Pub. 3 2021 Issue 6

N O V E M B E R / D E C E M B E R 2 0 2 1 14 nebraska cpas BY NICHOLAS BJORNSON AND CRAIG BENSON, KOLEY JESSEN C O U N S E L O R ’ S C O R N E R BUILD BACK BETTER ACT: WHAT’S OUT & WHAT’S IN? On Sept. 13, 2021, the House Ways and Means Committee released proposed legislation known as the “Build Back Better Act” that included a host of tax increases focused on high-income individuals and corporations at an estimated cost of $3.5 trillion. On Oct. 28, 2021, the House Budget Committee released a significantly revised version of the Build Back Better Act, which retained, removed, and modified several proposed tax increases focused on high-income individuals and corporations at a reduced cost of $1.75 trillion. On Nov. 19, 2021, the Build Back Better Act passed in the House of Representatives. Deliberations in the Senate are expected to start in early December, with a vote prior to the holidays. This alert, which is current as of Nov. 22, 2021, summarizes some of the major tax provisions included in the revised proposed legislation. What’s Out? Income Taxes The following income tax proposals that were included in the version of the Build Back Better Act released by the House Ways and Means Committee on Sept. 13, 2021, are not included in the latest version of the Build Back Better Act: • Increase in the top marginal individual income tax rate. • Increase in the capital gains rate for certain high-income individuals. • Limitation of the qualified business income deduction for certain high-income individuals. • Increase in the top federal corporate tax rate from 21% to 26.5% (but imposes a 15%minimum tax on large corporations and 1% surcharge on certain corporate stock buybacks). • Five-year holding period for favorable capital gains taxation of carried interests. • Certain tax-free S corporation reorganizations. What’s Out? Transfer Taxes (i.e., Estate, Gift, and Generation-Skipping Transfer, or GST, Taxes) The following transfer tax proposals that were included in the version of the Build Back Better Act released by the House Ways and Means Committee on Sept. 13, 2021, are not included in the latest version of the Build Back Better Act: • Taxation of certain transfers between a deemed owner and an irrevocable grantor trust. • Gross estate inclusion for the deceased deemed owner of assets held in an intentionally defective grantor trust under certain circumstances. • Decrease of the estate and gift tax lifetime exemption. • Prohibition on valuation discounts for certain transfers of nonbusiness assets. What’s In? Income and Transfer Taxes The most recent iteration of the Build Back Better Act does not implement changes to the transfer tax system. The income tax provisions that remain in the most recent rewrite are as follows: • Expansion of the Net Investment Income Tax Under current law, a net investment income tax (NIIT) of 3.8% is imposed on net investment income. The term “net investment income” does not include (i) income derived in the ordinary course of a trade or business, or (ii) income attributable to the disposition of property outside of a “passive activity.” The proposed legislation removes the foregoing exceptions so that the NIIT applies to essentially all earnings from pass-through businesses, both passive and active, for taxpayers with modified adjusted gross income in excess of $400,000 for single filers, $500,000 for joint filers, and $12,500