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How OBBBA expands the alternative minimum tax

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8 months ago

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The tricky alternative minimum tax is coming back into play for many clients and their financial advisors under the One Big Beautiful Bill Act. 

But understanding the AMT’s history can help explain its complicated rates, phaseouts and exemptions — and their impact on clients. The origin story of the AMT rings familiar in some ways. In others, it sounds like the events took place in an alternative universe.

Days before President Richard Nixon took office in January 1969, Treasury Secretary Joseph Barr of the outgoing Johnson administration warned the Joint Economic Committee of Congress that there could be “a taxpayer revolt over the income taxes in this country” from middle-class households. They “pay every nickel of taxes at the going rate” because they “do not have the loopholes and the gimmicks to resort to,” Barr said. Two years earlier, 155 households with over $200,000 in income ($1.76 million in today’s dollars) and 21 above $1 million ($8.8 million today) had paid “not 1 cent of income taxes,” Barr told Congress.

“You look around and you see many people with huge advantages,” he said. “Now, these are difficult to terminate. These special tax provisions are controversial subjects, Mr. Chairman, but I submit that if we are going to maintain this magnificent tax system with its advantages for revenues and provide the revenues that Sen. [Jacob] Javits [of New York] mentions that he wants to use in the cities and the rest of you want to use for various purposes, it must be a fair system.”

In 1969, Congress received more constituent mail expressing outrage over the wealthy households that didn’t pay federal income tax than it did about the Vietnam War. In response, Congress passed legislation for an “add-on” minimum tax for certain well-off households that President Nixon signed into law in 1969. The resulting policy stemming from Barr’s passionate and effective call for “equity of taxation” evolved, decades later, into the subject of bipartisan criticism for being a “stealth tax” full of confusing rules that made the AMT more likely to hit middle-class households than wealthy ones. Rather than altering the income tax, policymakers created an alternative structure with its own guidelines. 

Treasury Secretary Joseph W. Barr's warning of a "taxpayer revolt" over wealthy households avoiding income taxes led Congress to create the "add-on" tax, a forerunner to the alternative minimum tax.
Treasury Secretary Joseph W. Barr’s warning of a “taxpayer revolt” over wealthy households avoiding income taxes led Congress to create the “add-on” tax, a forerunner to the alternative minimum tax.

Yoichi Okamoto/LBJ Library Photos

The Tax Cuts and Jobs Act of 2017, however, drastically cut AMT liability. The One Big Beautiful Bill Act expands the AMT to more high-income taxpayers than under the TCJA, although not even close to as many additional households as would have been affected had the relevant provision of the TCJA been allowed to expire at the end of the year. No one is sure of the exact extent of looming AMT payments by the nature of its terms. Under the AMT, taxpayers send Uncle Sam the higher raw number between the alternative system of taxation with fewer itemized deductions and the traditional federal income tax. The difficulty of calculating the AMT’s impact reflects only one aspect of the tax’s complexity for advisors, tax professionals and their clients, as well as policymakers seeking to abolish the AMT altogether.

READ MORE: Caps, credits, contributions: Tax planning for parents under OBBBA

Hello, old frenemy: Who the new AMT structure will affect

Planners who acquaint or reacquaint themselves with the nature and rules of the AMT can prepare clients for the ramp-up under OBBBA. Starting next year, more of them will have a so-called tentative minimum tax payment from the AMT that may turn into an actual payment, if it’s larger than the client’s basic income liability. 

In particular, clients who are receiving the higher deduction for state and local taxes under OBBBA, spread income from private activity bonds or compensation from incentive stock options will be the most likely to fall under the new structure of the AMT, according to Ben Henry-Moreland, a former planner who’s a senior financial planning nerd with the Kitces.com blog, and Holly Swan, the head of wealth solutions in the global client strategy unit of asset management firm Allspring Global Investments.

Holly Swan is the head of wealth solutions in the global client strategy unit of asset management firm Allspring Global Investments.
Holly Swan is the head of wealth solutions in the global client strategy unit of asset management firm Allspring Global Investments.

