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Senate GOP Seeks Tax Law Fixes, Including ‘Retail Glitch’

Provision meant to reward store renovators would end up hurting them instead

Sen. Orrin Hatch, R-Utah, and other GOP tax writers have spotted some holes they want to plug in the new tax law. (Bill Clark/CQ Roll Call file photo)
Sen. Orrin Hatch, R-Utah, and other GOP tax writers have spotted some holes they want to plug in the new tax law. (Bill Clark/CQ Roll Call file photo)

Senate Finance Chairman Orrin G. Hatch said Thursday that Republicans are aiming to fix at least three glitches in last year’s tax code overhaul, including an error that has so far kept certain restaurants and retailers from taking advantage of a key tax break to renovate their storefronts.

In a letter to Treasury Secretary Steven Mnuchin and acting IRS Commissioner David Kautter, Hatch and other Senate GOP tax writers said they will introduce legislation to plug holes in the new tax law like the so-called retail glitch.

A section of the legislation meant to allow companies to immediately write off the cost of certain business investments, including internal improvements to their stores, contained a drafting error that would force companies to deduct those costs over periods as long as 39 years.

The technical error stems from the bill’s new definition of “qualified improvement property” and its elimination of previous language defining qualified restaurants and retailers. Lawmakers effectively left out qualified improvement property from the proper section of the bill that would have made major internal renovations to those stores eligible for immediate expensing.

“The new tax law actually worsens the tax treatment of this type of investment, which previously qualified for bonus depreciation, by reducing the ability of businesses to deduct their full building improvement costs,” Erica York, analyst at the conservative Tax Foundation, wrote in May about the retail glitch.

The Republican senators said Thursday they have “identified a technical correction that is necessary to reflect the legislative intent with respect to this provision.”

The letter also identifies two changes needed to correct smaller flaws. One was a clarification of when a certain section of the law, regarding deductions for net operating losses, would take effect. The other would clarify that taxpayers receiving payment related to certain sexual harassment or sexual abuse cases should not be prohibited from deducting the cost of attorney fees.

“We send this letter to provide sufficient clarification so that any guidance that is issued related to [the three sections] and the IRS’s enforcement of them reflects the Congress’ intent,” the senators wrote.

House Speaker Paul D. Ryan has said a so-called technical corrections package will be taken up in a “lame-duck” session after the November midterm elections.

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