxed. Basis is reduced for any income excluded.
If the CFC sells stock in another foreign corporation, the gain
is treated as a dividend by the CFC and is Subpart F income.
While general rules allow tax-free corporate organizations and
reorganizations that involve the transfer of property, there are
provisions to prevent the transferring of assets outside of the
United States in a tax-free organization or reorganization and
then selling the property, so that gain is generally recognized
on these transfers. Losses from the transfer of branch assets
are recognized. Assets transferred to be used in an active trade
or business are, however, exempt.
IRC Sections 367, 961, 964, and 1248
A number of changes are made to make rules relating to the
transfer of assets consistent with the new exemption
(deduction) of dividends. Any gain recognized as a dividend on
the sale by a 10% shareholder in a CFC is eligible for the
dividend deduction. For a 10% shareholder, the basis is
reduced for purposes of determining a loss by the excluded
dividends. Income that was formerly taxed as Subpart F income
arising from the sales by a CFC of stock in another foreign
corporation is eligible for the dividend deduction. Losses on
the transfer of branch assets are recognized up to the amount
of dividends deducted. The exception from recognition of gain
for an active trade or business is repealed.
Adds Section 91 to the IRC
(Section 14102 of P.L. 115-97)
Treatment of deferred foreign income
upon transition to a participation
exemption system
Because of deferral, unrepatriated income has accumulated
abroad. A holiday in 2004 allowed firms to bring back deferred
amounts at a lower tax rate on a voluntary basis.
IRC Section 965
Accumulated deferred post-1986 foreign source income of a
10% shareholder or non-CFC PFIC will be deemed to be
repatriated and taxed at an 8% rate for illiquid assets and a
15.5% rate for liquid assets. Taxes will be paid over an eightyear period and foreign taxes will be allowed as credits in
proportion to the lowering of the rates compared to 21%. Tax
is imposed on deemed repatriations at 35% if a firm becomes
an expatriated entity within 10 years. This recapture tax does
not apply to entities that continue to be treated as U.S. firms.
No foreign tax credit is allowed for the additional tax.
(Section 14103 of P.L. 115-97)
Anti-inversion provisions place restrictions on a firm that
reorganizes to move its headquarters to another country. If
the former U.S. shareholders own at least 60% of the stock of
the new firm and the firm does not have substantial business
activities in the new headquarters country, the firm is an
expatriated entity. If the former U.S. shareholders own less
than 80% of the new firm, taxes are imposed on asset
transfers. If the U.S. shareholders own at least 80%, the firm is
treated as a U.S. firm.
IRC Sections 78, 904, 907, 7874
CRS-42
Topic
2017 Tax Law
P.L. 115-97
Rules Related to Passive and Mobile Income
Taxation of Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income
Global Intangible Low-Taxed Income
(GILTI)
CRS-43
No provision in current law.
Corporations include in income their foreign source income in
excess of 10% of their tangible assets net of interest (focusing
on intangible income by excluding a deemed normal return to
tangible investments). This income is termed global intangible
low-taxed income (GILTI) A deduction is allowed for 50% of
this income for tax years beginning after December 31, 2017,
and before January 1, 2026, with a subsequent deduction of
37.5%. At a 21% corporate tax rate, these deductions result in
a tax rate of 10.5% and 13.125%, respectively. Foreign taxes
are allowed to be creditable but only 80% can be credited. As a
result, the lowest foreign tax rate at which no U.S. tax is due is
13.125% initially (80% of 13.125% is 10.5%) and then 16.406%.
Since the credit is applied on a global basis, this minimum rate
would be on global income. The sum GILTI and FDII (see
below) cannot exceed taxable income considered without
regard to GILTI and FDII.
Adds Sections 250 and 951A to the IRC
(Sections 14201 and 14202 of P.L. 115-97)
Topic
Deduction for Foreign Derived
Intangible Income (FDII)
2017 Tax Law
No provision in current law.
