September 13, 2023
What to expect in Washington (September 13)
The September 12 Wall Street Journal checked in on the TCJA pre-cliff switch after 2021 from R&D expensing to Section 174 5-year amortization (15-year for foreign research), saying, "with extended tax-filing deadlines approaching, business owners are growing increasingly worried and frustrated with congressional inaction … Some business owners already have started paying higher bills, while others are waiting and betting that Congress will change the law retroactively." A 174 fix hasn't happened because Democrats demand a Child Tax Credit (CTC) expansion like the one in law for 2021 in return, and a House GOP bill to return to prior law hasn't reached the floor over SALT cap demands. The story said, if not the 2021 CTC, the parties could agree on "how fast it ramps up from $0 to $2,000" for low-income families.
The story cited Senate Finance Committee Ranking Member Mike Crapo (R-ID) as saying of work on tax issues, "I can't tell you how it will all end up." It noted that "a tax bill is likely weeks away, at best" because tax issues aren't at the top of mind for much of a Congress that is facing a partial government shutdown after September 30 if lawmakers can't agree on spending bills.
In a report in Politico Morning Tax on census data showing a poverty increase since the 2021 CTC expansion expired, Finance Committee Chairman Ron Wyden (D-OR) said, "Any end of year tax package must include expansions to the child tax credit."
Government funding — As members returned to Washington this week, there have been no breakthroughs on addressing the expiration of government funding on September 30, and the potential for bipartisanship on the issue may be on the back burner in the immediate future as "Speaker Kevin McCarthy announced the House of Representatives is opening an impeachment inquiry into President Joe Biden," citing reasons such as transactions flagged "suspicious activity" by banks.
A New York Times analysis said Speaker McCarthy's action represents "working to appease far-right lawmakers who have threatened to oust him if he fails to accede to their demands for deep spending cuts that would force a government shutdown at the end of the month."
Conservatives in the House are seeking a return to FY2022 spending levels and have controversial policy riders in appropriations bills, only one of which has been passed thus far. The Senate is addressing spending bills on a bipartisan basis, with some supplemental funding above FY2023 levels, the target set by both parties in the Fiscal Responsibility Act (FRA). While clearing none through the chamber thus far, the Senate cleared a procedural hurdle in relation to an appropriations "mini-bus" measure packaging the spending bills on Military Construction/VA, Agriculture, and Transportation-HUD on an 85-12 vote, and consideration continues today. "Over the past few months, the Senate appropriations process has been a shining example of how things should work in Washington … " Senate Majority Leader Chuck Schumer (D-NY) said Tuesday. "I implore my Republican colleagues to follow our lead."
During the same regular post-luncheon news conference, Appropriations Chair Patty Murray (D-WA) said, "We will need a CR to finish our work. And we must deliver supplemental funding to meet urgent needs. We should meet the entirety of the president's supplemental funding request — those are the priorities the president has outlined." The Administration's $40 billion-plus supplemental is anchored by Ukraine and disaster funding, and Speaker McCarthy is reportedly considering splitting the two issues. On funding generally, she said, "The American people do not want chaos or drama from Congress."
Senate Republican leader Mitch McConnell (R-KY) on Tuesday backed the bipartisan approach to appropriations led by Chair Murray and Appropriations Ranking Member Susan Collins (R-ME) as "getting the Senate appropriations process back to some semblance of normalcy." He said, "Now it's up to the Senate to get [the dozen bills] across the floor this week or next week, and this is the only way to avoid what my members despise the most, which is an omnibus and the inability to offer amendments."
The impeachment inquiry is being led by House Oversight and Accountability Committee Chairman James Comer (R-KY), Judiciary Committee Chairman Jim Jordan (R-OH), and Ways and Means Committee Chairman Jason Smith (R-MO). It remains to be seen how tax committee involvement will impact the prospects for bipartisan cooperation on tax policy for the remainder of the year.
Tax — One tax issue that is bipartisan and bicameral is a US-Taiwan tax agreement. The Senate Finance Committee has scheduled a markup of the US-Taiwan Expedited Double Taxation Relief Act for Thursday, September 14, at 10:00 a.m., and the staff of the Joint Committee on Taxation (JCT) released a description of the Chairman's Mark. The proposal is bipartisan and follows the Committee's July 12 discussion draft on the issue released with Ways & Means leaders.
JCT said that, under the proposal, income from US sources earned or received by qualified residents of Taiwan is entitled to benefits that include reduced tax rates for income otherwise subject to the 30-percent gross-basis tax; with respect to income effectively connected with a US trade or business, taxation of only that income effectively connected with a US permanent establishment; and preferential treatment of wages and related income earned by such qualified residents. Similar to the discussion draft, the tax on US-source interest, royalties, and gains paid to or received by a qualified resident of Taiwan would be reduced to 10%. The tax on US-source dividends paid to or received by a qualified resident of Taiwan would be reduced to 15%, or a 10% rate for certain owners of at least 10% of the shares of stock in a corporation, subject to limitations. The Finance Committee traditionally marks up legislation on a conceptual basis and produces legislative language later. It remains to be seen whether amendments on unrelated tax issues will be allowed and offered.
CAMT - The IRS and the Treasury Department issued additional interim guidance (Notice 2023-64) clarifying the application of the corporate alternative minimum tax (CAMT), enacted under the Inflation Reduction Act of 2022. Notice 2023-64 describes rules the IRS intends to include in proposed regulations, which generally pertain to:
The Notice also includes rules on determining whether a corporation is an applicable corporation subject to the CAMT, as well as rules on aggregation under IRC Section 52, foreign-parented multinational groups, the treatment of investments in partnerships and the CAMT foreign tax credit.
Blue Book — The Bloomberg Daily Tax Report (DTR) September 12 reported a member of the JCT staff as saying a "Blue Book" on legislation enacted in the 117th Congress could be released this fall. "'We've made significant progress,' said Jared Hermann, legislation counsel at the non-partisan JCT, speaking at a virtual conference of the US branch of the International Fiscal Association. The JCT is aiming to release the blue book in the fourth quarter, he said."
Member Day — The House Ways & Means Committee released a witness list for its Member Day hearing set for Thursday, September 14 at 9:30 a.m.
Cryptocurrency — The comment period closed last week for submissions to the Senate Finance Committee on "uncertainties surrounding the tax treatment of digital assets," including issues related to cryptocurrency. Another DTR story said many in the industry would like to see a more comprehensive approach than the current piecemeal approach to crypto policy "shaped by a mix of IRS and Treasury guidance, Securities and Exchange Commission 'regulation by enforcement,' and court decisions." The story said, "Many of the questions address issues covered in legislation that's already been introduced, from Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.). Their bill, which has been lauded by the crypto industry, would clarify that taxpayers can't claim a deduction relating to a loss incurred in a crypto asset sale and require crypto asset intermediaries to mark their crypto assets to market for accounting purposes at year end, among other tax provisions."
An EY Tax Alert, "Proposed digital asset rules would redefine key terms and introduce new standards," is available here.
Elections — Looking ahead to the 2024 presidential election, the Washington Post reported September 11, "As Donald Trump widens his lead over other Republican candidates in the GOP primary, the former president's closest economic advisers are plotting an aggressive new set of tax cuts to push on the campaign trail and from the Oval Office if he wins a second term." The report said, "Trump and his advisers have discussed deeper cuts to both individual and corporate tax rates that would build on his controversial 2017 tax law, which they see as a major accomplishment worth expanding … The cuts could be paid for, at least in theory, with a new 10 percent tariff on all imports to the United States that Trump has called for." A potential new corporate tax rate has not been identified, it said.