September 17, 2023
Americas Tax Policy: This Week in Tax Policy for September 15
This week (September 18 - 22)
Congress: The House and Senate are both in session. The Senate returns on Monday, September 18, at 3:00 p.m. and has scheduled a judicial nomination vote for 5:30 p.m. The chamber is expected to continue consideration of the minibus appropriations package on Military Construction/VA, Agriculture, and Transportation-HUD. The House is also back on Monday and leaders may continue to try to secure sufficient votes to consider the Department of Defense appropriations bill, along with trying to settle on an approach for a short-term government funding patch beyond September 30.
There is a Senate Finance Subcommittee on Health Care hearing set for Tuesday, September 19 at 10:00 a.m. on “Aging in Place: The Vital Role of Home Health in Access to Care.”
The House Ways & Means Committee has scheduled a hearing Tuesday, September 19 at 10 a.m. on “Reduced Care for Patients: Fallout from Flawed Implementation of Surprise Medical Billing Protections.”
The Committee has also scheduled a Trade Subcommittee hearing on “Reforming the Generalized System of Preferences to Safeguard U.S. Supply Chains and Combat China” for Wednesday, September 20 at 2 p.m.
Last week (September 11 - 15)
The big picture: Hopes for a 2023 tax bill that addresses TCJA pre-cliffs, tax extenders, and other items appear to hinge on Congress settling on a long-term approach to funding the government through FY2024. That effort is rife with divisions, as the Senate is proceeding in a bipartisan manner toward passing appropriations bills that adhere to FY2023 spending levels that both parties agreed to in the Fiscal Responsibility Act (FRA) debt limit agreement (and adding supplemental funds in some cases). At the insistence of conservatives, House appropriators have marked up FY2024 spending bills to FY2022 levels. Leaders of both chambers have cited a desire to pass their versions of each of the dozen annual appropriations bills in an attempt to gain the upper hand in negotiations. In contrast to the bipartisan support for how the appropriations process is unfolding in the Senate, the House last week was unable to secure sufficient votes to consider the Department of Defense (DoD) appropriations bill, nor much momentum toward agreement on a short-term continuing resolution (CR). The Washington Post reported that conservative Freedom Caucus members blocked progress on the DoD bill because they are “angry over what they say is a lack of information on top-line budget numbers.” In the short-term effort to try to put up a CR to fund the government beyond September 30, and in the longer-term process of passing appropriations bills through FY2024, Speaker Kevin McCarthy (R-CA) faces a Catch-22 dilemma of either adhering to conservative demands that would likely result in shutting down the government or aligning with Democrats and non-Freedom Caucus Republicans and having his Speakership threatened. The House workweek ended with Speaker McCarthy reportedly defiantly confronting conservatives over their threats to use a “motion to vacate” to oust him from the position.
However, behind the scenes, there are substantive efforts to craft a CR that can satisfy the various factions of the House Republican Conference that focus on adding what has long been seen as a likely ingredient to win support, which is additional border security funding and policy changes. The Post reported that the contours of a potential CR deal continue to be “an extension of current fiscal levels for one month that includes funding for disaster relief and border security,” and that “McCarthy warned his conference Thursday that if the House doesn’t pass any appropriations bills or a short-term funding bill to the Senate by the end of next week, the upper chamber will try to jam the House into swallowing whatever they deem appropriate to fund the government in the short-term.” The Wall Street Journal (WSJ) reported, “the Republican Study Committee, which represents a broad spectrum of conservatives, issued a position in favor of a short-term continuing resolution that would ‘address harms inflicted by Democrats and President Biden, such as bloated and inflationary spending levels and the ongoing immigration crisis.’ RSC Chairman Kevin Hern (R., Okla.) said that the border measure would consist of the GOP plan that previously passed the House and that would cut off migration at the southern border.”
Also last week, “Speaker Kevin McCarthy announced the House of Representatives is opening an impeachment inquiry into President Joe Biden,” which some observers said appeared to be an effort to appease conservatives amid the funding rancor. 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.
2023 tax bill: The TCJA deadline items that are the main focus of a potential tax bill relate to five-year amortization for R&D expenses rather than expensing under IRC Section 174 and the IRC Section 163(j) interest deduction limitation based on EBIT rather than EBITDA, changes unfavorable to businesses that took effect in 2022; and 100% expensing, which is phased down in increments after 2022. Separate from the government funding impasse, fixes to these provisions have long been held up over Democrats’ insistence that any bill addressing business tax provisions also include an expansion of the Child Tax Credit (CTC). Leaders made clear that Census data released this week showing that child poverty more than doubled in 2022, after the expiration of the expanded CTC for 2021, has deepened their commitment to make the credit more generous as a condition of moving a tax bill later this year that includes the business tax extenders. During a session of the Finance Committee unrelated to the TCJA issues, Senator Todd Young (R-IN) said the TCJA’s 2022 change to five-year amortization for R&D expenses means some employers can’t make payroll and may close their doors, and he encouraged Congress to take action this year to reinstate R&D expensing. Chairman Ron Wyden (D-OR) said the R&D issue is important but “we have also got to stand up for our kids,” alluding to the fact that Democrats insist upon a CTC expansion in conjunction with business tax provisions. Wyden was earlier quoted in Politico as saying, “Any end of year tax package must include expansions to the child tax credit.” Members of both parties from high-tax states are also pushing for relief from the TCJA $10,000 state and local deduction cap as a condition for supporting a tax bill, though, as Politico reported September 15, there has been no real movement on that effort.
Taiwan tax: The Senate Finance Committee September 14 approved 27-0 the US-Taiwan Expedited Double Taxation Relief Act to reduce tax on income received by Taiwan residents from the current 30% tax. Withholding tax on US-source interest, royalties, and gains paid to or received by a qualified resident of Taiwan would be reduced to 10%. Withholding tax on US-source dividends 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 provisions are contingent upon Taiwan enacting corresponding tax reductions for US residents. Both Chairman Wyden and Ranking Member Mike Crapo (R-ID) acknowledged the important role Taiwan plays in manufacturing semiconductor chips for consumer goods and defense technology. The only change to the bill was incorporation of a proposal by Senators Catherine Cortez Masto (D-NV) and Marsha Blackburn (R-TN) to prevent double taxation on entertainment income (with Las Vegas and Nashville being entertainment hubs).
Senators Wyden and Crapo released a discussion draft in July with leaders of the House Ways & Means Committee, which may consider a bill on the issue but hasn’t announced plans. Next steps in the Senate aren’t clear either. The Foreign Relations Committee July 13 approved a separate bill calling for the US to enter into a tax agreement with Taiwan. Senator Crapo said he is confident in finding an appropriate path forward for each committee, a point that was echoed by Chairman Wyden. While voting to advance the Finance bill, Foreign Relations Chairman Bob Menendez (D-NJ) said the Finance bill alone is insufficient. He didn’t push for a vote on his amendment to sunset the bill after two years unless there’s a US-Taiwan tax agreement. Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, said from the witness table that a tax information exchange agreement with Taiwan is currently being negotiated.
IRA regulations: The IRS and the Treasury Department September 12 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.”
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 addressing recently released IRS regulations relating to basis reporting, entitled, “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.
IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.