19 January 2024 This Week in Tax Policy for January 19 Tax bill: The House Ways & Means Committee January 19 approved the $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) proposed by Chairman Jason Smith (R-MO) with Senate Finance Committee Chairman Ron Wyden (D-OR), addressing TCJA pre-cliffs and the Child Tax Credit (CTC) plus the United States-Taiwan Expedited Double-Tax Relief Act, disaster relief, and affordable housing provisions. The vote was 40-3, with Democratic Reps. Lloyd Doggett (D-TX), Linda Sanchez (D-CA), and Gwen Moore (D-WI) opposed. Democratic amendments to expand CTC provisions were defeated along party lines, and Rep. Bill Pascrell's (D-NJ) amendment to increase the SALT cap deduction also failed. Chairman Smith has said he will work to pass the bill in the House in the coming weeks. CTC and business tax provisions are split roughly evenly at roughly $33 billion each, and the bill is close to paid for with $77.2 billion from enforcement provisions for the Employee Retention Tax Credit (ERTC). Under the bill, restoring IRC Section 174 expensing for domestic R&D and the prior IRC Section 163(j) interest deductibility parameters are proposed to be retroactive to 2022 (with elections) and extended through 2025. Also included are an extension of 100% bonus depreciation and an increase in the IRC Section 179 small business expensing amount.
The CTC expansion in the bill would increase the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025, with the value of the credit adjusted for inflation in tax years 2024 and 2025. The bill also includes provisions on the calculation of the refundable credit on a per-child basis and to allow the use of earned income from the prior tax year to calculate the maximum child tax credit if earned income in the current tax year was less than the prior year. Also included are provisions consistent with the Federal Disaster Tax Relief Act (H.R. 5863) to provide personal casualty loss relief for any disaster area declared since 2020, and benefits for payments related to wildfire relief and train derailments. Housing provisions would restore the 12.5% Low-Income Housing Tax Credit (LIHTC) ceiling increase for calendar years 2023 through 2025 and provide a transition rule regarding the tax-exempt bond financing requirement. The revenue offset for the package is enforcement provisions with respect to covid-related Employee Retention Tax Credit (ERTC), including increased penalties, enhanced disclosure requirements, and barring additional claims after January 31, 2024. A column in the January 17 Washington Post lauded the CTC provisions, saying, "low-earning families often cannot receive more than a tiny child tax credit (if any) for any children beyond their firstborn. Meanwhile, higher earners get cash back for every kid. This backward logic is thanks to how the child tax credit 'phases in' based on income. The new agreement fixes this, allowing poor families with multiple kids to claim the same benefit for each of their children." Further, the column said, "Families temporarily undergoing economic hardship could also choose between the current year and the prior one when calculating their credit … earnings from last year could be used to determine [a] family's eligibility … the agreement still satisfies Republicans' preference for something akin to a minimum work requirement but provides more flexibility for how that requirement can be met." A Post editorial noted the tepid response "from Republican and Democratic lawmakers and the White House, based on the fact that it did not do even more for their respective policy priorities." The editorial concluded, "As Washington compromises go, this is a typically unlovely one, but it's redeemed by a tangible improvement in life circumstances for the working poor." However, the Wall Street Journal (WSJ) published an editorial critical of the bill, for reasons including that it undermines the incentive to work in return for the CTC and complicates Republican efforts to extend many more tax cuts that expire at the end of 2025. "The problem, and it's a big one, is the price that Ways and Means Chairman Jason Smith is willing to pay to get Senate Democrats to agree to the business breaks," the editorial said. "The deal announced Tuesday would expand and further entrench the $2,000 per child tax credit. The overall deal would cover the 2023, 2024 and 2025 tax years and cost roughly $78 billion." Budget hearing: Some witnesses at the January 17 Senate Budget Committee hearing on "Corporate Loopholes that Reward Offshoring Jobs and Profits" took aim at the current structure of the global intangible low-taxed income (GILTI) minimum tax. Kimberly Clausing of UCLA, a former Biden Treasury official, advocated implementing a country-by-country version of GILTI and eliminating the tax-free return on foreign tangible assets — points she made during a previous Senate Budget hearing in April 2023. Asked by Senator Chris Van Hollen (D-MD) about requiring public CbCR reporting, Clausing said the simple information required to be provided would increase transparency for corporations and is a "market-friendly nudge" for them to share information with the public. Senator Ron Johnson (R-WI) suggested, ahead of the expiration of some TCJA provisions in 2025, looking at areas of agreement and crafting a bipartisan package that can be considered in Congress. Crypto reporting: IRS Announcement 2024-4 released January 16 "provides transitional guidance under section 6050I with respect to reporting transactions involving receipt of digital assets and clarifies that at this time, digital assets are not required to be included when determining whether cash received … meets the reporting threshold." The 2021 infrastructure law expanded the Section 6050I(a) requirement, for those engaged in a trade or business and receiving more than $10,000 in a transaction or related transactions to file an information return reporting the receipt of cash, to include digital assets. Treasury and IRS proposed rules clarifying the definition of the term digital assets in August 2023 and intend to publish regulations specifically addressing the application of section 6050I to digital assets. Until then, digital assets are not required to be included when determining whether cash received has a value in excess of the $10,000 reporting threshold, they said. IRS: In IR-2024-14 January 18, IRS and Treasury announced, "a major milestone in implementation of key provisions in the Inflation Reduction Act with more than 1,000 projects registered through the new IRS Energy Credits Online (ECO) tool." On January 19, Notice 2024-20 provided guidance on eligible census tracts for the qualified alternative fuel vehicle refueling property credit and to announce the intent to propose regulations for the credit. IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.
Congress: The House is scheduled to be out of session. The Senate will next return for business at 3:00 p.m. on Monday, January 22, with a procedural vote at 5:30 p.m. related to the nomination of Christopher Koos to be a Director of the Amtrak Board of Directors. Republican leader Mitch McConnell (R-KY) has said the Senate could vote as soon as next week on a Ukraine-Israel national security supplemental bill with significant border security provisions. Congress has passed a continuing resolution (CR) to extend government funding beyond the January 19/February 2 deadlines, until March 1/March 8 respectively. Appropriators now have until March to agree to the full slate of 12 appropriations bills. Politico: "Top Hill leaders might have agreed on overall spending levels nearly two weeks ago, but appropriators can't get to work writing legislation until the two appropriations chairs — Sen. Patty Murray (D-Wash.) and Rep. Kay Granger (R-Texas) — work out their own deal on how to divvy up the topline number among the 12 individual bills, setting what's known among wonks as the 302(b)s."
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