February 20, 2022
Americas Tax Policy: This Week in Tax Policy for February 18
This week (February 21-25)
Congress: The House and Senate are out of session.
OECD: On February 21, OECD is hosting a "Tax Talk " live webinar with experts from the Centre for Tax Policy and Administration for an update on their work, in particular on the implementation of the agreement reached last October to reform international tax rules and on upcoming public consultations.
With Congress out this week, This Week in Tax Policy won't be published, but Alerts will be issued as events warrant.
Last week (February 14-18)
Outlook: There are increasing signs that lawmakers want to focus on inflation and cutting consumer costs over resurrecting the Build Back Better Act (BBBA), amid increasing economic concerns and approaching midterm elections. The Wall Street Journal reported some Senate Democrats as saying White House Chief of Staff Ron Klain, who met with them February 17, didn't indicate that the Administration would try to rally support for the BBBA; "instead, the president is likely to focus on legislation that could have bipartisan support." Senator Ben Cardin (D-MD) said of the BBBA, "We didn't talk about it as a vehicle for passage; we did talk about a lot of the items it included." The report cited Klain as saying the State of the Union address would focus on fighting inflation and expanding manufacturing in the U.S. as a way to untangle supply chains. Sen. Richard Blumenthal (D-CT) was reported as saying Democrats "know the priorities have to be Covid, cost of living and crime. And we're going to have initiatives on all of them." The Hill Newspaper reported, "Klain talked about the provisions of Build Back Better, such as funding for expanded child care, as general goals but did not lay out any specific timeline or plan for getting them passed into law." There was some BBBA-related acrimony between the White House and Senator Joe Manchin (D-WV) last year, which the report suggested may have contributed to Klain declining to press for action on the bill and addressing economic concerns that Manchin has highlighted. "The White House has made that very clear. They made it very clear that inflation and costs is a burden on a lot of people," Manchin said. A February 18 Washington Post report said of the BBBA, "it's not clear such a plan exists anymore, at least in any recognizable form. Behind the scenes, discussions between the White House and key senators on what was once a massive climate and social spending package have virtually evaporated. It's far from evident what, if any, version of Biden's once-sweeping proposal could pass this year and what it would include." The report said Senate committee chairmen, including Finance Committee Chairman Ron Wyden (D-OR), are "tentatively planning hearings in coming weeks on different parts of a new social spending package."
Separately, Axios reported February 17, "Several Democratic senators facing re-election are looking past President Biden's stalled Build Back Better agenda as they ramp up other plans to try to ease voters' inflation fears" and "making independent decisions to set themselves up for success in November, whether it's suspending the federal gas tax until 2023, extending homebuyers' deductions or other ideas." Senate Democrats decided February 15 to move bills in March intended to cut costs for consumers, with ideas including a gas tax holiday, state sales tax holiday, cutting prescription drug costs, etc.. Majority Leader Chuck Schumer (D-NY) suggested separate bills would be brought up, rather than being combined or attached to a package. "If we can get 60 votes on a bunch of them, that's fine," he said. "But when we can't, we're still going to move forward, and you'll see some votes on the floor on these as well." Senate Republicans don't appear supportive of the effort, and GOP Whip John Thune (R-SD) said a gas tax holiday is "an attempt to provide some political cover for Democrats who are running for re-election this year."
Tax rates: It was reported the Biden administration was considering retooling the BBBA as a deficit reduction measure to win the support of Senator Manchin — who continues to raise concerns about inflation, the $30 trillion federal debt, and the BBBA's temporary provisions that mask future costs — but there hasn't been any word on progress on that effort. There are differences of opinion over whether tax rate increases should be included. Senator Manchin has reupped his call for a 25% corporate rate and 28% top capital gains rate plus no carried interest, while Senator Kyrsten Sinema (D-AZ) maintains her opposition to rate increases, which caused them to be bumped from the House-passed BBBA. The Wall Street Journal February 14 reported Senator Manchin as saying, "Why can't we just get a good solid tax plan that works? … That's the first thing to do." Regarding the tax rate impasse with Senator Sinema, he said, "I respect her and what her concerns may be, but I think basically our financial situation is getting worse, not better, so maybe we can take another look at it." The report said having tax increases exceed spending in the package is a possible way to win Manchin's support and, while other Democrats want tax rate increases, some want the party to "focus on established areas with a Sept. 30 deadline for getting the bill through the Senate under expedited rules that let Democrats dodge a filibuster."
