Americas Tax Policy: This Week in Tax Policy for October 6

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October 8, 2023
2023-1660

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:

address "abuses for ultra-wealthy families and dynastic wealth, including to police valuation games, perpetual dynasty trusts, and transfers of foreign assets;"
ensure that large multinationals pay their fair share on the subsidiaries' passive earnings; and
ensure that fund managers and other business owners pay their fair share of payroll taxes.

"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.

Date — Guidance	Description	Link for more information
11/29/22 — Notice 2022-61, prevailing wage and apprenticeship requirements	started clock for construction 60 days after guidance: new requirements apply to facilities that begin construction on or after January 29, 2023	See EY Tax Alert 2022-1832
12/12/22 — Revenue Procedure 2022-42, EVs	agreements between manufacturers and Treasury regarding production of vehicles eligible for credit	See EY Tax Alert 2023-0076
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	See EY Tax Alert 2022-1912
12/22/22 — Fact Sheet (FS-2022-40) on efficient home, residential credits	lists improvements eligible for credits, credit amounts, information on labor costs	See EY Tax Alert 2022-1935
12/27/22 — Notice 2023-2, stock buyback tax	rules and procedures for the 1% excise tax on the aggregate fair market value of stock repurchased by certain corporations	https://www.ey.com/en_gl/tax-alerts/us — 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	See EY Tax Alert 2023-0091
12/29/22 — FS-2022-42 on EV credits; Updated FS-2023-04, FS-2023-08	address how the credit applies to, defines qualified manufacturer; situations in which vehicle's classification changed; whether credit can be split among multiple owners	See EY Tax Alert 2023-0660
12/29/22 — Notice 2023-1, EV credits; modified by Notice 2023-16	definitions for new clean vehicles, critical mineral and battery component requirements	See EY Tax Alert 2023-0251
12/29/22 — White Paper on critical mineral requirements	percentage must be extracted or processed in the US or a country with free trade agreement with US	https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf
12/31/22 — Notice 2023-9, IRC Section 45W, EVs	Safe harbor regarding the incremental cost of vehicles	See EY Tax Alert 2023-0076
2/13/23 — Notice 2023-17 Low-Income Communities Bonus Credit	applies to owners of solar and wind facilities in low-income communities that are eligible for the IRC Section 48 energy investment credit	See EY Tax Alert 2023-0333
2/13/23 — Notice 2023-18, 48C advanced energy 5/31/23 — Notice 2023-44	$10 billion in tax credits, information on "energy communities census tracts"	See EY Tax Alert 2023-1012
2/17/23 — Notice 2023-20, interim guidance for insurance companies and others for the CAMT	determination of adjusted financial statement income for variable contracts, reinsurance, "fresh start" basis adjustment	See EY Tax Alert 2023-0384
3/9/23 — Notice 2023-24, nuclear credit (45J)	computing the credit, amount of unutilized NMCL, unutilized NMCL, transfer of credit to an "eligible project partner"	See EY Tax Alert 2023-0504
3/31/23 — Proposed regulations (REG-120080-22), EV credit	domestic sourcing requirements	See EY Tax Alert 2023-0660
4/4/23 — Notice 2023-29, "energy communities" 6/15/23 — Notice 2023-45 6/15/23 — Notice 2023-47, energy community bonus	for purposes of PTC under IRC Sections 45 and 45Y, ITC under IRC Sections 48 and 48E for electricity facilities; Updates eligibility based on updated local unemployment rate data	See EY Tax Alert 2023-1083
5/12/23 — Notice 2023-38, domestic content bonus under IRC Sections 45, 45Y, 48, and 48E	how to categorize solar, wind and energy storage components for purposes of the manufactured products requirements	See EY Tax Alert 2023-0908
5/31/23 — Proposed regs (REG-110412-23) on Low-Income Communities Bonus Credit	definitions and requirements that would be applicable for the program allocating the calendar year 2023 capacity limitation	See EY Tax Alert 2023-1018
6/7/23 — Notice 2023-42, CAMT	waives addition to tax for a corporation's failure to make estimated tax payments of its CAMT	See EY Tax Alert 2023-1038
6/14/23 — Proposed regulations (REG-101610-23) on tax credit transferability	allows an eligible taxpayer to transfer all or a portion of an eligible credit to an unrelated transferee taxpayer for cash	See EY Tax Alert 2023-1103
6/14/23 — Proposed regulations (REG-101607-23) on direct pay	allows entities like tax-exempt organizations to treat credits as a payment against tax, rather than as a nonrefundable credit	See EY Tax Alert 2023-1102
6/15/23 — FAQs on energy communities	how areas may qualify as an energy community, whether a project is located in an energy community	See EY Tax Alert 2023-1083
6/29/23 — Announcement 2023-18, stock buybacks	taxpayers not required to report or pay excise tax on any tax return filed before regulations are published	See EY Tax Alert 2023-1166
8/10/23 — Final regulations (TD 9979) and Revenue Procedure 2023-27 on Low-income Communities Bonus Credit	implements bonus energy investment credit program for solar or wind facilities in low-income communities: information an applicant must submit, application review, obtaining an allocation	https://www.irs.gov/newsroom/irs-and-treasury-issue-guidance-for-owners-of-solar-and-wind-powered-energy-facilities-in-low-income-communities-for-increased-energy-credit-under-the-inflation-reduction-act
8/29/23 — Proposed regulations (REG-100908-23) on prevailing wage and apprenticeship requirements	satisfying requirements, correction payments to workers, penalties to IRS	See EY Tax Alert 2023-1469
9/12/23 — Notice 2023-64, CAMT	describes rules IRS intends on issues like the determination of a taxpayer's applicable financial statement	See EY Tax Alert 2023-1570
9/27/23 — Notice 2023-65, Section 45L New Energy Efficient Home Credit	addresses eligibility, applicable amount of the credit, energy saving requirements, certification requirements, substantiation	https://home.treasury.gov/news/press-releases/jy1768
10/6/23 — Proposed regulations (REG-113064-23) on transfer of EV credits, plus Revenue Procedure 2023-33	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.	https://www.irs.gov/newsroom/irs-issues-guidance-for-the-transfer-of-clean-vehicle-credits-and-updates-frequently-asked-questions

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Contact Information
For additional information concerning this Alert, please contact:

Washington Council Ernst & Young
• Jose Murillo (jose.murillo@ey.com)
• Jeff Van Hove (jeffrey.van.hove@ey.com)
• Ray Beeman (ray.beeman@ey.com)
• Kurt Ritterpusch (kurt.ritterpusch@ey.com)
• Bob Carroll (robert.carroll@ey.com)
• James Mackie (james.mackie@ey.com)