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February 10, 2024

This Week in Tax Policy for February 9

This Week (February 12 - 16)

Congress: The House is in session. The Senate has scheduled a two-week recess for President's Day, February 12-23, but may be in over the weekend for votes related to the national security supplemental.

IRS hearing: On Thursday, February 15 at 10 a.m., the House Ways & Means Committee is holding a Hearing with IRS Commissioner Daniel Werfel. In a December letter, Committee Republicans called on Commissioner Werfel to testify following the agency's decision to delay implementation of the American Rescue Plan Act's (ARPA) lower 1099-K reporting threshold of $600 rather than $20,000. In Notice 2023-74 on November 21, 2023, the IRS again delayed the reduction to a $600 de minimis threshold for reporting transactions by third-party settlement organizations on Form 1099-K and announced plans for a $5,000 threshold for 2024 to phase in the requirement.

SALT bill: A House vote may occur on the rule for consideration of the SALT Marriage Penalty Elimination Act (H.R. 7160), to provide a $20,000 SALT deduction cap for joint filers with adjusted gross income of less than $500,000 for 2023. A vote was expected earlier, and the delay has been attributed to several factors, including a short House workweek marked by controversial votes. The SALT relief issue is bipartisan for members from high-tax states, but the bill is seen as unlikely to be enacted, as other Republicans support the TCJA's $10,000 cap. Asked about the issue by Rep. Josh Gottheimer (D-NJ) during a February 6 House Financial Services Committee hearing, Treasury Secretary Janet Yellen said, "I agree that SALT has had a disproportionate impact on different states. There are also fiscal implications from the legislation that you discuss. I haven't had a chance to examine, and it's really up to the White House and the President to decide whether or not to be supportive of this." A story in the February 6 Washington Post said Rep Mike Lawler (R-NY) "and other New York and California Republicans represent districts that President Biden carried in 2020, and they may face longer odds to reelection after liberal state legislatures redraw congressional districting maps. Bringing home a SALT expansion, the lawmakers say, could be key to the economic planks of their campaigns."

Last Week (February 5 - 9)

Tax bill outlook: The Senate was occupied last week with the national security supplemental bill to provide Ukraine, Israel, and other funding, and whether to add border security provisions at least three months in the making, which were ultimately omitted due to political pressures. Still simmering in the background ahead of a two-week recess was the question of how and when the Senate will get to the House-passed $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) addressing TCJA pre-cliffs, the Child Tax Credit (CTC), US-Taiwan double-tax relief and other issues. The most significant holdup at this point appears to be the desire of at least some Republican senators, particularly those on the Finance Committee, to have their "day in court" to publicly debate the bill and offer amendments, regardless of whether those amendments are accepted. Some Republicans on the Finance Committee have publicly said they would like the Committee to mark up the bill, and Senator John Cornyn (R-TX) said February 6 there is consensus among Republicans that a markup is required, in the most direct comments on the topic since the bill passed the House January 31. "We need to go through the Finance Committee, so I don't think it's on the fast track," Senator Cornyn said in a Bloomberg report. Punchbowl News reported that Ranking Member Mike Crapo (R-ID) met with Republican committee members Tuesday afternoon and said he requested a markup from committee Democrats. "We need to deal with a number of issues that senators want to raise," Crapo said. Views expressed by Republicans on the tax bill include:

  • Finance Committee member Ron Johnson (R-WI) said he is opposed because the bill would establish a "legislative groundwork for expansionary entitlements," presumably through CTC provisions that would gradually increase the refundable amount per child to $2,000 per year and allow the use of earned income from the prior taxable year to calculate the maximum credit, Politico reported.
  • Senator Marco Rubio (R-FL) has his own CTC expansion proposal and several concerns with the H.R. 7024 proposal, including retaining a "connection to work" and the prior year calculation lookback.
  • Finance member Marsha Blackburn (R-TN) has similarly argued that "allowing taxpayers to use their prior-year earnings to qualify for the [CTC] will disincentivize them from working."
  • Finance Committee member Thom Tillis (R-NC) has questioned the integrity of the Employee Retention Credit (ERC) crackdown offset, a view that Cornyn said he may be inclined to agree with.
  • Morning Tax reported on the support of off-Committee members like Senators Roger Marshall (R-KS), Markwayne Mullin (R-OK), and Josh Hawley (R-MO)
  • Senate Minority Whip John Thune (R-SD) warned that not allowing for a process where GOP lawmakers offer amendments could lead to the party blocking it from getting consideration at all.
  • Senator Chuck Grassley (R-IA) has said there are concerns over approving the bill in an election year, making the President "look good" and increasing his re-election chances ahead of the 2025 tax cliff.

However, aside from insisting on a markup, it isn't clear what Finance Ranking Member Crapo would need to support the plan. Punchbowl News reported that Crapo had already weighed in to limit the CTC lookback in the bill as unveiled, clipping plans to have that in effect for 2023. "There were parts of the bill that needed to be fixed to get my support, and there was not an agreement to fix them," Crapo said. "The bottom line is that Ron [Wyden] and Jason [Smith] went forward." Exact plans for how the Senate will proceed with the bill aren't clear. "We're going to do everything we can to pull out the stops to be fair to senators and, at the same time, get this done quickly," Finance Committee Chairman Ron Wyden (D-OR) said in today's Bloomberg Daily Tax Report (DTR). The Senate will need at least 9 Republicans to pass a tax bill presuming the support of all 51 Democrats, though Senator Joe Manchin (D-WV) has expressed concerns with the CTC expansion. While bringing the bill to the Senate floor as a standalone measure seems unlikely, eventually including it as a title in an omnibus appropriations package may be the most likely path forward,

