The "One Big Beautiful Bill" Act | Where Does it Go From Here?

Now in the Senate it's a little less of a slim majority. They have a three person majority. We've got 53 Republicans, there's 45 Democrats and then there's two independents, but they caucus with the Democrats. So effectively 47 Democrats and 53 Republicans, because JD Vance is the vice president is Republican, they can lose up to three votes and still pass a bill. If they lose four, then they run into problems. So while they have a slightly larger majority in the Senate, they still are not completely, they don't have 60 votes. They still need to make concessions potentially to different factions within their party.

So I just want to make sure we're going to be talking about a lot of different people and a lot of different groups. So I just want to make sure that everyone kind of knows who the major players are who we're talking about so you don't feel totally lost. Kind of give you almost like a glossary here. So in terms of major players, we have what's called the Big six in terms of tax policy, and that's going to be the Speaker of the House representative Mike Johnson, Senate Majority Leader John Boone, the Ways and Means Chair, Jason Smith. The Ways and Means Committee is the House group that writes all of the tax legislation. The Senate Finance Chair, that's Senator Mike Repo. That's all the Senate version that writes all of the tax legislation. Then we also have Scott Besson, the Treasury Secretary, and we have Kevin Hassett, who he's a little bit more in the background, but he's a National Economic Council director.

He does play a role. He is in a lot of the meetings. He's just not quite as public facing. And then we have a lot of different factions within the Republican party. It's not a monolith. We have the Republicans who are referring to themselves as salty Republicans, which I personally love. I find that entertaining and these are Republicans who are in generally speaking, high income tax, high property tax states who are working really, really hard to make sure that the state and local tax deduction cap that was put in place during the TCJA is either significantly increased for their constituents or completely eliminated. They would like for it to be completely eliminated. I think they all know that that's just not feasible, but they're fighting very hard in order to make sure that that happens. There's about five very vocal members of this group who if we've seen kind of stick together, which is as we discussed two more, then the three votes they can lose.

So as long as those five stay together, they have a pretty good leverage in terms of increasing that salt cap. We also have vulnerable blue State Republicans. Now some of these are going to overlap with the salt Republicans. These are going to be those who are either in districts that were very, very close during the election or who even maybe were in districts that were carried by the Democratic candidate. So there's probably about 10 to 15 of these depending on who you ask, but they're very sensitive, I would say to certain votes that could be very harmful for their constituents. They know that it could be existential to their ability to continue being in Congress if they vote for things that harm their constituents.

We also have the more moderate Republicans, and again, there's going to be some overlap here with the vulnerable and blue state Republicans. These are the Republicans who don't want to see the really conservative cuts. They don't want to see the big cuts to Medicaid. Then we have the House Freedom Caucus and they're going to be the most conservative members. They do want to see big deep cuts. They want a lot of changes made and some of those changes can't be done via reconciliation, but they want as much cuts as possible. They're looking for about $2 trillion in cuts. And then we also have the fiscal deficit Hawks. They are not quite as conservative as the House Freedom Caucus, but they do generally agree with them in terms of cuts. They are probably more likely to be amenable to a compromise there.

So budget reconciliation, let's go over this because it is the entire way that they are going to get this bill done. And this is very much a simplification, but so generally speaking, budget reconciliation is a way for Congress to pass bills that relate to increasing revenue setting, spending amounts, setting the federal debt limit in a more streamlined quick process. Part of this is because it's not subject to the Senate filibuster. Instead of needing 60 votes, you only need either 51 votes or 50 votes plus the VP as a tiebreaker. So it's attractive as to them to use this process. It generally is not going to focus on discretionary spending. They've found ways around that before, but usually that's, that's the appropriations, which is a whole different fight that we may see later this year as early as the summer.

The way that works is basically each chamber, the House and the Senate, their budget committee proposes a budget resolution and that resolution has to be identical. So the house version and the Senate version must match that is then passed by both House and the Senate. And that is kind of the starting gun for the process in terms of drafting legislation is when that is passed, it contains these provisions, their instructions really to each committee on how much they need to raise, how much they need to cut. And then those committees really have broad discretion in terms of within those parameters how they're going to drive that legislation to meet those instructions so that all revenue bills must start in the house. That's a constitutional requirement. So the house usually drafts their legislation first under the instructions and then they send that bill to the Senate. The Senate will then make its mark, put their fingerprints all over it, make whatever changes they want to make hopefully that are acceptable in the house. Any changes that they're made then have to be sent back to the house to be approved.

We're going to talk about this a little bit more in just a couple minutes, but so there's this thing called the Bird Rule, which basically says that any amendments and provisions to the bill and even within the bill as it's drafted must have a non incidental budgetary impact and it cannot increase the deficit outside the reconciliation period. So here probably 10 years, it is still subject to Senate pay rule. So it must have offsets to not impact the deficit pass the 10 year window. It's either by reducing spending altering tax provisions or both. That is not true in the house. So the Senate has a much more strict process in a lot of ways than the house.

