Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) July 11 asked for comments on "uncertainties surrounding the tax treatment of digital assets with an open letter seeking input from experts, stakeholders and interested parties." The senators sought input on:

• Marking-to-Market for Traders and Dealers (IRC Section 475)
• Trading Safe Harbor (IRC Section 864(b)(2))
• Treatment of Loans of Digital Assets (IRC Section 1058)
• Wash Sales (IRC Section 1091)
• Constructive Sales (IRC Section 1259)
• Timing and Source of Income Earned from Staking and Mining
• Nonfunctional Currency (IRC Section 988(e))
• FATCA and FBAR Reporting (IRC Sections 6038D, 1471—1474, 6050I, and 31 U.S.C. Section 5311 et seq.)
• Valuation and Substantiation (IRC Section 170)

The Committee release said answers to questions will be collected on a rolling basis until September 8. A June Joint Committee on Taxation report said the tax code "does not treat all property the same" and "in some instances, different kinds of property are subject to different tax treatment." The report said such instances include those in which "financial assets, such as securities or commodities, are subject to a specified treatment," and often the status of digital assets is uncertain. President Biden's FY 2024 Budget proposed expanding wash sale rules to include digital assets.

International tax — On July 12, the OECD published a press release and an "Outcome Statement" reflecting that the Inclusive Framework has made significant progress but has not reached a final agreement on Pillar One and that once a "small number of specific items are resolved" they will deliver a final Multilateral Convention (MLC) to be agreed to by the end of the year. The Outcome Statement notes:

Amount A

• The Inclusive Framework has delivered text of an MLC (with a few unidentified open items), which will allow the Parties to the MLC to exercise a domestic taxing right (Amount A of Pillar One). The MLC will be opened in the second half of 2023 and a signing ceremony will be organized by year end, with the objective of enabling the MLC to enter into force in 2025.
• Importantly, members of the Inclusive Framework agree to refrain from imposing newly enacted DSTs or relevant similar measures, as defined in the MLC, on any company between 1 January 2024 and the earlier of 31 December 2024, or the entry into force of the MLC.

Amount B

• Amount B of Pillar One provides a framework for the simplified and streamlined application of the arm's length principle to in-country baseline marketing and distribution activities with a particular focus on the needs of low-capacity countries. The Statement says the Inclusive Framework has achieved consensus on many aspects of that framework but, to ensure the appropriateness of all aspects of the Amount B work, the OECD is opening Amount B for further public consultation. The OECD is thus inviting input from stakeholders on the specific elements of Amount B by 1 September 2023 with the work on those elements to be completed by year end.
• The Inclusive Framework will approve and publish a final Amount B report, content from which will be incorporated into the OECD Transfer Pricing Guidelines by January 2024.

On a related note, the House Ways & Means Committee may announce as soon as today a hearing on international tax for the afternoon of Wednesday, July 19. The format is expected to be two panels, with one possibly including as an invited witness Michael Plowgian, Deputy Assistant Secretary (International Tax Affairs).

Meanwhile, Senate Foreign Relations Committee consideration of the Taiwan Tax Agreement Act (S. 1457) that was held over from June is set for July 13. A Taiwan agreement not only faces concerns from Senator Rand Paul (R-KY), a member of the Committee whose concerns thwarted earlier consideration, but also is the subject of a jurisdictional tussle between Foreign Relations and the tax-writing committees. Senate Finance and House Ways & Means chairmen and ranking members argue that Taiwan's unique status precludes it from the typical process of remedying double taxation through a treaty and that Congress should amend the tax code to reduce the burden on US-Taiwan cross-border investment. Their approach could be unveiled soon. The Foreign Relations bill would authorize the president to negotiate and enter into a tax agreement relative to Taiwan through the American Institute in Taiwan (AIT, which functionally serves as the US embassy in Taiwan since the US takes no position on Taiwan's sovereignty and thus cannot pursue a traditional tax treaty).

