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December 13, 2023

What to expect in Washington (December 13)

Efforts continue among congressional tax committee chairmen to nail down a deal for a tax package that could address IRC Section 174 R&D, 163(j) interest deductibility, expensing, the Child Tax Credit (CTC), extenders, etc., which would most likely have to move in early January because members are set to recess for the holidays at the end of this week. House Ways & Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) have been tightlipped about any prospects but have generally said they are talking, along with ranking members. Former Ways & Means Chairman Dave Camp (R-MI) was cited in Tax Notes as suggesting, after having spoken with Chairman Smith, that a deal may be close and pay-fors are possible.

With a dwindling number of legislative vehicles remaining in 2023, bills moving early in the new year appear to be the focus to move tax provisions. The House has approved, and the Senate will follow suit, a Federal Aviation Administration (FAA) authorization and taxes extension through March 8, to give negotiators time to complete a five-year bill early next year. Government funding extensions are due January 19 and February 2, though there will be tough sledding to get both chambers to a unified package and there are hints of shutdown prognostication, as there have been in Washington pretty much all year. A bipartisan Taiwan tax package with broad support is also awaiting action, though it's unclear whether that could drive a package or have to ride on another bill.

Axios on tax negotiations: "Talks are further along than most people realize," said a senior GOP lawmaker. "All parties are aware that a December timeline is difficult, but that there is a window early next year." Senator Sherrod Brown (D-OH), a Finance Committee member and principal in the CTC negotiations, said in the report, "The challenge is to get to an agreement, then find the vehicle … I think if you get to the agreement, the chances of getting a vehicle are pretty high."

Law360 cited Chairman Wyden as saying he has been working with Chairman Smith on a deal that would evenly split costs between business and family provisions. "Any potential deal could include an expansion of the low-income housing tax credit, which is used to finance the development of affordable housing for workers who can't live near their places of employment because the cost of housing is too high, Wyden said," according to the report.

In a floor speech yesterday echoing those remarks, Chairman Wyden said, "I believe there's a real window of opportunity for the Senate to pass bipartisan housing legislation in this Congress. As Chairman of the Finance Committee, I will continue to work on a bipartisan basis to get a tax deal done that includes much-needed funding for LIHTC so we can continue to tackle this crisis from every angle, on top of expanding the Child Tax Credit and key end-of-year expiring provisions."

Year-end business — Yesterday afternoon, press reports were ready to predict that the entire national security supplemental debate will be kicked to January, after Senate Republican leader Mitch McConnell (R-KY) reportedly told GOP senators at the party lunch there was no conceivable way the border policy negotiations could be wrapped up by the end of the year. On top of that, Speaker Mike Johnson (R-LA) has threatened to adjourn the House at the end of this week regardless of where the Senate is on the supplemental. But the White House has apparently made a serious eleventh-hour offer on border policy that Senate Republicans are considering, in a bid to get the bill done before Christmas.

CBS News: "The Biden administration on Tuesday indicated to congressional lawmakers that it would be willing to support a new border authority to expel migrants without asylum screenings, as well as a dramatic expansion of immigration detention and deportations, to convince Republicans to back aid to Ukraine … "

Senate Majority Leader Chuck Schumer (D-NY) asked Speaker Johnson to keep the House in session past this week to work on the issue. "After months of saying the border's a crisis, that we must get something done, yesterday, too many Republicans, many in the House and now a good number in the Senate, seem to prefer to go home than to pass a bill," he said following the regular Tuesday Senate party lunches. "If Republicans are serious about getting something done on the border, then why are so many of them in a hurry to leave for the winter break?" Senator McConnell, reminded of past deals he cut with Joe Biden on the fiscal cliff and other issues, said he told the President, "the only way we will get an agreement is for you to be involved."

Speaker Johnson argued on Fox News that the House passed H.R. 2 six months ago and it is not the House's fault that the talks are running out of time as yearend approaches. "The House's position is H.R. 2. It has very important provisions, like asylum reform, parole reform, the end of the catch-and-release policies, the remain-in-Mexico," he said. "That's our position, but they have yet to come back and even volley anything over the net. So that's our position, and we have been very resolute about that."

Today, the Senate will resume consideration of the conference report to accompany H.R. 2670, the National Defense Authorization Act (NDAA), and possibly hold a vote on passage, sending the measure to the House.

Tax — On Monday, the Treasury Department released a notice (Notice 2023-80) with guidance on the interaction of the foreign tax credit (FTC) rules and dual consolidated loss (DCL) rules with top-up taxes imposed via an Income Inclusion Rule (IIR) or a Qualified Domestic Minimum Top-Up Tax (QDMTT) under the OECD's Global Anti-Base Erosion Model Rules (GloBE Rules). Treasury also announced its intent to issue proposed regulations that will align with this new guidance, along with an indefinite extension of the moratorium on the current final FTC regulations. The Notice does not provide guidance on the FTC implications of a UTPR, as Treasury and the IRS are studying the issue. An EY Alert has details.

Today (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."

Also today (December 13) at 12 p.m. 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."

Elections — On December 12, the New York State Court of Appeals ruled that the state legislature should approve a new redistricting plan for congressional seats in 2024. New York Republicans won several seats in the 2022 elections, significantly aiding Republicans in winning the House majority. A Wall Street Journal editorial said Democrats have "increased their odds of picking up at least four House seats next November."

The New York Times: "The decision could have far-reaching implications in reshaping the House battlefield in a key state. New York Democrats are widely expected to use the opening to try to shift two to six Republican-held swing districts that President Biden won, from Long Island to Syracuse. The State Constitution still prohibits partisan gerrymandering. But Democrats would need to make only slight alterations to the district lines to improve the party's chances and imperil Republicans' three-seat majority before the campaign season even begins."


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