So I made this for people who are more visual learners and it looks like we have a question about what does non incidental mean, and we'll be getting to that in just a second. So just to put it in context, we are here where the Senate is drafting their version of the legislation per the instructions in the budget resolution. So we still have a few steps here. Usually there would be a bill markup. We are not expecting a bill markup for this one because there are certain time limitations on how far before a vote they must release a legislation for a markup and they don't want to miss a single minute.

The Senate also has this very interesting thing called vora. So the bill itself is limited to only 20 hours of debate, but after that portion there's this thing called vora where amendments can be introduced and voted on. So with the 20 hours of debate and vora, it usually takes somewhere between one and a half to two days of actual voting from the time that the bill is brought to the floor of the Senate and to the time that it is passed. So the bird rule, we're going to talk about a little bit more in depth and it's just because it's such a sticking point in the Senate. So this is part of the reconciliation process. It was introduced made law in 1990, and basically it allows for any senator, Democrat, or Republican or independent to raise a point of order, which basically means that essentially an objection to any provision that doesn't produce an actual budgetary any change in either the revenue brought in or the cost of the budget.

And it can't change how these are collected. Anything that is not in compliance with the budget resolution instructions, any increase or decrease in the revenue that's not in compliance with those budget resolutions that would be thrown out if it produces a change that is merely incidental. And this merely incidental, it basically means if the majority of the provision has more to do with a policy position than it is about raising revenue or spending money, it could be considered merely incidental and that would be struck from the bill. And we did see that with the ERC, that there was a provision with that that was struck last night and if it would increase the deficit for fiscal years outside the reconciliation window. The Senate parliamentarian is the one who makes this decision. She's secretly like the most powerful person in all of Washington right now. So some of the possible challenges that we think we're going to probably see in this bill is there's the excise tax on universities and private foundations that will likely be challenged under the board rule, the name Trump accounts that we'll discuss later on that is likely to be challenged.

Some of the stricter social security requirements. We're likely to see challenges on those. And just one kind of recent development, there's one section that is very controversial that'll talk later. This new I revenue code section 8 99. The parliamentarian ruled that it was in the scope of the Senate Finance Committee on Friday. That does not mean that it won't be struck from the bill later on. It doesn't completely derail the bill just by being in there. So now we're going to move forward through the actual bill provisions.

Jeff Kelson:Thank you Sarah. So yeah, you see it's kind of a convoluted process and Sarah's given me a great tutorial on the bird provision more than I ever wanted to know, but it's interesting, but it's very relevant. But let's go first, we've got a poll question. So which provisions are you most excited to learn more about? All deductions and the PTECH changes international provisions including the proposed new retaliatory regime business breaks such as 1 74, 1 63 J and bonus depreciation changes, impact not-for-profit and changes to the inflation reduction act. So please answer that. So you get credit has a lot in play here as we'll take you through. We'll cover as much as we can. There's a lot to the bill and it had a few changes already, so

Sarah Adkisson:I counted there's over 86 separate tax provisions in this bill, which is a lot.

Jeff Kelson:Yes.

Sarah Adkisson:Yeah.

Jeff Kelson:Yep. See what they want to learn about.

Sarah Adkisson:I'm very excited.

Jeff Kelson:All of the above. Yay.

Yeah, that's good. All the above and insult. Yeah, that makes sense. Business it checks out. Checks out. Alright, so let's talk about the provisions. So remember a lot of this is an extension of TCJI. So let's go over this extends to lower tax rates and increases the tax bracket amounts that is going to be made permanent. Remember this is a proposed bill, but right now it's proposed to make it permanent and the effective rate, a date rate would be starting after 25. So effectively 1 26 extends the double standard deduction, which has been in place since 18 and that would also start again, but it's already in play. So it's just continuing. Where there was a change was, so there was a movement to reduce the tax and social security benefits above a certain level. They found out they couldn't do that because of certain procedural rules.

So what they did is seniors get an additional 4,000 standard or itemized deduction, so it increases the standard deduction by 4,000 and if they itemize and increases the itemized deduction 4,000, that was the makeup for the fact that they couldn't reduce the tax on social security benefits over a certain amount. So this is temporary though, and this would be in play from 1 25. So this would be in the year we're actually in through the end of 2028. So yeah, there is a temporary addition for seniors on the standard, both standard and itemized deduction since the 2000 child tax credit, $2,000 with a temporary increase to 2,500 show how that works. So the 2000 is permanent, but the 2,500 is temporary, meaning you will get a $2,500 child credit from 1 25 through the end of 28 and then it will revert back to 2000. So that's how that works.

