Hamill: The ‘One Big Beautiful Bill’ wants quick deductions. Will regulation keep up?

I want to focus on three things that are in the House-passed version of the “One Big Beautiful Bill Act.”

The Trump administration wants this bill passed by July 4, apparently to create the opportunity to label it as tied to independence and/or patriotism.

I am not concerned about the passage or even the timing, but more about the interesting demand the act creates for regulation.

I have previously written about tax practitioners’ preference for regulatory guidance. Tax statutes are often vague, and we need the Treasury Department’s guidance.

The administration is anti-regulation. So much so that a February executive order mandates that 10 regulations be eliminated for every new one added.

The bill creates a deduction for certain tip income. The deduction is not available if income exceeds a threshold.

But the more important question is how the statute defines a tip. It must be voluntary, with no consequences for failure to pay.

It must be paid “in an occupation which traditionally and customarily received tips on or before Dec. 31, 2024.”

These occupations will be listed by regulation. The regulation must be published within 90 days of enactment of the legislation.

If the Treasury must act so quickly to publish the guidance, will it also be necessary to quickly eliminate 10 other regulations? Or will there be an exemption to that rule?

Will the normal notice and comment periods for regulations, mandated by the Administrative Procedures Act, be followed?

Or will this guidance be in some form other than formal regulations, such as an IRS Notice or Revenue Procedure?

The latter form of guidance would allow expedited publication but may also be more readily challenged by those whose occupations are not listed.

Overtime pay is also subject to a deduction. For this provision, “overtime” is defined by reference to the Fair Labor Standards Act of 1938.

But since classification of pay as “overtime” now also creates a tax advantage, the Treasury may need to offer additional guidance on implementing the rule.

Both tip and overtime deductions are available only for the 2025-2028 years of the Trump administration.

Both deductions also require that a Social Security number be provided for the recipient of the benefit.

If a joint tax return is filed, both spouses must have a Social Security number. This links the deduction to immigration status.

U.S. citizens and “resident aliens” are subject to tax on worldwide income. Nonresident aliens are generally taxed only on U.S.-sourced income.

If a citizen is married to a nonresident alien, the general rule is that no joint return can be filed. The spouses are subject to different tax rules.

But a joint return may be filed if the nonresident alien spouse agrees to be subject to worldwide income taxation.

The nonresident alien spouse would generally have an ITIN rather than a Social Security number (SSN). In some cases, they may be approved for a SSN.

A nonresident alien spouse would need to be approved for a SSN if the tip or overtime deduction is to be claimed on a joint return.

The “Beautiful” legislation also creates a new deduction for interest paid on a loan to purchase a qualified passenger vehicle.

The deduction can be as much as $10,000 each year and is phased out as income exceeds a threshold.

A passenger vehicle cannot be used for commercial purposes, and can include trailers, campers and motorcycles.

The deduction is available only for 2025 through 2028. The loan must have been for a post-2024 purchase. As written, it is not limited to new vehicles.

The sticky point may be that the vehicle must have been finally assembled in the U.S. The legislation attempts to define this.

The definition is vague. It is likely that the Treasury will be forced to issue further guidance on the final assembly issue.

The lender will also have additional reporting requirements relative to current law. This includes the year, make and model of the vehicle.

The lender’s reporting may also include any other information prescribed by the Treasury.

Presumably, this reporting is to allow the IRS to check that the vehicle meets the final assembly requirement.

New law. New regulations or other mandated guidance. New reporting requirements. New complexity. Higher tax preparation fees? Maybe.