Year-end tax changes: There continues to be pressure on Congress to address tax provisions that expired or changed December 31, 2021, many of which have extensions that were embedded in the BBBA. These include energy tax extenders and the TCJA cliff on IRC Section 174, requiring five-year R&D amortization rather than expensing. Tax Notes reported Senator Maggie Hassan (D-NH) as saying rolling back the IRC Section 174 requirement is part of discussions for inclusion in the FY2022 omnibus spending bill. "We're having ongoing discussions about that issue as well as making the R&D tax credit more available to small businesses and start-ups," Senator Hassan said.
Cryptocurrency: Add cryptocurrency reporting changes to the list of tax provisions lawmakers want addressed. Law360 February 15 reported: "Several senior Democrats said potential limits on the tax information reporting mandate for cryptocurrency brokers enacted in the bipartisan Infrastructure Investment and Jobs Act (117 P.L. 58) could move in a package of extensions of expired tax incentives, including tax breaks for research and business interest expenses. They said other cryptocurrency-related tax measures could be examined in tandem with a proposal to clarify the reporting mandate's scope and moved in an omnibus spending bill … or other legislation." House Ways & Means Committee Chairman Richard Neal (D-MA) said proposals to change the scope of the new reporting mandate would be evaluated as part of an examination of tax issues involving cryptocurrency and nonfungible tokens, or NFTs, and that "the whole process of cryptocurrency needs a full review here." During August 2021 consideration of the IIJA, a standoff over the legislative process was credited with preventing the consideration of additional amendments, including on cryptocurrency, and the House subsequently passed the Senate bill in November following its own controversy over interplay with the BBBA. Chairman Wyden had wanted to clarify that that "brokers" for purposes of the requirement means only those who conduct transactions on exchanges and said in the report he wants to make certain "the information reporting mandate does not cover cryptocurrency miners, developers of digital assets and sellers of certain hardware and software used to control access to cryptocurrency."
Global tax: Ahead of her virtual participation in the meeting of G20 finance ministers and central bank governors, Reuters reported a Treasury official as saying Secretary Yellen "will express confidence that momentum will be maintained among 136 countries to finalize an agreement for a 15% global minimum corporate tax this year, so that it can be put into force in 2023. The official said Democrats in the U.S. Congress broadly support the international tax provisions. 'Secretary Yellen expects they will be part of any Build Back Better bill passed,' the official added … " OECD subsequently presented an international tax update to G20 finance ministers and central bank governors.
On February 18, OECD announced it is seeking public comments on Draft Rules for Tax Base Determinations under Amount A of Pillar One and said the Inclusive Framework agreed to release a public consultation document in order to obtain public comments, "but the draft rules do not reflect consensus regarding the substance of the document." Comments are due no later than March 4.
IRS: IRS February 16 provided further details on additional transition relief for some domestic partnerships and S corporations preparing the new schedules K-2 and K-3, and those eligible for the relief will not have to file the new schedules for tax year 2021. The new schedules K-2 and K-3 are intended to improve reporting by standardizing international tax information to partners and flow-through investors.
SFC hearing: During a February 17 Finance Committee hearing on "Spotlighting IRS Customer Service Challenges," Senators didn't ask about the K-2 and K-3 issue, though an AICPA witness recommended "the IRS delay the implementation of the Schedules K-2 and K-3 to at least the 2023 tax filing season (the 2022 tax year)." Also during the hearing, Chairman Wyden rekindled talk about the potentially $1 trillion annual tax gap, saying "at a time when a lot of members are concerned about prices going up for a lot of goods and services, closing the tax gap and making sure the rich pay what they owe is a promising way to cut the deficit and fight inflation." Senator Rob Portman (R-OH) expressed concern about the 15% corporate minimum tax proposal in the House-passed BBBA, saying it would override bonus depreciation, alter the foreign tax credit system, impose adverse treatment on investments in state & local bonds, and that JCT has said manufacturers would be hit the hardest because of their capital investment.