P.L. 115-97
A deduction is allowed for foreign-derived intangible income
(FDII) arising from a trade or business within the United States.
The deduction is 37.5% for tax years beginning after December
31, 2017, and before January 1, 2026, with the deduction
subsequently reverting to 21.875%. These deductions result in
effective rates of 13.125% and 16.406%, respectively. Foreignderived intangible income is determined by multiplying
intangible income of the firm (income minus certain excepted
income minus deductions minus 10% of tangible assets) by the
share of deductible income from sales of property or services
to foreigners to be used abroad to the total deductible income
of the firm. Deductible income is gross income minus
deductions minus certain exceptions. The exceptions include
Subpart F income, GILTI, financial services income, dividends
from CFCs, and domestic oil and gas income.
Adds Section 250 to the IRC
(Section 14202 of P.L. 115-97)
Other Modifications of Subpart F Provisions
Foreign base company oil-related
income
One of the components of Subpart F income (certain passive
and easily mobile income of CFCs that is taxed currently) is
foreign base company oil-related income. This income is
derived from processing, transporting, or selling oil and gas and
from certain related services. The CFC is not required to own
the oil or gas.
IRC Section 954(a)
Eliminates foreign base company oil-related income from
Subpart F.
(Section 14211 of P.L. 115-97)
Inclusion of prior Subpart F for
shipping income
Foreign base company shipping income (income associated
with international transport by aircraft or vessel) has
undergone several treatments under Subpart F. It is currently
excluded but between 1975 and 1986 it was included but
reduced by the extent the income was reinvested in the
business, and in 1986 it was included without a reinvestment
exception. If those reinvested funds are repatriated, that
income is Subpart F income.
IRC Section 955
Repeals the inclusion based on withdrawal of previously
excluded subpart F shipping income from qualified investment.
(Section14212 of P.L. 115-97)
CRS-44
Topic
2017 Tax Law
P.L. 115-97
Stock attribution rules for
determining CFC status
In determining whether a foreign corporation is a CFC (50%
owned by U.S. persons who each own at least 10%), direct,
indirect, and constructive ownership rules apply for
determining CFC status (although only direct and indirect
ownership applies for determining the share of Subpart F
income). Current law, however, does not apply the
constructive attribution rules so that a U.S. person is
attributed stock owned by a foreign person even though they
are related.
IRC Sections 318, 951(b), and 958
Applies the stock attribution rules to stock owned by foreign
persons for determining status as a CFC, for related parties.
Thus stock owned in a foreign corporation by a foreign person
that is related to a U.S. person can now be attributed to the
U.S. person under the general rules.
(Section 14213 of P.L. 115-97)
Definition of United States
shareholder
Ownership share in a foreign corporation for applying Subpart
F (10% ownership) is based on the share of the voting power
of all classes of stock
IRC Section 951
Bases the ownership share on at least 10% of the voting power
or 10% of the value of all classes of stock.
(Section 14214 of P.L. 115-97)
30-day holding requirement for
Subpart F
Subpart F applies only if the foreign corporation has been a
CFC for at least 30 days out of the tax year.
IRC Section 951
Eliminates the 30-day requirement.
(Section 14215 of P.L. 115-97)
Determining the value of intangibles that are transferred
between related international parties has effects on whether a
transfer gives rise to income in the United States. These
outcomes are affected by transfer pricing rules that affect
intercompany allocations and by rules that exclude transfer of
intangible property from gain recognition for outbound
reorganizations. These rules in turn rest on the definition of
intangible property that lists items such as patents, inventions,
formula, processes design, pattern, know-how, copyrights,
compositions, and other specified items. A number of
methodological issues relating to valuation also arise.
IRC Sections 367, 482, and 936
Adds goodwill, going concern value, or workforce in place to
the list of intangible property. Also includes any other item the
value of which is not attributable to tangible property or
services of any individual. It specifies that the Secretary of the
Treasury has the authority to require aggregation of intangible
assets and to use realistic alternative principles for valuation
purposes.
