To help organizations navigate the key provisions affecting businesses, we have summarized top provisions below.

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1 HOW TAX REFORM IMPACTS BUSINESSES Summary On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the "Act"). Signing the Act marked the largest change to U.S. tax policy in decades. Most provisions went into effect in What are the business changes? To help organizations navigate the key provisions affecting businesses, we have summarized top provisions below. Provision Repeal of Domestic Production Activities Deduction (DPAD or Section 199) Repeal the Corporate Alternative Minimum Tax (AMT) Eliminate Ability to Carryback Net Operating Losses Limitations on Excess Business Loss Summary of Changes DPAD was a tax incentive for businesses that manufactured property at least partially within the United States. Conforming to the repeal of the corporate AMT, the bill also repeals the election to accelerate AMT credits in lieu of bonus depreciation. Effective Date: Taxable years after Dec. 31, Generally, companies may not use an NOL to offset income in any prior year and may offset only 80% of taxable income (after NOL) in carryforward year. Note: Technical correction legislation has been proposed to provide the 80% limitation to apply after reducing taxable income by pre-2018 NOL carryovers. 1 For 2018 through 2025, an excess business loss of a non-corporate taxpayer is disallowed and may be carried over as a net operating loss. An excess loss is the excess of business deductions over the sum of the aggregate gross income or gain plus $500,000 for married filing a joint return or $250,000 for all other taxpayers. Note: Technical correction legislation has been proposed to exclude wages from the definition of gross income for the limitation. 2 1 If passed, the provision would be retroactive to the effective date of the legislation. 2

2 Pass-through Deduction/Section 199A Allows a 20% deduction for pass-through business income (i.e. income from businesses such as partnerships, S corporations, and sole proprietorships claimed on individual tax returns) Provision does not apply to specified service trade or businesses which means any trade or business involving the performance of services in the fields of: Health, law, accounting, actuarial sciences, performing arts, consulting, athletics, financial services, brokerage services, any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners or Which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests or commodities. A trade or business where the principal asset is the reputation or skill of one or more of its employees or owners has been narrowly defined so most businesses where the principal asset is the reputation or skill of its employees or owners will qualify for the deduction. Specified service businesses where the taxpayer s taxable income does not exceed $315,000 (joint filer) or $157,500 (other filers) are eligible for the deduction. The deduction is phased out at $415,000 and $207,500 respectively. Effective date: Taxable years after Dec. 31, Limitations on Interest Deductibility Entertainment Expenses Revises Section 163(j) and expands its applicability to every business, including partnerships. Generally, caps deduction of interest expense to the sum of 1) business interest income; 2) 30% of adjusted taxable income (computed without regard to deductions allowable for deprecia-tion, amortization, or depletion; and 3) the taxpayer s floorplan financing interest for the tax year. Limitation applies to both related party and unrelated party debt. Disallowed interest is carried forward indefinitely. Provision applies for taxpayers with gross receipts over $25 million. No deduction is allowed with respect to (1) an activity generally considered entertainment, amusement or recreation, (2) membership dues regarding any club organized for business, pleasure, recreation or other social purposes or (3) a facility or portion thereof used in connection with the above items. The provision repeals the present-law exception to the deduction disallowance for entertainment, amusement, or recreation directly related to (or, in certain cases, associated with) the active conduct of the taxpayer s trade or business. The current entertainment expenses subject to the 50% disallowance rule will no longer be deductible. However, meals separately stated from the entertainment activity remain 50% deductible. Effective date: Applies to amounts paid or incurred after December 31, 2017.

