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January 8, 2023

Americas Tax Policy: This Week in Tax Policy for January 6

This week (January 9-13)

Congress: The House is expected to be in session. New Senators were sworn in January 3, and that chamber is only in pro forma session for the next few weeks. The next Senate vote will occur at 5:30 p.m. on Monday, January 23 on a nomination for Assistant Secretary of Defense.

Last week (January 2-6)

Congress: After days of voting, more than a dozen ballots, and an increasing number of concessions offered to conservative members, Rep. Kevin McCarthy (R-CA) is getting closer to the majority of votes (which is generally 218) that is required for election as Speaker of the House. In the 12th ballot, Rep. McCarthy flipped the previous "no" votes of 14 members who had opposed him, but still fell short of threshold required to become Speaker. He subsequently picked up the support of Rep. Andy Harris (R-MD). Following the 13th ballot on Friday afternoon, the House adjourned until 10 p.m. Friday evening, when a 14th ballot may take place. Rep. McCarthy told CNN the afternoon of January 6 that he believes he will have the votes to become Speaker.

The tide began to turn with a potential deal late January 5 between McCarthy allies and conservatives who previously withheld their support. Punchbowl News reported that the deal addresses the budget process, perhaps by bringing up the 12 annual spending bills individually, rather than as an "omnibus" package, and guarantees conservative members seats on the House Rules Committee and other top committees. The Washington Post reported that "McCarthy offered to lower from five to one the number of members required to sponsor a resolution to force a vote on ousting the speaker — a change that the California Republican had previously said he would not accept."

As a practical matter, the Speakership stalemate that consumed the House for the first week of the 118th Congress kept new House members from being sworn in, new committee chairmen (including for the Ways and Means and Budget Committees) from being selected, member assignments that have been part of the Speakership negotiations from being finalized, and the legislative agenda of the Republican-led House from getting underway.

Ways and Means: The three-member race for the Ways and Means chairmanship among Reps. Vern Buchanan (R-FL), Jason Smith (R-MO), and Adrian Smith (R-NE) was on hold given the Speakership impasse and, according to the January 5 Politico Morning Tax, "growing increasingly heated" as Rep. Jason Smith is said to be seeking to keep the Budget Committee chairmanship "in reserve in case he doesn't win Ways and Means." That reportedly isn't sitting well with those also vying for the top Budget post, including Ways and Means members Jodey Arrington (R-TX) and Lloyd Smucker (R-PA), as well as Rep. Buddy Carter (R-GA).

Morning Tax January 4 published a list of potential new GOP members to be added to the Ways & Means:

  • Rep. Mike Carey of Ohio
  • Rep. Randy Feenstra of Iowa
  • Rep. Michelle Fischbach of Minnesota
  • Rep. Scott Fitzgerald of Wisconsin
  • Rep. Nicole Malliotakis of New York
  • Rep. Blake Moore of Utah
  • Rep. Michelle Steel of California
  • Rep. Greg Steube of Florida
  • Rep. Claudia Tenney of New York
  • Rep. William Timmons of South Carolina
  • Rep. Beth Van Duyne of Texas
  • Rep. Rudy Yakym of Indiana

Bloomberg Tax reported January 5 that, even with the departure of Rep. Brendan Boyle (D-PA) to become Budget Committee Ranking Member, Democrats will likely need to cut three members from their side of the dais. It will likely be those with the least amount of seniority.

Congressional outlook: There has been a significant amount of reporting on the challenges of enacting legislation in the divided Congress. A story in the December 31 New York Times said the year-end omnibus appropriations bill may have been the last opportunity for Democrats to pass their priorities for a while. "Now, Democrats may have to wait a long time for another chance as they enter a new legislative world," the story said. "Despite their strong showing in the midterm elections, Democrats will most likely struggle to win the support needed to enact priorities that eluded them while the party controlled Washington for the past two years." The story cited Republican intentions to use fiscal deadlines to force spending cuts and other actions, and the fact that items like the debt limit and energy permitting reform weren't acted upon before the close of the last Congress.

A story in the January 3 Wall Street Journal (WSJ) said, "The opening session is expected to kick off two years of intense political battles over everything from immigration policy to inflation to domestic energy production. With the economy cooling down and the war in Ukraine continuing, the two parties are also expected to spar over the amount of money dedicated to strengthening the U.S. military's position against Russia and China, the best way to stimulate U.S. manufacturing sectors and what role the U.S. government should play in preventing supply-chain problems. As a result, the pace of new legislation is expected to slow compared with what advanced under Democratic President Biden's first two years on issues such as healthcare, climate, infrastructure, veterans' care and gun control."