(Section 14221 of P.L. 115-97)
Prevention of Base Erosion
Income shifting through intangible
property transfers
CRS-45
Topic
2017 Tax Law
P.L. 115-97
Related party amounts paid or
accrued in hybrid transactions or with
hybrid entities
Hybrid entities and instruments can confer tax advantages on
related parties if they are treated differently in different
jurisdictions. An example of a hybrid instrument is one where a
royalty or interest payment (which is deductible in the United
States) is not included in income in the jurisdiction where the
interest or royalty is received. A hybrid entity is one that is
recognized as a separate entity in one jurisdiction but not the
other, which affects whether they include payments in income.
Disallows a deduction by a related party for an interest or
royalty payment to a recipient in a foreign country if that
payment is not taxed (or is included in income and then
deducted) in the foreign country.
Adds Section 267A to the IRC
(Section 14222 of P.L. 115-97)
Individual tax on dividends from
inverted companies
Dividends (like capital gains) are allowed lower tax rates than
the rates applied to ordinary income. The rates are 0%, 15%,
and 20% depending on the rate bracket that ordinary income
falls into. Certain dividends received from foreign firms (those
that do not have tax treaties and PFICs) are not eligible for
these lower rates.
IRC Section 1(h)(11)C(iii)
Adds to the list of dividends from foreign corporations that are
not eligible for lower rates those paid by companies that
inverted after the date of enactment, except for those that are
treated as U.S. corporations.
(Section 14223 of P.L. 115-97)
Modifications Related to Foreign Tax Credit System
Repeal of certain foreign tax credits
CRS-46
Credits for taxes paid to foreign countries are allowed against
U.S. tax due, for dividends when paid and for automatic
inclusions such as Subpart F and branch and other income.
Because tax on foreign source income was deferred, for 10%
owners receiving dividends, foreign taxes paid are based on the
share of tax on accumulated earnings that was the same
proportion as the share of dividends to earnings. These are
termed indirect credits. Section 960 extends this treatment to
Subpart F income.
IRC Sections 902 and 960
Repeals the Section 902 indirect foreign tax credits for
dividends (which are now exempt). Since taxes will be paid
separately on accumulated earnings, determination of Section
960 credits for Subpart F is on a current year basis.
(Section 14301 of P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Foreign tax credit baskets
Foreign tax credits are limited to the U.S. tax due on foreign
source income. In determining the limit on the foreign credit,
income and credits are aggregated together, permitting crosscrediting. Thus, taxes in a country with higher taxes than the
United States can be used to offset U.S. taxes due in low or no
tax countries. Foreign tax credit limits are, however, applied to
two separate baskets: a passive basket and a general basket.
Also foreign income of 10% shareholders of foreign firms is
effectively in a separate basket because the credits and income
must be connected.
IRC Section 904
Provides for a separate foreign tax credit limitation basket for
foreign branch income.
(Section 14302 of P.L. 115-97)
Inventory source rules
Since the amount of foreign tax credits are limited to the U.S.
tax on foreign source income, for firms that have excess
credits, an increase in the amount of foreign source income
increases the amount of foreign tax credits they can use.
Current rules for the allocation of income from the sale of
inventory property manufactured by the taxpayer and sold
abroad allow half the source of profits in the United States and
half where the title passes, which can be arranged to be in a
foreign country, classifying it as foreign source. This rule is also
known as the title passage rule.
IRC Section 863(b)
Makes the source of income from sales of inventory
determined solely on basis of production activities, so that if a
good is produced in the United States, no share will be treated
as foreign source income.
(Section14303 of P.L. 115-97)
Recapture of overall domestic losses
Overall domestic losses incurred after taxable years beginning
after December 31, 2006, and carried forward can be used to
offset no more than 50% of domestic taxable income (which is
then considered foreign source) for purposes of sourcing for
the foreign tax credit limit.
