February 18, 2022
What to expect in Washington (February 18)
The Senate approved 65-27 a continuing resolution to fund the government through March 11, after dispensing with amendments on vaccine mandates and other issues. Now, both chambers of Congress are in recess for President’s Day, returning February 28, followed by the State of the Union Address March 1. An omnibus appropriations bill could come together by March 11 but may not include additional COVID relief. Appropriations Chairman Patrick Leahy (D-VT) said in Politico he is reluctant to reopen the omnibus for other issues and COVID funding “should probably be a separate bill.”
BBBA – White House Chief of Staff Ron Klain met with Senate Democrats February 17. The Wall Street Journal cited members as saying Klain didn’t indicate that the Administration would try to rally support for the Build Back Better Act (BBBA), but “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 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.”
On a related note, Axios reported last night, “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.” Inflation seemed to overshadow resurrecting the BBBA beginning late last week, and Senate Democrats decided February 15 to move bills in March intended to cut costs for consumers, such as a gas tax holiday, state sales tax holiday, cutting prescription drug costs, etc.
Climate/energy – A February 16 Washington Post story highlighted climate-related investments that are being put on hold as the BBBA is stalled along with its roughly $550 billion in clean energy and climate business provisions, about $311 billion of which is in the form of tax credits and incentives. “Industry groups, as well as climate activists, have been frustrated by the delays,” it said. The story noted incentives for EVs, nuclear power, transmission property, carbon capture, and aviation fuel.
Global tax – Senate Finance Committee Republicans February 17 wrote to Treasury Secretary Yellen raising issues with global tax negotiations, saying, “Despite the United States having the world’s only global minimum tax, Treasury continues to take the position that Congress should make the U.S. global minimum tax harsher before other countries take any action. It is one thing for the Administration to advocate for higher taxes as part of its domestic tax agenda, but quite another to explicitly negotiate an international agreement that would subject U.S. companies to double taxation unless Congress acts accordingly.”
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.
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 Ron Wyden (D-OR) 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.
Today, February 18 (12:00 p.m.) is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register.
With Congress out next week, What to Expect in Washington won’t be published, but Alerts will be issued as events warrant.