Sarah Adkisson:And actually I do want to jump in here. So some of this, it may end up being increased to inflation, it may end up not. It's pretty expensive to chain it to inflation. So we're going to end up seeing if it's going to be just a flat 2000 or if it's going to be a flat 2000 or 2000 change in inflation,

Jeff Kelson:Right? Right. I mean this is all in flux also as it's moving its way through the Senate, but as it's proposed there would be an additional $500. So up to 2,500 beginning in the temporary increase begins in 2025 and becomes permanent after increased a MT exemption and phased out income thresholds beginning next year. 2026 has made permanent. All right to cap,

Sarah Adkisson:Hold on. There is one thing I want to say about the A MT exemption because I have seen no one else talk about this. The way that this is written, the A MT exemption is increased each year for inflation as well. The way that this bill is written, it resets the date at which the 1 million exemption starts being increased for inflation to 2026. So currently that amount as adjusted for inflation is about $1.25 million. That is going to reset down to 1 million on 2026. Again, I see nobody talk about this, so I feel like we need to tell people.

Jeff Kelson:Yeah, it's a little esoteric for people to assimilate.

Sarah Adkisson:Yeah.

Jeff Kelson:So yes, there are changes and inflation thresholds for the a t salt cap. Alright, where do we stand? The bill as presently constructed allows up to $40,000 for married and single married filing separately gets 20,000. So there is sort of a marriage penalty on this, meaning that a single person gets 40,000 and a married couple gets 40,000, but even then that starts to phase out after $500,000 of a GI or two 50 married filing separate and it would revert, it would phase out until it goes back down to 10,000 and that is from 1 25 through 1231. That's this year.

Now the next set of rules is it goes up 1%. So you'll see that in 2026 and thereafter it goes up 1% a year. So for 2026 at 40,400 on phases out 505,000, everything is a 1% increase until the year 2033. It's two separate code sections that actually at work here. So this increase is under section 2 75. So again, starting at next year, this all cap would go up 1% a year and the EGI limitations 1% a year still with the marriage penalty, meaning as I said, a married couple gets the same as a single individual.

Now let's talk about the PT A. So the PT A, which is the pass through entity tax for a lot of pass rules take advantage of to circumvent the salt cap. They are restricting that only to businesses that are not ss, BTS or specialized services. So what do I mean? So the PTECH will still be available businesses that are not consulting accounting law, medical entertainment athletes. So nothing that it's the same rule that applies to the 20% deduction on the section 1 99 A. So you can still use the ptech. So the change here, the change is that companies that were considered ss, BTS or more professional service firms, consultative financial services firms will not be permitted to use the PE after that begins 1 1 26, that's next year. It's available this year, not next year. And that's a change for some businesses that have been taking advantage of the salt workarounds if they don't meet the qualified business.

So yeah, that is a highlight of this bill to note that there is going to be a change for those folks. The reason they made it next year is a lot of elections are already made to take advantage of this in 25. For instance, New York made you do it in March 15th, California has a June 15th date, so they didn't want to mess with that. So this would begin next year and there are some other little doodads with this, but this is the major takeaways from the salt in that they increase the cap to 40, but it can go down to 10 again if you're over the A GI limits and also the PTECH workaround still in play, but only for those companies that qualify for the 1 99 A QBI deduction of 20%. It's the same rules for both. So that yeah, it's a lot to take away.

So they've kind of connected those two sections, the QBI and the PE availability. Will it change? We don't know what does it, there was actually the way the bill was originally constructed, it disallowed sales taxes from being a deduction. There was a state tax and they made a technical amendment to change that and I think they overlooked that. And there's still some other taxes that are causing some confusion. Other taxes that SS BTS pay at the state level that are not PE, that are also apparently might be caught up in the cross hairs of the way it's currently worded, but until the Senate sinks their teeth into it, I would wait until we get clarity when the Senate comes up with that bill.

All right. Oops, fast. Just sorry about that. It also terminates the deduction for movie expenses which has already been terminated. So it's just extending TCJ, making it permanent and no more miscellaneous itemized deductions. Again, that hasn't been around since 2018. It's making it permanent. Eliminates tax on tips whose earned income is less than $160,000. Please note that the Senate has passed a bill that would limit that exclusion on tip income up to 25,000. So we have two sort of competing right now. The house one, they both eliminate the tax and tips. The house doesn't have a limit except for earned income of 160 where the Senate is only allowing the exclusion up to 25,000.

Sarah Adkisson:And just to jump in that the version that passed the Senate is permanent, not temporary. So we can see what might end up in the Senate bill here already

Jeff Kelson:And this would begin 1 1 25 which is interesting because we're already almost halfway through the year, so stay tuned and it would right, the house would expire at the end of 28. The Senate is permanent. Look, the Senate still has to sink the teeth and it has to be voted on by both houses, so I'm sure we'll get more clarity soon. Eliminates the tax and overtime for those who qualify. If we explain how you qualify, it would take up the rest of this time, but let's just that it does eliminate the tax on overtime for certain employees. This would also be in effect starting 1 1 25 and ending in 2028.