Allspring Global Investments

The “millions of taxpayers who were subject to it who stopped being subject to it” will probably “already have some familiarity,” with the AMT, Swan said. Compared to the roughly 200,000 households that were covered by the AMT under the 2017 law, the new rules are “not going to capture nearly as many people” as the 7 million that would have fallen under its purview in a lapse of the rules, she noted. But Swan predicted that several millions more will pay or at least estimate their AMT under OBBBA’s rules in 2026.  

“The people who are going to need a lot of education are the people who are newer to wealth, newer to employment,” she said, noting how many tech startups compensate their teams with stock options. “There are so many younger employees. That is a group of individuals who are going to need a lot of education around this, because they probably haven’t dealt with this before. … Unfortunately, I am guessing a lot of those early-stage employees are doing self-service investing. So they hopefully are looking for this education on their own.”

READ MORE: Trump’s new law cuts both ways for Social Security beneficiaries

Calculating, or trying to calculate, the new AMT

Both Swan and Henry-Moreland have distilled the numbers underlying the new guidelines. First, planners and their clients will need to find their specific AMT income by adding the “preference items” among deductions that include the three listed above (the SALT deduction, income from private activity bonds and incentive stock option compensation) — as well as any accelerated depreciation, certain miscellaneous and business deductions and, if they used it, the standard deduction — to their standard income. Then they subtract the AMT exemption from their AMT income. 

This year, the exemptions are $88,100 for individuals and $137,000 for couples — but AMT exemption amounts are subject to inflation. Before that step, though, taxpayers determine whether their AMT income is high enough to hit a phaseout point that reduces their exemption: $626,350 for individuals and $1,252,700 for joint filers in 2025. For 2026, the phaseout point will be reduced to $500,000 and $1 million, subject to annual inflation adjustments. And under OBBBA the exemption will vanish twice as quickly, at 50 cents on the dollar from 25 cents with TCJA’s rules. 

Ben Henry-Moreland is a former planner who's a senior financial planning nerd with the Kitces.com blog.
Ben Henry-Moreland is a former planner who’s a senior financial planning nerd with the Kitces.com blog.

Ben Henry-Moreland

Once tax planners and their clients know their exemption, they can come up with their taxable AMT income by using a 26% rate for the first $239,100 of that income for joint filers (or $119,550 for individuals) and a 28% rate for the rest. When they have that number, they will reduce the amount of any AMT foreign tax credit they have claimed from their taxable AMT income. And then they can compare the AMT liability — their tentative minimum tax — to that of their basic income. The household will pay the higher of those two numbers. 

“A lot of people like to, I think, ignore the AMT a little bit,” Henry-Moreland said. It’s no wonder — with TCJA, just 0.1% of households ended up with AMT liability, versus about 5% prior to the 2017 law, he noted. The new law won’t push the share to that level, but a small yet meaningful subset of clients may require planners to bring the AMT to their attention for a valuable conversation on whether to accelerate some forms of income in 2025 over 2026.

“It’s a complicated thing. People don’t like to talk about it. People don’t like to plan around it,” Henry-Moreland said. “It will be more than it has been for the last eight years, but probably not as many as before then. It will become a little more relevant, but it will not be a huge planning issue for masses of taxpayers.”

The number of households paying AMT fell to between roughly 150,000 and 250,000 per year between 2018 and 2022 under TCJA, but an average of 5.98 million households filed Form 6251 to show their tentative minimum tax calculation, according to a September study by the Tax Foundation, a nonprofit, nonpartisan research organization. While OBBBA’s adjustments will bring “a substantial move toward simplification” from the days before TCJA, when 10.78 million households filed the form, the new rules for AMT “will mean slightly more AMT filers, more AMT calculators, and accordingly more complexity,” the report said. 

That disparity between the number of taxpayers estimating their possible liability and those who end up paying represents another frustrating aspect of the AMT — and it will be more pronounced under OBBBA, noted Garrett Watson, a senior policy analyst with the foundation. The requirements for the Senate reconciliation process that Republicans used to pass OBBBA earlier this year likely made the alterations necessary for the law’s writers, he said. So even though the tax won’t affect a lot of households’ returns, it packs a punch for those who may now have to pay AMT, and it creates more headaches for anyone with a new IRS form to fill out.

