January 19, 2024
2024-0240 This Week in Tax Policy for January 19 This week (January 15-19) 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. Provision | 10-year revenue 2024–2033 | Child Tax Credit refundability, per-child phase in, use of prior-year earnings, etc. | -$33.49b | Total - Tax Relief for Working Families | -$33.49b | | | Deduction for domestic research and experimental expenditures | -$8.47b | Allow depreciation, amortization, depletion in determining limit on business interest | -$18.82b | 100% bonus depreciation | -$3.05b | Increase in limitations on expensing of depreciable business assets | -$2.5b | Total — American Innovation and Growth | -$32.82b | | | United States-Taiwan Expedited Double-Tax Relief Act | No revenue effect | | | | Extension of rules for treatment of certain disaster-related personal casualty losses | -$4.4b | Exclusion from gross income for compensation for losses/damages from wildfires | -$512m | East Palestine disaster relief payments | -$1m | Total - Assistance for Disaster-Impacted Communities | -$4.93b | | | State housing credit ceiling increase for low-income housing credit | -$2.67b | Tax-exempt bond financing requirement | -$3.6b | Total — More Affordable Housing | -$6.26b | | | Increase threshold for requiring information reporting with respect to certain payees | -$1.5b | Enforcement provisions with respect to COVID-related employee retention credits | $78.75b | Total — Tax Administration and Eliminating Fraud | $77.24b | Net Total | -$262m |
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. Date — Guidance | Description | 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 Notice 2023-16 | 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 | https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf | 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 | https://www.irs.gov/newsroom/irs-and-treasury-issue-guidance-for-owners-of-solar-and-wind-powered-energy-facilities-in-low-income-communities-for-increased-energy-credit-under-the-inflation-reduction-act | 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 describes how. | 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, for critical minerals determined by reviewing all phases of applicable critical mineral extraction, processing, and recycling | https://home.treasury.gov/news/press-releases/jy1939 | 12/14/23 — Proposed regulations (REG-107423-23) on IRC Section 45X Advanced Manufacturing Production Credit | clarifying definitions and confirm credit amounts for eligible components, including for solar energy and wind energy, inverters, qualifying battery components, and applicable critical minerals | See EY Tax Alert 2023-2116 | 12/15/23 — Notice 2024-10, additional interim CAMT guidance | additional rules for determining the adjusted financial statement income (AFSI) of a US shareholder when a CFC pays a dividend to the US shareholder or another CFC | See EY Tax Alert 2023-2105 | 12/15/23 — Notice 2024-06, Sustainable Aviation Fuel (SAF) credit | additional safe harbors using the Environmental Protection Agency's Renewable Fuel Standard (RFS) program and related guidance | See EY Tax Alert 2024-0107 | 12/22/23 — Proposed regulations (REG-117631-23) on the IRC Section 45V hydrogen credit | guidance on how taxpayers can determine lifecycle greenhouse gas (GHG) emissions rates resulting from the hydrogen production process, use electricity from certain renewable or zero-emissions sources to produce clean hydrogen | See EY Tax Alert 2024-0131 | 12/26/23 — IRS updated EV credit FAQs | vehicles with battery components manufactured or assembled by a foreign entity of concern aren't eligible for any credit amount | https://www.irs.gov/newsroom/irs-updates-frequently-asked-questions-for-the-new-previously-owned-and-qualified-commercial-clean-vehicle-credit | 1/19/24 — Notice 2024-20, qualified alternative fuel vehicle refueling property credit | guidance on eligible census tracts and to announce the intent to propose regulations for the credit | https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-qualified-alternative-fuel-vehicle-refueling-property-credit |
Next week (January 22-26) 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." | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: Washington Council Ernst & Young | |
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