December 15, 2023
This Week in Tax Policy for December 15
This week (December 11-15)
Tax bill prospects: With Congress wrapping up its business for 2023, tax-writing committee members continue to set their sights on early January 2024 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), and other 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 package. "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." 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. 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."
Bills moving early in the new year appear to be the focus to move tax provisions. The House has approved, and the Senate is expected to pass next week, 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.
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 December 12 floor speech 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." He has proposed the Affordable Housing Credit Improvement Act to expand and strengthen the Low-Income Housing Tax Credit (LIHTC), and Wyden and others December 7 introduced the Workforce Housing Tax Credit (WHTC) Act 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."
FTC notice: On December 11, 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 an Undertaxed Profits Rule (UTPR), as Treasury and the IRS are studying the issue. An EY Tax Alert has details.
CAMT: IRS Notice 2024-10, released December 15, provides additional interim guidance regarding the application of the new corporate alternative minimum tax (CAMT), as added to the Code by the Inflation Reduction Act (IRA). Specifically, IRS said, the notice provides additional rules for determining the adjusted financial statement income (AFSI) of a U.S. Shareholder when a controlled foreign corporation (CFC) pays a dividend to the U.S. Shareholder or another CFC and modifies and clarifies the interim guidance provided in Notice 2023-64 regarding the applicable financial statement (AFS) of members of a tax consolidated group. On a related note, the Bloomberg Daily Tax Report (DTR) said December 15, "The highly anticipated regulation implementing the book income tax is delayed until January, and the stock buyback tax regulation could face a similar delay, Treasury officials said at a George Washington University-IRS tax conference."
Advanced manufacturing credit: On December 14, Treasury/IRS issued proposed regulations (REG-107423-23) to provide guidance for the Advanced Manufacturing Production Credit established by the IRA. The new Section 45X provides a credit for the production (within the US) and sale of certain eligible components. 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 US and to clarify the circumstances under which taxpayers can claim the credit, Treasury said.
SAF credit: Treasury and IRS issued Notice 2024-06 for the new Sustainable Aviation Fuel (SAF) credit created by the IRA. 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.
Hydrogen credit: 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."
SCOTUS: Regarding Supreme Court arguments in the Moore v. United States tax case December 5, a column in the December 13 Washington Post said, "this case is about constraining Congress's ability to write tax law in the first place — and has the potential to blow up huge swaths of the existing tax code and preempt future reforms." The column cited former Speaker Paul Ryan (R-WI) as saying, "A lot of the tax code would be unconstitutional if that thing prevailed … I'm not for a wealth tax, but I think if you use this as the argument to spike a wealth tax, you're going to basically get rid of, I don't know, a third of the tax code."
Ways & Means subcommittee hearing: 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.
IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.
Next week (December 18-22)
Congress: The House and Senate were both slated to leave 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.) 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.
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." IRC Section 45V hydrogen credit regulations could be released next week.