So stay tuned for that as it works its way through. The Senate deduction for this one is getting a lot of attention, but I don't know how prevalent it's going to be a deduction. You can get a for interest on loans for cars assembled in America up to $10,000, but it phases out for modified adjuster gross income over 250,000. So it's not for every car, it's only for those cars that are assembled in America and it has a phase out and it limits it to 10,000. This is also in play if this bill goes through like this starting in 25 and as temporary would end at the end of 28, it replaces the peace limitation. This is, again,

Sarah Adkisson:This might be the most complicated part of this bill,

Jeff Kelson:If I can do my elevator pitch on this. What it's actually saying is that even if you're in the 37% tax rate, you can only get a 35% deduction on itemized deduction. So in essence it's going to take 2 37 off your itemized deductions. There's a lot of little limits and brackets around this, but that's the main takeaway if I can explain that is simply so I was trying to explain it to my daughter, she probably wouldn't understand it anyway, but that's how it takes two 30, if you're in the highest bracket and significantly in the highest bracket, it takes 2 37 off you itemized deductions. And then of course there's all this calibration as you go through the brackets. We're not going to get into that. That would be starting next year. 1 1 26, the estate and gift tax exemption, the lifetime exclusion would be increased to 15 million.

It's not such a big increase. It's like 14.9 now, but that would be permanent per person. 15 million starting next year. So 30 million for a married couple. I can do the math. Sarah, what's gotten a lot of attention? Made it easy. Yeah, made it easy. Creates the Trump account. That's what it's titled. We didn't make this up. It creates a Trump account with $5,000 a year contribution limits. Again, I'm going to do my elevator pitch on this. Any child born between 1/1/26 and the end of 28, so those three years would sort of be a trust fund baby. They would have a thousand dollars deposited into their accounts assuming they meet the criteria, which basically that they're US citizen and the parents have either green cards or US citizens. They would get a thousand dollars into the account and then the parents or someone else can deposit 5,000 a year and get a deduction, make contributions to it. And then there's rules about taking it out. There's penalties if you take it out before 18 and I think at age 31 they force it to come out. So there's a lot around this right now. I'm not going to get into all the weeds, but basically this is what it stands for. A thousand dollars for every baby born three years, all trust fund babies and then the parents or others can make $5,000 a year contributions to add to it.

Enhancements to the health savings accounts. They made it more lenient. You can take out money for personal trainers for joining a sports team. They're trying to encourage active adults. So qualified medical expenses to be distributed has been broadened. And also there was also confusion. People wouldn't apply for MECAL if they were still working because it would restrict them from making future HSAs. This plan says you could still qualify for Medicare part A if you have and contribute to a health savings account. So stuff like that in there. Let's talk about the salt deduction changes. As I mentioned right now it's capped at 10,000. It would increase it to 40 as we mentioned with agis not exceeded 500. It gets phased out in 2026. The amount would increase by 1%. We've covered all this. If it does get phased out, it doesn't go to zero, it goes back down to 10,000. Again, there's an embedded marriage penalty in this starting in 2027. The thresholds both increased 1% for the deduction or 1% for the threshold. The PE workaround, I can't say this enough because this seems to be the highlight. It does still retain it, but only for qualified businesses that would qualify path through businesses that would qualify for the QBI. That 20% deduction under section 1 99 a cap A. So that is excluding professional services, consulting firms, financial services, health medical professionals, so on and so forth. I cover that. Sarah, anything?

Sarah Adkisson:I think you did a pretty good job.

Jeff Kelson:All right, I'm trying my best. There's a lot here folks. So business provisions, it not only does it extend the QBI deduction, that 20% deduction starting next year, it increases it to 23%. So pass through entities and schedule Cs would still benefit from this deduction. Then it's actually made it even larger. So starting next year, it goes up three percentage points if this bill passes a suspense requirement. This is another headline news. It allows RD expenses to be deducted currently rather than capitalize and amortize for domestic expenditures only. Currently it's five-year amortization. It would make them currently deductible for domestic, for foreign r and d, it would retain the 15 year amortization period. So it would divide it between domestic and foreign beginning this year, 2025, beginning this year for the 1 63 J. That's the interest limitation that restricts your interest. Business interest deduction to 30% of EBIT currently that would add back the duh, which is depreciation amortization making the denominator bigger allows more interest expense to be deducted and that would also take effect this year.