“You have to basically calculate taxes twice,” Watson said. “That just adds time in the calculations. There are separate sets of rules.”

READ MORE: Using tax-aware long-short vehicles to track down alpha

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The history of a political football, and other legislative metaphors

The alternative tax system morphed over time from the relatively simple “add-on” tax, which Congress repealed in 1982, to the AMT, which began in 1978 and has seen many alterations since then. Its earlier lack of inflation indexing for the AMT exemption kept adding to the number of households that had liability. That led Congress to enact a series of “patches” that temporarily shielded some wealthy households but left the underlying policy intact. 

By 2010, it was “threatening 23 million taxpayers, including firefighters, teachers and others who were never intended to fall under its grasp,” to the point that households with less than $100,000 in income comprised 52% of those covered by the AMT’s rules, according to a 2008 academic study called “The Downward Creep: An Overview of the AMT and Its Expansion to the Middle Class.” Both a 2005 tax reform panel and the 2010 National Commission on Fiscal Responsibility and Reform (the Simpson-Bowles Commission) called for abolishing the tax. The National Taxpayer Advocate, an independent ombudsman-style post at the IRS, frequently identified the AMT as one of the “most serious problems” with taxes.

“What we have, in essence, is one law that grants popular tax benefits (the regular tax code), another law that eliminates the benefits (the AMT), and then yet a third law that undoes the elimination of benefits (the patches), usually at the last minute — a legislative Rube Goldberg contraption of unnecessary complexity,” according to a 2012 report to Congress from the Taxpayer Advocate’s office. That created “a hidden tax increase” from the AMT that would accompany any “serious tax reform,” the report said. And repealing the AMT would “seem unduly expensive by comparison, even if the public would not accept and Congress would not adopt the hidden AMT tax increase that exists under the current law system of patches.”  

The 2012 tax law raised the AMT exemption and adjusted it for inflation, but the number of taxpayers subject to it kept climbing — 7.3 million households would have paid the AMT in 2026, had Congress allowed that part of the TCJA to expire. The TCJA boosted the AMT exemption and phaseout thresholds significantly, while paring back the preference items included in the calculation of liability. Without any changes from OBBBA, more than 20% of taxpayers with income between $200,000 and $500,000 and over 70% of those with income between $500,000 and $1 million would have paid higher taxes due to the AMT.

READ MORE: The big changes to HSAs and what they mean for planning

Looking ahead to the 2026 tax year

The AMT picture won’t look that stark next year, thanks to the new law. Nevertheless, the new rules will place some clients in what Henry-Moreland calls the “bump zone” of potentially higher marginal tax rates for certain households with incomes between $500,000 and $676,200 for individuals and from $1 million to $1,274,000 for couples. Because of the phaseout formulas for the exemptions, each dollar above $500,000 for single filers and $1 million for couples effectively counts as $1.50 of AMT income, he pointed out. So some households that fall into the bump zone might pay Uncle Sam at a 42% effective rate, which is five percentage points higher than the top tax bracket for the regular income tax.

Since it’s “almost impossible” to do some sort of a back-of-the envelope calculation without tax software calculating the “many moving parts and areas that impact other areas,” advisors who don’t prepare returns should encourage clients to get an AMT projection from a tax professional and to consider whether rules like the expanded SALT deduction could affect their taxes, Henry-Moreland said. “For those advisors, it’s more helpful to know what situations you might see with clients where they might be triggering AMT where they weren’t necessarily before.”

Income from the yield on private activity bonds, which are public-private versions of municipal bonds that finance certain kinds of infrastructure, constitutes another such situation, Swan noted.

“Particularly for retirees who might be heavily invested in private activity bonds as their retirement income stream, suddenly being subject in retirement to the AMT could be catastrophic,” she said. “That could get really ugly.” 

