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July 30, 2023

Americas Tax Policy: This Week in Tax Policy for July 28

This week (July 31-Aug 4)

Congress: The House is now out for six weeks, having designated the period from Friday, July 28 through Monday, September 11 as a district work period, and returning September 12, with only 12 legislative days planned prior to the September 30 deadline for the FAA reauthorization and aviation excise taxes, the farm bill, and government funding. The Senate is out as well and next convenes at 3 p.m. on Tuesday, September 5.

Smith trip: House Ways and Means Chairman Jason Smith (R-MO) and other committee Republicans had planned a congressional delegation in late May to Europe, including Paris and Germany, to discuss the OECD global tax agreement, though the trip was postponed due to consideration of the debt limit bill. Politico Morning Tax reported: "House Ways and Means Chair Jason Smith's trip to Europe, where he'll give OECD officials a piece of his mind, is back on. The Missouri Republican was forced to postpone the trip in May, thanks to the debt limit drama, but he's now tentatively planned to meet with officials in France and Germany later in August. Smith has been highly critical of the entire global tax effort, and is threatening to retaliate against countries that adopt its so-called UTPR that would allow foreign governments to tax American companies if they aren't paying at least 15 percent in the U.S."

Coming in September: A Senate Finance Committee markup of tax legislation intended to strengthen the US economic relationship with Taiwan was announced by Chairman Wyden and Ranking Member Mike Crapo (R-ID), following the July 12 release of a discussion draft on the issue with Ways & Means leaders. The Senate Foreign Relations Committee approved July 13 the Taiwan Tax Agreement Act (S. 1457) that would authorize the President to negotiate and enter into a tax agreement. The two proposals aren't necessarily mutually exclusive.

WCEY's Podcast "DC Dynamics episode 16: Monumental Decisions" is available here.

This Week in Tax Policy won't be published while Congress is away, but other WCEY Alerts will be issued as events warrant.

Last week (July 24-28)

2023 tax bill: The Ways & Means Committee-passed American Families and Jobs Act from June — which addresses the TCJA "pre-cliffs" on IRC Section 174 R&D expensing, IRC Section 163(j) interest deduction limitations, and 100% expensing — wasn't brought to the House floor before the August recess. It was previously thought that conservative Republicans' concerns could imperil floor consideration of the bill. Democrats oppose the bill because it would roll back clean energy provisions and the TCJA "pre-cliffs" have had difficulty moving, in this bill or any other, because of the partisan impasse over the Child Tax Credit (CTC) expansion sought by Democrats. Also looming over the fate of any bill addressing expired tax provisions is insistence from members of both parties from high-tax states for relief from the TCJA's $10,000 state and local tax (SALT) deduction cap. An article in the July 25 Washington Post reported on Republican House members from New York, New Jersey and California "threatening to vote against a tax package approved in June by the House Ways and Means Committee unless a provision is added to raise the SALT cap. As written, the measures would restore expired tax cuts for businesses passed under Trump and repeal climate-oriented tax credits passed under President Biden — initiatives key to the House GOP agenda this year." The article cited members such as Rep. Nick LaLota (R-NY) as saying a higher SALT deduction would stem the flight away from high-tax states toward places like Florida and the Carolinas, though Ways and Means member (and Republican Study Committee Chairman) Kevin Hern (R-OK) was cited as doubtful the votes would be there to undo the cap. "Rep. Nicole Malliotakis (R-NY), a member of the SALT Caucus who sits on the Ways and Means Committee, said she wants to study other options, such as prohibiting people above a certain high income threshold from taking any SALT deduction at all while allowing a larger deduction for the middle class. Malliotakis said she also wants to explore ways to use federal dollars to directly pressure states and cities to cut their taxes." (LaLota subsequently tweeted, "No SALT, no deal … For real," linking back to an earlier Politico report.)

The Ways & Means bill is the House GOP's negotiating position for talks later this year aimed at constructing a year-end tax extenders package, should an opportunity emerge to attach it to a government spending or other must-pass vehicle. That may not happen until year's end for a variety of reasons. Congress is facing a September 30 deadline for three issues — FAA reauthorization and aviation excise taxes, the farm bill, and government funding — and there has been speculation about short-term extensions for each. The House has passed its FAA bill, but the Senate Commerce Committee has yet to mark up its version and Chair Maria Cantwell (D-WA) said a dispute over pilot training will likely push the bill's final passage past the September 30 deadline, Politico reported. The farm bill includes debate on several controversial issues including federal nutrition assistance, and top senators have suggested a short-term patch is possible if not likely. Government funding is controversial: House appropriators are marking up to FY2022 levels at the urging of conservatives, despite the debt limit bill agreement to adhere to FY2023 spending for FY2024 appropriations bills, and Senate appropriators are pursuing a supplemental funding measure on top of even the FY2023 levels.

