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The IRS has corrected the foreign tax credit regulations (TD 9959) that were published on January 4, 2022. The corrected regulations (i) provide relief from the "cost recovery" requirement; (ii) change the rules for allocating and apportioning foreign tax imposed on disregarded sales of property; and (iii) make several other technical changes to the foreign tax credit and GILTI high-tax exception regulations.

Changes to the regulations had been sought by companies and lawmakers. The July 27 Wall Street Journal reported of the cost recovery requirement: "José Murillo, deputy assistant secretary for international tax affairs, said companies had been reading that part of the rule as more restrictive than it was. In addition, the Biden administration plans to provide examples of cost recovery rules in foreign taxes that would qualify for the credit. It also plans to propose new rules that would make it easier for companies to claim foreign tax credits on certain withholding taxes related to royalty payments."

Chips-Plus Bill — Final Senate votes on the $280 billion "Chips Act for America" (H.R. 4346) are expected today and the bill is expected to pass easily, after the Senate voted 64-32 to invoke cloture on the bill (i.e., cutting off further debate) on Tuesday (July 26), with 17 Republicans voting in support of cloture along with Democrats. The 64 votes in favor of cloture likely understated support for the bill in the Senate, as Senators Patrick Leahy (D-VT), Joe Manchin (D-WV) and Lisa Murkowski (R-AK) missed the vote and all are on record in support of the legislation. (Leahy is recovering from hip surgery and Manchin and Murkowski recently tested positive for Covid-19). Once the "Chips-Plus" bill passes the Senate, votes on the bill are expected in the House on Friday (July 29), where it is expected have enough Republican support (along with that of most Democrats) to pass and head for the President's signature.

The bill is a much narrower version of the Senate's USICA China competition bill (H.R. 4521). A bicameral conference committee was unable to resolve a number of disagreements with the House over trade policy and other issues. Citing the urgency of securing a US supply chain for semiconductors while other countries are tempting chipmakers with incentives, Majority Leader Chuck Schumer (D-NY) and Todd Young (R-IN), sponsors of the original chips-focused Endless Frontier Act, then produced a new bill that extracted USICA's language funding $52.7 billion in grants and subsidies to semiconductor manufacturers and a 25% investment tax credit for semiconductor manufacturing. Commerce Committee Chairman Maria Cantwell (D-WA) helped to assemble a number of other non-controversial science and research elements drawn from USICA that were added to the new bill, including billions in new funding for research at the Department of Energy and the National Science Foundation, which would have a new "Directorate of Technology and Innovation" to oversee the programs created by the bill, including a series of new university technology centers. The bill also includes money for STEM education, workforce training and 5G wireless technology; reauthorizes the country's NASA space programs; and appropriates $20 million to protect Supreme Court justices and their families.

On the floor Tuesday, Sen. Schumer called the bill "a major step for our economic security, our national security, our supply chains and, in fact, for America's future. With this bill we will reawaken the spirit of discovery, innovation, invention and optimism that made America the envy of the world." In addition to Minority Leader Mitch McConnell (R-KY), who reversed his vote from last week's motion to proceed to the bill, the other 16 Republicans who supported invoking cloture on Tuesday included Sens. Roy Blunt (R-MO), Richard Burr (R-NC), Shelley Moore Capito (R-WV), Bill Cassidy (R-LA), Susan Collins (R-ME), John Cornyn (R-TX), Steve Daines (R-MT), Lindsey Graham (R-SC), Bill Hagerty (R-TN), Jerry Moran (R-KS), Rob Portman (R-OH), Mitt Romney (R-UT), Ben Sasse (R-NE), Thom Tillis (R-NC), Roger Wicker (R-MS) and Young. Among senators caucusing with Democrats, only Bernie Sanders (I-VT) voted against cloture.

Tax — A WSJ story contemplated Democrats ending up empty-handed from their ambitious tax increase ideas dating from the 2020 presidential election, with Biden administration proposals whittled down through the course of consideration of a reconciliation bill before being dropped in the latest Manchin-Schumer talks. "[D]espite holding the White House and narrowly controlling the House and Senate for nearly two years, Democrats are likely to walk into the midterm elections having barely budged tax policy in their direction. They implemented temporary tax breaks in their pandemic response law and might yet extend some other provisions later this year," it said. "The big ideas meant to take on inequality and raise money for the party's climate and family-support agenda went nowhere — even though many tax increases are popular in polls and budget rules would let Democrats implement them without a single Republican vote."

Health — In the other direction, a Washington Post story said President Biden is poised for some big wins with: "The first major prescription drug legislation in nearly 20 years. More than $50 billion to subsidize computer chip manufacturing and research. A bill that would enshrine protection for same-sex marriage." The story suggested the semiconductor bill and prescription drug bill would represent major achievements but are also retreats from bigger proposals. Phil Schiliro, who was head of legislative affairs for President Obama, said of the health bill, "This is a very big deal, and if Democrats had tried to just do this, it would be looked at as an enormous achievement." He said some attention will be paid to what is not in the bill.

The health-focused reconciliation bill addressing Medicare prescription drug negotiation and the extension of expanded Affordable Care Act (ACA) health insurance premium tax credits — which is a pivot from a broader package shut down due to Senator Manchin's inflation concerns — is still before the Senate parliamentarian, but action is expect prior to the scheduled start of the chamber's summer recess August 5 (the House is set to be out after this week but can be brought back to vote). Bloomberg reported Senate Finance Committee Chairman Ron Wyden (D-OR) as saying adding additional IRS funding may be added to the bill: an additional $80 billion for the IRS to raise $120 billion in revenue from tax audits on the wealthy could offset the cost of expanded premium subsidies for additional years or pay for Covid vaccines.

A Post editorial said of the health bill: "while the extended ACA subsidies will help low-to-middle-income Americans stay insured, the poorest might end up left in the lurch. That's because in 12 states that have refused to adopt the landmark law's Medicaid expansion, an estimated 2.2 million people, mostly of color, languish in the so-called coverage gap: eligible neither for Medicaid nor for subsidies in the ACA marketplace. Build Back Better as originally envisioned sought to fix this fault by letting people in non-expansion states enroll in subsidized plans after all, but the provision has fallen by the wayside."

Budget — The staff of the Joint Committee on Taxation July 25 released revenue estimates of the Administration's Fiscal Year 2023 revenue proposals. The FY2023 Budget released in March was unusual for folding most of the House-passed BBBA into the baseline and assuming it had been enacted. As mentioned, those proposals have since run aground. Other tax increase proposals knocked out of the BBBA were included, such as increases in the corporate and individual tax rates, as well as new starters like replacing the Base Erosion and Anti-avoidance Tax (BEAT) with part of the OECD Pillar Two rules, called the Undertaxed Profits Rule (UTPR). JCT estimated the budget proposals to total $1.7 trillion over 10 years.

Friday, July 29 (12:00 p.m.), is the EY Webcast, "Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments." Register.

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