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This Week (May 6 - 10)

Congress: Both chambers are in session this week and each week until Memorial Day (May 27). The Senate is back in on Tuesday, May 7 to continue consideration of the Federal Aviation Administration (FAA) reauthorization and taxes bill (H.R. 3935). Amendments, transportation-related and off-topic, were piling up for potential consideration on one of the few remaining must-pass bills this year. Second-ranking Senate Republican John Thune (R-SD) said there may need to be another short-term FAA extension beyond the current May 10 deadline. Attempts to add the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) business tax and CTC bill are seen as a stretch and could impose too much controversy upon an FAA bill under negotiation since at least last summer. However, the Bloomberg Daily Tax Report (DTR) said that Senate Finance Committee Chairman Ron Wyden's (D-OR) office said May 3 that he will file an amendment to the aviation bill language that includes the tax bill.

There are no hearings currently scheduled in the House Ways & Means and Senate Finance committees.

Last Week (April 29 - May 3)

2025 tax cliff: The partisan debate over how to address the expiration of TCJA individual and pass-through provisions at the end of 2025 continued during the April 30 House Ways & Means Committee hearing with Treasury Secretary Janet Yellen. Chairman Jason Smith (R-MO) said the TCJA increased taxes on the rich, cut them for lower income earners, increased real median household income, reduced poverty, and reversed the trend of profit shifting. Sec. Yellen said the law disproportionately benefited the wealthy and large corporations and enriched corporate shareholders. President Biden's April 23 post asserting that, if reelected, he would let the TCJA expire, was a focus of Republicans. In response to questions, the Secretary said the president has "principles that will guide his negotiations with Congress over how to handle this" and won't allow tax increases on those earning less than $400,000.

There is disparity, even within the GOP, over revenue offsets for 2025. Senate Finance Republicans are poised to rely on the economic growth potential for tax cuts — Ranking Member Mike Crapo (R-ID) and Senator Thom Tillis (R-NC) list the precedent set by including an offset among reasons to oppose the Tax Relief for American Families and Workers Act (H.R. 7024) — while Ways & Means members appear more open to offsets, if their support of H.R. 7024 is any indication. There wasn't much talk of this disparity at the hearing, though Rep. Mike Thompson (D-CA) did note the TCJA was not paid for — "and that by definition is inflationary" — and asked Sec. Yellen about "responsible ways that we might offset the costs of any of the TCJA extensions." She listed some of the President's budget proposals, including increases in the stock buyback excise tax, Corporate Alternative Minimum Tax (CAMT), and corporate rate, and imposing a billionaires' tax. She also committed to prioritizing changing the tax treatment of carried interest.

Addressing the 2025 revenue issue, an April 25 American Enterprise Institute (AEI) post said, "Virtually all individual income tax changes and a reduced effective tax rate on pass-through income (Section 199A) are scheduled to sunset on December 31, 2025 … There will be pressure to extend these tax policies, but policymakers should be concerned about the fiscal burden of a straight TCJA extension." The post, by former Ways & Means Republican staffer Alex Brill, called for consideration of "additional reforms to broaden the tax base" like curtailing the SALT deduction and slowing the growth of the standard deduction.

Global tax: The other main topic of the Yellen hearing was the OECD-led two-pillared global tax agreement, which Republicans have frequently targeted over process issues and the projected cost to the US. Sec. Yellen repeatedly said that prior to the OECD agreement the US was the only country to impose a tax on the overseas profits of its multinational companies, and other countries doing so creates a level playing field for American companies. Chairman Smith said the deal "has no path forward in Congress," a sentiment echoed by other members.

Rep. Mike Kelly (R-PA) asked whether Treasury would consult with Congress before signing an OECD Pillar One agreement. Sec. Yellen said she has heard from members of Congress regarding Pillar One that certainty over Amount B is important, as well as establishing clear definitions regarding Digital Services Taxes (DSTs). She said Treasury agrees with these concerns and these are the redlines the Administration is focused on resolving in the final months of negotiations. The Secretary also assured Chairman Smith that Treasury is "negotiating with other countries right now to try to get favorable treatment to the R&D tax credit," addressing concerns that the nonrefundable R&D tax credit isn't exempted, like refundable credits, from determining a company's US effective tax rate under the Pillar Two agreement.