In general, the “big gap” between the taxpayers who must calculate potential AMT liability and the smaller number who ultimately pay it presents the opportunity for future reforms, said Watson. For now, an as yet unknown number of additional households will pay the AMT in 2026 under OBBBA.

“If you only have to calculate it if you actually owe something, that may be helpful, in terms of the underlying complexity,” Watson said. “I would expect a bump upwards in the years ahead, just because they did reset that phaseout amount and they changed the phaseout rate.”

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Are you ready for it? 4 steps to successfully integrate AI into your operations

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1 month ago

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May 7, 2026

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Over the last few years, AI has gone from being a novelty to a mission-critical business strategy for many accountants. Innovative, forward-thinking firms are using these tools to streamline manual tasks, ensure compliance and provide the best possible service to their clients. According to the 2025 Intuit QuickBooks Accountant Technology Survey, 81% of accountants report AI boosts productivity, and 86% agree it reduces mental load. 

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However, AI adoption is at varying levels across the industry. While nearly every firm has begun experimenting with basic AI tools, many remain in a sandbox phase, hesitant to move toward full-scale integration due to perceived complexity or costs.No matter where you may fall on the integration spectrum, the fact remains: AI is rapidly reshaping the accounting industry. If you’ve delayed AI adoption in your business, you’ll want to create a focused plan to catch up. 

Time is of the essence, but don’t sacrifice strategy for speed

Firms that are ready to take the leap from casual use to deep integration may find themselves in need of accelerated adoption, but speed should not come at the cost of strategy. Identify tangible, practical ways that easy-to-use tools can impact your business through automation. Having a strong strategic focus allows firms to implement workflow changes to streamline manual tasks, ensure compliance and provide excellent service to your clients.

To begin your AI journey, here is a four-step plan that firms can use to transition from experimentation to execution, in a safe, practical manner:

Step 1: Kick off your first AI project

As is the case with many things, getting started is often the most challenging step. While enthusiasm is high, uncertainty with implementation risks can cause hesitation. The key is to lower risk by embracing AI and implementing an intentional, phased approach. Begin by weaving AI tools into high-impact, low-risk tasks, such as summarizing meeting notes, drafting client or firm-wide memos, or translating complex concepts into easy-to-understand ideas. Monitor results carefully and, if these initial attempts need adjustment, be prepared to pivot to the next use case until you can clearly demonstrate that AI systems are delivering a measurable impact on your operations. From there, you can learn from early experiences, adapt strategy, and scale appropriately to complete more complex projects. 

Step 2: Dig into your AI toolkit

The marketplace is crowded with AI-powered tools that promise to do everything from enhancing your workflows to improving the customer experience. It can be hard to know which ones are worth investing your time and money. Find a trusted source like a respected peer, or leverage your professional network to help discuss the tools that may be the best fit for achieving your business goals. You can also look within the tools you’re already using to see if they offer AI-powered features, which can help ease into the transition. Additionally, look for free high-quality education to upskill your team. For example, Anthropic offers a Claude AI University that provides excellent foundational resources for moving beyond basic prompts.

Step 3: Review an AI security checklist

An important element in AI implementation is security. With AI tools needing access to firm and client data to function, it leads to questions of how the data will be protected.  This makes the right AI and cybersecurity strategy critical. Firms must proactively ensure that client data remains protected from today’s increasingly sophisticated threats by embracing an established cybersecurity framework such as SOC 2 or ISO 27001. IRS Publication 4557 (Safeguarding Taxpayer Data) can be a helpful guide for navigating these compliance standards. Regardless of the security framework you select, utilize accompanying compliance checklists and ensure they are strictly followed by your firm to protect both your practice and your clients as AI tools are woven into everyday workflows. 

Step 4: Openly discuss AI usage with your clients

Once you’ve established the best way to use AI tools that meet your firm’s needs, you’ll want to communicate all of the advantages afforded by these tools to your clients. Make sure you highlight the benefits and simultaneously ensure you are addressing any potential concerns. It’s also important to get explicit consent from all clients if you’re sharing their information with the third-party tools you may use. While this might seem like an extra step, it will go a long way toward fostering a greater level of transparency and deepen trust between you and your clients. 

