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November 12, 2023

Americas Tax Policy: This Week in Tax Policy for November 10

This week (November 13 - 17)

Congress: The Senate returns to session at 3 p.m. on Monday, November 13, with a judicial nomination vote at 5:30 p.m. Following the confirmation vote, the Senate will take a procedural vote related to H.R. 815, the legislative vehicle for a Continuing Resolution, which reportedly will go into December. The Senate Finance Health Care Subcommittee has scheduled a hearing, "Ensuring Medicare Beneficiary Access: A Path to Telehealth Permanency," for Tuesday, November 14 at 2:30 p.m.

The House is also expected to consider a CR. The House may also resume consideration of two regular-order appropriations bills that hit some roadblocks this week. The Transportation-HUD remains stalled over Amtrak funding. The Financial Services & General Government appropriations bill (which funds the Treasury Department and IRS) was pulled from House consideration over issues related to reproductive rights and funds for a new FBI headquarters, Politico reported. The Ways & Means Committee has scheduled a hearing, "From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing," for Wednesday, November 15 at 2 p.m.

Last week (November 6 - 10)

Year-end rumblings: The trickle of reporting about the ingredients of a potential year-end tax package continues. Politico reported November 9, on the long-time standoff over business tax provisions that hinges on expanding the child tax credit (CTC), that "Senate Democrats have been floating a short-term CTC expansion that would make the credit fully refundable at a cost of $49 billion," citing a Senate Democratic aide. Central to a business tax package are TCJA pre-cliffs that relate to the 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, both of which took effect in 2022; and 100% expensing, which is phased down in increments after 2022. Fixing those provisions through 2025 was estimated to cost $47 billion when considered by Ways & Means as part of a larger package in June. It has long been thought that somehow matching up the costs of the business items and CTC to achieve some level of parity is probably the key to a deal. Another story cited Rep. Kevin Hern (R-OK), chair of the conservative Republican Study Committee and a Ways & Means Committee member, in reporting, "Republicans are looking to move $35 to $40 billion of business relief in an end-of-year tax bill, which Senate Democrats are hoping to match dollar-for-dollar with an expanded Child Tax Credit." The report cited other members as saying the talks aren't exactly fully developed. "We're talking around it but we haven't had any specific proposals on it," Sen. Thom Tillis (R-NC), a Finance Committee member, said Tuesday of negotiations around the CTC. "And really that's what's necessary to bridge the gap with all the tax extenders stuff."

Pre-cliffs criticism: Addressing the TCJA pre-cliffs has attracted support from House and Senate tax-writing committee members of both parties and there hasn't been a lot of Democratic criticism given the widespread effects, despite the widely accepted notion that the cliffs exist because Republicans found them necessary to meet the revenue constraints underlying the drafting of the 2017 TCJA with the expectation that future congresses may want to fix the provisions. That changed November 9, as Senator Elizabeth Warren (D-MA) said regarding the TCJA, during a Finance Committee hearing on taxing high-income individuals: "the $2 trillion price tag on this doesn't actually tell the full story. That's because some of the corporate tax breaks had expiration dates. Now expiration dates, not because they actually wanted those tax breaks to expire, but expiration dates because that meant they could represent that the total cost of the giveaways would look smaller than they really were." Witness Chye-Ching Huang, director of the Tax Law Center at the NYU School of Law, said there were "trillions going into buybacks and dividends" following the TCJA; retroactive fixes would be "wasteful" because "you can't change past investments or wages;" and permanent fixes to the provisions would be vastly more expensive than addressing them through 2025. Senator Warren said, "We should not be rubberstamping Trump tax cuts for giant businesses."

Appropriations: A tax package would most likely be attached to some upcoming government funding bill, and an approach to passing a continuing resolution (CR) to extend government funding beyond November 17 and avoid a government shutdown hasn't been announced. House Speaker Mike Johnson (R-LA) has said he wants a CR into January to avoid getting jammed by the Senate, and it's still unclear if he will pursue a "laddered CR" by which four appropriations bills would be extended into December and the remaining eight into January. That approach, which puts more pressure on a long-term resolution of the funding debate, is favored by conservatives who have long insisted on regular-order spending bills over CRs. Roll Call reported Rep. Andy Harris (R-MD), the Agriculture Appropriations Subcommittee chairman, as saying the laddered approach would "urge the Senate to actually take further action on the bills that it's passed, as well as Defense," suggesting the four-bill tranche to be extended only into December would be the Defense appropriations bill plus the Military Construction-VA, Agriculture, and Transportation-HUD bills recently approved by the Senate as a minibus. "It seems likely that Johnson will first try to move a CR package favored by the House Freedom Caucus. It's not clear the laddered approach will pass the House," Punchbowl News reported November 10. "The GOP conference may be forced to return to reality and pass a more pared-down, mainstream bill."