Case study: While the path forward in the Senate is unclear and flush with pitfalls, the strong House vote on the Tax Relief for American Families and Workers Act has been hailed in press reports as a case study in how Speaker Johnson can move legislation with a fractious Republican caucus and razor-thin majority — especially in light of difficulties with other measures like, this week alone, two failed controversial votes on Israel funding and the impeachment of Homeland Security Secretary Alejandro Mayorkas. A Washington Post analysis cited the tax bill vote, 357-70 under suspension of the rules January 31, as an example of how "House Speaker Mike Johnson (R-La.) once again found a way around the blockade from his far-right faction that regularly tries to sabotage the normal flow of legislation if it's deemed insufficiently pure for conservatives. It's the fifth time in four months House GOP leaders have used this fast-track process for what are considered important legislative matters but are usually considered under a formal rule that the majority party is tasked with passing. Faced with a renegade faction that votes against those rules, Republicans instead have turned to the suspension calendar to pass these critical bills." Politico said the tax bill vote reflected "A combination of leadership tactics, old-fashioned logrolling, an end-run around the most virulent opposition, intense lobbying by business and the support of interest groups across the ideological spectrum, even if some of it was grudging. Not least, members and aides say, it was also a result of close cooperation and good-faith negotiations between the new Republican chair of the House Ways and Means Committee, Jason Smith, and the veteran Democratic chair of the Senate Finance Committee, Ron Wyden."

Pillar 2 and US tax rules: At the February 7 Ways & Means Trade Subcommittee hearing on "Advancing America's Interests at the World Trade Organization's 13th Ministerial Meeting," Rep. Ron Estes (R-KS) said, "what's most alarming to me is the interaction of the WTO policies with our global tax system and OECD's Pillar 2," saying the TCJA's FDII and GILTI regimes function as a proverbial carrot and stick. "If you have IP in the U.S. and sell overseas, those profits are taxed at a lower rate. If you have IP overseas, those profits are taxed at a higher rate. This system's been successful in bringing IP back to the United States and stopping corporate inversions. However, the success of this system relies on the US retaining primary taxing right on IP within the United States … " he said. "Due to OECD's ordering rules and the US Treasury not defending our tax system, [Qualified Domestic Minimum Top-up Taxes] are given priority over GILTI and FDII. Any QDMTT paid by a U.S. company would generate a foreign tax credit which would be an additional drain on the US Treasury."

Congress: The current House party ratio of 219-212, which gives Republicans only 3 votes to spare in any party-line bill on the House floor, follows the resignation of Ways & Means member Rep. Brian Higgins (D-NY) from Congress February 2, to head a performing arts center. With his departure, Rep. Jimmy Gomez (D-CA) has rejoined the Ways & Means Committee and was named to the Tax and Work and Welfare subcommittees.

Politics of tax: The House had a short workweek because Democrats held their annual issues conference at a resort in Northern Virginia February 9. Biden administration officials have previously forecast that the President is spoiling for a debate over tax fairness, and he has alluded to such in speeches. In addressing members at the retreat, President Biden touted the successes of the CHIPS and Science Act and Inflation Reduction Act and suggested that Republican concerns over the deficit that have been ramping up are hollow. He said Republicans "are determined to take away the $35-a-month insulin, as well as the $2,000 cap on prescription drugs and Social Security. And they're going to — they want to decimate it — they're straight about it — decimate Social Security and Medicare … They look at a multibillion-dollar tax cut for people at the top 1%. And guess who pays for it? Guess where that comes from?"

President Biden's election message on tax and other issues may emerge more clearly after the State of the Union Address, on March 7, and annual budget release. Bloomberg Government reported that President Biden will send his FY2025 budget proposal to Congress on March 11.

CBO revisions: Further to Republican concerns over the deficit, House Budget Committee Chairman Jodey Arrington (R-TX) February 7 introduced H.J. Res. 113, a joint resolution proposing a balanced budget amendment to the Constitution of the United States, after raising concerns about the Congressional Budget Office (CBO) February 2024 Budget Baseline for FY2024—2034 showing that "the gross federal debt is on track to grow by $20 trillion in just ten years, reaching a staggering $54.4 trillion." CBO did say the deficit for 2024 is $0.1 trillion smaller than CBO projected in May 2023, and the cumulative deficit for the 2024—2033 period is $1.4 trillion smaller. "The biggest factor contributing to smaller projected deficits is a reduction in discretionary spending stemming from the Fiscal Responsibility Act and the Further Continuing Appropriations and Other Extensions Act, 2024," the report said.

An op-ed in the February 9 Wall Street Journal, "CBO Gives Republicans a Chance for Real Tax Reform," said the CBO revised estimates of Inflation Reduction Act (IRA) energy provisions to "roughly $1 trillion in the coming decade," student loan forgiveness to $260.7 billion, and regulatory expansion of Affordable Care Act subsidies at least $45 billion, while other analyses say a regulation increasing food stamp benefits would cost upwards of $200 billion. "Legislation repealing these three regulations and green subsidies from 2022 would fund roughly half the cost of extending the expiring tax cuts … " the op-ed said. "To the extent that Republicans can find reasonable 'pay-fors' to make some or all of the extensions permanent, doing so would provide helpful policy certainty."

IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.

Date — Guidance


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

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

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, IRC Section 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 (IRC Section 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

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

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

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

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