Under questioning from Rep. Lloyd Doggett (D-TX) about Republican criticism of the President's proposal to raise the GILTI tax rate on foreign profits higher than 15%, Sec. Yellen said competitiveness depends on differentials in incentives across countries. Prior to Pillar Two, the US was the only nation that taxed overseas earnings of its multinationals — the GILTI tax, a lower tax rate that isn't country-by-country, she said. "Our companies did just fine with that, the rest of the world had nothing," she said. "Now the rest of the world will go to a country-by-country 15% minimum … Even if we go up to 21%, the differential is substantially smaller than it was before."

Charitable giving: An April 30 Law360 story said advocates for nonprofits want Congress to revive an above-the-line charitable contribution deduction of the type enacted in 2020 and that expired after 2021, citing data that it increased giving and donations have declined since the expiration. The report cited Senator James Lankford (R-OK) as supporting the effort and having pushed, unsuccessfully, for an above-the-line giving incentive in the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) and looking ahead to push the issue in the context of the 2025 TCJA tax cliff. Lankford said the 2025 tax talks "will be a massive tax fight," according to the report. Senator Lankford raised the issue during the April 16 Senate Finance IRS budget and filing season hearing.

FDII: On April 30, Rep. Michelle Steel (R-CA) introduced the Growing and Preserving Innovation in America Act (H.R. 8184), to repeal the scheduled reduction in the deduction for foreign-derived intangible income (FDII). Roll Call reported: "The deduction is likely to be part of the conversation next year as Congress grapples with how to address the expiration of many of the 2017 law's individual and small business tax cuts at the end of 2025. Steel's legislation would keep in place the 37.5 percent deduction permanently, rather than allowing it to drop to 21.9 percent at the end of next year, as it's scheduled to under the 2017 law. The current deduction lowers the effective tax rate on foreign-derived intangible income to 13.1 percent, compared to the corporate tax rate of 21 percent. The smaller deduction scheduled to take effect after 2025 would set the effective rate at 16.4 percent."

EV credit repeal bill: Senator John Barrasso (R-WY) May 2 introduced the Eliminating Lavish Incentives to Electric (ELITE) Vehicles Act (S. 4237), to repeal the $7,500 tax credit for new electric vehicles (EVs), the tax credit for purchasing used EVs, and the federal investment tax credit for electric vehicle charging stations.

Energy tax: On April 29, Treasury and IRS issued Notice 2024-36 on the advanced energy project credit program under 48C for owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects and critical material projects, announcing the second round of credit allocations for the program to allocate the remaining $6 billion credits.

SAF: On April 30, IRS issued Notice 2024-37, which provides guidance and safe harbors regarding the Sustainable Aviation Fuel (SAF) credit created by the Inflation Reduction Act of 2022 (IRA). The notice provides additional safe harbors using the 40BSAF-GREET 2024 model, a joint effort by the Energy and Treasury departments and other federal agencies that includes specifications for and limitations on taxpayer inputs and background inputs. Bloomberg Government reported that the Administration "is paving the way for producers of US corn ethanol to profit from a growing market for green jet fuel … The guidance signals corn-based ethanol and other crop-based fuels could qualify for tax credits in certain cases."

Not everyone is pleased with the guidance. Senator Chuck Grassley (R-IA), a Finance Committee member and former Chairman and ethanol advocate, said: "Here are two main issues with the Biden administration's GREET Model decision: First, this new formula is going to be easy to violate. Second, without grain in the formula, there won't be enough feedstock to make all the Sustainable Aviation Fuel environmentalists are crying for … Widespread use of Sustainable Aviation Fuel will help fight global warming. But rejecting grain feedstocks will impede efforts to produce that fuel on a commercial scale. Some people might argue this decision won't impact farmers' bottom lines, because they can sell their corn and soybeans elsewhere. That's hogwash, and it shows the people saying it don't know much about how farmers deliver their grain. These new barriers to entry will strip farmers of a significant market opportunity."

EV rules: On May 3, IRS issued final rules (TD 9995) on clean vehicle credits under Sections 25E and 30D, transfer of credits, critical minerals and battery components, and foreign entities of concern. A news release said in addition to rules regarding the critical mineral and battery components requirements for the new clean vehicle credit, the guidance finalizes rules for taxpayers intending to transfer the new and previously owned clean vehicle credits to dealers who are eligible to receive advance payments and provides rules regarding the process for dealers to become eligible entities to receive advance payments of the transferred credits. The regulations also finalize the rules for qualified manufacturers of new clean vehicles to determine if the battery components and applicable critical minerals contained in a vehicle battery are foreign entity of concern (FEOC) compliant.

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