It'd be temporary. All these provisions would expire at the end of 29. As you see the effective date. It would also extend a hundred percent bonus depreciation for property, place and service after January 19th, 2025. And that would also sunset on the end of 29. So the big three r and D expenses making 1 63 J better, less restrictive by adding back the deduct to EBITDA and the bonus and for a hundred percent bonus also for qualified production property that begins construction after again January 19th, placed in service by January 30, 33 increases. And this one is, don't overlook this one, it increases section 1 79 amount. That's a section that allows you to deduct your assets placed in service. It increases it to 2.5 million and the threshold amount of 4 million. And if you say, well, if you already have bonus, why do I need the 1 79? Because many, almost all the states do not recognize bonus depreciation. They decoupled. You have to add it back. Section 1 79 expansions to states most states allow. So if you're in a state that if you're in tax paying states, then the 1 79 if you meet the threshold amount would be more valuable than bonus appreciation.

And this one I always, I find curious, it allows corporate charitable deductions only to the extent they exceed 1% of the corporation's taxable income. Historically, corporations have been allowed to deduct 10% of their income a charity. Now it's saying the first 1% doesn't count. It's only percentage two through 10 that you can enjoy. That seems a random change, but there it's, I guess they had to solve for a number. And then the extent, and this is another big one, and this is more punitive, it extends the limitation of business losses for taxpayers. So for non corporate taxpayers, business losses can only have been deducted up to, I think it was like 575,000 or so and any excess was carried over. But it was nice, the excess was carried over as a net operating loss, which means that the following year can be used against all your income, not just business income. This bill effective 1 1 25 would treat the carry forward to 25, for instance, as only being an excess business loss carryover and not a net operating loss. So that restricts the amount of income it can offset. That was a punitive change in the bill section 4 61 L for those who like that.

And then Sarah, you'll take the international provisions.

Sarah Adkisson:Yeah, so there's still more guys. There's still a lot. So the bill has a fair number of international provisions. Some of them are not particularly controversial. A couple of them that we'll discuss are a little controversial. So the TCGA had created this guilty, the global intangible low tax income deduction. So that is currently set at 37.5%. The deduction that you're allowed to take this bill would reduce that by 1% to 36.5%, but also make it a permanent deduction. And it's the same thing with the foreign derived intangible income deduction. Again, sorry, that should say currently 50%. It is currently at 50% deduction. It would be reduced slightly to 49.2% also made permanent and it would extend the base erosion anti-abuse tax, AKA, the beat tax and it increases the rate very, very slightly to 10.1%. It is currently a 10 point 10% rate. Those provisions would all be permanent. Those provisions would all take effect after the expiration of the TCJA for those who are wondering why these tiny little tweaks, mostly money, but also potentially so that they have an actual budgetary impact so that they don't run a foul of the bird rule. It also would exclude services income from guilty and fitty for US Virgin Island based services. That would also be permanent. It's a little interesting. This one will be effective for taxable years beginning after the date of enactment.

So these next two are very complicated. I do just kind of want to right now put in a plug. We are going to also have an international webinar focused solely on all of these provisions and their impacts on June 26th. So if you have more questions, definitely check out that webinar. But so one provision would alter, I believe it's section 44 75, it would create a 35, sorry, a 3.5% tax. Three five would be quite high, a 3.5% tax on the transfer of funds to foreign accounts from the us. So US citizens and nationals would be exempt provided they used a transfer provider that was certified by the secretary of the Treasury. I do believe that the withholding responsibility would be on the transfer provider. So there is a framework in there to provide for the withholding. You wouldn't just have to pay it back. I believe it would be credible tax as well, that would be permanent and would start after the end of this year.

This next one is one of the ones that has been getting, I think a lot of the most attention under this new section 8 99. It would create a new retaliatory tax regime against taxpayers from foreign countries that are deemed to have discriminatory taxes against the us and under the provision as written, the taxpayers could include foreign governments and agencies, which are typically not included in those things. That would also be permanent. The effective dates for this are a little interesting. Generally it's effective upon enactment, but it can be dependent upon when the unfair tax was or discriminatory tax was enacted. So we're going to go a little more in depth on this just because it's very complicated and people have had so many questions about it. It grants the authority to implement these retaliatory taxes against applicable persons of foreign countries that are deemed to have discriminatory taxes against the us.

So what are applicable persons, because that seems very mushy applicable persons are defined under this provision as foreign governments, individual tax residents of foreign governments, foreign corporations, foreign private foundations and foreign corporations or trust owned directly or indirectly by a different applicable person. So essentially it can extend to entities that aren't even in the country with the discriminatory tax if it's owned by an applicable person. So it's not just limited to that. It can spread out the purpose of this bill, the policy behind it is they want to target digital services Tax Canada and a few other countries have implemented these. They want to target diverted profits, taxes and undertaxed profits rules that have been imposed on US citizens or corporations. It applies to a broad ranges of taxes. I'm not going to go into all of 'em, but it's a very long list of the different taxes that could be increased. The way that it would work was it would increase those taxes levied under the sections listed above by 5% for each year beginning the year after the discriminatory tax was enacted. So if a discriminatory tax was enacted in year one but repealed in year two, they might still have a discriminatory tax applied in year two, but they wouldn't have it applied in year three.