Concerns expressed by conservatives about the first appropriations bills considered by the House this week, on Military Construction/Veterans' Affairs and Agriculture/FDA — i.e., their insistence over FY2022 spending levels, without rescissions from unspent funds, and adequate time to review bills — portend the difficulty in moving the remaining 11 appropriations bills prior to the September 30 deadline. Freedom Caucus members are especially concerned about packaging the appropriations bills as one. Reuters reported that this week's "Republican infighting over spending levels clouded the path ahead for the other bills." The report said House Speaker "McCarthy and Senate Majority Leader Chuck Schumer met to discuss the prospects for compromise spending measures and other legislation on Thursday. The speaker later said they both committed to passing appropriations bills on time and discussed the possibility of early bicameral negotiations." Regarding differences on funding, the report said, "With the two chambers at least $120 billion apart, some lawmakers expect Congress to avoid a shutdown on Oct. 1 by passing a stopgap measure that would give lawmakers time to negotiate into the fall and winter."

Bloomberg reported, "The US House budget process ground to a sudden halt Thursday amid simmering conflicts over spending levels and hot-button social issues, raising the risk of a government shutdown ahead of a Sept. 30 deadline. Lawmakers in the House and Senate are leaving Washington this week for an extended August recess with budget disagreements entirely unresolved." The report said the House will return September 12 with not only 11 appropriations bills to approve before September 30 but the task of reconciling differences with the Senate. However, "a stop-gap spending bill could also be a tall order, given deep divisions over spending and indifference among ultra-conservatives over the effects of a federal shutdown," the report said.

In addition to the general discord over the appropriations process, another factor pointing toward a year-end bill is a backstop in the Fiscal Responsibility Act that would establish temporary caps at 99% of current funding levels (FY 23) if all 12 appropriations bills are not passed by January 1 of either 2024 or 2025, respectively (with the technical sequester enforcement mechanism related to the funding reduction taking effect on April 30).

2025 bills: The TCJA "pre-cliffs" on IRC Sections 163(j) and 174, plus bonus depreciation, remain in limbo because of the partisan impasse over a potential CTC expansion, and along them with several tax extender provisions that expired at the end of 2021 and some that expired at the end of 2022 and probably some other tax proposals. Beyond that, expiring at the end of 2025 are major TCJA tax cuts for individuals and pass-throughs, as well as some significant tax extender provisions. These continue to be the subject of introduced bills, including:

  • House Ways & Means Committee member Lloyd Smucker's (R-PA) Main Street Tax Certainty Act (H.R. 4721), introduced July 26, to permanently extend the IRC Section 199A 20% deduction of qualified income for pass-through businesses;
  • Senate Finance Committee member Mark Warner's (D-VA) S. 2462, introduced July 26, to make permanent the seven-year recovery period for motorsports entertainment complexes; and
  • Rep. Claudia Tenney's (R-NY) H.R 4357, introduced June 23, to make the look-through rule for related controlled foreign corporations permanent.

Partnerships: The Government Accountability Office said in a July 27 report: "Between 2002 and 2019, the number of large partnerships — with over $100 million in assets and 100 or more partners — increased almost 600%. The IRS audit rate for large partnerships has dropped to less than 0.5% since 2007. About 80% of audits conducted don't find tax noncompliance. This may suggest that IRS isn't choosing the riskiest returns to audit or doesn't know how to find noncompliance in these businesses." Senate Finance Committee Chairman Ron Wyden (D-OR), long concerned over the issue, requested the report, and said, "The business structures are extraordinarily complicated, the tax rules that apply to them are riddled with loopholes, and the wealthy investors and corporations who use them to get out of paying a fair share know that the IRS has essentially zero ability to crack down."

ERTC hearing: The House Ways and Means Oversight Subcommittee's July 27 hearing on the Employee Retention Tax Credit addressed the backlog of ERTC processing, IRS response to inquiries about ERTC credits, and other issues. Witness Linda Czipo of the New Jersey Center for Nonprofits highlighted "confusion and complexity surrounding the program's eligibility requirements and application procedures, and the proliferation of … third-party providers that siphon much-needed resources away from nonprofit missions and community programs." Under questioning from Subcommittee Ranking Member Bill Pascrell (D-NJ) about outreach services to make nonprofits aware of the ERTC, Czipo said organizations conducted workshops, hosted webinars, and sent emails to make organizations aware of the programs and changing requirements. "We still hear from members that don't know that nonprofits are eligible for this program," she said. Czipo said streamlining the application process is a key point because complexity has led to unsavory behavior around the credit. "The simpler we can make this, the easier it is for organizations to deal with," she said, adding that extra time for the application matters because organizations need to analyze their systems. Pascrell said the IRA gave IRS funding to pursue enforcement efforts for the ERTC.

