November 15, 2023
What to expect in Washington (November 15)
The House November 14 approved Speaker Mike Johnson's (R-LA) two-step continuing resolution (CR) to extend government funding beyond November 17, by which Military Construction-VA, Agriculture, Transportation-HUD, and Energy & Water appropriations bills would be extended through January 19 and the remainder of appropriations through February 2. The bill got "by with a little help from some Dems," Politico quipped, as the lack of deep spending cuts and controversial border policies as well as pushing defense spending off to the second tranche was enough to gain the support of Democrats. The vote on the Further Continuing Appropriations and Other Extensions Act, 2024 (H.R. 6363) was 336-95, with 127 Republicans joining 209 Democrats in supporting the bill. Ninety-three Republicans voted 'no.'
The bill, likely to be cleared by the Senate soon, would avert a shutdown November 18 as lawmakers head into Thanksgiving. Majority Leader Chuck Schumer (D-NY) said during a news conference November 14 that the chamber would act on the House-passed measure quickly. "I certainly don't agree with everything he's proposing, and I can't imagine too many senators would have taken the Speaker's approach in drafting this bill, on either the Democratic or Republican sides here in the Senate," he said. "But the fact the proposal … does two things [that] Democrats pushed for, and I talked to him about on the phone ahead of time:
The two-step process appealed to conservatives who oppose omnibus spending bills and straight CRs. Some balked at the absence of spending cuts, but Johnson may have gained more leeway to count on Democratic votes than former Speaker Kevin McCarthy (R-CA), who was ousted after Congress passed a bipartisan CR in September. The New York Times reported, "Representative Chip Roy, an arch-conservative Texas Republican opposed to the measure, said he did not want address whether the legislation could prompt a challenge to Mr. Johnson, considering the circumstances were nearly identical to those that led to Mr. McCarthy's ouster. 'I don't want to go down that road,' he said. 'What we're talking about right now is the need to get our job done and do it the right way.' Mr. Roy did praise Mr. Johnson for seeking ideas from across the spectrum of House Republicans."
A story in the November 14 Washington Post on the genesis of the CR omitting spending cuts, border policy, and national security funding said, "Instead of appeasing just one ideological faction, the proposal has angered the hard right, puzzled the middle and been mocked by the White House. But it may attract enough support, including from Democrats in the House and the Senate to land on the president's desk this week." The story said Johnson "faces the herculean task of uniting an ideologically fractious conference that has been pulled further apart after a contentious speakership fight that exposed and strengthened lingering resentments, policy differences and doubt that Republicans can ever find consensus again."
The CR doesn't address elements of the national security supplemental, which the House addressed as an Israel-only funding bill with a rescission of some of the Inflation Reduction Act (IRA) IRS funding increase. Senators from both parties want to address Ukraine as well, Democrats won't accept the IRS rescission, and Republicans insist on border policy changes. The issue could get resolved in the next round of appropriations legislation early next year. Asked November 14 "how confident are you that you can get the supplemental funding bill passed with all four parts by the end of the year," Senate Republican leader Mitch McConnell (R-KY) said, "We're certainly going to have the time now to do that … Senator Schumer and I both support it. We hope it will pass the Senate. [Speaker Johnson's CR] gives us until January and February to get the job done. So that's what we hope to be able to accomplish."
In Tax Notes, tax-writers made the same argument: that a shutdown risk being removed for two months should allow time to craft a tax package. "We got a lot more time on our hands, don't we?" Ways and Means member Kevin Hern, R-Okla., said November 13. "We should be doing some tax package work." The story said: "Hern said that with a dollar-for-dollar match in child tax credit expansion as advocated by Senate Democrats, the package is set to cost nearly $100 billion. The CR could set up spending bills as viable vehicles, but other options are being explored, Hern said. 'There's a lot of moving parts to this right now,' Hern said. 'I always believe there's hope [for the end of the year] until there's not.'" Ways & Means Ranking Member Richard Neal (D-MA) was cited as saying there haven't been any discussions about offsets for such a package and "there's a distinction between conversations and engagement" regarding tax legislation, and there hasn't been any engagement thus far.
The CR includes health provisions but few other extraneous items, and a tax package is not included. There won't be a must-pass year-end appropriations bill, to which such tax packages are typically appended, and it remains to be seen whether tax provisions can be added to spending bills to follow in January or February, or other legislation in between now and then. Federal Aviation Administration (FAA) authorization and taxes expire December 31, under the prior CR, and it's unclear how they will be addressed.
Tax - Treasury and the IRS have released long-awaited proposed regulations (REG-142338-07) regarding excise taxes on (1) sponsoring organizations making taxable contributions from a donor advised fund (DAF) and (2) certain fund managers making these distributions. The proposed regulations generally would apply to certain charitable organizations, including community foundations and other sponsoring organizations of one or more DAFs, and to other persons involved with the DAFs, including donors, donor-advisors, related persons and certain fund managers.
In a November 9 letter made public this week, Reps. Hern, Brad Schneider (D-IL), and other members mostly from the Ways & Means Committee said regarding IRS officials' comments about extending the Notice 2023-55 temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit: "We kindly request that guidance in alignment with those public statements be issued as soon as possible to extend the current relief period for at least one additional year." In the July Notice, Treasury/IRS announced that taxpayers could apply former regulations' more permissive standards for determining whether a tax was a creditable net income tax under IRC Section 901, and the current IRC Section 903 "in lieu of" tax rules without regard to the attribution requirement for tax years ending on or before December 31, 2023. IRS is considering extending the period in which taxpayers can rely on old foreign tax credit rules.
"This further extension is necessary considering fiscal year taxpayers are already or will soon start filing fiscal year 2024 quarterly financial statements and will need to comply with 2022 FTC final regulations in the absence of additional relief," the eight members wrote. "Extending the relief period for at least one year will give taxpayers necessary assurance and Treasury enough time to analyze thoroughly the issues related to the 2022 FTC final regulations."
Upcoming next week, a public IRS hearing on proposed regulations on Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements is scheduled for Tuesday, November 21 at 10 a.m.
Congress - The Ways & Means Committee is holding a hearing today at 2 p.m., "From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing." Witnesses:
The Ways & Means Social Security Subcommittee is set to hold a field hearing on "Social Security's Disservice to Public Servants: How the Windfall Elimination Provision and Government Pension Offset Mistreat Government Workers," on Monday, November 20 at 2 p.m.
Friday, November 17 is the EY Webcast, "Tax in a time of transition: Legislative, economic, regulatory and IRS developments." Register here.