Don’t get left behind

Adopting AI does not have to be intimidating, expensive or overly complex. Think of it as a strategic business move that will not only keep you competitive, but will potentially free you up to focus on keeping clients happy and growing your practice. By strategically focusing on these best practices, identifying AI use cases in a phased approach, evaluating the right tools for your business, ensuring client information is secure and clearly communicating your AI strategy, you’ll be AI-ready in no time.

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FASB plans changes in crypto accounting

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2 months ago

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April 18, 2026

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The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.

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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a summary posted to FASB’s website. FASB began deliberating the Accounting for transfers of crypto assets project and decided to expand the scope of its guidance in  Subtopic 350-60, Intangibles—Goodwill and Other—Crypto Assets, to address crypto assets that provide the holder with a right to receive another crypto asset. FASB decided to clarify the existing disclosure guidance by providing an example of a tabular disclosure illustrating that wrapped tokens, if they’re significant, would be disclosed separately from other significant crypto asset holdings.

At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.

FASB also began deliberations on the Cash equivalents—disclosure enhancement and classification of certain digital assets project and made a number of decisions.

The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:

  1. Interpretive explanations that link to the current cash equivalents definition;
  2. The amount and composition of reserve assets; and,
  3. The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.

FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.

“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”

“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”

The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.

“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”

Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.

She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.

“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”

Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.

The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.

Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.

FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.

The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.

FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.

The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.

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Lawmakers propose tax and IRS bills as filing season ends

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2 months ago

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April 17, 2026

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Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.

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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the Improving IRS Customer Service Act, which would expand information on refunds available to taxpayers online and help taxpayers with payment plans if they need it.

The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.

“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”

He also mentioned the bill during a Senate Finance Committee hearing about tax season when questioning IRS CEO Frank Bisignano. During the hearing, Cassidy secured a commitment from Bisignano that the IRS would work with Congress to implement these reforms if the legislation were signed into law.

“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.

“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise. 

“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”

Cassidy and Warner introduced the Improving IRS Customer Service Act in 2024. Last year, Warner wrote to National Taxpayer Advocate Erin Collins at the IRS regarding the underperforming Taxpayer Advocate Service office in Richmond, Virginia, and advocated against any harmful personnel decisions that would negatively impact taxpayers.

“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”

Stop CHEATERS Act

Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.

Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.

“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”

Earlier this week. Wyden also introduced two other pieces of legislation aimed at cracking down on the use of grantor retained annuity trusts and private placement life insurance contracts to avoid or minimize taxes.

The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.

“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”

Carried interest

Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that Democrats as well as President Trump have pledged for years to curtail. The tax break mainly benefits hedge fund managers, private equity firm partners and venture capitalists, who have lobbied heavily to defeat attempts to end the lucrative tax break. The tax break was scaled back somewhat under the Tax Cuts and Jobs Act of 2017.

Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a summary of the bill. A carried interest entitles a fund manager to future profits of a partnership, also known as a “profits interest.” Under current law, a fund manager is generally not taxed when a profits interest is issued and only pays tax when income is realized by the partnership, often in connection with  the sale of an investment that happens years down the road. Not only does this allow a fund manager to defer paying tax, but the eventual income from the partnership almost always takes the form of capital gain income, taxed at a preferential rate of 23.8% compared to the top rate of 40.8% for wage-like income.  

Under the bill, the Ending the Carried Interest Loophole Act, fund managers would be required to recognize deemed compensation income each year and to pay annual tax on that amount, preventing them from deferring payment of taxes on wage-like income. A fund manager’s compensation income would be taxed similar to wages on an employee’s W-2, subject to ordinary income rates and self-employment taxes.   

“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”

Repealing Corporate Transparency Act

The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly scaled back under the Trump administration to only require beneficial ownership information reporting by foreign companies to FinCEN, the Treasury Department’s Financial Crimes Enforcement Network. 

If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies. 

“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”

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