IRC Section 864
Allows the losses arising before a taxable year beginning before
January 1, 2018, to offset 100% of domestic taxable income for
tax years beginning before January 1, 2028.
(Section 14304 of P.L. 115-97)
CRS-47
Topic
2017 Tax Law
P.L. 115-97
Inbound Transactions
Base erosion and anti-abuse tax
(BEAT)
CRS-48
No provision in current law.
Imposes a minimum tax which is equal to 10% of the sum of
taxable income and base erosion payments on corporations
with average annual gross receipts of at least $500 million over
the past three tax years and with deductions attributable to
outbound payments exceeding a specified percentage of the
taxpayer’s overall deductions. The rate is 5% for payments in
2018, and 12.5% for taxable years beginning after December
31, 2025. (Taxpayers that are members of an affiliated group
that includes a bank or registered securities dealer are subject
to an additional increase of one percentage point in the tax
rates.) Base erosion payments include payments to related
foreign parties for which a deduction is allowable under IRC
Chapter 1, the purchase of depreciable or amortizable
property, certain reinsurance payments, and payments to
inverted firms or foreign persons who are a member of an
affiliated firm that includes the inverted firm that became
inverted after November 9, 2017 (but not firms that continue
to be treated as U.S. firms). Cost of goods sold would not be
included and cost of services would not be included if
determined under the services cost method under the transfer
pricing rules in Section 482. Disallowed interest under section
163(j) would be first allocated to unrelated parties. A related
person is a person who owns at least 25% of the taxpayer or
parties controlled by the same interests. The constructive
ownership rules treat as controlling 100% of the firm with 10%
rather than 50% ownership. The research credit and 20% of
three credits (including the low income housing credit and
certain energy credits) are allowed to reduce the BEAT tax.
Adds Section 59A to the IRC
(Section 14401 of P.L. 115-97)
Topic
2017 Tax Law
P.L. 115-97
Insurance business exception to
passive foreign investment company
rules
Under the passive foreign investment company (PFIC) antideferral regime, passive income is taxed currently or an
interest charge imposed if deferred. One exception to this
treatment is income derived in the active conduct of an
insurance business by a foreign company that meets the criteria
to be a qualifying insurance corporation. In determining
whether the exception applies, the IRS considers whether risks
assumed by the foreign company are insurance risks, whether
the risks are limited, and the status of the company.
IRC Section 1297
Replaces the test based on predominant activity with a test
based on the company’s insurance liabilities (the test based on
insurance company status is retained). Under the new test,
income is exempt from the PFIC rules if the insurance liabilities
of the foreign corporation constitute more than 25% of the
firm’s total assets.
(Section 14501 of P.L. 115-97)
Interest expense apportionment
In determining the foreign tax credit limit, interest expense is
allocated between U.S. and foreign sources based on the
shares of assets. Firms can value assets using the fair market
value or the tax book value. The larger the share of interest
allocated to foreign sources, the smaller amount of foreign tax
credits allowed for firms in an excess credit position.
IRC Section 864(e)
Prohibits the allocation of interest based on the fair market
value of assets and requires allocation based on the adjusted
tax basis of assets.
(Section 14502 of P.L. 115-97)
Other Provisions
Source: CRS analysis of the 2017 Internal Revenue Code and P.L. 115-97. Inflation adjustments under 2017 law for 2018 are found in Internal Revenue Service, Revenue
Procedure 2017-58.
Notes: This table provides a basic description of the tax provision in P.L. 115-97. The descriptions explain the law in plain language, and any deviations from the
statutory text are not intended to be legal interpretations of such text. The table includes primary citations to the Internal Revenue Code (IRC) for each provision, but
other IRC provisions and sources of law may be relevant. This table does not include provisions contained in Title II of P.L. 115-97.
