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December 15, 2023

What to expect in Washington (December 15)

In one major pre-recess accomplishment, the House December 14 approved 310-118 the conference report for the National Defense Authorization Act (NDAA, H.R.2670) that stripped controversial provisions from the House version. The Senate cleared the conference agreement 87-13 the day prior, meaning the measure goes to the President for signature.

The House and Senate were both slated to leave last week for the holiday recess, but the Senate at least is sticking around in hopes of reaching a bipartisan agreement on border provisions to be added to the national security supplemental, along with Israel and Ukraine funding. Senator Michael Bennet (D-CO) blocked consideration of the stopgap Federal Aviation Administration (FAA) authorization and taxes extension through March 8 (H.R. 6503) over congressional inaction on Ukraine funding, assuring the chamber returns next week. (The FAA measure cleared the House 376-15 this week.) The Senate will convene at 3:00 p.m. on Monday, December 18 and, at 5:30 p.m., will vote on confirmation of Martin O'Malley to be Commissioner of the Social Security Administration.

Punchbowl News said Senate Majority Leader Chuck Schumer (D-NY) reported "good progress" towards a supplemental bill, but that top Republicans like Senators John Cornyn (R-TX) and John Thune (R-SD) suggested a border deal to allow the national security supplemental to move before the holiday break would be difficult to achieve. The Hill reported on tensions among Democrats, including some wary of restrictions that could be rushed through the Senate if a deal is reached.

The House has recessed for the holidays. Politico reported that Speaker Mike Johnson (R-LA) "wouldn't say Thursday if he planned to call the chamber back for a vote on a package of border changes and foreign aid, if the Senate can agree on its parameters. 'We've been waiting for the Senate a long time,' Johnson told reporters."

Tax — New this morning: Treasury and IRS issued Notice 2024-06 for the new Sustainable Aviation Fuel (SAF) credit created by the Inflation Reduction Act. The Notice provides additional safe harbors using the Environmental Protection Agency's Renewable Fuel Standard (RFS) program and related guidance; explains that the current Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model of the Argonne National Laboratory and other GREET-based models do not currently satisfy the applicable statutory requirements for the SAF credit; and announces that the Department of Energy is collaborating with other federal agencies to develop a modified version of the GREET model that would satisfy the statutory requirements for the SAF credit.

On December 14, Treasury/IRS issued proposed regulations to provide guidance for the advanced manufacturing production credit established by the Inflation Reduction IRA. The new IRC Section 45X provides a credit for the production (within the US) and sale of certain eligible components including solar and wind energy components, inverters, qualifying battery components and applicable critical minerals. The rules propose clarifying definitions and confirm credit amounts for eligible components, including solar energy components, wind energy components, inverters, qualifying battery components, and applicable critical minerals, as well as definitions for key terms to incentivize production in the United States and to clarify the circumstances under which taxpayers can claim the credit, Treasury said.

Meanwhile, Senate Democratic tax-writers are expressing concerns over forthcoming IRC Section 45V hydrogen credit regulations that could be released next week. Senator Joe Manchin (D-WV) said of the regulatory project, "It doesn't do anything the bill does. They basically made it 10 times more stringent for hydrogen," according to a Bloomberg report. Senator Bob Casey (D-PA) said in a December 13 social media post, "Yesterday, I had a disappointing call with the White House about their tax credit proposal for hydrogen production. Hydrogen hubs have the potential to create thousands of jobs in PA & I'm going to keep pushing the Admin to change their policy & let PA lead the way in hydrogen."

Tax-writing committee members continue to set their sights on early January as the next opportunity to act on a tax package that could address IRC Section 174 R&D, IRC Section 163(j) interest deductibility, expensing, the Child Tax Credit (CTC), extenders, etc. House Ways & Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) have been tightlipped about details but have generally suggested there has been movement on the issue. "It's progressing really well," said Smith in a December 14 Politico article. "It could come together, and it could come together overnight," said Sen. Ben Cardin (D-Md.), a senior tax writer. "But, right now, it's too early to know."

The December 13 House Ways & Means Oversight Subcommittee hearing on "Growth of the Tax-Exempt Sector and the Impact on the American Political Landscape" aired concerns about wealthy individuals, including foreign nationals, donating to tax-exempt organizations that influence US elections. Some Republicans specifically highlighted a case of what they say was a high-profile individual channeling funds through a nonprofit to election departments during the 2020 election. Ranking member Bill Pascrell (D-NJ) called for better regulating political involvement by 501(c)(4) organizations and asked how an appropriations policy rider barring guidance on political activities of the organizations has stifled that effort. Full Committee Chairman Smith expressed concerns about 501(c)(4) organizations influencing elections with foreign funding and asked if the US should reconsider how foreign donations are treated.

Rep. Judy Chu (D-CA) said she is working with Senator Sheldon Whitehouse (D-RI) to close a "loophole" under which wealthy individuals can donate corporate stock to a 501(c)(4) organization and avoid paying capital gains taxes on the donation, giving a "public subsidy" to wealthy individuals who seek to influence political activity.

On December 14, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2023-09, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). The ASU also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. An EY Tax Alert has details.

Paid leave — The Washington Post reported: "A bipartisan group of senators and House members on Wednesday debuted a rare joint effort to advance paid leave legislation. The development is substantive — it is designed to help lawmakers write legislation that can pass both chambers — but it is also symbolic, an effort to show public momentum on the issue … 'Our goal is to get something started,' said Sen. Kirsten Gillibrand (D-N.Y.), who is leading the bipartisan Senate group."

Congress — The wave of retirement announcements, including members of the tax-writing House Ways & Means Committee, continued with Reps. Drew Ferguson (R-GA) and Wiley Nickel (D-NC) saying they wouldn't seek re-election.

Webcasts — Today (December 15) is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."


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