The amount that it would be increased by would not exceed 20% of the base tax percentage. So if we're using say maybe just our corporate rate of 21%, it would not go above 41% and it also increases the scope and the rate of the beat tax to 12.5%. It does not include basic foreign income taxes withholding on passive income, value added tax, VE taxes, pretty much any kind of normal tax that you would expect would not be included on it. One of the questions that people have brought up, and we really don't know exactly the answer to is how this could impact companies that have purchased US debt. So this could have implications beyond just tax policy into economic policy as well. So that is going to be an interesting one to watch. This is one that is absolutely going to be challenged under the third rule as having more of a policy bent than necessarily a tax bent, and it is also currently scored to actually cost us money outside the tenure window. So it may end up being struck just for that alone in terms of violating the bird rule, and that is why I told everyone about the bird rule.

So there's also a lot of provisions in the bill that are targeting nonprofits and private foundations. One of the ones is, so under current law there's an excise tax on the net investment income of private foundations that is at 1.39%. This bill would actually create a tiered system based on the amount of the net investment income. So within certain ranges it would be 1.39%. Still it would be increased to 2.78%, 5% or 10% depending on that net investment income. And that would be a permanent provision and it would be for taxable years beginning after the date of enactment. It does a very similar thing for university endowments. For certain private colleges and universities, there's an exemption for religious institutions and that would increase, there's a current excise tax of about 1.4%, not about it is 1.4%. So that would increase it to 1.4%, 7%, 14% and 21%.

And that's depending on the total value of assets in the endowment and how many students are enrolled as well as essentially the value of asset per student. That would also be permanent. That would take effect at the end of this year. It also would apply the excess compensation, excise tax to all covered employees of a nonprofit and any related entities. So it would really, really expand the scope of who would be included in that in the definition of covered employees that would also be permanent. Also be at the beginning of this year, or sorry, the end of this year, it would also increase what is included in unrelated business taxable income UPTI, that those would both be permanent and I found it very interesting. One of these would be at the end of this year and one would actually be retroactive to the beginning of this year. Now these are also very policy related. Our nonprofit group did an excellent webinar yesterday if you were interested in really diving into these provisions and the practical implications, I believe that will be posted on our website as well. All right,

Jeff Kelson:Let's quickly cover some industry specific provisions. There is a provision that allows financial lenders to exclude 25% of the interest income derived from loan secured by real property, but only in rural agricultural real property. So that would be for taxable years ending after the debt of enactment. A more prevalent or prominent one is it increases the 4 48 C threshold of 80 million for manufacturers. What that means is they can be sort of retained the cash basis of accounting and would increase it to 80 million for manufacturers that are beginning next year. And that would also go hand in hand with increasing their 1 63 J limitation up to 80 million. So it would help them also not only be on the cash base, but also not be as restrictive in their interest expense deduction just for manufacturers limits the ability for sports franchises to amortize 1 97 intangibles to 50%.

So if they have sports contracts with their players beginning after the date of enactment, not doesn doesn't grandfathers everyone else but new contracts, they would only be limited to 50% deductions rather than a hundred percent over the 15 years, like 1 97 intangibles are. So it's a hit to a lot of sports clubs. It enhances low income housing tax credit, increasing the state housing credit ceiling to 12.5% from 26 to 29 and allowing additional buildings finances, tax exempt bonds that qualify for housing credits. So it's a little more beneficial to the low-income housing industry. It extends the expensing rules for qualified film television and live theater to qualified sound recording production as kind of a niche change. It allows bonus depreciation for qualified sound recording. So the sound recording industry must have had a good lobby there. They got a few good things in their favor.

A more prominent one is it renews the qualified opportunity fund program, the QOZ as there's no qualified opportunity zones, heavier focus on incentives, investing in rural areas and a reduction in the basis step up allowed for non rural. It also makes some changes to defer ordinary income up to 10,000 and the step up instead of being five and 10% or just get a 10%. The real estate group will go to a lot more detail on this. We're just covering in high level. And then our favorite one because this one is the change last night. So as the bill was originally drafted, any employee retention tax credits claimed after January 31st would be disallowed and the statute of limitation would be extended six years in the latest or three events of claiming the credit the year that the credit originates on and so forth instead of three years in most quarters as the IRS has, there's one quarter, two quarters, I get five years, but this would make it six and it would disallow all post January 31st, 2024 claims and would also create new penalties for promoters last night. Sarah, what did they do?