Global tax: An EY Tax Alert, "OECD/G20 Inclusive Framework releases Subject to Tax Rule model treaty provision and commentary," is available here.

An EY Tax Alert, "OECD releases public Consultation Document on Pillar One Amount B on baseline distribution," is available here.

An EY Tax Alert, "OECD/G20 Inclusive Framework releases additional Administrative Guidance on Pillar Two GloBE Rules: Detailed review," is available here.

An EY Tax Alert, "US Treasury provides welcome temporary relief from controversial foreign tax credit regulations," is available here.

IRA regulations: The Wall Street Journal reported on tension between the Biden administration's climate goals and "Made in America" requirements in the Inflation Reduction Act (IRA) and how they are defined, with some members and businesses pushing for a strict interpretation and others arguing that foreign elements in the supply chain help keep costs down. "In the latest salvo, a group of the largest steelmakers in the U.S., as well as the United Steelworkers union, criticized the Treasury Department's proposed approach to a bonus tax credit for clean-energy projects that rely largely on U.S.-made metal and components," the story said. "They argue that the department's treatment of a key component of solar panels [photovoltaic trackers] would let firms use steel from abroad and still qualify for the 10% credit, which would be available on top of other subsidies for building solar and wind farms." The guidance is Notice 2023-38, addressing the IRA changes to Sections 45 and 48 to provide a 10% domestic content bonus credit amount for facilities or projects, and the addition of new IRC Sections 45Y and 48E, which include a domestic content bonus credit amount for certain investments in qualified facilities or energy storage technologies. Before its release and since, the notice was the subject of speculation over what is classified as a manufactured product (versus simply steel or iron) because that allows for foreign-derived ingredients. Photovoltaic trackers are classified as manufactured products under the Notice.

IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.

Date — Guidance


Link for more information

11/29/22 — Notice 2022-61, prevailing wage and apprenticeship requirements; started clock for construction 60 days+ after guidance

applicable to advanced energy projects (IRC Section 48C), alternative fuel vehicle refueling (IRC Section 30C), carbon oxide sequestration (IRC Section 45Q), clean fuel production (IRC Section 45Z), clean hydrogen production (IRC Section 45V), energy efficient commercial buildings deduction (IRC Section 179D), renewable electricity production (IRC Section 45), energy investment (IRC Section 48) credits; wage requirements also apply to new energy efficient home (IRC Section 45l) and zero-emission nuclear (IRC Section 45U) credits

EY Tax Alert 2022-1832

12/12/22 — Revenue Procedure 2022-42, IRC Section 30D(d)(3)

agreements between qualified vehicle manufacturers and Treasury regarding the production of automobiles eligible for a clean vehicle credit

12/19/22 — Notice 2023-06 provides guidance on the new sustainable aviation fuel (SAF) credits

primarily addresses the SAF credit requirements applicable to a qualified mixture

12/22/22 — Fact Sheet (FS-2022-40) on energy efficient home improvements and residential clean energy property credits

lists improvements eligible for credits, credit amounts, information on labor costs

12/27/22 — Notice 2023-2, corporate stock repurchase excise tax

rules and procedures for the 1% excise tax on the aggregate fair market value of stock repurchased by certain corporations — interim-guidance-on-stock-buyback-excise-tax-offers-mixed-b

12/27/22 — Notice 2023-7, corporate alternative minimum tax (CAMT)

clarifies which corporations the CAMT applies to and how the alternative minimum tax is calculated

EY Tax Alert 2023-0091

12/29/22 — FAQs on clean vehicle credits (FS-2022-42)

Updated in February (FS-2023-04)

Updated in March (FS-2023-08)

addresses how the credit applies to purchases of clean vehicles that are new, previously owned or commercial, defines qualified manufacturer

newly addresses situations in which vehicle's classification changed

newly addresses whether credit can be split among multiple owners

12/29/22 — Notice 2023-1, definitions for IRC Section 30D credit for vehicles PIS after 12/31/2022

2/3/23 — Notice 2023-16 modifies Notice 2023-01

announcement that Treasury and the IRS intend to propose regulations on the definitions of the relevant terms under IRC Section 30D for new clean vehicles placed in service after December 31, 2022, and the critical mineral and battery component requirements under IRC Section 30D(e)

changing the vehicle classification standard by which vans, sport utility vehicles, pickup trucks and other vehicles are defined

EY Tax Alert 2023-0076

12/29/22 — White Paper on

critical mineral requirements - % of value of minerals in battery extracted or processed in the US, FTA w/US, recycled in N. Amer.

= or >40% for a vehicle PIS in 2023 after the date of guidance. Increases annually to 50% in 2024, 60 % in 2025, 70% in 2026, and 80% after.

