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March 24, 2024

This Week in Tax Policy for March 22

This week (March 25 - 29)

Congress: The House approved 286-134 the six-bill government funding package for appropriations that expire after March 22, including Labor-HHS and Financial Services-General Government. The Senate was working toward a vote late Friday. As expected, and pursuant to earlier bipartisan spending agreements, $20.2 billion of the $80 billion in additional funding provided to the IRS in the Inflation Reduction Act (IRA) is pulled back under the measure. Congress is set to depart for a two-week Spring recess March 25-April 5.

This Week in Tax Policy won't be published while Congress is on recess.

Last week (March 18 - 22)

Tax bill: Questions regarding potential Senate consideration of the Tax Relief for American Families and Workers Act (H.R. 7024) business tax and Child Tax Credit (CTC) expansion bill, which passed the House in a bipartisan 357-70 vote January 31, will remain unanswered over the two-week recess March 25-April 5. Senate Finance Committee Republicans have had a litany of complaints about the bill since it was rolled out in mid-January, and Committee Democrats and Republicans have traded offers to modify the CTC provisions, to no avail. Politico reported second-ranking Senate Republican John Thune (R-SD), the vote-counting Whip, as saying it's too soon to say whether Democrats would be able to garner sufficient Republican support to reach the 60-vote threshold to clear procedural hurdles for most legislation. "I don't know that we know the answer to that just yet," he said. There's some "pretty hard resistance" to the plan among Republicans but "whether or not there are the requisite number of votes — we just haven't crossed that bridge yet," Thune said in the report. Punchbowl News reported March 21, "The Senate Finance Committee's top Republican, Sen. Mike Crapo of Idaho, added to the confusion over the fate of the bill by telling GOP colleagues privately on Wednesday that he doesn't want to pass a tax bill this year," but then later told reporters he does want a bill despite negotiations being at an impasse. "I want this done, too," he said. There have been long-simmering GOP concerns about handing President Biden and Democrats an election-year win and clearing some tax items now given the possibility that Republicans could win control of the Senate and have greater leverage for a package in 2025, when TCJA individual and pass-through provisions expire. A Senate vote would force Republicans to go on record against restoring beneficial tax provisions for businesses, which they have traditionally been eager to back. Senator Thom Tillis (R-NC) has said he has had to explain his opposition to the bill to several CEOs pushing for the business tax provisions, telling them that he needs to consider the entirety of the bill, including the CTC expansion and setting a precent through the inclusion of revenue offsets. The Wall Street Journal reported, "The tax-bill stalemate doesn't portend a full breakup between American businesses and the Republican Party. After all, GOP lawmakers favor the bill's tax breaks for research, interest costs and capital spending, while President Biden just released a budget that would raise corporate taxes. But other issues at play on this bill — concern about handouts to low-income households and senators' leverage in congressional dealmaking — dominate debate among Republicans and show how businesses lack an automatic path for some Washington priorities." Further, "Without a Wyden-Crapo deal, the tax bill may end in a showdown vote as early as April with two possible outcomes. Democrats could find enough Republicans willing to buck Crapo and send the bill to Biden for his signature or Republicans could kill the bill and own the consequences."

Like the March 12 manufacturing hearing in the Committee, the March 21 Senate Finance hearing with Sec. Yellen provided a forum for some comments about the bill, at least from Chairman Wyden, who said he has offered to take the CTC lookback provision — allowing the use of prior-year earnings to calculate the CTC — out of the bill. He also said, "I understand that some members prefer to wait and try to pass a bill next year. The reality is delay will have serious consequences. A lot of innovative small businesses — for whom the R&D provision in the bill is a lifeline — are telling me they aren't going to be around in 2025 if the Senate decides to wait. I also believe there are a lot more than 60 members who want us to act. So, I'm going to keep at it."

When Congress returns, the approaching end of the tax filing season may be a symbolic or political deadline for action, but not a technical one. Politico Morning Tax said, "Now, supporters of the tax bill have noted that April 15 won't serve as a functional deadline for getting the tax bill done, because the IRS would still be able to deliver any extra CTC benefits to taxpayers even after the filing season is over. But it's still not totally clear when the political will for getting a bipartisan tax bill done during a presidential election year might evaporate, though it almost certainly will at some point."

R&D credit: The US wants to change how the R&D credit is accounted for under the global minimum tax rules through future OECD administrative guidance, following US business concerns the incentive will cause companies to fall under the levy's 15% threshold in the United States and thus be subject to application of the undertaxed payment rule (UTPR) by other jurisdictions, a Treasury official said March 19, as reported by the Bloomberg Daily Tax Report (DTR). Scott Levine, acting deputy assistant secretary for international affairs at the Treasury Department, said at the Tax Executives Institute Midyear Conference, "I think we will ultimately try to get this fixed with administrative guidance, if possible. And if not, we'll revert to plan B." Following the panel's conclusion, Levine told reporters that "plan B" referred to legislation that would address R&D credits and the global minimum tax rules, the report said. During the March 21 Senate Finance Committee hearing with Treasury Secretary Janet Yellen on the President's FY2025 Budget proposal, Senator Todd Young (R-IN) seized on the comments, saying, "On Tuesday, your Deputy Assistant Secretary for International Affairs, Scott Levine, was quoted saying that while he believes favorable tax treatment for the US R&D credit will be resolved with OECD administrative guidance, it's possible it will be necessary for the Biden administration to revert to what he called 'Plan B.' He went on to clarify that this Plan B referred to legislation, legislation that would have to be passed by this body … Please tell me more about this Plan B, so we know what's coming, including how much this hypothetical legislation is going to cost the American taxpayer." Sec. Yellen said: "So, countries participating in the OECD process, understand … and treatment of the R&D tax credit is a critical issue for us. And we believe we have an opening to negotiate with them to try to resolve this in a way that will be favorable … We have resolved a number of issues favorably through administrative guidance."

Global tax: The hearing otherwise focused on costs of the OECD BEPS 2.0 project to the US, and whether and how the two proposed pillars could be brought before Congress. Ranking Member Crapo said the Administration should have reservations about signing on to the OECD Pillar One Multilateral Convention (MLC). "The global tax code is not the only concerning part about the international tax negotiations: the Administration should have deep reservations about signing on to the OECD's global tax treaty at month's end. The Joint Committee on Taxation's recent analysis indicates the deal reduces revenue, fails to provide certainty or stability and would not halt discriminatory taxes targeting American companies, which was the sole impetus for entering the negotiations." Senator Marsha Blackburn (R-TN) said the cost to the US of Pillar 1 is $1.4 billion and the revenue loss from Pillar 2 is estimated to be $60 billion-$120 billion (JCT). Sec. Yellen said: "We're attempting to negotiate in the OECD a Pillar 1 agreement that will bring significant benefits to American businesses that have been hit with unfair and discriminatory tax burdens in many parts of the world. We're really trying to eliminate that. And we're also trying to get tax certainty for American companies that face significant and costly disputes about transfer pricing and other matters. There would be substantial benefits to American businesses from this agreement if we conclude it. Our own internal estimate is — there's a lot of uncertainty — but our own internal estimate is about $500 million." Senator James Lankford (R-OK) asked whether the plan for Pillar 1 and 2 is "to be an executive agreement only or … to come through this committee?" Sec. Yellen said: "I believe a Pillar 1 agreement would involve congressional action. It's not something that could be just signed into law and effective with an executive order … Pillar 2 also needs to be adopted by Congress."

P2 commentary: Tax Notes reported March 22, "The OECD expects to publish in the coming weeks updated commentary for the pillar 2 global anti-base-erosion (GLOBE) rules that will incorporate previous rounds of administrative guidance, an OECD official said. 'We are very near to issuing the second edition of the commentary, so we'll have it all in one place,' Jeff Mitchell, a senior adviser at the OECD Centre for Tax Policy and Administration, said March 21 during the International Fiscal Association USA branch's conference in New York City."

Corporate rate: A Bloomberg DTR story said the TCJA's corporate tax rate reduction from 35% to 21% may be at risk next year as Congress looks to address the 2025 tax cliff, when individual and other provisions expire, and revenue offsets may be required for at least part of the cost. "There are only a handful of big levers that can be pulled to raise revenue," said Jose Murillo, EY National Tax Department Leader, in the article. "Provisions are only permanent until Congress decides to change them."

Bill introductions: Chairman Wyden and Senator Angus King (I-ME) March 20 introduced the Getting Rid of Abusive Trusts Act (S. 3988) to "close a loophole" and modify rules dealing with grantor retained annuity trusts (GRATs), which a news release said "are commonly used by the ultra-wealthy to minimize or zero-out any income, gift or estate tax liability on assets worth at least tens of millions of dollars."

On March 21, Senators Sheldon Whitehouse (D-RI) and JD Vance (R-OH) introduced the Stop Subsidizing Giant Mergers Act, legislation to "end tax-free mergers and taxpayer subsidies for acquisitions that consolidate corporate power." The legislation makes exceptions for mergers involving a small business, and corporations that are undergoing a purely internal reorganization would still be able to so without incurring a tax obligation. The Wall Street Journal reported that "the bill is a sign of political sentiment against corporate power that unites some Republicans and Democrats who are otherwise far apart on tax policy. And it is a rare attempt to address competition policy through the tax code … Under the proposal, shareholders in all-stock mergers would pay taxes on the difference between their shares' value when they bought them and what they receive in the deal, rather than delaying taxes until they sell the new shares."

Energy tax: IRS March 22 issued Notice 2024-30 that expands certain rules for determining what an energy community is for the production and investment tax credits.

Treasury March 19 reported a significant level of uptake for IRA energy credits, with more than 45,500 projects requesting registration numbers through the new IRS Energy Credits Online (ECO) portal as of March 8. "Before the Inflation Reduction Act, it was more challenging for companies to access tax incentives to finance projects and deploy new clean power. The law included two new mechanisms to fix this and translate credits into financing, ensuring more clean energy projects are built quickly and affordably, and more communities benefit from the growth of the clean energy economy," said Deputy Treasury Secretary Wally Adeyemo.

An EY Tax Alert, "IRS issues final regulations with few changes on direct-pay elections for certain energy credits under IRC Section 6417 and advanced manufacturing investment credits under IRC Section 48D," is available here.

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

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

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

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 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

3/22/24 - Notice 2024-30, energy communities and bonus credit program

expands certain rules for determining what an energy community is for the production and investment tax credits

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