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May 5, 2024

This Week in Tax Policy for May 6

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.

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, 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

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

4/9/24 — Proposed regulations (REG-115710-22) on stock buyback tax

largely adopt framework of January 2023 Notice 2023-2 but modify funding rule for foreign-parented groups; prevents ordinary course intercompany funding transactions among corporate affiliates being inadvertently captured

See EY Tax Alert 2024-0785

4/29/24 — Notice 2024-36, advanced energy project credit program

announces the second round of credit allocations for the program to allocate the remaining $6 billion credits

4/30/24 - Notice 2024-37, Sustainable Aviation Fuel (SAF) credit

provides additional safe harbors using the 40BSAF-GREET 2024 model

5/3/24 - Final rules (TD 9995) on clean vehicle credits under IRC Sections 25E and 30D

finalize rules for taxpayers to transfer EV credits to dealers, and 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

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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young