This week (December 5-9)

Congress: The House and Senate are in session. The House is set to take up a National Defense Authorization Act (NDAA) compromise agreement. The Senate next convenes at 3 p.m. on Monday, December 5, with a nomination vote at 5:30 p.m.

The Georgia Senate runoff election is December 6.

An EU ECOFIN meeting, during which "the Council will discuss the directive on ensuring a global minimum level of taxation for multinational groups in the Union," is also December 6.

Last week (November 28-December 2)

Government funding: Negotiations to extend government funding beyond the current December 16 deadline and into next year have thus far been slow going, but a November 29 meeting of the "Big Four" congressional leaders — House Speaker Nancy Pelosi (D-CA), Republican Leader Kevin McCarthy (R-CA), Senate Majority Leader Chuck Schumer (D-NY), and Republican Leader Mitch McConnell (R-KY) — with the President at the White House seemed to have a logjam-breaking effect on the process. "We're making good progress, papers now being exchanged back and forth," Leader Schumer said on the Senate floor December 2. Some political tensions hampering progress could be lessened following the December 6 Georgia Senate runoff election, which has been viewed as a distraction to some involved in the appropriations process. The three options Congress has for extending the funding are:

• an omnibus funding bill through the duration of the fiscal year ending September 30, 2023, which could possibly include tax, retirement and other add-on items
• a continuing resolution (CR) for the duration of the fiscal year, which would freeze some government funding at current fiscal year levels
• a shorter CR, into early 2023, which could be pursued if Republicans in control of the House in the next Congress want an opportunity to exert more influence over the appropriations process

Following the White House meeting:

• Senators Schumer and McConnell said the leaders agreed that an omnibus funding bill was preferable. Senators have expressed concern that a CR, rather than an omnibus, would delay necessary military investments, and Leader Schumer said an omnibus should be completed for the sake of national security.
• Still, Senator McConnell said his members have a variety of opinions: "If you were interested in reducing spending, probably the best way to do that would be a one-year CR. If, on the other hand, you're concerned about the defense of our country and the funding of the Ukraine war, you are somewhat hesitant to go in that direction."
• Speaker Pelosi — the only one of the four not intending to be in leadership in the next Congress — said, "if we don't have an option, we may have to have a year-long C.R. We don't prefer that. We don't think it's a good idea, but nonetheless, we have to have a bipartisan agreement as to what the top line is" on defense and non-defense discretionary spending.
• Only Rep. McCarthy suggested the possibility of a short-term CR into early 2023 as a fallback option saying, "if we can't get common sense in appropriation bills, then, yes, we'll support a CR and fix this come January."

Most of the discussion among Senate appropriators has been on topline defense versus non-defense discretionary spending levels, which has historically been a point of contention between the parties. (Republicans are typically more eager to increase defense spending than non-defense spending, which is generally more prioritized by Democrats.) Senator McConnell is reportedly insisting that defense spending be increased by a larger amount than non-defense spending. Punchbowl reported an omnibus would require "resolving dozens of policy disputes" and "take three to four weeks," bumping up "against the Christmas holiday and maybe even the new year." Senate Appropriations Ranking Member Richard Shelby (R-AL) said it may take until December 23 to process an omnibus if one comes together. An editorial in the December 1 Wall Street Journal said: "Congressional sources tell us Democrats are asking for $150 billion in additional spending, split roughly between defense and non-defense. That's not counting the White House's separate demand for $9 billion more in Covid funding; a bipartisan push for $38 billion in Ukrainian aid; the annual 'tax extender' dance; or the left's child-tax credit expansion (at least $100 billion annually)."

