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March 6, 2024

What to expect in Washington (March 6)

On Tuesday, March 5, the IRS finalized regulations (TD 9988) on the Inflation Reduction Act (IRA) "direct pay" election for entities like tax-exempt organizations and State and local governments to treat the amount of certain tax credits as a payment of Federal income tax rather than as a nonrefundable credit. The regulations describe rules for the elective payment of credit amounts, including definitions and special rules applicable to partnerships and S corporations, and rules regarding repayment of excessive payments. The regulations describe and respond to several public comments regarding the definition of applicable entities and other issues from regulations proposed in June 2023, which are adopted with some changes.

In related guidance, proposed regulations were issued regarding direct pay elections by unincorporated organizations that are owned by one or more applicable entities to be excluded from the application of the partnership tax rules, which provide exceptions to the regulations and allow entities to make an elective payment election. IRS also issued Notice 2024-27, requesting comments on situations in which an elective payment election could be made for a clean energy credit that was purchased in a transfer ("chaining").

IRS also issued regulations on the direct pay election for the advanced manufacturing investment credit under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022. The final regulations include special rules for partnerships and S corporations making the election and rules related to the mandatory pre-filing registration requirement.

Separately on energy tax issues, a Houston Chronicle story picked up on Senate Budget Committee Chairman Sheldon Whitehouse's (D-RI) comments from last week that the 2025 TCJA tax cliff could create room for negotiations on a carbon pricing proposal. The article said, "Yet there is no end of skepticism among climate and energy insiders in Washington around the ability of Whitehouse and his allies, which at times have included Republican Senators Bill Cassidy of Louisiana and Kevin Cramer of North Dakota to get a majority of Congress on board with a domestic carbon fee or tariff on imports based on their emissions, either of which stand to dramatically redraw American industry."

The Senate Finance Committee has scheduled a hearing for Tuesday, March 12 at 10 a.m., titled, "American Made: Growing U.S. Manufacturing Through the Tax Code." Witnesses:

  • Mark Widmar, First Solar, Inc.
  • Anna Fendley, United Steelworkers
  • Shannon Janis, onsemi
  • Courtney Silver, Ketchie, Inc.
  • Peter Huntsman, Huntsman Corporation

Global tax — On Thursday, March 7 at 2 p.m., the House Ways & Means Tax Subcommittee will hold a hearing on "OECD Pillar 1: Ensuring the Biden Administration Puts Americans First." Witnesses:

  • Megan Funkhouser, Information Technology Industry Council
  • Rick Minor, United States Council for International Business
  • Gary Sprague, Baker McKenzie
  • Daniel Bunn, Tax Foundation

Ahead of the hearing, the staff of the Joint Committee on Taxation (JCT) released a report describing the methods and data used to determine a range of possible effects of Pillar One that showed, had the proposal been in effect in 2021, it would have resulted in a loss in US Federal receipts of $1.4 billion. JCT staff also present a range of single-year effects, from a loss of $100 million to a loss of $4.4 billion, reflecting different methods of determining the amount of final sales in the United States for in-scope MNEs, with the range reflecting the uncertainty about many aspects of the implementation of Pillar One, including the use of allocation keys to assign final sales to jurisdictions, available data on exports and imports for the US, application of the marketing and distribution profits safe harbor (MDSH), and tax administration.

Law360 reported a House Republican aide as saying at a conference on Friday that the hearing should include discussions about industry concerns and Treasury's position on Pillar One. In October 2023, text of the Multilateral Convention (MLC) to implement Amount A of Pillar One, reflecting the current consensus within the Inclusive Framework, was released, and Treasury officials have since enumerated changes necessary for the US to feel comfortable signing the MLC. Pillar One is seen as requiring ratification by Congress, and while there is GOP opposition, members of both parties oppose digital services taxes (DSTs) that the project seeks to prevent. On February 15, Treasury announced an agreement with other nations to extend a DST moratorium through June 30, 2024, given the OECD's ongoing work.

Congress — The House and Senate returned to session on Tuesday, and by the end of the week must pass a six-bill appropriations package, the Consolidated Appropriations Act, 2024, for funding that runs out after March 8. The remainder of government funding, which includes appropriations bills that are traditionally a heavier lift like Labor-HHS, Financial Services, and Homeland Security, expire after March 22.

It is the second appropriations bill that has been eyed as a vehicle for the Tax Relief for American Families and Workers Act (H.R. 7024), the business tax provisions and Child Tax Credit (CTC) bill that Senate Finance Committee Republicans want marked up in Committee. There are other options like either reaching agreement with Republicans to bring the bill up as a standalone, or Democrats bringing it to the floor to see if the requisite 9 or 10 Republicans vote in favor. The Bloomberg Daily Tax Report (DTR) reported that Finance Ranking Member Mike Crapo (R-ID) has said he and Chairman Ron Wyden (D-OR) continue talking on the issue and that, while allowing the use of prior year income to calculate the credit is not his only issue with the bill, it is the primary concern.

Law360 reported a House Democratic aide as saying at a conference on Friday that if Senate lawmakers haven't voted on the bipartisan House-passed tax bill by the end of the 2024 tax filing season, that doesn't necessarily mean the bill won't get to President Joe Biden's desk this year. "The reality is, I don't think the clock is running out," the aide said. "Maybe politically so, but not technically."

Senator Kyrsten Sinema (I-AZ), who shaped the precursor to the IRA while the House was still debating the Build Back Better Act by opposing tax rate increases, and then subsequently switched from Democrat to independent, announced she will not run for re-election. NBC News: "Sinema's decision paves the way for a tough and expensive fight for her seat — though it will be more straightforward than the messy three-way contest she would have prompted by staying in. The leading Republican, 2022 gubernatorial candidate Kari Lake, and the leading Democrat, Rep. Ruben Gallego, are already running hard to replace Sinema."

On how the development may change the current make-up of the Senate, the Wall Street Journal said, "Sinema joins a group of moderate senators who have announced they won't seek re-election this term. Utah Sen. Mitt Romney, a Republican dealmaker, also has bowed out, as has West Virginia Sen. Joe Manchin, a Democrat."

Administration — On Thursday, March 7, is President Biden's State of the Union Address. Politico reported March 5 that the White House is "planning to use the State of the Union to portray America as in the midst of a historic revival on Biden's watch, driven by his administration's efforts to strengthen the working class and build a thriving economy. And it's eager to use the address to cast the 2024 race as a critical choice between continuing to expand on that progress — or tumbling backwards under a Donald Trump presidency that would pose an existential threat to the nation's democratic principles."

Monday, March 11 is the release of the President's FY2025 Budget proposal. On Tuesday, March 12 (at 10:15 a.m.), Office of Management and Budget (OMB) Director Shalanda Young will testify before the Senate Budget Committee.

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For additional information concerning this Alert, please contact:

Washington Council Ernst & Young