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March 10, 2024

This Week in Tax Policy for March 11

This Week (March 11 - 15)

Congress: The House and Senate are in session.

On 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.

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." JCT released a related report on "Tax Incentives for Domestic Manufacturing." Witnesses:

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

Last Week (March 4 - 8)

Tax bill: It's been a busy two weeks for tax policy ideas, with the President's State of the Union Address and FY2025 Budget release and Republicans promoting their alternatives, but there has been no measurable movement toward Senate consideration of the Tax Relief for American Families and Workers Act (H.R. 7024) business tax and Child Tax Credit (CTC) bill passed by the House in January. Senate Majority Leader Chuck Schumer (D-NY) said leaders are still looking for the best way to move forward on the bill, which has seemingly been further bogged down by recriminations over what Senate Finance Committee Republicans want in exchange for their support of the bill that was backed unanimously by Ways & Means members on the GOP side when it was marked up January 19, prior to House passage January 31. There have been multiple reports that the bill was a main topic during the Wednesday regular Senate Republican party lunch and that Senator Thom Tillis (R-NC), a sometime bipartisan dealmaker, continues to be a main detractor, arguing that the Employee Retention Credit (ERC) crackdown is a "fake" pay-for. The Bloomberg Daily Tax Report (DTR) March 7: "Some Senate Republicans … see a better chance to get their priorities over the finish line in 2025, when they may gain control of the Senate and the White House. That's also the year major tax talks will ramp up, with much of the Republicans' 2017 [TCJA] up for renewal. 'That was my question for Senator Crapo: Are we in a better position negotiating with you as chairman next year?' said Sen. John Cornyn (R-Texas), a member of the Finance Committee who's running for Republican leadership. 'I believe we're in a stronger position next year.'" That view isn't shared among all Republicans. Semafor reported Finance Committee member Todd Young (R-IN) as saying he intends to meet with Leader Schumer on the bill. "I'll do whatever I can to be supportive of the process," he said. Punchbowl reported Senator Young — a sponsor of a bill to restore R&D expensing, as opposed to amortization, that is a main plank of the broader House tax bill — as wanting to forge ahead even if Finance Ranking Member Mike Crapo's (R-ID) concerns can't be assuaged. He said that if Crapo "falls short in that effort to seek changes, we should still move forward. And I want to offer encouragement to colleagues that might join me in that." In addition to Republicans maybe having more political power in the Senate next year, there is also the argument that proposals like CTC expansion should be held to help politically propel the extension of TCJA provisions.

The funding bill covering half of US appropriations that expire after March 22 has been eyed as a vehicle for the tax bill, though press reports have suggested the odds of adding the controversial bill to an already controversial government funding package are remote. 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. Law360 reported a House Democratic aide as saying at that if Senate lawmakers haven't voted on the bill by the end of the 2024 tax filing season, that doesn't necessarily mean it won't get to President 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."

SOTU: In his March 7 State of the Union Address, President Biden sought to project that the middle class is his priority for tax policy and to provide a contrast to Republicans, who the White House says want to cut taxes further for wealthy individuals and corporations by extending TCJA expiring provisions and thereby add trillions to the deficit. He repeatedly challenged GOP lawmakers and invoked the argument for wealthy individuals and corporations to pay their "fair share" that has been the underpinning of Democratic tax policy goals going back at least a dozen years, to the Obama administration. President Biden proposed increasing the corporate alternative minimum tax (CAMT) to 21% (from 15%), tightening executive compensation deductions, and a new tax credit for first-time homebuyers and people who sell their starter homes, and repeated his previous proposal for a 25% billionaire's tax. "Do you really think the wealthy and big corporations need another $2 trillion in tax breaks? I sure don't. I'm going to keep fighting like hell to make it fair! Under my plan nobody earning less than $400,000 will pay an additional penny in federal taxes … The way to make the tax code fair is to make big corporations and the very wealthy begin to pay their fair share … " the President said. "It's time to raise the corporate minimum tax to at least 21% so every big corporation finally begins to pay their fair share. I also want to end the tax breaks for Big Pharma, Big Oil, private jets, and massive executive pay! … I've proposed a minimum tax of 25% for billionaires. Just 25%. Do you know what that would raise? That would raise $500 billion."

