Middle-Market Public Policy Roundup

Earlier this week, ACG came out in support of the National Labor Relations Board after submitting a letter affirming the agency’s joint-employer rulemaking effort that would ensure business owners and investors can grow their businesses and create jobs.

Shortly before the polar vortex gripped large parts of the country in historically low temperatures, the shutdown that gripped nation’s capital thawed last week when President Donald Trump agreed to reopen the federal government after 35 days. However, the effects of the shutdown will continue to be felt long into the future as agencies with employees that were furloughed cope with backlogs on top of already heavy workloads. Among the issues on regulators’ plates is the newly-created opportunity zone program, which will likely face delays in implementation due to the shutdown and lawmakers are already asking for modifications.

ACG Submits Comment Letter in Support of NLRB’s Joint-Employer Proposal

On Monday, ACG filed a comment letter strongly supporting the National Labor Relations Board’s notice of proposed rulemaking to revert back to a “direct and immediate control” standard for determining joint-employer status.

The proposal would undo a 2015 NLRB case which ruled that “indirect” or “limited and routine” control could be sufficient to establish a joint-employer relationship, exposing employers to tremendous potential legal liability.

In the comments, ACG asserts that middle-market business owners and investors need a standard for determining joint-employer status that is clear, consistent and balanced in order to ensure they can continue growing jobs and expanding business opportunities without facing unknown legal liability. Because the proposed rule accomplishes these important goals, ACG urged the NLRB to finalize the rule as expeditiously as possible.

Shutdown’s Effects on the SEC and Treasury

Although the longest federal government shutdown in U.S. history ended late last week, the effects will likely linger at the Securities and Exchange Commission and the Treasury and IRS departments. Working with extremely limited staff for nearly a month has caused a backlog of work that will take months to overcome.

Securities and Exchange Commission

According to the SEC’s published contingency plans, the agency discontinued most ongoing enforcement litigation, all non-emergency rulemaking and no-action letters, approval of applications for registration by investment advisers, and responses to complaints, tips or referrals, in addition to ceasing other operations.

While individuals and corporations were still able to file reports with the SEC, they were not able to be processed until the government reopened its doors. The nearly 4,400 staff employees were reduced to fewer than 300. As such, the time for everything from IPO paperwork to the examination of routine disclosure filings is likely to be delayed.

IRS & Treasury

This tax-filing season, already guaranteed to be a heavy one due to the implementation of the massive 2017 tax overhaul, may face delays in refunds and audits as a result of time lost.

In general, a majority of staff required to work were focused on preparing for the upcoming tax filing season. While the IRS attempted to retain 46,000 of its employees during the shutdown, it is still unclear what effects will be felt. Many employees refused to show up for work, and taxpayers calling with questions about their tax returns faced hours-long hold times.

Portions of the tax reform law, including the newly-created opportunity zone program, are still awaiting final regulations from the Department of Treasury and are likely to face delays.

Lawmakers Ask for Modifications to Opportunity Zones Guidance

A bipartisan group of lawmakers responsible for the standalone legislation that eventually became the opportunity zones provision of the Tax Cuts and Jobs Act, wrote a letter to Secretary of the Treasury Steven Mnuchin this month. Split into five comments and requests, the letter touched on the following topics:

1. Support for the Treasury guidelines surrounding the types of business and holding times required for qualified opportunity zone funds, as well as support for a 70 percent threshold proposed by Treasury to meet the “substantially all” requirement surrounding tangible business property owned or leased by a qualified opportunity zone business.
2. Concern for the requirement that a qualifying business must derive 50 percent of its gross income from business conducted within a qualified opportunity zone, instead suggesting that a business merely needs to “derive at least 50 percent of its total gross income from the active conduct of its [opportunity zone] trade or business.”
3. A request that there be flexible time constraints surrounding when opportunity funds make investments in qualified opportunity zone businesses. (This is stressed as important for funds in order to “maintain multi-asset funds and spread risks and costs across a portfolio of investments.”)
4. A request for clarification that the timing requirements for investors to receive the tax benefits of investment in opportunity zone funds be tied to the length of time that the investor keeps a stake in the fund, rather than the amount of time the funds are invested in a specific opportunity zone business.
5. Suggested inclusion in final regulations of a requirement that fund and transaction-level reports be made “in order to prevent against waste, fraud, and abuse, and to ensure that the incentive is delivering impact for communities.”

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