CRS-49
The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Appendix. Tax Brackets and Rates, Historical Tax
Rates
On October, 19, 2017, the Internal Revenue Service published inflation-adjusted individual
income tax brackets and rates for tax year 2018. The rates reflected current law and amendments
to the Internal Revenue Code as of the publishing date. As P.L. 115-97 made considerable
changes to the individual income tax code, the previously released individual income brackets
and rates no longer reflect current law. Tables A-1 through A-8 display current individual income
tax brackets and rates as well as the previously released IRS schedules.
Table A-1. Married Individuals Filing Joint Returns and Surviving Spouses for 2018,
Current Law
If taxable income is:
The tax is:
Not over $19,050
10% of taxable income.
Over $19,050 but not over $77,400
$1,905 plus 12% of the excess over $19,050.
Over $77,400 but not over $165,000
$8,907 plus 22% of the excess over $77,400.
Over $165,000 but not over $315,000
$28,179 plus 24% of the excess over $165,000.
Over $315,000 but not over $400,000
$64,179 plus 32% of the excess over $315,000.
Over $400,000 but not over $600,000
$91,379 plus 35% of the excess over $400,000.
Over $600,000
$161,379 plus 37% of the excess over $600,000.
Source: CRS analysis of P.L. 115-97.
Table A-2. Married Individuals Filing Joint Returns and Surviving Spouses for 2018,
Before P.L. 115-97
If taxable income is:
The tax is:
Not over $19,050
10% of the taxable income
Over $19,050 but not over $77,400
$1,905 plus 15% of the excess over $19,050
Over $77,400 but not over $156, 150
$10,657.50 plus 25% of the excess over $77,400
Over $156, 150 but not over $237,950
$30,345 plus 28% of the excess over $156, 150
Over $237,950 but not over $424,950
$53,249 plus 33% of the excess over $237,950
Over $424,950 but not over $480,050
Over $480,050
$114,959 plus 35% of the excess over $424,950
$134,244 plus 39.6% of the excess over $480,050
Source: Internal Revenue Service, Rev. Proc. 2017-58, https://www.irs.gov/pub/irs-drop/rp-17-58.pdf.
Notes: Before P.L. 115-97, inflation adjustments for taxable income brackets were calculated using the
Consumer Price Index. Under current law, inflation adjustments will be calculated using the Chained Consumer
Price Index.
Table A-3. Heads of Households for 2018, Current Law
If taxable income is:
The tax is:
Not over $13,600
10% of taxable income.
Over $13,600 but not over $51,800
$1,360 plus 12% of the excess over $13,600.
Over $51,800 but not over $82,500
$5,944 plus 22% of the excess over $51,800.
Over $82,500 but not over $157,500
$12,698 plus 24% of the excess over $82,500.
Congressional Research Service
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
If taxable income is:
Over $157,500 but not over $200,000
The tax is:
$30,698 plus 32% of the excess over $157,500.
Over $200,000 but not over $500,000
$44,298 plus 35% of the excess over $200,000.
Over $500,000
$149,298 plus 37% of the excess over $500,000.
Source: CRS analysis of P.L. 115-97.
Table A-4. Heads of Households for 2018, Before P.L. 115-97
If taxable income is:
The tax is:
Not over $13,600
Over $13,600 but not over $51,850
10% of the taxable income
$1,360 plus 15% of the excess over $13,600
Over $51,850 but not over $133,850
$7,097.50 plus 25% of the excess over $51,850
Over $133,850 but not over $216,700
$27,597.50 plus 28% of the excess over $133,850
Over $216,700 but not over $424,950
$50,795.50 plus 33% of the excess over $216,700
Over $424,950 but not over $453,350
$119,518 plus 35% of the excess over $424,950
Over $453,350
$129,458 plus 39.6% of the excess over $453,350
Source: Internal Revenue Service, Rev. Proc. 2017-58, https://www.irs.gov/pub/irs-drop/rp-17-58.pdf.
Notes: Before P.L. 115-97, inflation adjustments for taxable income brackets were calculated using the
Consumer Price Index. Under current law, inflation adjustments will be calculated using the Chained Consumer
Price Index.