IRS funding: The $80 billion IRS funding increase that was included in the Inflation Reduction Act (IRA) is playing a role in the back-and-forth over government funding, with a group of Senate conservatives calling for a CR only into early 2023 so Republicans can leverage uncertainty over funding for the remainder of the fiscal year to try to roll back the new funding. Senator Ted Cruz (R-TX), who played a primary role in the 2013 government shutdown, was cited in The Hill newspaper as suggesting the next Republican Speaker, who is expected to be Rep. McCarthy, could use his leverage to block funding for IRS enforcement, and called funding for new IRS agents a "major issue." Cruz and others wrote to McConnell November 30, "We believe it would be both imprudent, and a reflection of poor leadership, for Republicans to ignore the will of the American people and rubber stamp an omnibus spending bill that funds ten more months of President Biden's agenda without any check on his reckless policies." While Rep. McCarthy did not rule out a short-term CR and other House Republicans have said the government funding or debt limit deadlines could be used to force action on IRS funding or other issues, Senator McConnell didn't directly address the question of a short-term CR to strengthen the GOP prerogative.

Tax prospects: Regarding prospects for a tax package, House Ways & Means Committee Ranking Member Kevin Brady (R-TX) reupped his insistence that the focus be on bipartisan items like relief from the IRC Section 174 R&D amortization and IRC Section 163(j) TCJA cliffs, and his skepticism over enhancing the Child Tax Credit as Democrats insist upon. "Brady said Tuesday that [the] child tax credit is a costly provision, noting that extending the research tax breaks until 2025 would cost about $20 billion compared to the cost of extending the child tax credit changes, which would be an estimated $120 billion each year," according to a Law360 report. "'Certainly, there's a mismatch in cost between the bipartisan tax provisions and the child tax credit,' Brady said. 'I think we're going to need to refocus where there's bipartisan opportunity.'" Senate Finance Committee Chairman Ron Wyden (D-OR) said, "We're just beginning to have discussions on taxes," in a December 2 Bloomberg Daily Tax Report (DTR) story on advocacy efforts for relief from the third-party network transactions reporting threshold reduction to $600 under the American Rescue Plan Act. Until Tuesday's Big Four congressional leaders meeting with the President, "when there was a sign of life with respect to the spending issue, I wasn't convinced there'd be much of a path for taxes," he said.

IRS regulations: Treasury and the IRS November 29 announced significant initial guidance on the IRA's wage and apprenticeship requirements to qualify for the law's $270 billion in clean energy and climate tax incentives. Notice 2022-61 starts the clock for the applicability of the requirements for construction beginning 60 days or more after Treasury guidance, meaning they will apply to qualifying facilities, projects, property, or equipment for which construction begins on or after January 29, 2023. A Treasury press release said the prevailing wage and apprenticeship requirements apply to credits including the:

• Advanced Energy Project Credit
• Alternative Fuel Refueling Property Credit
• Credit for Carbon Oxide Sequestration
• Clean Fuel Production Credit
• Credit for Production of Clean Hydrogen
• Energy Efficient Commercial Buildings Deduction
• Renewable Energy Production Tax Credit
• Renewable Energy Property Investment Tax Credit

The wage requirements also apply to the New Energy Efficient Home Credit and Zero-Emission Nuclear Power Production Credit. A December 1 DTR story on the energy wage and apprenticeship requirements notice said, "the guidance didn't give stakeholders all the details needed to comply" and that IRS plans to issue proposed regulations and more guidance. "In order to maximize their piece of the tax credits provided in the Inflation Reduction Act, investors have to pay laborers and mechanics working on their project the prevailing wage — a rate set by the US Department of Labor based on the local hourly pay plus fringe benefits — and use trained workers who have participated in a DOL-official registered apprenticeship program to complete a certain percentage of the project," the story said. "The guidance covers when construction will need to be started, how much time a taxpayer has to finish the project, what reporting is required, and what to do if a prevailing wage isn't already established to meet the labor requirements."

CAMT: Tax Notes reported, "With only a month left until it goes into effect in 2023, Treasury is not dismissing the possibility that some guidance on the corporate alternative minimum tax could come by year-end. '[It's] a fluid process, potentially changing as issues arise and needs come to the spotlight. … We appreciate that there is a need for some immediate guidance,' Timothy Powell of the Treasury Office of Tax Legislative Counsel said at a November 29 event sponsored by the USA branch of the International Fiscal Association."

Global tax: It could be a pivotal upcoming period in terms of potential advancement of the European Union global minimum tax directive, which is currently being blocked by Hungary, as well as the finalization of additional Pillar Two implementation guidance and the release of the GloBE tax return in draft form.

