Legislative Brief_MassCPAs

News & Updates from the Government Affairs Team

We're working to keep you informed in a world that changes by the minute. If you have anything you'd like to share, or if we can help you in any way, please reach out to Zach Donah at zdonah@masscpas.org or 617.303.2411, or Larry Liuzzo at lliuzzo@masscpas.org or 617.303.2405.

Massachusetts Legislature: American Rescue Plan Act (ARPA) Bill Due this Fall

House Speaker Ron Mariano stated his intentions to pass a bill allocating the federal funds received from the American Rescue Plan Act (ARPA) by the Thanksgiving holiday.

The Joint Committee on Ways and Means held a hearing in July to discuss the nearly $5 billion in federal relief and gathered testimony for administration officials, planning councils, housing advocates, business groups and others. Hearings have since resumed and will continue throughout the fall. The upcoming hearings will focus on healthcare, public health, mental health and human services; economic development, transportation, arts, tourism, climate and infrastructure; and education, social equity, safety net programs and families.

A recent report indicates that more than 90% of Massachusetts’ ARPA money has yet to be allocated. The Legislature has until 2024 to allocate the funds and until 2026 to spend it. To learn more, click here.

U.S. House Committee on Ways and Means Release Proposed Tax Changes

Earlier this week, the House Committee on Ways and Means released a list of proposed tax changes to be included in the budget bill known as the “Build America Back Better” act.

The Journal of Accountancy highlighted several of the key tax provisions, some of which are included below:

Corporations and businesses

Tax rate: The proposal would replace the current flat 21% corporate tax rate with a graduated rate, starting at 18% on the first $400,000 of income; 21% on income up to $5 million; and 26.5% on income above $5 million. However, the graduated rate would phase out for corporations making more than $10 million.

Interest deduction limitation: The proposal would add a new Sec. 163(n) that would limit the interest deduction of certain domestic corporations that are members in an international financial reporting group to an allowable percentage of 110% of the net interest expense. The interest limitation would apply only to domestic corporations for which the average excess interest expense over interest includible over a three-year period exceeds $12 million.

Carried interests and capital gains: The proposal would generally extend from three to five years the holding period required for gain attributable to an applicable partnership interest to qualify for long-term capital gain treatment. The provision would retain the three-year holding period for real property trades or businesses and taxpayers with an adjusted gross income (AGI) less than $400,000. The proposal also would extend Sec. 1061 to all assets eligible for long-term capital gain rates.

Individuals

Tax rates: The proposal would increase the top marginal individual income tax rate to 39.6%. This marginal rate would apply to married individuals filing jointly with taxable income over $450,000; to heads of household with taxable income over $425,000; to unmarried individuals with taxable income over $400,000; to married individuals filing separate returns with taxable income over $225,000; and to estates and trusts with taxable income over $12,500.

Capital gains: The proposal would increase the tax rate on capital gains to 25%. A transition rule would provide that the current statutory rate of 20% would continue to apply to gains and losses for the portion of the tax year prior to the date of introduction. Gains recognized later in the same tax year that arise from transactions entered into before the date of introduction pursuant to a written binding contract would be treated as occurring prior to the date of introduction.

Retirement plans

Contributions to IRAs: The proposal would prohibit further contributions to a Roth or traditional IRA for a tax year if the total value of an individual's IRA and defined contribution retirement accounts generally exceeds $10 million as of the end of the prior tax year. The limit on contributions would only apply to single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of household with taxable income over $425,000 (all indexed for inflation).

Other provisions

S corporation reorganization: The proposal would allow eligible S corporations to reorganize as partnerships without triggering tax. An eligible S corporation would be any corporation that was an S corporation on May 13, 1996 (prior to the publication of current-law check-the-box regulations with respect to entity classification).

The Committee is set to meet this week and provide amendments and further changes to the bill.

To learn more about this proposals currently in the budget, click here.

U.S. Department of Labor (DOL) to Conduct Audit Quality Assessment of 2020 Plan Year Filings

The Department of Labor (DOL)'s Employee Benefit Security Administration (EBSA) Office of the Chief Accountant (OCA) is planning to conduct a study to assess the quality of audit work performed by independent qualified public accountants (IQPAs) with respect to financial statement audits of employee benefit plans covered under the Employee Retirement Income Security Act of 1974 (ERISA) for the 2020 Form 5500 filing year (plan years beginning in 2020). This includes calendar year 2020 filings filed on extension by October 15, 2021.

The DOL expects to take a year to conduct its analysis and then to issue a report, which is likely to be released sometime in 2023. The AICPA will assist members and other stakeholders through the process and be a source of information for the DOL.

The AICPA is developing resources about the upcoming EBP study that we’ll share with you as we learn more.

To read the AICPA alert with more information, click here.

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