Asked about the situation November 9, President Biden said, "I wish the House would just get to work. I'm not being facetious. I mean, this is not a political statement. The idea we're playing games with a shutdown at this moment is just bizarre. And I think that we ought to be able to combine Ukraine and Israel. We ought to be able — and I'm open to discussions on the border, and I've already made some proposals. But there's just no need for any of this." He was referring to the national security supplemental funding bill, which the House has passed as an Israel-only measure with $14.5 billion in aid and an equal amount in IRS funding rescissions. Senators from both parties support considering Israel aid in conjunction with money for Ukraine, and the President's supplemental request covers those two issues plus border security resources. But now the border issue is causing complications after a group of Senate Republicans put out a draft plan that Majority Leader Chuck Schumer (D-NY) said too closely resembles "the House's radical H.R. 2 bill."

IRA IRS funding: A story in the November 6 Washington Post reported that rescinding a portion of the Internal Revenue Service (IRS) funding boost enacted in the Inflation Reduction Act (IRA) as a revenue offset for the Israel aid bill was settled upon at a meeting at the Heritage Foundation where an extension of customs user fees, a popular source of revenue over the years, and "repealing some of President Biden's clean energy credits" were also discussed as possibilities. (The Ways & Means Committee tax package approved by the committee in June also sought to roll back various clean energy credits.) Democrats are pushing back at the House bill's proposal to cut some of the additional IRS funding that was enacted in the IRA. In November 7 remarks addressing how the IRA "is continuing to deliver improvements for taxpayers," Treasury Secretary Janet Yellen said, "The current proposals to cut funding for the IRS make this an especially crucial time to talk about the importance of this work. Playing politics with IRS funding is unacceptable. Cutting it would be damaging and irresponsible."

Senate Budget hearing: The November 8 Senate Budget Committee hearing on "wealthy tax cheats" largely focused on the IRA's IRS funding increase, which Democrats and some witnesses defended as allowing the agency to expand audits to additional types of entities that have had little audit coverage in the past, including complex partnerships, and some Republicans suggested may be an overreach. Natasha Sarin, formerly of the Biden Treasury Department and now a Yale professor, said the IRS has been able to measure the individual tax gap but has had "no real capacity to measure the corporate income tax gap, the partnership tax gap, and the digital assets tax gap." The new IRA funds are going to enable IRS to capture and measure those types of evasion that happen at the top of the income distribution, through partnerships and offshore bank accounts, that today the agency "just isn't able to see," she said. Notably, Senator Mitt Romney (R-UT) broke with fellow Republicans and said the idea that Congress is going to reduce the number of IRS agents and audits is wrong, and perhaps a ploy to appeal to some voters. Still, he said, complex structures aren't necessarily to cheat on taxes, it is "just the reality of what happens if you are making multiple investments." He provided the example of an entity that buys houses with different purchase prices, different investors, a foreign investor or not-for-profit. "That's the complication of investments made by entities that are making lots of different investments in lots of different places," he said. An EY Tax Alert has details.

Senate Finance hearing: During the November 9 Finance Committee hearing on taxing high-income individuals, Chairman Ron Wyden (D-OR) said senators were "putting the final details on our proposal that we have been working on for some time" to address billionaire tax avoidance, which the Bloomberg Daily Tax Report said would likely be released this year. He described "Buy Borrow Die" tax planning: "a corporate raider buys a business, and then borrows against its growing, untaxed value to fund their extravagant lifestyle: Everything from superyachts to luxurious vacations, expensive art deals, you name it. It goes up and up in value all while not paying a dime in tax. And when they die, their assets are passed to their kids — often entirely tax-free — and the cycle continues." He also called for ending abuses of Roth IRAs. An EY Tax Alert has details.

Chairman Wyden has for many years been highlighting the disparity in taxation of work income versus investment income, and had proposals for IRAs, mark to market taxation, and other issues, including:

  • The 2016 Retirement Improvements and Savings Enhancements (RISE) Act to prohibit further contributions to a Roth IRA if the total value of an individual's Roth IRA generally exceeds $5 million, eliminate Roth conversions, and eliminate stretch IRAs (which were curtailed by the SECURE Act).
  • The Modernization of Derivatives Tax (MODA) Act of 2017 requiring mark-to-market and ordinary tax treatment for derivatives.
  • The 2019 "Treat Wealth Like Wages" plan to tax capital gains the same as wage income and, for those above certain income thresholds, require tax to be paid each year on gains from tradable assets, with revenue from the plan going towards shoring up Social Security.
  • The 2021 Billionaires Income Tax to require a one-time tax on the current value of tradable assets like stocks and bonds over when they were purchased, then an annual mark-to-market tax on gains.

Treasury/IRS: On November 9 the Treasury Department released proposed regulations (REG-132422-17) under IRC Section 987 with guidance on determining income and currency gain or loss with respect to a qualified business unit. The Proposed Regulations maintain the structure of final regulations published in 2016 and 2019, which generally adopted the foreign exchange exposure pool (FEEP) method.

Global tax: An EY Tax Alert on the U.S. Council for International Business (USCIB) conference in Washington, "OECD and country officials discuss BEPS 2.0 Pillars One and Two and other OECD tax work," is available here.

IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.

Date — Guidance


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

See EY Tax Alert 2023-0054

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

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

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, IRC Section 45L New Energy Efficient Home Credit

addresses eligibility, applicable amount of the credit, energy saving requirements, certification requirements, substantiation

See EY Tax Alert 2023-1741

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.

See EY Tax Alert 2023-1723


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