Tcja Compliance: Corporate and Business Tax Reform Requirements

The TCJA reduced the federal corporate income tax rate from 35 percent to a flat 21 percent.

The flat 21 percent rate applies to all C corporations regardless of taxable income. TCJA compliance requires that deferred tax accounting reflect the permanent 21 percent corporate rate.

Federal income tax counsel advises on the TCJA corporate tax rate compliance requirements for C corporations and advises on the deferred tax accounting adjustments required when the TCJA rate change took effect.

The TCJA created the Section 199A qualified business income deduction for eligible pass-through entities. Section 199A allows eligible taxpayers to deduct up to 20 percent of their qualified business income.

The deduction is subject to W-2 wage and property basis limitations and specified service trade phase-out rules. Income tax compliance counsel advises on the Section 199A qualified business income deduction eligibility analysis, the W-2 wage and property basis limitation calculations, and the specified service trade or business phase-out rules applicable under the TCJA.

The TCJA enacted Section 163(j), which limits business interest expense deductibility to 30 percent of adjusted taxable income. Section 163(j) applies to taxpayers with average annual gross receipts exceeding the statutory threshold.

The TCJA modified Section 172, limiting the NOL deduction to 80 percent of taxable income in the carryforward year. Business tax counsel advises on the TCJA Section 163(j) business interest limitation calculations, the small business exemption eligibility analysis, and the Section 172 net operating loss carryforward rules applicable to corporations and pass-through entities under federal tax reform compliance.

The TCJA expanded bonus depreciation under Section 168(k) to 100 percent for qualified property. The 100 percent bonus depreciation rate allows immediate deduction of the full cost of qualifying property.

The bonus depreciation percentage phases down annually after 2022 for each subsequent tax year. Tax law and administration counsel advises on the TCJA bonus depreciation compliance requirements for qualifying property placements, advises on the phase-down schedule applicable to property placed in service in each post-2022 tax year, and advises on the interaction of bonus depreciation with Section 179 expensing and the Section 163(j) interest limitation.

The TCJA created GILTI, requiring U.S. .hareholders of controlled foreign corporations to include GILTI in annual income. The FDII deduction provides a reduced effective tax rate for income derived from serving foreign markets. The Base Erosion and Anti-Abuse Tax, BEAT, applies to large corporations making deductible payments to foreign affiliates.

International tax compliance counsel advises on the TCJA GILTI inclusion calculations and the high-tax exclusion election, advises on the FDII deduction computation methodology and the documentation required to support foreign-derived deduction eligible income, and advises on the BEAT applicable taxpayer threshold and the base erosion minimum tax calculation.

Transfer pricing under IRC Section 482 requires intercompany transactions between related parties to reflect arm's length pricing. FBAR and FATCA require U.S. .ersons to file FinCEN Form 114 and IRS Form 8938 for foreign accounts. TCJA compliance for multinational corporations requires integrating transfer pricing, FBAR, FATCA, GILTI, and BEAT into one framework.

Transfer pricing counsel advises on the transfer pricing documentation requirements under IRC Section 482 and the OECD guidelines applicable to U.S. multinational corporations, and advises on the penalty exposure for transfer pricing adjustments under TCJA international tax compliance frameworks.

FBAR and FATCA compliance counsel advises on the FinCEN Form 114 and IRS Form 8938 filing requirements, and advises on the FBAR and FATCA penalty abatement and voluntary disclosure procedures available to taxpayers with unreported foreign accounts or assets.

An IRS audit of a TCJA compliance position begins with an information document request covering all workpapers, elections, and calculations supporting the claimed tax treatment. A Section 199A audit focuses on qualified trade or business status and correct application of the W-2 wage limit. A GILTI or BEAT audit focuses on the controlled foreign corporation structure and accuracy of minimum tax calculations.

Tax audits and adjustments counsel advises on responding to IRS information document requests in TCJA compliance audits, defending Section 199A, Section 163(j), GILTI, and BEAT positions, and pursuing IRS Appeals for TCJA audit adjustments.

Treasury and the IRS have issued final regulations implementing TCJA provisions including Section 163(j), Section 199A, GILTI, FDII, and BEAT. A taxpayer that fails to comply with TCJA reporting requirements faces accuracy-related penalties under IRC Section 6662, which imposes a 20 percent penalty on any substantial understatement of income tax.

Corporate tax refund counsel advises on TCJA regulatory guidance implementation requirements, the accuracy-related penalty risk under IRC Section 6662 for TCJA compliance failures, and the reasonable cause defense for taxpayers who relied on uncertain TCJA regulatory guidance.