October 1, 2023
Americas Tax Policy: This Week in Tax Policy for September 29
This Week (October 2 - 6)
Congress: The House and Senate are both in session, ahead of the September 30 expiration of government funding, though that situation makes the outlook for next week unclear. The House was scheduled to be out for two weeks but is reportedly staying in to vote on full-year appropriations bills. The Senate was set to be in next week before a recess the week following (Columbus Day, week beginning October 9). It is unknown how any services for Senator Dianne Feinstein (D-CA) may impact the schedule.
Last Week (September 25 - 29)
Appropriations and potential lapse: Congress continued to take steps toward a continuing resolution (CR) to extend government funding past midnight on Saturday, September 30, and stave off a government shutdown. The focus for an agreement had been on border security, which House Speaker Kevin McCarthy (R-CA) continued to press as an issue of wide support and which was the subject of a bipartisan amendment under development in the Senate. However, a House CR proposal with government funding through October 31, border security provisions, and a new fiscal commission failed on a 198-232 vote September 29, with 21 Republicans joining Democrats in voting against the measure. The Senate was expected to continue voting into the weekend on its CR proposal (H.R. 3935) that extends government funding at current levels through November 17, provides about $6 billion each for Ukraine and disaster funding, and extends the Federal Aviation Administration (FAA) authorization and aviation taxes through the end of the year. Politico reported that a border security amendment being developed by senators of both parties likely won't be considered. Questions remain over whether the House can pass a bill and, if so, how differences with the Senate over Ukraine, border security, spending, and other issues can be bridged. It remained unclear whether the House will bring an eventual Senate CR to a vote, though House Democratic Leader Hakeem Jeffries (D-NY) described that as "the only way forward." Next steps were unclear, for the House at least, other than to continue to pass full-year appropriations bills, after passing four bills so far. There may be efforts to try to move a shorter "clean" CR free of any other provisions. House votes are expected on Saturday, September 30. Also looming but receiving less attention than government funding are other important September 30 deadlines such as reauthorization of the FAA and related aviation excise taxes (such as the ticket tax) as well as agricultural programs that would be reauthorized by the pending farm bill. Both items could get extended separately from the appropriations/CR efforts.
IRS in shutdown: The September 28 IRS "FY2024 Lapse Appropriations Contingency Plan" said about a third of employees are designated as "excepted/exempt" and would continue working during a shutdown (30,063 employees or 33.4% of the employee population of 89,944), with the remainder furloughed. The plan said IRS will continue return processing activities and activities to implement the green energy credit provisions of the Inflation Reduction Act, which also provided additional mandatory IRS funding that will be used to sustain certain activities during a shutdown. Activities that will cease during a funding lapse include all audit functions and examination of returns. The plan only describes actions and activities for the first five business days following a lapse in appropriations.
Nominations: During the September 28 Senate Finance Committee hearing to consider nominations including Marjorie Rollinson to be Chief Counsel for the IRS and an Assistant General Counsel in the Department of the Treasury, Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) agreed that the IRS Chief Counsel position will involve significant important work in implementing the Inflation Reduction Act (IRA). Chairman Wyden said, "Having a confirmed Chief Counsel will ensure this work is carried out to the letter of the law." Ranking Member Crapo was critical, saying, "Since the bill's rushed and strictly partisan passage, the Biden Administration has resorted to unilaterally walking back and diluting a number of key provisions. The IRS has simply disregarded statutory deadlines … including enhanced information reporting and EV tax credits … Other provisions have gone into effect without necessary guidance." International tax was another focus of Republicans. Ranking Member Crapo asserted the Administration "invited foreign governments to pursue new discriminatory taxes against our companies in the form of the Undertaxed Profits Rule (UTPR), a surtax which also likely violates our existing bilateral tax treaties. As a collateral consequence, Treasury must now exhaust precious resources issuing regulations to attempt to mitigate the double taxation it created by unilaterally committing to a global tax deal that undermines U.S. interests." Senator Todd Young (R-IN) said Treasury has received pushback regarding the Administration's handling of OECD negotiations including the UTPR and suggested the failure to secure favorable treatment of nonrefundable tax credits, such as the R&D credit, under the proposed Pillar Two regime could act as a disincentive for companies looking to make investments in R&D activities in the US.
SFR: Senator Ben Cardin (D-MD) September 27 accepted the role of Chairman of the Senate Foreign Relations Committee, previously held by Senator Bob Menendez (D-NJ). The Committee has jurisdiction over tax treaties and in July approved a bill authorizing the US to reach a tax agreement with Taiwan.
2025 TCJA cliffs: A September 27 paper by Kimberly Clausing and Natasha Sarin, both formerly of the Biden Treasury Department, said lawmakers facing the 2025 TCJA cliffs should at least aim for a revenue-neutral reform, or, ideally, set revenue-raising targets to additionally reduce the deficit. Their recommendations include a 28% corporate tax rate and per-country GILTI at 21%.
HSAs: On September 28, the House Ways and Means Committee sent to the full House two bills that aim to modernize and increase access to health savings accounts (HSAs). H.R. 5688, the Bipartisan HSA Improvement Act of 2023, sponsored by Reps. Lloyd Smucker (R-PA) and Earl Blumenauer (D-OR), clarifies and modifies the scope of limitations on HSA plans related to benefits covered under high deductible health plans. The bill would cost $12.9 billion from FY 2024—2033. H.R. 5687, the HSA Modernization Act of 2023 sponsored by Rep. Beth Van Duyne (R-TX) would increase HSA contribution limits to align them with out-of-pocket expenses expected under the deductible, as well as enable veterans, Indian Health Service participants, and certain working seniors to enroll in HSAs. The bill would cost $58.3 billion from FY 2024—2033.
Wash sales: IRS Revenue Procedure 2023-35 released September 28 provides that a redemption of money market fund (MMF) shares will not be treated as part of a wash sale under Section 1091. This revenue procedure amplifies Revenue Procedure 2014-45 and extends its wash sale relief to redemptions of shares in MMFs that maintain fixed share prices.
IRA guidance: On September 27, Treasury and IRS released Notice 2023-65, addressing the Section 45L New Energy Efficient Home Credit. The IRA extended and enhanced the credit and allows home builders who construct, reconstruct, or rehabilitate energy efficient homes a tax credit of up to $5,000 per home. The notice addresses: (i) the person that is eligible for the credit, (ii) determining the applicable amount of the credit, (iii) energy saving requirements, (iv) certification requirements, and (v) substantiation requirements.
Health: The IRS and Treasury Department September 27 issued proposed regulations (REG-115559-23) on how to report liability for the IRC Section 5000D excise tax imposed on manufacturers, producers or importers of certain designated (negotiation eligible) drugs sold during the applicable statutory period.
IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.