October 8, 2023
Americas Tax Policy: This Week in Tax Policy for October 6
This week (October 9-13)
Congress: House Republicans may meet in some fashion Monday night and/or Tuesday ahead of a possible Speakership vote as soon as Wednesday. The Senate is out of session this week, until 3 p.m. on October 16, with the next vote on a judicial nomination that day at 5:30 p.m.
Last week (October 2-6)
The big picture: The House is currently without a Speaker, out of session until Tuesday, and in a holding pattern until at least Wednesday, which is the soonest they may hold a vote for a successor to Kevin McCarthy (R-CA), who was ousted in a 216-210 vote October 3. The move was driven by a small group of conservatives and brought the tensions that surrounded his ascension to the position in January full circle after he cut two deals with Democrats — essentially out of necessity — to address the debt limit and patch government funding through November 17. The motion to vacate was supported by, as the Washington Post described, "eight Republicans, most hailing from deep conservative districts where voters loathe the establishment, [who] assumed they would be rewarded in a primary for ousting a GOP leader who fits the label of career politician." (Democrats voted for the motion, citing several reasons for not helping Rep. McCarthy.) It has been widely noted that the forces that brought about the development have been years in the making, perhaps as far back as the genesis of the Tea Party movement. "The tea party revolt of 2010, which gave Republicans a House majority and set McCarthy on his path to power, was fueled by voter anger at government bailouts after the financial crisis and at then-President Barack Obama's healthcare program," the Wall Street Journal said. "But it also gave early hints of the populist impulses and eagerness to discard political norms … " Rep. Patrick McHenry (R-NC), who is Financial Services Committee Chairman, was named as acting speaker. Majority Leader Steve Scalise (R-LA) and Judiciary Committee Chairman Jim Jordan (R-OH) are vying to succeed Rep. McCarthy in the Speakership. Republican Study Committee Chairman Kevin Hern (R-OK), who also sits on the Ways and Means Committee, and Rep. Chip Roy (R-TX) have also been discussed as possible candidates. There are already calls, including from McCarthy, to reform the current motion to vacate rules that allow a single member to put the Speakership to a vote.
There's no telling what the House developments mean for meeting the next deadline for government funding or for long-term policy decisions on taxes and other issues. The next Speaker will have to contend with the regular order appropriations process and reconciling differences with the Senate — or shepherd another funding patch through Congress to avoid a government shutdown after the just-around-the-corner November 17 deadline — plus the border and Ukraine issues that fell by the wayside in last week's action to avoid a government shutdown. Tax Notes reported Senate Finance Committee Chairman Ron Wyden (D-OR) as saying it's too early to tell how the House developments may impact end-of-year tax package prospects. Ways and Means Committee Chairman Jason Smith (R-MO) issued a statement lamenting the loss of a Speaker with "overwhelming support among his Republican colleagues and a record of delivering for the American people," and said the development would be a setback for efforts to cut spending and "deliver for working class Americans."
Budget deficit: Of course, a main concern of conservatives is spending, given substantial US budget deficits. An October 5 Wall Street Journal story, "Rising Interest Rates Mean Deficits Finally Matter," suggested that a recent rise in bond yields may be attributable to rising government deficits and that the "scale and upward trajectory of U.S. borrowing and absence of any political corrective" could threaten markets and the economy in the future. "Investors looking for U.S. political will to rein in deficits would take note that both former President Donald Trump and President Biden, their parties' front-runners for the 2024 presidential nomination, have signed deficit-busting legislation and that both of their parties have pledged not to cut the two largest spending programs, Medicare and Social Security, or raise taxes on most households," the story said, adding that some observers see threatened shutdowns and political turmoil as evidence of an "erosion of governance."
Disaster relief: The Ways and Means Committee postponed an October 4 markup of the Federal Disaster Tax Relief Act (H.R. 5863), introduced by Rep. Greg Steube (R-FL). The bill would provide personal casualty loss relief for any disaster area declared since 2020, provide an exclusion from gross income for amounts received as qualified wildfire relief payments, and treat East Palestine train derailment payments as qualified disaster relief payments. The Committee was also slated to consider bills on Customs and Border Protection revenue functions, protecting personally identifiable information in the context of tariffs, and extending reemployment services and eligibility assessments to all claimants for unemployment benefits.
Democrats on tax fairness: In an October 2 letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel, Senators Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), Bernie Sanders (I-VT), and Sheldon Whitehouse (D-RI) encouraged Treasury to take actions to improve tax fairness using its existing statutory authority, including regulations and other guidance to:
"Administrative action is critical for implementation of new tax laws, but it should also be used to improve the implementation of previously passed legislation and eliminate loopholes … " the letter said. "The Treasury Department has clear authority to revisit prior rulemaking to ensure the law is correctly implemented and the wealthy do not receive further unmerited tax giveaways." The senators requested a staff briefing "on the Treasury's authority to act to make the tax system fairer and its rulemaking agenda for doing so by November 2, 2023."
EV guidance: The IRS October 6 issued proposed regulations (REG-113064-23), Revenue Procedure 2023-33, and frequently asked questions for the transfer of new and previously owned clean vehicle credits from the taxpayer to an eligible entity for vehicles placed in service after December 31, 2023. The Inflation Reduction Act (IRA) added the IRC Section 25E credit for previously owned clean vehicles and amended the IRC Section 30D credit for new clean vehicles. Beginning in 2024, in certain situations, taxpayers will be able to transfer the new and previously owned clean vehicle credits to eligible entities. IRS said the guidance, among other things, clarifies how taxpayers can elect to transfer new and previously owned clean vehicle credits to dealers who are eligible to receive advance payments of either credit. The revenue procedure includes procedures for how a dealer would register with the IRS to be eligible to receive the credit transfers from taxpayers and provides details on the registration process through IRS Energy Credits Online, according to a news release.
Reorganizations: The IRS has issued proposed regulations (REG-117614-14) addressing certain triangular reorganizations involving one or more foreign corporations. In a triangular reorganization that is the focus of these regulations, (1) a subsidiary purchases stock or securities of its parent corporation in exchange for property and (2) exchanges the purchased stock or securities for that of a target corporation. The proposed regulations, following up on 2014 and 2016 IRS Notices, expand the definition of "property" for this purpose, address how to treat the property used to acquire the parent stock or securities, the consequences of receiving the stock and how to treat certain subsequent inbound nonrecognition transactions following the reorganization. The tax press and others commonly refer to these transactions as "Killer B" reorganizations because they fall under tax code IRC Section 368(a)(1)(B).
IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.