Bloomberg Tax reported that Mathias Cormann, secretary-general of the OECD, said Monday at a Tax Symposium organized by the European Commission that he remained "cautiously optimistic" that the two-pillar global tax agreement would be implemented. Additionally, "Marnix van Rij, Dutch state secretary for tax affairs, warned at the symposium that failure to agree on European Union implementation of the 15% global minimum tax at a finance ministers' meeting Dec. 6 could lead some countries to seek to sidestep the EU's tax unanimity rule," including through the EU's enhanced cooperation procedure for a group of countries to make binding decisions that only apply to the group.

A December 1 Tax Notes story said ECOFIN, the group of EU finance ministers, may need to hold additional meetings even if Hungary drops its opposition to the global Pillar Two proposal "now that the European Commission has greenlighted its recovery and resilience plan." Member state representatives were to discuss Pillar Two issues December 1 ahead of an Economic and Financial Affairs Council meeting December 6. ECOFIN could adopt the Hungarian recovery plan on December 12. "A second ECOFIN meeting dedicated to pillar 2 and the Hungarian recovery plan could be scheduled in December, depending on the outcome of the discussion between the permanent representatives," the story said. A subsequent story said: "The Hungarian permanent representative to the EU told his peers that the country still hasn't changed its position on pillar 2 of the global tax deal ahead of an Economic and Financial Affairs Council meeting. During a December 1 meeting of the Committee of Permanent Representatives (COREPER), Hungary reportedly reiterated its opposition to pillar 2. Officials have suggested that Hungary is using its veto of pillar 2 to get its recovery plan approved." Reuters reported December 2, "Hungary remains opposed to a global minimum corporate tax rate, Prime Minister Viktor Orban told public radio on Friday, citing concern over jobs in the central European country, which has used its low-tax regime to attract investment" including through a 9% corporate tax rate and generous government subsidies. "This is a job killing tax hike, which, if implemented with Hungary's approval, would wipe out tens of thousands of jobs," Orban said. "The tax issue is not a global one, it falls under national jurisdiction."

Another Tax Notes story cited an OECD official as saying the organization is finalizing a large implementation package for the global anti-base-erosion (GLOBE) minimum tax rules but won't scramble to publish it before it's ready just to meet a self-imposed year-end deadline. "We are still trying to work towards that, [but] it's now very close to December," John Peterson of the OECD's Centre for Tax Policy and Administration said November 29. All the major components of the package are there — the OECD just needs to finalize them, he added at an International Fiscal Association conference. "I don't think that we will be trying to push this package out. It needs to be complete, we need to have all the pieces in there, and we need to get them right, so we won't rush to publish just to meet the end-of-year deadline," Peterson said.

Tax Barometer: The November 2022 TTC-EY Business Tax Policy Barometer Report, tracking views on the business community's perceptions on a variety of tax and other policy issues, found:

• High inflation is the top concern (by 46% of respondents), followed by weakening economic growth (by 27% of respondents), and labor shortages (10% of respondents).
• 73% of respondents expect a US recession within the next 12 months.
• 31% of respondents think it likely that relief from the TCJA provision requiring amortization of certain R&E expenses will be enacted, but only 10% think relief from the EBIT-based net interest limitation will be enacted (in 2022).
• Respondents place a 16% (average) likelihood that Pillar One will be ratified by a sufficient number of countries, including the United States, by the Summer of 2023 to go into effect in 2024, while they place a 74% average likelihood that some countries would enact new digital service or other similar unilateral taxes.
• Looking forward to the sunset of certain TCJA provisions in 2026 and 2027, 46% of respondents think it at least very likely that expensing will be extended. Respondents place a 38% likelihood for extension of the lower individual tax rates and a 33% likelihood for extension of the section 199A 20% deduction for qualified business income.
• Over 60% of respondents' companies, industries, or organization ESG programs are at advanced (driving business innovation and supply-chain sustainability) or mid-stage (achieving strategic gains and setting public ESG goals) levels of ESG maturity.
• 83% of respondents think a US carbon pricing regime will not be enacted until after 2025 or not at all.

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