December 11, 2023
This Week in Tax Policy for December 8
This week (December 11 - 15)
Congress: The House and Senate are in for what is scheduled to be their last week in session before the holidays. A temporary Federal Aviation Administration (FAA) extension into March and House-Senate conference agreement on the National Defense Authorization Act (NDAA) are expected to be considered by both chambers.
On Wednesday, December 13 at 2 p.m., the Ways & Means Oversight Subcommittee will hold a hearing on "Growth of the Tax-Exempt Sector and the Impact on the American Political Landscape."
Treasury/IRS: On December 11, comments are due to Treasury on the draft text of the OECD Pillar One Multilateral Convention (MLC).
Also on December 11, comments are due to IRS on EV transferability regulations.
Webcasts: Wednesday, December 13 (12 p.m. ET) is the EY Webcast, "Spotlight on BEPS 2.0: developments and practical implications for US MNEs."
Friday, December 15 (12 p.m. ET) is the EY Webcast," Tax in a time of transition: legislative, economic, regulatory and IRS developments."
Last week (December 4 - 8)
Tax bill prospects: Congress is having difficulty moving any legislation with only a week to go before the planned adjournment for the holidays (on December 14 for the House and December 15 for the Senate). Bipartisan Senate talks on border policy changes that Republicans view as their price for supporting a robust national security supplemental bill are only now back on, and there are looming differences with the House on the stringency of those provisions and Ukraine funding. The Senate Commerce Committee may not consider a five-year Federal Aviation Administration (FAA) reauthorization and taxes measure until January, and so next week, Congress is expected to pass a temporary FAA extension into March. One major achievement is the House-Senate conference agreement on the National Defense Authorization Act (NDAA), which is considered a must-pass bill before Congress departs for the year and is expected to be passed by both chambers next week. Punchbowl News reported on challenges passing bills, "Speaker Mike Johnson looks ready to let members go home at the end of this week. The Senate may not move on any other major legislation once it clears the defense authorization bill, which could be as soon as Wednesday. Lawmakers could potentially have only a few days left in session before they leave town until mid-January. There are huge issues at stake: Ukraine, Israel, Taiwan, border security, government funding, FISA, FAA. It's just that party leaders and the White House can't seem to agree on anything."
With a dwindling number of trains leaving the station to serve as a legislative vehicle, tax-writers seem to be setting their sights on a potential early January opportunity for a tax package that could address IRC Section 174 R&D, 163(j) interest deductibility, expensing, the Child Tax Credit (CTC), extenders, etc. It isn't clear what legislation tax could get combined with, but appropriations and FAA legislation will likely be necessary early in the year. Members have already expressed a wariness for waiting too long, saying they can't make major changes to the tax system after the filing season starts. While tax committee chairmen have been tightlipped, other members have suggested tax talks aren't very advanced. Tax Notes reported December 7, "Senate Finance Committee ranking member Mike Crapo, R-Idaho, brought together Republicans on the committee in a December 5 afternoon meeting to talk about next steps for negotiations and provide a 'state of play' on the talks … Crapo called the meeting not just to talk numbers, but to discuss whether to proceed with negotiations at all, according to Sen. Chuck Grassley, R-Iowa." The Bloomberg Daily Tax Report (DTR) followed with a story saying, "GOP Senate Finance members discussed the tax pact at a meeting this week, Sen. Bill Cassidy (R-La.) said Thursday. But he said the lawmakers didn't make any decisions, and just addressed possible parameters, given uncertainty over the House's position. 'We don't know what the House would do, so why go through a futile exercise that the House is not going to accept?' he said. Sen. John Thune (R-S.D.) said Wednesday that at the meeting Republican lawmakers mulled what the top line numbers of the package would be and whether Democratic demands are realistic." Perhaps alluding to House GOP demands, the report cited Ways and Means member Rep. David Schweikert (R-AZ) as saying he'd have trouble supporting a tax package that didn't include a way to offset the cost of expanding the CTC .
SCOTUS: Supreme Court arguments in the Moore v. United States tax case December 5, which some see as having ramifications for any future wealth tax, included comments from Justices seeming inclined to uphold the transition tax in the 2017 TCJA. The taxpayer argued the transition tax under IRC Section 965 violates the Constitution's Apportionment Clause and the Due Process Clause of the Fifth Amendment because the transition tax was a direct tax on unrealized income. Justice Brett Kavanaugh said Tuesday, "The entity realized income. The question then is attribution, and we've long held that Congress may attribute the income of the company to the shareholders or the partnership to the partners." Select press coverage:
- The Bloomberg Daily Tax Report (DTR) said, "Supreme Court justices suggested they are inclined to uphold a 2017 tax on American-owned companies' foreign profits, while trying to avoid a sweeping ruling that could give a green light to proposals for a future wealth tax. Hearing arguments in Washington, key justices suggested the tax, which aimed to collect hundreds of billions of dollars on a one-time basis, wasn't fundamentally different from other levies imposed by Congress over the years."