Similar for batteries: 50% in 2023 after the date of guidance, 60% in 2024-5, 70% in 2026, 80% in 2027, 90% in 2028, 100% after 2028

12/31/22 — Notice 2023-9, IRC Section 45W, safe harbor on incremental cost of commercial clean vehicles

for those placed in service in calendar year 2023 for purposes of the new credit for qualified commercial clean vehicles

2/13/23 — Notice 2023-17 Low-Income Community Bonus

applies to owners of certain solar and wind facilities placed in service in connection with low-income communities that are eligible for the IRC Section 48 energy investment credit

2/13/23 — Notice 2023-18, 48C advanced energy projects

5/31/23 — Notice 2023-44 modifies Notice 2023-18

program under IRC Section 48C(e) to allocate $10 billion in tax credits for qualified investments

EY Tax Alert 2023-1012

2/17/23 — Notice 2023-20, interim guidance for insurance companies and others for the CAMT

guidance for the determination of adjusted financial statement income as it relates to (1) variable contracts and similar contracts, (2) funds withheld reinsurance and modified coinsurance agreements, and (3) the basis of assets held by certain previously tax-exempt entities with a "fresh start" basis adjustment

EY Tax Alert 2023-0384

3/9/23 — Notice 2023-24, nuclear credit (45J)

(1) guidance for computing the credit, (2) the amount of unutilized NMCL, (3) the procedures for taxpayers to apply for, and the IRS to allocate, the unutilized NMCL, and (4) transfer of the IRC Section 45J credit to an "eligible project partner"

EY Tax Alert 2023-0504

3/31/23 — Proposed regulations (REG-120080-22) on domestic sourcing requirements for 30D EV credit

sources of a single applicable critical mineral may have multiple procurement chains if one source of the applicable critical mineral undergoes the same extraction, processing, or recycling process in different locations

EY Tax Alert 2023-0660

 4/4/23 — Notice 2023-29, "energy communities"

6/15/23 — Notice 2023-45 updates Notice 2023-29

6/15/23 — Notice 2023-47, energy community bonus

for purposes of the production tax credit (PTC) under IRC Sections 45 and 45Y and the investment tax credit (ITC) under IRC Sections 48 and 48E for electricity facilities

clarifies that it applies to taxpayers that begin construction on or after Jan. 1, 2023,

clarifies requirements brownfield site definition for the clean energy ITC and PTC:

Updates on eligibility for the bonus based on updated local unemployment rate data

EY Tax Alert 2023-0675

EY Tax Alert 2023-1083

5/12/23 — Notice 2023-38, domestic content bonus under IRC Sections 45, 45Y, 48, and 48E

addresses how to categorize common solar, wind and energy storage components for purposes of the manufactured products requirements

EY Tax Alert 2023-0908

5/31/23 — Proposed regs (REG-110412-23) on Low-Income Community Bonus

definitions and requirements that would be applicable for the program allocating the calendar year 2023 capacity limitation

EY Tax Alert 2023-1018

5/31/23 — Notice 2023-44 on 48C(e) advanced energy project credits

information on "energy communities census tracts" and list of eligible census tracts

EY Tax Alert 2023-1012

6/7/23 — Notice 2023-42, CAMT

waives addition to tax under IRC Section 6655 for a corporation's failure to make estimated tax payments of its CAMT under IRC Section 55 for a tax year beginning after December 31, 2022, and before January 1, 2024

EY Tax Alert 2023-1038

6/14/23 — Proposed regulations (REG-101610-23) on tax credit transferability

11 credits eligible: alternative fuel vehicle refueling (IRC Section 30C), renewable electricity production (IRC Section 45), carbon oxide sequestration (IRC Section 45Q), nuclear power production (IRC Section 45U), clean hydrogen production (IRC Section 45V), advanced manufacturing production (IRC Section 45X), clean electricity production (IRC Section 45Y), clean fuel production (IRC Section 45Z), energy (IRC Section 48), advanced energy projects (IRC Section 48C), and clean electricity investment (IRC Section 48E)

EY Tax Alert 2023-1103

6/14/23 — Proposed regulations (REG-101607-23) on direct pay

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. (Payment will first offset tax liability, excess will be refundable.) Applicable credits are the same as for transferability, plus credit for commercial vehicles (IRC Section 45W)

EY Tax Alert 2023-1102

6/14/23 — Elective Pay and Transferability FAQs

who is eligible, how to make an elective payment election and receive an elective payment

6/15/23 — FAQs on energy communities

detail on how areas may qualify as an energy community, how to determine whether a project is located in an energy community and brownfield sites for purposes of the Energy Community Bonus Credit

6/29/23 — Announcement 2023-18

confirmed that taxpayers are not required to report or pay the IRC Section 4501 excise tax on stock buybacks on any tax return filed before regulations are published

EY Tax Alert 2023-1166


Contact Information
For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
Jeffrey Van Hove (
Cathy Koch (
Ray Beeman (
Kurt Ritterpusch (
Bob Carroll (
James Mackie (