Sarah Adkisson:So last night the house released a resolution to make changes to the bill and the one tax provision that was in that is striking this provision likely due to a bird rule violation, what's called a self-executing rule, I believe. So as soon as it's basically the rule is passed, it just becomes part of the budget resolution. All right. Yeah, next slide. So that is no longer in the build. It's not there for now. So I am going to kind of blitz

Jeff Kelson:Go through just quickly the IRA,

Sarah Adkisson:Yeah,

Jeff Kelson:Sorry, let's move.

Sarah Adkisson:So I'm not going to spend a huge amount of time on this just because quite frankly this is likely the provision where the Senate is going to make the most changes just from what we've heard and people have said. So really just generally speaking, the bill moves the period of time where these credits would've been phasing out forward to either 2028 or 2029 and it restricts the ability to even claim it to either construction that had begun within 60 days of the bill enactment or if it was placed in service by the end of 2028. That's just very broadly speaking. Again, I see a lot of, I expect changes to be made. The only place where I expect they will probably keep some of it the same is accelerating the termination of all of the individual credits, like the EV credits, the home improvement credits and things like that.

All of these would be permanent, it would just permanently revoke these credits. If anybody has questions, you can definitely reach out to us, but generally speaking, I think these are probably going to have some changes made. So we're going to go to the next poll and we're going to skip ahead possibly to the last poll just so everybody makes sure gets their credit. So which provision do you least want to end up in this bill? The tiered excise taxes for university endowments and foundations. The restrictions on p teps and salt cap workarounds. The repeal of the IRA credits that Pease limitation on itemized deductions. The replacement. The restriction on amortization of sports franchises to 50% or the debt ceiling increase of $4 trillion, which we haven't really talked about because it's not tax related.

Jeff Kelson:Alright, well while answering that, we'll tell you what's not in the bill, there's no changes to the carried interest. That's a big takeaway. There are no changes to qualified small business stock in section 1202 things that have been in prior bills. Those are two notable ones that are not included.

Sarah Adkisson:No increase in the top tax rate. That was one that was in play at one point. Yeah, those are kind of the big three I think that didn't end up in the bill.

Jeff Kelson:Alright. So the next steps, Sarah, take me through the next steps.

Sarah Adkisson:All right, so I'm not going to go through the whole timeline. I know that we're pressed for time. I'm going to start at June 2nd. So right now both chambers are going to be in session. The Senate is expected to release its version of the legislation supposedly this week. I've heard June 13th. I'm going to place a bet that it's going to be at 11:59 PM if they are meeting that deadline June 14th through 22nd. The house is out of session, the Senate is out June 19th through 22nd. June 23rd through 27th. House and Senate are both again, they're back in session July 4th is the self-imposed deadline to pass this bill and June 30th through July 4th is also supposed to be a week long work period for both chambers as well. So what does this mean? We have seven full legislative days for them to pass this bill by their self and post deadline. And I mentioned earlier the Senate procedure will essentially take at least one and a half to two days once it hits the floor to be passed. So that's really five legislative days. All that is to say is it will be very interesting to see if they hit that July 4th deadline. And we should have our next polling question now, and I just gave you the answer to this. So when is the self-fund flows deadline for Congress to pass the full reconciliation bill? June 23rd, July 4th, September 30th or December 31st?

Alright, so where do we think most of the changes are going to happen in terms of the Senate version of this bill? The salt cap increase from 40 to 20% is very, very vocally been attacked. I would say almost by some senators they do not like that 40,000, $20,000 cap. Senator Tum has said that significant changes should be expected to this provision. We don't know what that looks like. We don't know if that's just a drop back down to that 30,000 that was in the original released version of the text. We don't know if that's 20,000. We don't know what the changes are going to be, but they have said very clearly that that is going to be decreased.

The no tax on overtime similar to how they passed the no tax on tips bill that has kind of more guardrails. We expect to see more guardrails likely in the no tax on overtime. I've also heard that it's entirely possible, but that the no tax on overtime and to the no tax on tips are potentially stripped from the bill and taken up at a later date. We'll see what ends up happening there. I kind of expect that it will be that they both no tax on overtime and no tax on tips are in the bill. But just at a reduced kind of watered down version, the domestic r and DRD expensing 1 63 J using the more generous EBITDA calculation and 100% bonus depreciation. This is making this permanent is something that Senator Mike Repo has said many times over is a priority for him. Now the problem with that is that it costs about half a trillion dollars.

