December 25, 2022
Americas Tax Policy: This Week in Tax Policy for December 23
This week (December 26-30)
Congress: The House and Senate will be out of session.
Note: This Week in Tax Policy won't be published while Congress is away.
Last Week (December 19-23)
Government funding: Congress has approved the $1.7 trillion omnibus appropriations bill, albeit without most of the tax items that have long been discussed for inclusion. The House passed the bill 225-201 (with one member voting present) December 23 and sent it to the President, after it was approved 68-29 in the Senate's last vote of the 117th Congress on December 22. The bill does not include business tax provisions like relief from the IRC Section 174 R&D amortization requirement or modifications to IRC Section 163(j) — both of the TCJA cliffs that took hold this year — tax extenders, or an expanded Child Tax Credit (CTC). Democrats insisted on a CTC expansion as a condition of supporting business tax items, and a deal with Republicans couldn't be struck. The bill does include:
The staff of the Joint Committee on Taxation has prepared revenue estimates of the Code provisions included in H.R. 2617, the "Consolidated Appropriations Act," as passed by the Senate on December 22, 2022.
CTC-for-business-items debate: The debate over the CTC and other tax items is poised to continue next year, though a resolution is unclear. "Republicans have already said they're turning to next year to extend or make permanent some key business tax breaks, including one for research and development costs and more favorable rules for interest expenses and capital expenditures," Bloomberg Tax reported. "Some Democrats are staying firm that they won't give businesses tax breaks without an expanded child tax credit." Senate Finance Committee member Michael Bennet (D-CO) tweeted December 20: "GOP leaders sent a lump of coal to America's children this year — they refused to even discuss a deal for kids and businesses. I will continue to oppose cutting taxes for corporations without passing an expanded Child Tax Credit." The Wall Street Journal editorial page opined, "At least Republicans blocked Senate Majority Leader Chuck Schumer's cannabis-financing bill and an expansion of the child tax credit. But Congress also failed on the one bipartisan provision that might help the economy next year: a reinstatement of full deduction for business research and development expenses."
A Washington Post story, "Congress isn't extending four popular tax breaks in omnibus bill passage," focused on the CTC expansion, restoration of R&D expensing — noting that it was supported 90-5 in a nonbinding Senate vote in May — the bonus depreciation phase-out to begin next year, and the 163(j) interest deduction calculation. On the latter provision, the story said, "Companies that take on debt and then pay interest on that debt can treat those interest payments as a business expense and deduct them on their tax returns. But the 2017 law set a stricter cap, starting in 2022, on just how much of those interest expenses companies can deduct. The change could cost corporations billions of dollars, added up across all the companies that will be affected."
Reporting: Senators Shelley Moore Capito (R-WV), Joe Manchin (D-VA), and Bill Hagerty (R-TN) were among those advocating for relief from the third-party network transactions reporting threshold reduction to $600 under the American Rescue Plan Act, which was discussed in relation to the omnibus but not included. A New York Times story said, "for millions of Americans, the new requirement means additional tax forms, potentially higher tax bills and a lot of confusion." While users were previously supplied "with a snapshot of their income called a 1099-K form only if they received more than $20,000 and had more than 200 transactions," those thresholds "were lowered to $600 for the entire year, regardless of the number of transactions, significantly broadening the number of people who receive such payments and who are likely to be required to pay more taxes." The story said, "Many taxpayers who run small businesses, or occasionally sell goods on the side, often mix their business and personal transactions. They could face messy fights with the I.R.S. if their tax forms erroneously show them making more income than they actually earned."
The IRS subsequently, on December 23, announced a delay in reporting thresholds for third-party settlement organizations. "As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021," IRS said, adding that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations.
Congress: CNN reported, "The House passed legislation Thursday that would reform the Internal Revenue Service's presidential audit process … The legislation, which passed 222-201, would require the IRS to conduct an audit of a president's tax returns, as well as the tax returns of a president's business entities, quickly after they are filed. The legislation would also require the IRS to release public updates on the status of the audit and release the tax returns within 90 days of filing."
Tax expenditures: JCT staff has also prepared a report on tax expenditures for fiscal years 2022–2026, based on the provisions in Federal tax law enacted through August 16, 2022.
IRS: Treasury has announced a timeline for providing additional information on key tax provisions of the Inflation Reduction Act (IRA). By December 31, 2022, Treasury intends to provide: (1) frequently asked questions for consumers on the tax credit for energy-efficient home improvement projects and residential energy property; (2) initial guidance on the corporate alternative minimum tax; (3) initial guidance on the stock buyback excise tax; and (4) information on the anticipated direction of the critical mineral and battery component requirements that vehicles must meet to qualify for IRA tax incentives.
Notice 2023-06 provides guidance on the new sustainable aviation fuel credits.
In a new Fact Sheet (FS-2022-40), the IRS answers a series of frequently asked questions (FAQs) regarding energy efficient home improvements and residential clean energy property credits, as amended by the Inflation Reduction Act (IRA).
Global tax: On December 20, the OECD released a new Pillar One consultation document relating to DSTs and similar measures, two consultations on Pillar Two addressing the GloBE tax return and dispute resolution, and a separate document on Pillar Two safe harbors. Except for the agreement on a transitional safe harbour for Pillar Two, the Inclusive Framework approved the release of these documents for consultation without expressing any final agreement. The documents address:
EY Alerts on OECD releases: