Tax News Update    Email this document    Print this document  

March 17, 2024

This Week in Tax Policy for March 15

This Week (March 18-22)

Congress: The House and Senate are in session beginning on Tuesday, March 19.

The Senate Finance Committee has scheduled its customary post-Budget release hearing with Treasury Secretary Janet Yellen on the President's Budget for Thursday, March 21 at 10 a.m. Secretary Yellen isn't expected to appear before Ways & Means until early April, after the Spring recess March 25-April 5.

On Wednesday, March 20 at 2:30 p.m., the Finance Committee will hold a hearing on The President's Fiscal Year 2025 Social Security Administration Budget with Commissioner Martin O'Malley.

The Ways & Means Committee has scheduled:

  • a hearing on Monday, March 18 at 2 p.m. on "Access to Health Care in America: Ensuring Resilient Emergency Medical Care" in Denton, Texas
  • a hearing on Wednesday, March 20 at 2 p.m. with HHS Secretary Xavier Becerra
  • a Thursday, March 21 at 2 p.m. Joint Social Security and Work & Welfare Subcommittee Hearing with SSA Commissioner O'Malley

Last Week (March 11-15)

Working groups: Following some recent speculation that House Ways & Means Committee members would establish working groups to study issues ahead of the 2025 TCJA tax cliff, the Bloomberg Daily Tax Report (DTR) said Committee Republicans discussed formation of such tax policy working groups on Wednesday, specifically seeking member input on what issues committee members would like to focus on. "It's going to require a lot more time because we're going to be working in a much more reduced window," Tax Subcommittee Chairman Mike Kelly (R-PA) said. "This is like cramming for your finals." Both Ways & Means and the Senate Finance Committee conducted bipartisan working groups in the years preceding the 2017 TCJA (2013 for the House, 2015 for the Senate).

Tax bill: The March 12 Senate Finance Committee hearing on "Growing U.S. Manufacturing Through the Tax Code" featured a public airing of member views on prospects for the Tax Relief for American Families and Workers Act (H.R. 7024), which combines a Child Tax Credit (CTC) expansion with a return to R&D expensing and the prior calculation for interest deductions, and prevents a bonus depreciation phasedown:

  • Chairman Ron Wyden (D-OR) said, "The Senate has to get this done," and warned both that some businesses might not make it until 2025 if the TCJA pre-cliffs aren't addressed and "this set of policies isn't going to be on the table in 2025 if this bill stalls out."
  • Ranking Member Mike Crapo (R-ID) said it is his hope that lawmakers can act quickly on the three business provisions despite concerns about other aspects of the bill.
  • Senator Thom Tillis (R-NC), a main detractor of the bill, said there is an honest disagreement about the timing and packaging of the tax provisions, the Senate would be making a mistake to move forward in its current form due to concerns about the CTC expansion, lawmakers need to have a fulsome discussion about the entirety of tax measures that need to be in place, and that he is concerned about setting a precedent on future tax provisions having a pay-for, especially for 2025.

Subsequent to the hearing, Chairman Wyden and Sen. Crapo traded proposals in an attempt to reach agreement, but they still appear no closer to a resolution to address Republican criticisms of the bill, including of the lookback provision allowing the use of prior-year earnings to calculate the CTC. Punchbowl News reported that Chairman Wyden made an offer that drops the provision and substitutes another CTC proposal to benefit low-income families, which Ranking Member Crapo rejected. Second-ranking Senate Republican John Thune (R-SD), the vote-counting Whip, was quoted as being bearish about prospects for the bill. "I don't think our members are in a place where there would be a significant enough vote," Thune said. "So there would have to be some real significant changes, which I'm guessing Democrats would be unwilling to make." DTR reported on GOP requests to drop the lookback provision, "In exchange, Democrats requested replacing it with a refundability policy that would achieve the same reduction in child poverty and two other unspecified items that Republicans had requested."

A main question has been whether, if the bill were put on the Senate floor without changes, the requisite number of Republican Senators (probably 9 or 10) aside from the Finance Committee members with concerns would vote for it. Senator Tillis said, "We have people that are sympathetic to the bill that can be convinced to not let it go to the floor unless our voice has been heard." Democrats are trying to figure out a plan to bring the bill to the floor, either attached to broader legislation or as a standalone measure, though it is widely observed that allowing amendments would mean a lengthy and politically complicated process and, potentially, changes that could send the bill back to the House with no guarantee it could pass on a re-vote after the chamber cleared the measure 357-70 January 31. Roll Call March 15 reported Senator Ben Cardin (D-MD) as saying, "I'm part of an effort to try to see whether we can get 60 votes to move the House bill as-is because — I have so many tax issues I want to see passed, and I would love to have an opportunity to do that — but if this bill gets opened up, we're not going to get a tax bill." Tax Notes March 15 reported that some Senate Finance Republicans have concerns about provisions in the bill that extend the business tax provisions retroactively, adding to what is a seemingly growing list of problems with the bill.

Manufacturing: The Finance manufacturing hearing also included praise from Democrats and witnesses over energy tax credits in the Inflation Reduction Act (IRA), as well as Republicans warning of the consequences if parts of the TCJA are allowed to expire after 2025. In one IRA-focused exchange, Peter Huntsman of the Huntsman Corporation said Treasury could make his company competitive with those in other nations if they included chemicals that they manufacture for EVs in the definition of Buy America and as a domestic component (i.e., if the requirement for the bonus credit went all the way down the supply chain). The company wrote to Treasury on Foreign Entity of Concern criteria, saying shifting the battery supply chain out of a foreign nation requires defining battery components for the FEOC criteria to include all portions of the supply chain.

Budget: President Biden's FY2025 Budget proposal released March 11 included previously proposed tax items like quadrupling the stock buyback tax to 4% (from 1%), raising the corporate income tax rate to 28% (from 21%), and a 25% billionaire's tax, as well as new proposals for increasing the corporate alternative minimum tax (CAMT) to 21% (from 15%), ending corporate deductions for all compensation costs of $1 million per employee, longer depreciation of and higher fuel taxes on private jets, and a new tax credit for first-time homebuyers and sellers of starter homes. Much of the Treasury Green Book description was repeated from last year. The President's budget is a traditionally aspirational document and, in this case, lays out expected campaign messages and a roadmap of what a second Biden term could look like on tax if Democrats have control in Congress to make the proposals a reality, with a theme of making corporations and the wealthy pay their "fair share" that they have espoused going back at least 15 years.

The FY2025 Budget again includes proposals intended to strengthen Medicare, as "gaps in the law that allow some pass-through business owners to avoid Medicare taxes would be eliminated and Medicare tax rates would be increased." The proposals would expand the Net Investment Income Tax (NIIT) base to ensure that all pass-through business income of high-income taxpayers is subject to either the NIIT or SECA tax; and increase the additional Medicare tax rate by 1.2 percentage points for taxpayers with more than $400,000 of earnings. When combined with current law, it would bring the marginal Medicare tax rate up to 5% for earnings above the threshold. Combined with increasing the top individual rate to 39.6% and taxing at ordinary rates long-term capital gains and qualified dividends of those with income over $1 million, the proposals increase the top long-term capital gains and qualified dividends rate to 44.6%, Treasury said. A story in the March 12 Wall Street Journal focused on these proposals and positions by President Biden and former President Trump on entitlements, and said, "Tax increases are often seen as nonstarters by Republicans, however, which means the changes are more likely to get discussed on the campaign trail this year than in the halls of Congress. Still, with large parts of the Trump tax cuts expiring after 2025, a broad reworking of the tax code could be on the table next year, giving the next president a lot of input into the shape of any negotiations."

Of course, the next presidential term, regardless of who is in office, includes the 2025 TCJA tax cliff. Similar to language in the FY2024 Budget, President Biden said he opposes increasing taxes on people earning less than $400,000 and "supports cutting taxes for working people and families with children;" opposes tax cuts for the wealthy, either by extending tax cuts or bringing back deductions and other tax benefits; and supports paying for extending tax cuts "with additional reforms to ensure that wealthy people and big corporations pay their fair share so that the problematic sunsets created by President Trump and congressional Republicans are addressed in a fiscally responsible manner."

Global tax: In the wake of a March 7 House Ways & Means Tax Subcommittee hearing on Pillar One of the OECD BEPS 2.0 project that focused on a Joint Committee on Taxation (JCT) report showing the proposal would have resulted in a loss in US Federal receipts of $1.4 billion in 2021 had it been in effect, House Committee on Ways and Means Chairman Jason Smith (R-MO) and Senator Crapo issued a joint statement March 13 saying in part:

"By month's end, the Biden Administration may commit to signing a global deal that surrenders U.S. taxing rights, in exchange for other countries' promise to not impose certain discriminatory taxes on American businesses. However, JCT's analysis provides ample reasons why the Administration should not sign on to the current version of the deal. JCT estimates the U.S. will lose billions of dollars under this deal which overwhelmingly affects American companies. Moreover, according to JCT, this deal would 'increase complexity,' undermine 'tax sovereignty,' introduce 'distortive behaviors,' and create 'inefficient incentives.' Those terms do not inspire confidence … "

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 — interim-guidance-on-stock-buyback-excise-tax-offers-mixed-b

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

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young