A lot of unexpected activity has been happening in Washington, DC over the past month. House Speaker John Boehner retired and Rep. Paul Ryan (R-WI) was elected to succeed him. Speaker Ryan is familiar with IRC Section 1031 and understands that it provides only a timing benefit for taxpayers. He recognizes that it is a valuable tax strategy for managing cash flow, and not an abusive loophole or tax avoidance scheme. He further understands the breadth of Section 1031, benefitting taxpayers in myriad industries, including agricultural and conservation uses that inure to the benefit of the public.
Rep. Ryan’s ascension to House Speaker left open the chairmanship of the House Ways & Means Committee, the most powerful committee in the House. Rep. Kevin Brady (R-TX) has become the new Chairman. Rep. Brady understands the importance of Section 1031 to the real estate industry, the agricultural industry and to the economy as a whole. Rep. Tom Rice (R-SC) has been selected as the newest member of Ways & Means, filling the vacancy created by Speaker Ryan’s departure from the Committee. Rep. Rice is a former tax attorney with a master’s degree in accounting, a great background for the important work of the Ways & Means Committee.
All of this upheaval leaves the 1031 community in a good place, with leadership that is committed to doing the right thing in tax reform for the right reasons. Speaker Ryan is passionately interested in seeing the job he started completed. Although comprehensive tax reform is most likely to be a 2017 event, the Speaker has indicated a continuing interest, and it is likely that he will remain engaged at some level in the tax reform project, and that his policy-making influence will continue to be felt in the Ways & Means Committee.
There have been some changes in the dynamic for the Highway Trust Fund and International tax reform. Both the Senate and the House are advancing highway bills, but it is becoming less likely that repatriation will be the “pay-for” in the final highway bill. Also the “extenders” must be dealt with prior to year-end and both Speaker Ryan and Chairman Brady are anxious to get this task done sooner than later. They also lean toward legislation that would make the “extender” provisions permanent, rather than continuing the practice of year to year extensions. This means that there is still a risk, albeit small, that 1031 could be cherry picked as a “pay-for” in one of these year-end bills.
The current political environment is one that is perilous for tax bills. The recent budget bill is a classic example of the “new normal” in which a significant law with tax ramifications was cobbled together through closed door negotiation in a last minute, chaotic process, without the time or opportunity for input and commentary. This is why it is so critical to lay the groundwork early on, before there is a bill pending, because we may not get a chance to respond to a lightning strike. We must continue to let our policymakers know how important Section 1031 like-kind exchanges are to our businesses, our communities and our national economy so that they are fully informed during these midnight drafting sessions.
