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NECA Top Three 10/21/16

Oct 21, 2016

1. In a regulatory win for NECA’s contractors organized as S corporations, the U.S. Department of Treasury has exempted them from newly published rules under Section 385. 

NECA’s Look Ahead: This is a major regulatory victory and a trememdous relief to NECA contractors S corporation community. The rules would have hit S corporations the hardest, despite them having no skin in the "base erosion" game.  S corporations would have suffered through the new reporting requirements and limitations on cash pooling and related party loans just like their C corporation counterparts. However, they also would have faced the prospect of losing their S corporation status, together with the multitude of tax and penalty implications associated with that. The final rules released yesterday, however, made major changes to the original draft, including exempting S corporations and other entities not likely to practice base erosion from the entire rule.  Other important changes include easing the documentation requirements and eliminating the entire so-called "bifurcation rule" that threatened smaller domestic businesses.  Those are significant improvements. 

2. In another Treasury-related effort, NECA, as a member of the S Corporation Association, submitted formal comments to the IRS on the pending Section 2704 valuation rules. The basic message of the submission was that Treasury should discard this effort and start over.

NECA's Look Ahead: The comment period for these proposed regulations doesn't end until November 2nd, but already Regulations.Gov reports there have been more than 3200 comments submitted, with many more expected prior to the deadline.  NECA also lent its support to another coalition letter sent to Treasury Secretary Jack Lew, which had more than 3800 signatories, so this issue is getting Treasury’s attention. Meanwhile, Treasury Officials continue to speak to groups and make the following two points: 1) the proposed rules are not nearly as far-reaching as what outside experts have reported; and 2) it is highly unlikely that the IRS and Treasury will be able to finalize these rules prior to the end of the Obama Administration. Despite this, NECA must still continue to oppose this proposal until final decisions have been made. As the regulatory comments make clear, Treasury’s proposal would largely eliminate the consideration of control and marketability for a wide swath of family businesses when valuing them for gift and estate taxes.  The result goes well beyond what Congress enacted back in 1990 and would be a significant hike in taxes on those family businesses, leading to fewer family businesses and a further consolidation of economic power with large, publicly-traded companies. NECA will continue to oppose these regulations in support of our members' interests.

3. On October 17, the Alliance for Industrial Efficiency, of which NECA is a steering committee member, and the Pew Charitable Trusts sponsored a briefing on Capitol Hill to encourage Members of Congress to support of the NECA-supported Technologies for Energy Security Act (H.R. 5167), and the POWER Act (H.R. 2657). Issues discussed included deployment of Combined Heat and Power and Waste Heat and Power technologies in the U.S. and the size of opportunities available for additional deployment.

NECA’s Look Ahead: The briefing discussed various legislative proposals ripe for the upcoming lame duck session of Congress. NECA continues to advocate for additional legislation that would extend, expand and improve the current Section 48 tax credit for the non-solar technologies.