So in order to make these provisions permanent, they will have to make cuts elsewhere. That could be where we see the no tax on overtime and the no tax on tips stripped out in order to pay for the permanency of these provisions. It's not just Senator Creo who said this. There have been a couple others. Senator Deans is one of the most vocal proponents as well of making these provisions permanent because they are very pro-growth and they need to stimulate our economy. IRA Curtis we already talked about. That's a really, really big sticking point for a lot of vulnerable senators. Tom Tillis, John Curtis, Lisa Murkowski, there's one I'm forgetting. The fourth one, four senators sent a letter basically saying, don't touch these, or at least don't completely repeal them. As we talked about earlier, they can't lose four senators, they lose four senators. The vote fails. They really want these to be phased out a lot more slowly and particularly the ones that are incentivizing businesses, build facilities.

Jeff Kelson: And Sarah, if I can just clear one thing someone pointed out correctly, the Trump $1,000 contribution, the trust funds begins 1 1 25. 

Sarah Adkisson:Sorry, you said1 26? Yes. Was there one twenty five?

Jeff Kelson:Baby was born already. I guess they would catch up if the bill passed. Sorry about that. You right.

Sarah Adkisson:Yeah, good catch. Apologies. And finally, the Trump accounts. Apparently there are some changes or limits being considered. I have not heard exactly what those limits or changes are. I don't know if they don't want to do the $1,000 deposit or if they want to reduce the $5,000 contribution amount, but it is an expensive provision. I think a lot of senators would probably prefer to either increase the child tax credit higher if they're going to spend that money. So that is definitely one where we could see some changes as well. So what do we think could derail the bill again? So this bill passed the house by one vote. It was 215 to 214 and Andy Harris from my home state of Maryland voted present, which is a nice way of not voting no, but not voting. Yes. Two senators did the vote, sorry, two house members did miss the vote. Representative Schweickart and Representative Berino, who's one of the major players in the salt group, both miss the vote. Schweikert missed a vote just by missing it, Guino fell asleep.

The salt cap is probably going to be the biggest thing. That is the biggest thing that could do this bill. We have at least five representatives who have been super, super vocal about this. If that is watered down, they are going to not be happy and they may be absolutely willing to express their frustration by tanking the bill on a boat. Medicaid cuts, it's not tax related, but we do have to discuss it. Generally speaking, more deep red rural areas benefit more from Medicaid and a lot of the members in these areas don't want to do things that will harm their constituents. They don't want to take that service away from 'em. And they are concerned that deep cuts to that could make them vulnerable in a 2026 election. So that is really going to be a sticking point for some of the moderate Republicans, particularly the House Republicans because they have faster cycles.

They're up for reelection in 2026, whereas only part of the Senate is up for reelection in 2026. The IRA cuts, we really kind of already talked about this, something like 90 something percent of the IRA credit benefits have gone to areas represented by Republicans. So both house and Senate members are hesitant to repeal it. Tom Tillis, John Curtis, ah, Jerry Marin, that's the one who I forgot. They have all been very, very vocal about this. Tom Tillis in particular is very, very vocal. He knows that this could be make or break for him. He's the North Carolina senator.

There have been so many jobs created under this and he, I think something like 10 or 15,000 jobs for him that could be the difference between reelection and not being reelected. So it is very existential for him. He's kind of the main ringleader on that. The debt ceiling. So the bill increases the debt ceiling either by 4 trillion or 5 trillion, depending on which version the house is. 4 trillion senate is 5 trillion. There are a lot of senators and representatives who have never voted to increase the debt ceiling or are very strongly against increasing the debt ceiling without more cuts. So Josh Howley ran Paul and Ron Johnson have been probably the most vocal in saying that they don't want to support raising the debt ceiling by trillions of dollars and they would be willing to tank the bill over that. We know that Rand Paul and Ron Johnson will absolutely vote against this bill.

To be fair, Rand Paul will probably vote against this bill no matter what the debt limit X date. Again, not tax related, but it is a time sensitive issue. If it gets to mid-July, they might have to deal with this because currently, well the most recent CBO estimate puts it probably more in September. But if it is in August, congress will be out of session then. So they really want to address this before the end of July. So if it gets to mid July without the reconciliation bill having passed, they might have to pull out the debt ceiling and do an entirely different reconciliation bill likely. And that could also cause some problems we talked about.

Jeff Kelson:We should probably wrap it up real quick.

Sarah Adkisson:Yeah, yeah. We talked about the bird rail. They may require changes if they don't have a non incidental impact and we're already seeing some of those being brought up. And then just the overall cause of the bill, depending on who you ask, it's estimated to cost somewhere between 3.8 trillion to 5.2 trillion when taking into account the interest expenses. So those are really all of the things that could derail the bill. And you can see there's a lot. So these are just some key takeaways. Things can happen quickly. We're going to be keeping an eye on it and keeping all of our clients up to date. So the overall stay tuned. We may hear something as early as the end of this week.

Jeff Kelson:Thank you. Thank you everyone. And Bella, you can take us home.

Sarah Adkisson:That's about what I expected.

^{Transcribed by Rev.com AI}