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June 18, 2023

Americas Tax Policy: This Week in Tax Policy for June 16

This week (June 19-23)

Congress: The Senate will return for business at 3:00 p.m. on Tuesday, June 20. The Finance Committee has scheduled a hearing on "Cattle Supply Chains and Deforestation of the Amazon" for Thursday, June 22 (10 a.m.). The Taiwan Tax Agreement Act (S. 1457) is back on the schedule for a Wednesday, June 21 Foreign Relations business meeting, after consideration was scuttled from a June 8 meeting over privacy concerns from Senator Paul.

The House is also in this week. On Thursday, June 22 (12 p.m.), the House Budget Committee holds a hearing on "Reigniting American Growth and Prosperity: Incentivizing Economic Excellence Through Tax."

Last week (June 12-16)

Ways & Means bills: The House Ways and Means Committee June 13 approved three separate tax packages — the Tax Cuts for Working Families Act, Small Business Jobs Act, and Build It in America Act — after an all-day markup. Combined into the American Families and Jobs Act, the measures fulfill Chairman Jason Smith's (R-MO) commitment to develop a tax-based economic package springing from field hearings the Committee has held this year. The bills aren't expected to be enacted as-is, given that the TCJA "pre-cliffs" relating to expensing of R&D costs, interest deduction limitations under IRC Section 163(j), and 100% expensing remain stuck in a partisan impasse over the Child Tax Credit (CTC) expansion sought by Democrats, who are also opposed to rolling back clean energy provisions from the Inflation Reduction Act (IRA) that Republicans want to use as revenue offsets. However, the bills could represent the House GOP's negotiating position for talks later this year aimed at constructing a year-end tax extenders package should the opportunity arise and a government spending or other must-pass vehicle for the package emerge. Many of the amendments offered by Democratic members during the markup reflected those issues of concern — the CTC and rolling back clean energy provisions — and Democrats otherwise gave indications of their positions on tax issues. Ways & Means Ranking Member Richard Neal (D-MA) said he wants to begin serious negotiations on a package that could gain bipartisan support. "There's opportunity here to find a path forward for all of us," Rep. Neal said. Ways & Means also approved the bipartisan, bicameral United States-Taiwan Initiative on 21st-Century Trade First Agreement Implementation Act (H.R. 4004),

The timing of potential floor consideration isn't clear. The Washington Post said the effort "could become a major liability for Republicans and another headache for Republican leadership," because Freedom Caucus members — who held up recent floor activity over opposition to the debt limit bill — "are criticizing the idea of moving forward with hundreds of billions of [dollars in] tax cuts shortly after House Republicans demanded major cuts to spending in exchange for lifting the debt limit." Tax Notes subsequently reported the package could come to the House floor as soon as next week. "'If we don't get it done next week, then we're out of here for two weeks,' said senior House Ways and Means Committee member Mike Kelly, R-Pa. … After that recess, the House reconvenes July 11 for three weeks and then takes a six-week recess until September 12 … Other committee Republicans, who met the morning of June 15 as a caucus, confirmed that the hope is to bring the bill to the floor the week of June 19, if possible. Otherwise, July becomes the target." The report noted some members are pushing for SALT cap relief. A June 15 Semafor article, "What to make of the Republicans' big tax bill," said the package "offers a look at the party's next priorities on its signature economic issue, and plants a flag ahead of 2025, when sunsetting pieces of the Trump tax cuts will set the stage for a potentially historic showdown over how to rejigger the IRS code. And some lawmakers suggest that the bill may be the first volley in negotiations for a bipartisan tax deal as soon as this year."




Tax Cuts for Working Families Act (H.R. 3936) approved 24-16

renames the standard deduction the guaranteed deduction, adds a new bonus guaranteed deduction of $2,000/individual and $4,000/married filing jointly, phased out at a 5% rate for taxpayers with modified AGI of $200,000/individual and $400,000/married filing jointly


Small Business Jobs Act (H.R. 3937) approved 24-18

- increases the independent contractor information reporting threshold under IRC Sections 6041 and 6041A to $5,000 in a calendar year

- reverts to the previous de minimis reporting exception for commercial payments to third party settlement organizations of $20,000

- for the Section 1202 exclusion for gain on sale of qualified small business stock:

  • shortens the holding period
  • provides a holding period tacking rule with respect to a qualified convertible debt instrument
  • extends exclusion for IRC Section 1202 gains to stock in S corporations

- increases maximum IRC Section 179 small business expensing amount to $2.5m and phase-out threshold amount to $4m

- establishes rural opportunity zones


Build It in America Act (H.R. 3938) approved 24-18

- TCJA cliffs, reverts through 2025 (retroactive) to prior policy on:

  • R&D expensing in place of the IRC Section 174 R&D five-year amortization requirement
  • IRC Section 163(j) interest deduction limitation (EBITDA threshold)
  • 100% bonus depreciation

- Supply chain security:

  • repeals the Hazardous Substance Superfund excise tax for oil
  • provides for creditability of certain foreign taxes without regard to current foreign tax credit (FTC) regulations
  • imposes a 60% excise tax on purchases of U.S. farm and ranch land by entities from "a country of concern"
  • clean energy provisions repealed or modified:
  • repeal of clean electricity production credit
  • repeal of clean electricity investment credit
  • modification of clean vehicle credit
  • repeal of credit for previously owned clean vehicles
  • repeal of credit for qualified commercial clean vehicles

TCJA cliffs:


Supply chain:


Clean energy:


Total, H.R. 3938:


Total all bills:


Global tax: On international tax, Rep. Ron Estes (R-KS), who has been vocal on the issue, during the hearing cited the Joint Committee on Taxation as saying global implementation of Pillar Two of the OECD-led global tax agreement would cost the US Treasury $120 billion in lost tax revenue, and, if the US changes its tax code to comply with Pillar Two provisions, it would still cost $52 billion. Estes made these comments without any explanation of the underlying assumptions that are part of those estimates. He said the global minimum tax would result in the egregious undertaxed profits rule (UTPR) and Chairman Smith has introduced legislation to combat such taxes.