- The Wall Street Journal reported, "The Supreme Court looked unlikely to impose strict new limits on Congress's power to tax income … [and] several justices seemed less concerned with hypothetical future taxes than with possible effects on statutes long familiar to investors, tax advisers and businesses. Those include the [IRC] provision known as Subpart F … " The article highlighted an exchange in which "Justice Amy Coney Barrett asked how Subpart F differed from the tax imposed on the plaintiffs … " A decision in the case is expected before July, the paper reported.
- Tax Notes observed consternation "over potential fallout from ruling too broadly for either the Moores or the government" in the case. "Chief Justice John Roberts was the first to ask about whether the transition tax could be considered applying to realization by the corporation, even if not the taxpayer directly, questioning whether this distinguished it from a tax on the appreciation of property," the report noted. "Justice Sonia Sotomayor also asked why individual partners in a partnership are taxed regardless of whether they have realized anything."
- Politico said Justices questioned distinctions that a lawyer for the plaintiffs "attempted to draw between the repatriation tax and other taxes that have long been on the books. 'Why is this any different?' Justice Elena Kagan asked. 'There's a long, century-old history of these kinds of taxes.' However, some GOP-appointed justices — particularly Neil Gorsuch and Samuel Alito — seemed wary of an unalloyed victory for the government and appeared to be pushing for an outcome that would preserve latitude for the court to limit federal taxing powers in a future case."
Housing: Senate Finance Committee Chair Ron Wyden (D-OR) and others December 7 introduced the Workforce Housing Tax Credit (WHTC) Act to "increase the supply of affordable housing for middle-income families who earn too much to qualify for low-income affordable housing and not enough to afford housing near where they work."
Ways & Means subcommittee hearing: During the December 6 Ways & Means Tax Subcommittee hearing on "Tax Policies to Expand Economic Growth and Increase Prosperity for American Families," Chairman Mike Kelly (R-PA) touted the success of the 2017 tax law and said, "As a car dealer that spent a lifetime fighting for my family's business — I know how important this committee's responsibility is to expand on this TCJA's wins for American workers." Americans for Fair Taxation testified, possibly addressing a January pledge from House Republican leadership to consider the Fair Tax, which would eliminate the national income tax and replace it with a national consumption tax. "Under the FAIRtax, the number of tax collection points reduces dramatically because the only entities collecting the FAIRtax will be retailers of new goods and retail services — estimated to be about 15 million businesses," Steve Hayes of AFFT said. "No longer are Americans required to submit forms containing their income and pay federal income and payroll taxes."
Democrats are opposed to the Fair Tax. Ranking Member Mike Thompson (D-CA): "Unfortunately, today's hearing appears to be focused on some of the most extreme and unpopular tax proposals ever put forth. Chief among them is the fair tax; legislation from the furthest right fringes of the Republican Conference that would continue the last Republican tradition of cutting taxes for the wealthy instead of helping ordinary Americans." Rep. Linda Sanchez (D-CA): "the Fair Tax Act is not a serious proposal. It's been championed by extreme members of the Republican Party. And what this reckless piece of legislation would do is eliminate the IRS and establish a hefty sales tax administered by states on behalf of the federal government."
Len Burman of the Urban-Brookings Tax Policy Center said, "Congress should consider setting up a regular process to evaluate all tax subsidies and eliminate or reform those found to be ineffectual or counterproductive."
The staff of the Joint Committee on Taxation provided a general background on cash-flow and consumption-based approaches to taxation.
Tax expenditures: The Joint Committee staff has prepared a report on tax expenditures for fiscal years 2023—2027. Among the top expenditures are:
- Reduced rates of tax on dividends and long-term capital gains ($265 billion in 2023)
- Defined contribution plans ($225 billion in 2023)
- Exclusion of employer contributions for health care ($202 billion in 2023)
- Credit for children and other dependents ($122 billion in 2023)
- Subsidies for insurance purchased through health benefit exchanges ($80 billion in 2023)
- Earned income credit ($71 billion in 2023)
- Exclusion of capital gains at death ($58 billion in 2023)
- 20-percent deduction for qualified business income ($56 billion in 2023)
- Reduced tax rate on active income of controlled foreign corporations ($51 billion in 2023)
- Deduction for charitable contributions, other than for education and health ($43 billion in 2023)
Global tax: An EY Tax Alert, "Denmark passes Pillar Two," 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
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
11/17/23 — Proposed regulations (REG-132569-17) on the Investment Tax Credit under IRC Section 48
update the types of energy property eligible for the energy credit, provide additional requirements and rules generally applicable to energy property
See EY Tax Alert 2023-1936
12/1/23 — IRC Section 30D foreign entity of concern proposed regulations (REG-118492-23), plus accompanying DOE rules
FEOC-compliance for battery components determined at the time of manufacture or assembly, and FEOC-compliance for critical minerals determined by reviewing all phases of applicable critical mineral extraction, processing, and recycling
For additional information concerning this Alert, please contact: