Coalition Seeks Guidance on QIP Drafting Errors

October 9, 2018

The Honorable Steven Mnuchin
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

CC:PA:LPD:PR (REG-104397-18)
Room 5203
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

ATTN: IRS (REG-104397-18)
Additional First Year Depreciation Deduction (RIN 1545-BO74)

Dear Secretary Mnuchin:

The undersigned companies and associations appreciate this opportunity to comment on the Internal Revenue Service's (“IRS”) proposed regulations on Internal Revenue Code (“Code”) § 168(k), as amended by the Tax Cuts and Jobs Act, Pub. L. 115-97 (“H.R. 1”).¹ We urge the IRS to utilize this rulemaking to issue interim guidance on the drafting errors in H.R. 1 pertaining to depreciation of qualified improvement property (“QIP”). Consistent with Congress's intent and H.R. 1's Joint Explanatory Statement on depreciation recovery periods (and relatedly, bonus depreciation eligibility) for QIP, such guidance should allow taxpayers — pending enactment of technical corrections legislation — to apply 15-year Modified Accelerated Cost Recovery System (“MACRS”) and 20-year Alternative Depreciation System (“ADS”) recovery periods for QIP.

There is no dispute that Congress intended to assign QIP a 15-year MACRS recovery period and a 20-year ADS recovery period. In addition to the Joint Explanatory Statement affirming as much, H.R. 1 was scored as if the 15- and 20-year assignments were made. Further, these QIP drafting errors are among the few provisions in H.R. 1 identified by the Joint Committee on Taxation as needing true “technical corrections.”

Attached is an August 16, 2018 letter from all Republican members of the Senate Finance Committee to the IRS confirming congressional intent regarding the treatment of QIP and notifying the IRS that they plan to introduce technical corrections legislation to address the errors. The purpose of the letter, it states, is to ensure that the IRS's position on these QIP provisions is consistent with Congress's intent. Also attached is a letter from sixteen Democratic senators to Secretary Mnuchin urging the Treasury Department to address the QIP errors in a manner consistent with the Joint Explanatory Statement and H.R. 1's score through guidance.

Without such guidance from the IRS — until Congress is able to pass technical corrections legislation — businesses investing in upgrades will be worse off from a cash flow and tax exposure perspective than they were pre-tax reform (when 40 percent bonus depreciation would have applied to all QIP, and restaurant, retail and leasehold properties would have had a 15-year, rather than a 39-year, recovery period for QIP). We have attached a letter from more than 200 businesses and trade groups to Secretary Mnuchin explaining the impact these errors are having — and will continue to have — on a variety of industries and asking the Treasury Department to issue guidance consistent with congressional intent as soon as possible to ensure that American businesses and workers are not unduly penalized by these drafting mistakes. Specific examples of negative consequences associated with these errors include, among others:, inter alia:

• Significant cash flow disruptions for businesses — especially small businesses and franchisees (who are often obligated to remodel on a particular schedule) — that have already planned and committed to substantial renovation projects, which may result in these businesses having to make trade-offs in other areas such as hiring and employee pay/benefits;

• Delays in store and restaurant remodeling projects and, by extension, a negative impact on these businesses' ability to attract customers and compete with newer market entrants; moreover, this creates safety concerns because, in some cases, installations of sprinkler systems also are delayed (creating a more perilous situation in the case of fire);

• Loss of construction jobs associated with commercial renovation projects;

• Businesses refraining from purchasing or leasing vacant stores or other leasehold spaces that require improvements, which means foregoing permanent jobs that would be generated with new businesses moving in and other benefits of revitalizing our communities;

• Hampering of building owners' ability to offer “improvement dollars” in their lease terms to retain existing commercial tenants or attract new tenants;

• Declining sales for QIP product suppliers (e.g., lighting and other improvements), including high-quality products manufactured in the U.S.; and

• Less investment in energy-efficient QIP products, which save businesses substantial costs in the long term (as much as 50-90 percent through upgraded lighting and controls alone) and reduce energy consumption.

These consequences — albeit unintended — are contrary to the Administration's goals of creating jobs, increasing investment, and promoting economic growth via meaningful tax reform.

Based on the foregoing, we again urge you to quickly provide guidance clarifying that IRS enforcement of these QIP provisions will follow Congressional intent and that taxpayers filing returns for fiscal year 2018 may take a position consistent with that intent.

Sincerely,

Aaron's

Abercrombie & Fitch Co.

Acuity Brands, Inc.

Advanced Auto Parts, Inc.

Ahold Delhaize USA

Alabama Grocers Association

Algoma Piggly Wiggly

Alliance Data

American Eagle Outfitters, Inc.

Arizona Food Marketing Alliance

Arkansas Grocers and Retail Association

Arnav Enterprises, LLC

Associated Builders and Contractors

Associated General Contractors of America

Association of Kentucky Fried Chicken

Franchisees (AKFCF)

Auto Zone, Inc.

B & R Stores, Inc.

B. Green & Co., Inc.

Bailey's General Store

Baker's Management, Inc.

Beall's Inc.

Best Buy Co., Inc.

Big Lots

Big Y Foods, Inc.

BKT Enterprises Inc

Blackford Foods

Brinker International

Buehlers Fresh Foods

Building Owners and Managers Association

(BOMA) International

Casler, Inc.

Collins Family Markets Inc

Columbiana Foods Inc.

Congressional Fire Services Institute

Connecticut Food Association

Cookies Food Products

Corning Mini Mart

Cox's Foodarama Inc.

Cranfords Fresh

Crate & Barrel Holdings Inc. and Subsidiaries

CRE Finance Council

CVS Health

Daniels Foods, Inc.

Dan's Food Center

Dave's Supermarket, Inc.

Denny's Inc.

Dick's Sporting Goods

Dierbergs Markets, Inc.

Dillard's Inc.

Doc's Foods Stores

Don's Food Center

Dorothy Lane Market, Inc.

Dunkin' Brands

Eaton

Eickhoff's ShopRite Supermarkets

El Rio Grande Latin Market

Express Inc.

Fareway Stores Inc.

Fiesta Foods

Fitzgerald's Foods

Florida Retail Federation

Food Giant

Food Marketing Institute

Food Parade Inc.

G.E. Foodland, Inc.

Garafalo Markets

Geissler's Super Market

Georgia Food Industry Association

Georgia Retail Association

GF Buche Co.

Glass Gardens

Godin's Piggly Wiggly

Gongco Foods

Gooseberries Fresh Food Market

Grolmus Enterprises

Hansen's IGA

Harps Food Stores, Inc.

Healthy's, Inc.

Henderson's IGA, Inc.

Hi Nabor Supermarket, LLC

Highland Park Market

Hoyt Lakes IGA

Hy-Vee

Idyllwild Village Market

IKEA North America Services, LLC

Illinois Food Retailers Association

Indiana Grocery Group, LLC

International Association of Fire Chiefs

Iowa Grocery Industry Association

Island Market, Inc.

J.C. Penney Company, Inc.

Janssen's Market LLC

Jerry's Enterprises, Inc.

Jo-Ann Stores, LLC

John Brooks Supermarkets

JW's Foods, Inc

Kaune's Neighborhood Market

Keith's Foods Inc.

Kellogg Co.

Kentucky Grocers & Convenince Store Assc.

Knowlan's Super Markets, Inc.

Kocian's Family Market

Kramer Foods

LaBonne's Markets

Lamb's Fresh Market

Levi Strauss & Co.

Lisbon Foods, Inc.

Little Caesar Enterprises, Inc.

Lomira Piggly Wiggly

Louisiana Retailers Association

Lowe's Market

Lund Food Holdings, Inc.

Mackenthun's Fine Foods

Macy's, Inc.

Maryland Retailers Association

Massachusetts Food Association

Maurer's Market

McKinnon's Supermarkets

Midwest Independent Retailers Association

Miner's Inc.

Minnesota Grocers Association

Mississippi Retail & Grocers Association

Misslers IGA

Missouri Grocers Association

Missouri Retailers Association

Monnats Country Store

Mt. Plymouth IGA Fresh Market

NAIOP, the Commercial Real Estate

Development Association

National Association of Convenience Stores (NACS)

National Association of Theatre Owners

National Electrical Manufacturers Association

National Fire Sprinkler Association (NFSA)

National Grocers Association

National Restaurant Association

National Retail Federation

Nebraska Grocery Industry Association, Inc.

Nebraska Retail Federation

Neiman Marcus Group

Nemenz Food Stores

New Hampshire Grocers Association

New Jersey Food Council

New Jersey Retail Merchants Association

NG Management Inc

Niemann Foods, Inc.

Nilssen's

North Dakota Petroleum Marketers

Association

North Dakota Propane Gas Association

North Dakota Retail Association

North Main IGA

North State Grocery, Inc.

Northwest Grocery Association

Nugget Market, LLC

Nutricion Fundametal, Inc.

Ochab Corporation

Ohio Grocers Association

Oklahoma Grocers Association

Ozark Empire Grocers Association

Pennsylvania Food Merchants Association

Pennsylvania Retailers Association

Petco Animal Supplies, Inc.

PetSmart, Inc.

Philbee Foods

Pruett's Food

Puckett's Food Stores, Inc.

R & S Supermarket, LLC

Randys Neighborhood Markets

Red Rock Resorts

Rehkopf Enterprises, Inc.

REM Markets

Retail Association of Maine

Retail Association of Nevada

Retail Industry Leaders Association

RI Food Dealers Association

Ried's Markets, Inc.

Rite Aid

Rivers Marketplace, Inc.

Roselynn, Inc.

Ross Stores, Inc.

Roth's Fresh Markets

Roy's Hometown Grocery

Rush Foods, Inc.

S & R Quisberg Inc.

Sendik's Food Markets

Shoppers Value Foods

ShopRite of Hunterdon County

ShopRite of New London

Shugar's

Signify (formerly Philips Lighting)

Snyder Foods, LLC

Sonic Corp.

Stepherson, Inc.

Steve DeYoung's Big Top Market

Stormans, Inc.

Super One Foods

Superb Super Markets, Inc.

Supermarket Operations, Inc.

Tarbell & Company

Target Corporation

Teal's Market

Texas Roadhouse, Inc.

The Cheesecake Factory Incorporated

The Fresh Grocer

The Home Depot

The Kroger Co.

The Market of Madrid

The Michaels Companies

The Real Estate Roundtable

The Roberts Co., Inc.

The Save Mart Companies

The TJX Companies, Inc.

The Wendy's Company

Thoman Brothers Super Market, Inc.

Thompson's IGA Foods

Tractor Supply Company

Treppendahl's Super Foods

Trig's

URM Stores, Inc.

Utah Food Industry Association

Utah Retail Merchants Association

Vallarta Supermarkets

Viking Village Foods, Inc.

Virginia Retail Merchants Association

W.S. Badcock Corporation

Wakefern Food Corp

Walla Walla Harvest Foods

Washington Food Industry Association

Wayne's Piggly Wiggly

Western Supermarkets

Windham IGA

Wisconsin Grocers Association

Witt's Piggly Wiggly

Wray's Incorporated

Yum Brands, Inc.