Treaties: Senate Majority Leader Chuck Schumer (D-NY) June 15 filed cloture on Treaties Calendar #1 (112-8), the Tax Convention with Chile. A spokesman for Minority Leader Mitch McConnell (R-KY) said the plan is for the measure to be on the floor next week. The US-Chile tax treaty made it out of committee but not onto the floor in the last Congress, and the Foreign Relations Committee approved it again June 1 after Republican concerns about potential double taxation relating to foreign tax credits were addressed through some new language. Senator Rand Paul (R-KY), who has blocked tax treaties over privacy concerns, voted against the treaty, and it isn't clear what may be required to work past an objection. In 2019, votes on amendments were required to clear the Spain treaty. The Bloomberg Daily Tax Report said, "The resolution could be passed by the end of next week, but a vote could be delayed until the following week if [Sen. Paul] — a longtime tax-treaty foe — seeks to slow the vote and run out the clock on the 30 hours of required debate."

Energy tax: On Wednesday, June 14, IRS released proposed regulations (REG-101610-23) on the Inflation Reduction Act's (IRA) tax credit transferability provision allowing transfer of all or a portion of an eligible credit to unrelated taxpayers for cash payments. Eleven credits are eligible: alternative fuel vehicle refueling (Section 30C), renewable electricity production (Section 45), carbon oxide sequestration (Section 45Q), nuclear power production (Section 45U), clean hydrogen production (Section 45V), advanced manufacturing production (Section 45X), clean electricity production (Section 45Y), clean fuel production (Section 45Z), energy Section 48), advanced energy projects (Section 48C), and clean electricity investment (Section 48E). Reuters reported, "Businesses can also choose direct pay, but only for the advanced manufacturing, carbon capture and storage and clean hydrogen credits, Treasury said." Treasury said, "Entities without sufficient tax liability were previously unable to realize the full value of credits, which raised costs and created challenges for financing projects."

Another set of proposed regulations (REG-101607-23) addresses the IRA provision that allows entities like tax-exempt organizations, state and local governments, and rural electric cooperatives to treat certain credits as a payment against federal income tax liabilities, rather than as a nonrefundable credit. (The payment will first offset any tax liability of the entity and any excess will be refundable.) Applicable credits are the same as for transferability, with the addition of the credit for commercial vehicles (Section 45W). "Direct pay is a game-changer for our ability to spread the benefits of clean energy to every community in America," said John Podesta, Senior Advisor to the President for Clean Energy Innovation and Implementation. "This provision of the Inflation Reduction Act will make it easier for local governments, Tribes, territories, nonprofits, schools, houses of worship and more to invest in clean energy … "

It has been widely noted that, until now, tax equity financing was the primary means of monetizing unused tax credits. Regarding the practical use of the provisions, the Wall Street Journal reported: "Many companies that generate clean energy don't make enough profit to use all of the tax credits they could claim. So under the new rules, which are part of last year's [IRA], a utility-scale solar installation could sell its tax credits to a tech company that had no involvement in the project but was looking for a lower tax bill. A school district, meanwhile, could get a direct cash payment in place of tax credits for buying electric vehicles."

The IRS also released temporary regulations on information and registration requirements for an elective payment election under the IRA and the CHIPS Act, to treat the amount of certain tax credits as a payment of Federal income tax, and other requirements; and proposed regulations on the elective payment election of the advanced manufacturing investment credit under the CHIPS Act. The Bloomberg Daily Tax Report said, "The proposed regulations for semiconductor chips offer guidance on how to elect a direct pay option, and also lay out the treatment of S corporations and partnerships under the US tax code's Section 48 (D), which was added as a result of the CHIPS Act."

Continuing the release of energy tax credit guidance, on June 15 Treasury said, "Following initial guidance on the energy community bonus for the clean energy Investment Tax Credit (ITC) and Production Tax Credit (PTC) released in April, Treasury and the IRS provided updates on eligibility for the bonus based on updated local unemployment rate data and technical clarifications."

OIRA review: The Treasury Department announced in a Memorandum of Agreement (MOA) June 12 that tax regulations would no longer be reviewed by the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA), a practice established under the prior Administration. An April 2018 MOA created a new framework for the review of tax regulations intended to increase economic analysis and review of tax rules following calls to undo a 1983 agreement between Treasury and OMB that exempted certain IRS regulations from oversight by OIRA (which subsequently was reaffirmed in a 1993 exchange of letters between Treasury and OMB) in the wake of the TCJA. The added level of review established a new layer of input (and, according to critics, delay) into the regulatory process and a new pathway of insight regarding the timing of the release of regulations by way of OIRA's announcements of where rules were in the review process.

Cryptocurrency: Regarding cryptocurrency reporting requirements enacted under the 2021 infrastructure law, Politico reported June 15, "The crypto world has been bracing for a tax crackdown from the Treasury Department for more than a year-and-a-half, ever since Congress approved new rules aimed at making it easier for the IRS to determine how much money people make trading virtual currencies. Since then: crickets. Though the IRS considers crypto a major source of tax avoidance, not even a first draft of the regulations needed to fill in the details of the new transaction-reporting requirements has been released … "


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