Nearly 300 companies and associations signed a letter to the U.S. Treasury practically pleading for guidance to correct what they regard to be drafting errors in the Tax Cuts and Jobs Act.
The errors are so serious, the entities say, they defy the intent of the law and wreak havoc on investment plans. “The delay in correcting these provisions has caused economic hardship for some retailers, restaurants, members of the real estate industry, and suppliers of building products, and is also delaying investments across the economy that impact the communities in which these companies are doing business,” the letter says.
Addressed to Treasury Secretary Steven Mnuchin, the letter says the tax reform law contains “unintended drafting errors” dealing with qualified improvement property and net operating losses that cause the law to operate inconsistent with what Congress intended. For example, the tax reform measure was intended to accelerate depreciation on building improvements to one year, but instead it requires improvements to be depreciated over 39 years.
That means taxpayers who make qualified improvements can write off only 2.5 percent of their improvement cost in the year expenditures are made instead of the full amount. “This very large difference in the after-tax cost of making improvements is causing a delay in some store and restaurant remodeling projects, as well as causing some retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements,” the letter says.
With respect to net operating losses, the letter says the law as written imposes a retroactive tax increase on businesses that are in loss positions and already facing liquidity issues. An error in the effective date of a provision that eliminates NOL carrybacks means businesses that were expecting carrybacks will not receive cash they are owed, the letter says. “This timing difference is critical to cash-strapped businesses that were counting on the carryback to finance continuing operations, as well as investments needed to revitalize their businesses,” the letter says.
The letter asks Treasury to issue guidance assuring it will administer those specific provisions as Congress intended, not as written in the law. In the absence of guidance by Nov. 15, taxpayers will have to file returns according to the current language, and then file amended federal, state, and local returns when it is later corrected, according to the entities. They’ll also have to rebook qualified improvement property in their fixed asset management systems, all of which will spike the compliance cost and effort for taxpayers and the IRS alike, the letter says.
The IRS and Treasury are regular targets of guidance requests arising from the Tax Cuts and Jobs Act, which contained numerous provisions that have produced uncertainty among corporate taxpayers in particular, especially with respect to international tax issues and executive compensation rules.