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TCJA Corrections Impact Qualified Improvement Properties

August 31, 2018

Allison Brack, CPA, MST

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The Tax Cuts and Jobs Act ("TCJA") enacted on December 22, 2017 made changes to the treatment of leasehold improvement property. Effective January 1, 2018, the TCJA eliminated the separate classifications of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property and provides a single definition of qualified improvement property ("QIP"). However, the TCJA failed to designate QIP as 15-year property and therefore, it would not qualify for bonus depreciation which is now 100%. Most practitioners thought that this was a mistake by the drafters of the legislation and would be corrected by technical corrections legislation.

On August 16, 2018, the members of the Senate Finance Committee, that were are responsible for drafting the tax-reform legislation, sent a letter to the IRS and the Department of the Treasury informing them that Congressional intent was to provide a 15-year recovery period for QIP.

They also discussed two other technical corrections. One was a change to the effective date of the rules governing net operating loss carryovers, from years ending after December 31, 2017 to years beginning after December 31, 2017.

The other change that was discussed was the new rule prohibiting a deduction for (1) any settlement or payment related to sexual harassment or abuse, if the settlement or payment is subject a non-disclosure agreement, and (2) any attorney’s fees related to the settlement or payment. The provision arguably applies to the recipient of the payment who incurred legal fees in pursuing the case, because the fees are related to the settlement or payment. Congressional intent was that these legal fees would not be subject to this rule.

In addition, the Committee also said that they were in the process of reviewing the entire TCJA in order to determine if there are other provisions that need technical corrections or regulatory guidance. After their review is complete, they intend to introduce technical corrections’ legislation to address all of the items that were identified during their review.

Furthermore, they requested that any guidance issued with respect to QIP (and the other items mentioned in their letter) and enforcement of them reflect Congress' intent, and not, presumably, based on the law as is. However, these changes can only be made legislative action.

If you have questions, please reach out to your Citrin Cooperman advisors or a member of the firm's Federal Tax Policy Team.

Allison Brack is a tax partner with more than 20 years of experience providing tax compliance and consulting services. As part of the firm’s Tax Services Practice, she advises private companies in a wide range of industries, including restaurants, real estate, staffing, and technology. She can be reached at abrack@citrincooperman.com.