3 Meals Look-through Rule when applied to Gain on Sale of a Partnership Interest Reduce the Corporate Tax Rate Research Tax Credit R&E Tax Deduction Carried Interest Changes 50% meals deduction is expanded to include expenses of the employer associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes and for the convenience of the employer. Business meals provided to employees occasionally and overtime meals, during business travel and employee meeting meals continue to be 50% deductible. Holiday parties for employees are still 100% deductible. Effective date: Applies to amounts paid or incurred after December 31, 2017 and before January 1, A gain from the sale of a stake in a partnership in a U.S. trade or business by a non-u.s. person will be treated as effectively connected income subject to U.S. tax if a sale by the partnership of all of its assets would cause effectively connected income. The transferee of the partnership would have to withhold 10% of the amount realized. Effective date: The tax would apply to sales on or after Nov. 27, 2017 but the withholding will only apply to sales taking place after Dec. 31, Reduces the top corporate tax rate from 35 to 21%. Effective date: Taxable years after Dec. 31, The Research Tax Credit s net value was effectively increased by 22%-- from 65% to 79% of incremental qualified spending because of the corporate rate s reduction to 21% and the required Sec. 280C(c) (3) election or addback of R&E deduction. The research expenses will be capitalized and amortized over a 5-year period, 15 years if the research is performed outside the United States. Effective date: Taxable years after December 31, 2021 Carry from investments held for under three years will be taxed as shortterm capital gain rather than as a long-term capital gain. Previously, the threshold was one year. The long term capital gains tax rate was kept as is, at a maximum of 20%. Effective date: Taxable years after Dec. 31, 2017 Companies can expense fully certain capital expenditures, including acquisitions of used property. Immediate Expensing of Certain Capital Expenditures The percentage of allowable expensing will be phased out at a rate of 20% per year from 2023 (80%) to 2026 (20%). Technical correction legislation has been introduced for qualified improvement property to have a 15-year recovery period to allow it to qualify for immediate expensing. 3 Effective date: Applies until 2022 for purchases made after Sept. 27,

4 Section 179 Expensing Real Property Recovery Period The Section 179 limit is increased to $1 million and the phase-out threshold amount is increased to $2.5 million. The definition of Section 179 property is expanded to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. The definition of qualified real property eligible for Section 179 expensing is also expanded to include these improvements to nonresidential real property after the date such property was first placed in service: roofs, heating, ventilation, and air conditioning property, fire protection and alarm systems and security systems. Effective date: Property placed in service in tax years beginning after December 31, Qualified leasehold improvement, qualified restaurant and qualified retail improvement property definitions are eliminated. These categories have been combined into qualified improvement property. Nonresidential real property has a 39-year recovery period. Straight-line depreciation is provided for qualified improvement property. Qualified improvement property placed in service after December 31, 2017 includes property without regard to whether the improvements are property subject to a lease, placed in service over 3 years after the building was first placed in service, or made to a restaurant building. Technical correction legislation has been introduced for qualified improvement property to have a 15-year recovery period 4 Like-Kind Exchanges (Section 1031) Cash Method of Accounting Effective date: Applies to property placed in service after December 31, Like-kind exchanges will be limited to exchanges of real property not primarily held for sale. However, there is an exception if the property was disposed of by the taxpayer by December 31, Cash method of accounting may be used by taxpayers (other than tax shelters) that satisfy an annual $25 million gross receipts test regardless of inventory being an income-producing factor. The annual gross receipts test is measured by the three prior years. Accounting for Inventory Taxpayers that meet the $25 million gross receipts test do not have to account for inventory. However, the accounting method for inventories is treated as either non-incidental materials and supplies, or conforms to the taxpayer s financial accounting treatment of inventories. 4

5 Capitalization and Inclusion of Certain Expenses in Inventory Costs Any producer or re-seller that meets the $25 million gross receipts test is exempt from the requirement to capitalize and include mixed service costs in inventory. This adjustment has been called UNICAP. Partnership Technical Termination The provision considering a partnership terminated if, within any 12-month period, there is a sale or exchange of 50% or more of the total interests in partnership capital and profits is repealed. Partner s Basis Deduction for dividends from foreign corporations Offer a Deduction for Foreign-Derived Intangible Income Base Erosion Anti- Abuse Tax (BEAT) Impose transition tax for existing overseas profits A partner s basis in the partnership interest is reduced by charitable contributions and foreign tax credits. The participation exemption system generally provides a 100% dividends received deduction for the foreign source portion of dividends received by U.S. shareholders that are C corporations (other than a RIC or REIT) from certain foreign subsidiaries. Effective date: Applicable to distributions made after Dec. 31, Effectively taxes such income at a reduced % tax rate. Deduction only available to C corporations that are not RICs or REITs. Effective date: The effective tax rate on FDII will be % in tax years beginning after 2017 and before 2026 and % after Introduces a new base erosion minimum tax that applies to certain multinational groups with average annual gross receipts of at least $500 million and a base erosion percentage of 3 % or more and that make certain types of cross-border payments to related foreign persons. Effective date: Taxable years after Dec. 31, 2017 U.S. shareholders of certain foreign corporations must include the foreign corporation s deferred foreign earnings into taxable income. Earnings held in cash and cash equivalents subject to a 15.5% rate and an 8% rate applies to all other earnings. Effective date: Effective for the last taxable year of a foreign corporation that begins before January 1, 2018, and regarding U.S. shareholders, for the taxable years in which or with which such taxable years of the foreign corporation s end.