In briefing documents, the White House said the President supports raising the corporate income tax rate to 28% (from 21%), which has been included in his prior Budget proposals, and ending corporate deductions for the compensation costs for any employee (not just top executives) of more than $1 million per year, which the President alluded to in his remarks. Republicans pushed back on the ideas. House Ways & Means Committee Chairman Jason Smith (R-MO) released a statement saying, "President Biden tonight plans to make clear he's on the side of higher taxes and more corporate giveaways. These proposals will kill jobs, hurt families and small businesses … "

Looking ahead: Of course, tax is a pivotal issue in the 2024 elections given that who is in power will have more control over the fate of the TCJA individual and pass-through deduction provisions that expire after 2025. President Biden has expressed his support for continuing the provisions as they apply to those earning less than $400,000, as he alluded to in the FY 2024 Budget. There has been significant speculation over what Republicans may propose to offset the cost of TCJA extensions, with a target on Inflation Reduction Act (IRA) energy tax credits, the cost of which has escalated in estimates by the government and the private sector. House Budget Committee Chairman Jodey Arrington (R-TX), whose panel marked up a FY2025 Budget resolution March 7, said a permanent $10,000 limit on state and local tax deductions would be a high priority for Republicans in a bipartisan commission on the debt and cutting clean-energy tax incentives would also be a palatable revenue-raiser from conservatives' perspective, Bloomberg reported. Chairman Arrington said those two options would be among his favorites. On the flip side of targeting IRA incentives, 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 and resulting negotiations could create room for consideration of 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."

Global tax: On March 5, the staff of the Joint Committee on Taxation (JCT) released a report showing that had Pillar One of the OECD BEPS 2.0 project 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.

The report was the focus of a March 7 House Ways & Means Tax Subcommittee hearing that weighed the costs of Pillar One with alternatives like the expected proliferation of digital services taxes (DSTs) if the OECD project falls apart and touched on several process issues. Chairman Mike Kelly (R-PA) aired familiar Republican concerns about the Administration excluding lawmakers from the process and said the two-thirds majority required in the Senate for US implementation of Pillar One, through a multilateral tax treaty, is "not feasible without taking into consideration frequent and significant input from Congress." He said while the original intent of Pillar One was to avoid DSTs, the project "will not equalize the playing field, this tax burden will fall disproportionately on American companies, which are nearly half of the largest and most profitable in the world." Ranking Member Mike Thompson (D-CA) said the revenue loss projected in the JCT report might be the end of the discussion for some, under the premise of not giving up revenue to other countries, but we need to understand the benefits of the agreement, including on stability, and not just the cost. Those who look at the JCT report and say the US should "pack our bags and go home" should be asked, "What is the alternative?" Also, he said there is the question of whether the patchwork of DSTs that will doubtlessly spring into place would be preferable to Pillar One. Rep. Thompson pushed for Treasury representation during future hearings on the OECD project, and Chairman Kelly suggested Secretary Yellen would be before the Committee at the beginning of April, presumably to testify on the President's budget, which is scheduled to be released March 11, and thus she may be available to answer more questions. While there was a sentiment that the JCT report could make an argument for the US walking away from Pillar One, both Thompson and Rep. Kevin Hern (R-OK) deployed the oft-cited tax axiom that if not at the negotiating table, the US could find itself on the menu.

Direct pay: 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. They also 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.

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

3/5/24 - Final regulations (TD 9988 ) on direct pay, to treat the amount of credits as a tax payment rather than as a nonrefundable credit

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

3/5/24 — final regulations (TD 9989 ) on direct pay for the advanced manufacturing investment credit under the CHIPS Act

special rules for partnerships and S corporations making the election and rules related to the mandatory pre-filing registration requirement

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