Public Law 115-141: Tax Corrections and Business Law

On March 23, 2018, Public Law 115-141, the Consolidated Appropriations Act, 2018, was signed into law. As a large omnibus spending bill, its primary purpose was to fund the federal government for the fiscal year. However, this type of legislation often serves as a vehicle for various policy changes that might not pass as standalone bills.

Embedded within the more than 2,000 pages of this $1.3 trillion package were substantive changes to tax law, data privacy, and financial regulations. These provisions have had a direct impact on business operations, tax compliance, and the management of electronic data.

Technical Corrections to Major Tax Reform

The passage of the Tax Cuts and Jobs Act of 2017 (TCJA) created a need for subsequent adjustments to address drafting errors, ambiguities, and unintended consequences. Public Law 115-141 served as the legislative vehicle to address many of these issues, providing technical corrections that clarified Congress’s original intent.

One correction addressed what became known as the “grain glitch.” The original TCJA created an unintentional tax incentive for farmers to sell their products to agricultural cooperatives rather than to private companies. The law allowed farmers selling to a cooperative to claim a 20% Qualified Business Income (QBI) deduction based on their gross sales, whereas farmers selling to private buyers could only calculate the deduction based on their net income. This disparity distorted the market and gave cooperatives an unfair advantage.

Public Law 115-141 fixed this by repealing the problematic language and introducing a new, more complex calculation to level the playing field. Under the new rules, the farmer’s 20% QBI deduction is calculated on net income, similar to sales to private companies. The cooperative, in turn, calculates a separate deduction that it can pass on to its patrons, a solution that restored market balance.

The law also made clarifications to the TCJA’s international tax regime. Provisions like the tax on Global Intangible Low-Taxed Income (GILTI) were complex, and the technical corrections provided greater certainty on how to calculate it and how it interacts with other parts of the tax code, such as the Net Operating Loss (NOL) deduction. Finally, the act addressed rules for S corporations converting to C corporations, which became more attractive after the TCJA lowered the corporate tax rate. The corrections clarified the tax treatment of distributions made during the post-termination transition period, ensuring that lingering S corporation earnings could be distributed tax-free to the extent of the accumulated adjustments account.

New Tax Provisions and Incentives

Beyond correcting prior legislation, Public Law 115-141 introduced new tax incentives and extended several others that had expired. These provisions were part of a legislative package of “tax extenders” designed to encourage specific business activities.

A notable new provision was the creation of a temporary employer credit for paid family and medical leave. This was intended to encourage businesses to offer paid time off to their employees for reasons specified under the Family and Medical Leave Act (FMLA). To qualify, an employer needed to have a written policy providing at least two weeks of paid leave annually to all qualifying full-time employees, with a pro-rated amount for part-time employees.

The credit itself was calculated on a sliding scale. It started at 12.5% of the wages paid to a qualifying employee on leave if the payment rate was 50% of their normal wages. The credit percentage increased as the wage replacement rate rose, maxing out at 25% if the employee received 100% of their normal wages.

The credit was only available for wages paid to employees who earned $72,000 or less in the preceding year and had been employed for at least a year. This credit is scheduled to expire for tax years beginning after December 31, 2025. The law also extended a number of energy-related tax credits for individuals and businesses, including credits for energy-efficient home improvements and for installing alternative fuel vehicle refueling property.

The CLOUD Act and Business Data

Embedded within the vast spending bill was the Clarifying Lawful Overseas Use of Data Act, or CLOUD Act. This legislation was a direct congressional response to a growing conflict between technology, privacy, and law enforcement in a world where data is stored globally. It addressed the legal gray area concerning whether U.S. law enforcement could compel American companies to turn over data stored on servers outside the United States.

The impetus for the CLOUD Act was the high-profile Supreme Court case United States v. Microsoft Corp. In that case, the U.S. government had issued a warrant under the Stored Communications Act of 1986, demanding that Microsoft produce emails related to a criminal investigation. Microsoft challenged the warrant because the specific data was stored on a server in Ireland, arguing that a U.S. warrant could not reach data held in a foreign country.

The CLOUD Act rendered the Supreme Court case moot by explicitly amending the SCA. Its core provision states that U.S. service providers must comply with lawful requests for data, such as warrants or subpoenas, regardless of where that data is stored. This means that a U.S.-based technology company is required to preserve and disclose data within its possession, custody, or control, even if the servers are located in another country.

For businesses, the implications are substantial. Companies that provide email, cloud storage, or other communication services must now navigate a complex legal landscape. Their privacy policies must reflect this obligation to comply with U.S. legal process for data stored anywhere in the world, which creates potential conflicts with the privacy laws of other nations, like the European Union’s General Data Protection Regulation (GDPR).

The CLOUD Act does provide a mechanism for companies to challenge these data requests. A provider can file a motion to quash or modify a legal order if it believes the request creates a material risk of violating the laws of a foreign country. A court would then weigh the interests of the U.S. and the foreign government. The act also established a framework for the U.S. to enter into bilateral executive agreements with foreign governments, allowing for reciprocal data sharing, provided those countries have robust privacy and civil liberties protections.

Other Notable Business and Financial Regulations

Beyond the major tax and data provisions, Public Law 115-141 contained other regulations affecting business and finance. One of the most prominent was the inclusion of the Taylor Force Act. This provision places significant restrictions on U.S. economic assistance that directly benefits the Palestinian Authority (PA).

The law’s central condition is that U.S. aid to the PA is prohibited until the Secretary of State certifies that the PA has terminated its policy of making payments to individuals who commit acts of terrorism and to the families of deceased terrorists. The compliance implications of the Taylor Force Act extend to any U.S. organization or business that receives federal funds for work in the region. These entities must ensure their operations and use of U.S. funds do not violate these restrictions, requiring careful due diligence.

The omnibus bill also included targeted amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act. These changes were aimed at providing regulatory relief for small and mid-sized banking institutions. The provisions altered certain regulatory thresholds that trigger enhanced prudential standards, such as stress testing and risk management requirements. By raising the asset thresholds for the application of these stricter rules, the law exempted a number of community and regional banks from some of the more burdensome Dodd-Frank requirements.