Trade — During the House Ways and Means Committee field hearing on "Trade in America: Agriculture and Critical Supply Chains" on Monday, July 10 at Schiefelbein Farms in Kimball, Minnesota, Chairman Jason Smith (R-MO) criticized the President's trade moves, saying, "the Biden Administration goes around Congress to sign dubious trade agreements that keep America dependent on foreign supply chains," and urged the Administration to enforce USMCA and the Phase One Agreement. He asserted the prerogative of Congress over the issue: "The Constitution gives Congress authority over trade because we are the branch closest to the people who are impacted most by our trade policies. There is no substitute for enforceable, congressionally approved trade agreements for the long-term prosperity of our farmers. Congress will continue to assert its authority over trade given to us in Article I of the Constitution, and we will use this authority to protect the interests of family farmers and ranchers on the world stage."

Conversely, Rep. Linda Sanchez (D-CA), representing Democrats at the hearing, said, "The Biden Administration has used the tools Congress granted to enforce the agreement so that our workers and farmers can compete on a level playing field." She also said, "In both the agriculture and critical minerals sectors, we face some of our greatest challenges to date. How do we enhance and increase sustainable environmental practices as we work to keep domestic production in both sectors strong? Scaling up supply to meet demand without ensuring companies meet environmental regulations and governments do their part to protect biodiversity could result in more environmental disasters."

Congress — As the House returned to session yesterday, several members were cited as expressing doubts that the chamber could clear the National Defense Authorization Act (NDAA) this week in the face of 1,500 filed amendments, including on controversial issues, and concerns from conservatives. Majority Leader Chuck Schumer (D-NY) has said he would like the Senate to approve its version of the legislation prior to the August recess.

Politico described the three deadlines facing Congress before September 30 — government funding, the farm bill, and aviation reauthorization/taxes — as a "deadline triple-header" and cited Senate Agriculture Committee Chair Debbie Stabenow (D-MI) as repeating her view that if the farm bill isn't wrapped up by September 30, lawmakers can pass a short-term extension. "If we're not able to [pass a farm bill] by the end of September, we will have bipartisan consensus to" extend the previous version, she said. The FAA reauthorization may be considered by the House next week, but controversy continues in the Senate, including over changes to add more flights at Reagan National Airport.

Chips — Two days after Majority Leader Schumer included permitting reform and China competition among Democrats' priorities for this work period, a bipartisan group of senators on Tuesday introduced a bill aimed at expediting environmental reviews of semiconductor projects partly funded by last year's $280 billion CHIPS and Science Act. The sponsors — Sens. Mark Kelly (D-AZ), Todd Young (R-IN), Sherrod Brown (D-OH) and Bill Hagerty (R-TN) — said that because projects built with CHIPS Act incentives or investments are considered "major federal actions" under the National Environmental Policy Act (NEPA), they must undergo a NEPA review that can sometimes take years to complete. The Building Chips in America Act would streamline approval for semiconductor projects and provide the Commerce secretary more "tools" to manage the NEPA review process, including partnering with state and local governments to complete reviews. The bill would establish the Commerce Department as the lead federal agency to carry out NEPA reviews for any CHIPS Act project deemed to be a major federal action. It also would clarify that certain kinds of CHIPS Act projects don't fall under NEPA's purview, such as those that have already received federal and state permits and begun construction. The bill also limits the timeline for court challenges.

Kelly told Punchbowl News that the CHIPS Act "was an unprecedented investment in getting semiconductor manufacturing restarted in the United States … The current NEPA process could really slow this stuff down. In some cases it would have to stop, even in situations where you had a state [environmental review] process that was more stringent than the federal process. This legislation would push this whole process to the Department of Commerce." The sponsors of a House companion bill are Reps. Jen Kiggans (R-VA), Scott Peters (D-CA), Brandon Williams (R-NY), Colin Allred (D-TX) and Michael McCaul (R-TX).

Tax — The IRS July 10 issued final regulations (TD 9977) permitting consolidated groups that acquire members of another consolidated group to waive, on a tax-year-by-tax-year basis, all or a portion of the carryback period for consolidated net operating losses (CNOLs) attributable to an acquired member for pre-acquisition years during which the acquired member was a member of a former consolidated group. The final regulations apply to CNOLs arising in a tax year ending after July 2, 2020 but can be applied to any CNOLs arising in a tax year beginning after December 31, 2017. The final regulations mostly adopt the proposed regulations and remove the temporary regulations.

———————————————