April 8, 2022
What to expect in Washington (April 8)
On April 7, the Senate confirmed Judge Ketanji Brown Jackson to be a Supreme Court Justice (by a 53-47 vote); and approved bills suspending trade relations with Russia (100-0 vote) and banning Russian oil imports (100-0 vote). The House previously passed versions of both bills then yesterday approved the Senate versions, sending them to the President. The Hill reported that leaders dropped language to broaden the definition of human rights violations under the Magnitsky Act reauthorization to satisfy Senator Rand Paul (R-KY) and allow the trade bill to advance.
Also April 7, Senate Finance Committee Chairman Ron Wyden (D-OR) and Senator Rob Portman (R-OH) released a discussion draft of legislation to disallow foreign tax credits and other tax benefits for companies that pay taxes to the Russian government, and for sanctioned individuals. “The tax code already disallows lower tax rates and foreign tax credits for companies paying taxes to countries with rogue regimes,” they said. “Our commonsense proposal simply adds Russia and Belarus to that list.” Thirty days after becoming law, tax code section 901(j) would apply to Russia and Belarus, then any income taxes paid or accrued to Russia or Belarus, and attributable to the period after section 901(j) applies, would be ineligible as a foreign tax credit. Further, under section 952(a)(5), income derived by a CFC from countries subject to the section 901(j) is automatically treated as subpart F income, subject to the 21% corporate rate, and losses cannot be used to offset other income earned as global intangible low-taxed income (GILTI). Transition relief is provided to companies that have exited or are in the process of exiting the countries. Comments are due April 21.
Competitiveness – Congress will be out for two weeks, through April 22, and plan to be busy upon returning. Senate Majority Leader Chuck Schumer (D-NY) said April 7, “it has been a very busy April; it has been a very busy March work period, and when we come back in May, it is going to be very busy again. We have a whole lot to do.” The agenda is expected to include the America COMPETES/USICA competitiveness bill and a $10B COVID package, and Senator Schumer has said he is interested in reviving budget reconciliation talks.
Senate Banking Committee Chairman Sherrod Brown (D-OH) said he expects votes on President Biden’s four Fed nominees – Jerome Powell, Lael Brainard, Philip Jefferson, and Lisa Cook – in late April. The next Senate vote will be on Monday, April 25 (5:30 p.m.) on a procedural vote on the Brainard nomination.
Members of what will be a very large conference committee on the competitiveness bills were announced April 7 and include the chairmen and ranking members of the House and Senate tax-writing committees, which have jurisdiction over trade issues and a related Health Care Tax Credit in the House bill for health insurance costs of those eligible for Trade Adjustment Assistance (TAA). Conferees include the following:
Tax – The Senate Finance Committee IRS budget and filing season hearing with IRS Commissioner Chuck Rettig April 7 included discussion of the tax return backlog – specifically, what is currently exacerbating the issue and what can be done to help – and ability of constituents to speak to agency representatives on the phone. Many of the issues stem from the lack of technological modernization within current IRS systems, and Commissioner Rettig stated that the FY2023 budget request could provide funds to improve taxpayer services and modernize systems. Commissioner Rettig said the President’s Budget calls for 85% telephone level of service but that depends on adequate funding. Senator Bill Cassidy (R-LA) said he wants his bill (S. 2583) to make penalty-free withdrawals from retirement accounts automatic after the President issues a disaster declaration to be part of retirement legislation that may move through the Committee. Asked about the tax gap, Rettig said IRS will release the 2014-2016 tax gap as well as projections for 2019 this summer.
Amid rumblings about reviving budget reconciliation talks, a Wall Street Journal editorial said: “Democrats say they’re going to make one more major effort to pass President Biden’s Build Back Better plan, despite soaring inflation and the end of the Covid emergency. The mooted deal seems to involve a giant tax increase, half-a-trillion dollars in green-energy subsidies, and perhaps more social spending. This is a bad idea with especially bad timing given economic uncertainty as interest rates rise. And look no further than Mr. Biden’s recent budget to see why. He is proposing $2.5 trillion in new taxes that would give the U.S. the highest or near-highest tax rates in the developed world.”
An EY Alert, “EU Finance Ministers continue negotiations to adopt Pillar Two Directive in light of Poland’s remaining objection,” is available here.
Digital assets – On April 7, Treasury Secretary Janet Yellen delivered remarks on digital assets policy, saying in part: “taxpayers should receive the same type of tax reporting on digital asset transactions that they receive for transactions in stocks and bonds, so that they have the information they need to report their income to the IRS. Under the Executive Order, we will work to make sure consumers, investors, and businesses have adequate protections from fraud and theft, privacy and data breaches, and unfair and abusive practices.”
What to Expect in Washington won’t be published while Congress is away, but WCEY Alerts will be issued as events warrant.