2017 Tax Law: Unintended Statutory Language and More.

• Author: Josephs, Stuart R.
• Position: Fed Tax

The 2017 Tax Cuts and Jobs Act (the "Act"), P.L. 115-97 enacted Dec. 22, 2017, contains sweeping tax reform. However, it also contains some technical errors such as those affecting net operating loss (NOL) carrybacks and qualified improvement property.

NOL Carrybacks

The Act eliminated NOL carrybacks by amending IRC Sec. 172(b)(1)(A). According to the statute, this amendment applies to NOLs arising in tax years ending after 2017. But the Conference Committee's Report (H.R. 115-466) states that this change is to be effective for tax years beginning after 2017.

The effect of this language difference is illustrated in the following examples:

Calendar year taxpayer: Winner Corp. sustained a $100,000 loss for 2017. Under both the statute and the Conference Committee's language, this loss can be carried back to 2015 and 2016.

Fiscal year taxpayer: Loser Corp. also sustained a $100,000 loss for its tax year beginning Feb. 1, 2017, and ending Jan. 21, 2018. Under the Conference Committee's language, this loss can be carried back to the two preceding tax years. However, under the statute, there is no carryback.

Qualified Improvement Property

The Act combines the following three types of improvement property into one new category under Sec. 168(e)(6) called Qualified Improvement Property:

* Qualified leasehold improvement property;

* Qualified restaurant property; and

* Qualified retail improvement property.

Under the old law, these three types of property were included in 15-year Property under old Sec. 168(e)(3)(E). The Conference Committee's Report states that this new combined category continues to have a 15-year cost recovery period.

However, the statute does not include this category in new Sec. 168(e)(3)(E). Therefore, under the statute, the 39-year recovery for nonresidential real property applies by default.

Joint Committee's Reaction

On April 25, Thomas A. Barthold, the Congressional Joint Committee on Taxation's Chief of Staff indicated that the committee hopes to develop an initial list of technical corrections and introduce it in legislative language "in this session, but no hard deadlines." The committee is requesting comments from interested parties; "our phone and email lines are open."

The process of identifying these corrections began before the Act was enacted, he stated. "We noticed there were some errors, conflict between what the members had directed in terms of the Conference agreement and the way it worked out in the statutory...