Table A-5. Unmarried Individuals Other than Surviving Spouses and Heads of
Households for 2018, Current Law
If taxable income is:
The tax is:
Not over $9,525
10% of taxable income.
Over $9,525 but not over $38,700
$952.50 plus 12% of the excess over $9,525.
Over $38,700 but not over $82,500
$4,453.50 plus 22% of the excess over $38,700.
Over $82,500 but not over $157,500
$14,089.50 plus 24% of the excess over $82,500.
Over $157,500 but not over $200,000
$32,089.50 plus 32% of the excess over $157,500.
Over $200,000 but not over $500,000
$45,689.50 plus 35% of the excess over $200,000.
Over $500,000
$150,689.50 plus 37% of the excess over $500,000.
Source: CRS analysis of P.L. 115-97.
Table A-6. Unmarried Individuals Other than Surviving Spouses and Heads of
Households for 2018, Before P.L. 115-97
If taxable income is:
The tax is:
Not over $9,525
10% of the taxable income
Over $9,525 but not over $38,700
$952.50 plus 15% of the excess over $9,525
Over $38,700 but not over $93,700
$5,328.75 plus 25% of the excess over $38,700
Over $93,700 but not over $195,450
$19,078.75 plus 28% of the excess over $93,700
Over $195,450 but not over $424,950
$47,568.75 plus 33% of the excess over $195,450
Over $424,950 but not over $426,700
$123,303.75 plus 35% of the excess over $424,950
Over $426,700
Congressional Research Service
$123,916.25 plus 39.6% of the excess over $426,700
R45092 · VERSION 6 · UPDATED
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
Source: Internal Revenue Service, Rev. Proc. 2017-58, https://www.irs.gov/pub/irs-drop/rp-17-58.pdf.
Notes: Before P.L. 115-97, inflation adjustments for taxable income brackets were calculated using the
Consumer Price Index. Under current law, inflation adjustments will be calculated using the Chained Consumer
Price Index.
Table A-7. Married Individuals Filing Separate Returns for 2018, Current Law
If taxable income is:
The tax is:
Not over $9,525
Over $9,525 but not over $38,700
10% of taxable income.
$952.50 plus 12% of the excess over $9,525.
Over $38,700 but not over $82,500
$4,453.50 plus 22% of the excess over $38,700.
Over $82,500 but not over $157,500
$14,089.50 plus 24% of the excess over $82,500.
Over $157,500 but not over $200,000
$32,089.50 plus 32% of the excess over $157,500.
Over $200,000 but not over $300,000
$45,689.50 plus 35% of the excess over $200,000.
Over $300,000
$80,689.50 plus 37% of the excess over $300,000.
Source: CRS analysis of P.L. 115-97.
Table A-8. Married Individuals Filing Separate Returns for 2018, Before P.L. 115-97
If taxable income is:
The tax is:
Not over $9,525
Over $9,525 but not over $38,700
10% of the taxable income
$952.50 plus 15% of the excess over $9,525
Over $38,700 but not over $78,075
$5,328.75 plus 25% of the excess over $38,700
Over $78,075 but not over $118,975
$15,172.50 plus 28% of the excess over $78,075
Over $118,975 but not over $212,475
$26,624.50 plus 33% of the excess over $118,975
Over $212,475 but not over $240,025
$57,479.50 plus 35% of the excess over $212,475
Over $240,025
$67,122 plus 39.6% of the excess over $240,025
Source: Internal Revenue Service, Rev. Proc. 2017-58, https://www.irs.gov/pub/irs-drop/rp-17-58.pdf.
Notes: Before P.L. 115-97, inflation adjustments for taxable income brackets were calculated using the
Consumer Price Index. Under current law, inflation adjustments will be calculated using the Chained Consumer
Price Index.
Congressional Research Service
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The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law
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R45092 · VERSION 6 · UPDATED
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