2022 inaction on tax: The top editorial in the January 3 WSJ, "Unhappy New Tax Year for U.S. Business," bemoaned the inaction on outstanding tax issues in the last Congress, including in the year-end omnibus appropriations bill, saying, "The biggest business tax hit is the end of full, immediate expensing for equipment." On R&D expensing, "This big hit has already arrived. January 2022 marked the end of full expensing for corporate research and development, a benefit that began in 1954," the editorial said. "Companies could previously deduct R&D spending from their next tax bill, but they now have to spread the deduction over several years (five years for domestic spending, 15 for international)." On interest expensing, "The cap on the business interest deduction dropped last year when the formula changed to exclude amortization," the editorial said. It also mentioned the new corporate minimum tax and stock buyback tax.

2023 action on tax: There has been some reporting that Republicans in control of the House this year will take up the issue of extending Tax Cuts & Jobs Act provisions for individuals set to expire in 2025. The three members vying for the Ways and Means chairmanship have all made TCJA permanency a priority. Buchanan's TCJA Permanency Act would make permanent the 2017 tax cuts for individuals and small businesses. Jason Smith sponsors the Main Street Tax Certainty Act to make permanent the Section 199A pass-through deduction.

A January 2 Law360 story said, "Any attempt by House Republican leaders to renew their 2017 tax law will falter in the Senate as long as Democrats control the upper chamber, as will efforts by Democratic leadership to win House approval from Republicans to expand, or even fine-tune, tax provisions enacted in August under the Inflation Reduction Act [IRA] … Democrats on the Finance Committee expressed little desire to work with Republicans on renewal of the 2017 tax overhaul law, which they continue to blame as a root cause of increasing the federal budget deficit. Sen. Debbie Stabenow, D-Mich., said: 'There's no way that that package in its entirety would have the votes. So we'll have to take a look at how well we can get agreement.'" Senator Stabenow subsequently, on January 5, said she would not run for re-election in 2024.

IRA guidance: A story in the January 4 Bloomberg Daily Tax Report said the IRA "placed a massive task ahead for Treasury and the IRS to develop guidance on the law's provisions. The Jan. 1 effective date for many provisions in the law made the guidance a priority for the agencies … " It said while, on clean energy tax credits, initial guidance has been released on issues such as the wage and apprenticeship requirements and clean vehicles, "tax professionals still expect a tranche of guidance on how clients can qualify for … the tax credits and how to monetize them."

EV guidance: Treasury and the IRS have issued three pieces of guidance pertaining to the recently amended clean vehicle credit. Notice 2023-01 announces the government's intention to publish regulations related to the new clean vehicle credit under IRC Section 30D. The proposed regulations will (1) provide guidance on the critical mineral and battery component requirements under IRC Section 30D(e), and (2) define certain terms relevant to the clean vehicle credit requirements under IRC Section 30D. Notice 2023-09 provides a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles placed in service during 2023 for purposes of the credit provided under IRC Section 45W. And new

frequently asked questions (FAQs) address how the credit applies to purchases of clean vehicles that are new, previously owned or commercial.

Manchin objections: The IRS EV FAQs stated, "Until the day after the Treasury Department and the IRS issue proposed guidance on the critical mineral and battery component requirements of the new clean vehicle credit under § 30D, the credit is calculated as a $2,500 base amount" plus additional amounts related to battery capacity. The document continued, "once the Treasury Department and the IRS issue the proposed critical mineral and battery component guidance later in 2023, additional requirements will change the amount of the credit (that is, an eligible vehicle may qualify for more or less credit than before)." Senator Joe Manchin (D-WV) objected to that approach, saying December 29 that Treasury should pause the implementation of the 45W commercial vehicle and 30D new consumer vehicle tax credits until they are able to issue the guidance: "The Treasury Department has known since August that they needed to release proposed guidance on the battery material and components of the Clean Vehicle Credit that accurately follows the intent of the IRA by the end of this year. Instead, Treasury decided they will ignore this deadline and issue proposed guidance in March. In the meantime, they have decided to move forward on implementing these credits without the necessary guidance to ensure taxpayer dollars are being responsibly used. This is an unacceptable outcome and I call on Treasury to pause the implementation of both commercial and new consumer EV tax credits until they have issued the appropriate guidance. In addition to calling for this pause on the implementation of these credits … I will introduce legislation that further clarifies the original intent of the law and prevents this dangerous interpretation from Treasury from moving forward."

CAMT, buybacks notices: Treasury and IRS have issued Notice 2023-07, which provides interim guidance regarding the application of the new corporate alternative minimum tax (CAMT); and Notice 2023-02, which provides interim guidance regarding the application of the corporate stock repurchase excise tax.


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