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May 6, 2024

What to expect in Washington (May 6)

The House and Senate are in session this week and every week until Memorial Day (May 27). The Federal Aviation Administration (FAA) reauthorization and taxes bill (H.R. 3935) currently before the Senate, which represents compromise legislation with the House, is one of the few remaining must-pass bills prior to the November elections, along with government funding past September 30 and a farm bill. The next Senate vote is Tuesday, May 7 at 5:30 p.m. on the confirmation of an ambassadorship, followed by continued consideration of the FAA bill. Amendments, transportation-related and off-topic, have been piling up for potential consideration in the Senate, and another short-term FAA extension past the current May 10 deadline may be necessary.

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. Still, 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. "Lawmakers have so far been unsuccessful in narrowing the number of amendments on the FAA bill that would get votes to move the legislation quickly before its May 10 expiration," the report said. Tax Notes reported of the tax measure, "The bill will be competing for floor consideration with at least 90 other amendments filed on the FAA reauthorization bill. Most of the amendments aren't tax related … "

Punchbowl News reported last night about the tax bill, "Attaching the legislation would sink the FAA package given Republican objections, according to a Senate GOP aide, and there doesn't seem to be any appetite for taking that risk." Politico said, "Senate Minority Leader Mitch McConnell and Sen. Mike Crapo of Idaho, the top Republican on the Finance Committee, would almost certainly object to any effort to add the tax bill to the FAA legislation, as even Wyden's office acknowledges."

The House is back today (May 6) with suspension votes on Oversight and Accountability Committee bills set to begin at 6:30. The chamber would likely turn to the FAA bill when it is passed by the Senate.

The House Ways & Means Committee has set a Field Hearing on Empowering Native American and Rural Communities for Friday, May 10 at 9 a.m. (Mountain Time) in Scottsdale, Arizona, which is in Rep. Dave Schweikert's (R-AZ) district.

There are no hearings currently scheduled in the Senate Finance Committee.

EVs — On May 3, IRS issued final rules (TD 9995) on clean vehicle credits. 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 to receive advance payments. 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.

Treasury and the IRS received over 180 comments in response to:

  • December 4, 2023, proposed rules (REG-118492-23) that provided guidance regarding the excluded entities limitation, following which some vehicles no longer qualified.
  • October 10, 2023, proposed rules (REG-113064-23) for taxpayers intending to transfer the IRC Section 25E credit and the IRC Section 30D credit to dealers, and how dealers become eligible.
  • April 17, 2023, proposed regulations (REG-120080-22) that defined terms, addressed personal and business use of vehicles, and included rules related to the critical minerals and battery components requirements.

Press stories noted that the final regulations newly permit automakers to source graphite from entities of concern through 2026. Specifically, "the final regulations add a definition of 'impracticable-to-trace battery materials' … and specify identified impracticable-to-trace battery materials as applicable critical minerals in the following circumstances: graphite contained in anode materials and applicable critical minerals contained in electrolyte salts, electrode binders, and electrolyte additives … [F]or any new clean vehicles for which the qualified manufacturer provides a periodic written report before January 1, 2027, the due diligence requirement may be satisfied by excluding identified impracticable-to-trace battery materials … "

"That is a reflection of the practical reality that the compliance distance in supply chain tracing that is needed for some of these low-value battery materials just doesn't exist," a Treasury official said in Tax Notes.

A story in the May 4 Washington Post said, "The speed of America's shift away from these supply chains could have major consequences — not only for EV drivers, but also for U.S. climate goals and national security. If the Biden administration moves too quickly to choke off [foreign] supplies, it could miss its target for half of new cars to be zero-emission by 2030. Too slowly, and the United States could cede competitiveness in the EV market … "

CAMT — During a May 4 American Bar Association (ABA) tax section meeting panel on the Corporate Alternative Minimum Tax (CAMT), Colin D. Campbell, Jr. Associate Tax Legislative Counsel, Treasury Office of Tax Policy, said on the corporate side, the proposed regulations are in a very advanced stage. He suggested there is a lot of polishing to do, seeing how provisions interact with other elements in the broad-based package which also touches on tax accounting, international, and partnerships. Treasury is running through the traps on the policies and, once the package is proposed, will appreciate comments on how the rules fit together. He said the notices over the past year have been built up into one cohesive package that incorporates comments. The package will be further improved after proposed regulations are issued and more comments are considered — we "need a couple coats of paint here," he said. Other officials were quoted in the tax press as saying at the conference that the penalty waiver for companies that fail to make CAMT quarterly could be further extended.

CAMT notices issued thus far include:

  • April 15, 2024 — Notice 2024-33 waived the penalty for a corporation's failure to pay estimated tax CAMT payments due on or before April 15, 2024, or May 15, 2024.
  • December 15, 2023 — Notice 2024-10 included rules for determining the adjusted financial statement income (AFSI) of a U.S. Shareholder when a controlled foreign corporation (CFC) pays a dividend to the US shareholder or another CFC.
  • September 12, 2023 — Notice 2023-64 included rules for consolidated groups and foreign corporations.
  • June 7, 2023 — Notice 2023-42 granted penalty relief for corporations that do not pay estimated tax in connection with the CAMT.
  • February 17, 2023 — Notice 2023-20 provided interim CAMT guidance for insurance companies.
  • December 27, 2022 — Notice 2023-7 addressed issues regarding IRC subchapters C and K, "troubled corporations," groups of corporations that file consolidated returns, depreciation of IRC Section 168 property, and the treatment of federal income tax credits under the CAMT.

Wealth tax — An op-ed in the New York Times said, "There is a way to make tax dodging less attractive: a global minimum tax." The op-ed, by Gabriel Zucman, an economist at the Paris School of Economics and the University of California, Berkeley, who is among those credited with developing Senator Elizabeth Warren's (D-MA) wealth tax proposal, said: "Historically, the rich had to pay hefty taxes on corporate profits, the main source of their income. And the wealth they passed on to their heirs was subject to the estate tax. But both taxes have been gutted in recent decades. In 2018, the United States cut its maximum corporate tax rate to 21 percent from 35 percent. And the estate tax has almost disappeared in America. Relative to the wealth of U.S. households, it generates only a quarter of the tax revenues it raised in the 1970s."

Elections — The Presidential election is seen, by some at least, as likely to come down to the five states President Biden flipped in 2020 — Arizona, Georgia, Michigan, Pennsylvania and Wisconsin — plus a handful of others, including Nevada, New Hampshire, and North Carolina. There was reporting over the weekend that former President Trump's campaign believes that Minnesota and Virginia are in play, as well. A Washington Post story said the Biden campaign is investing in North Carolina and building an electoral operation earlier than in 2020, with the belief that he can win there despite Trump winning the state in 2020 and 2016. (President Obama was the last Democrat to win North Carolina, in 2008, narrowly.) A Reuters story on the effort noted that President Carter was the only other Democrat to win in the state since 1968. The story said, "opinion polls suggest Biden will have a tough time flipping North Carolina in this year's rematch against Republican Donald Trump. While winning the presidency in 2020, Biden lost the state to Trump by 1.3% - just 74,000 votes - his narrowest state loss."

Friday, May 10 is the EY Webcast, "Tax in a time of transition: Legislative, economic, regulatory and IRS developments."

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For additional information concerning this Alert, please contact:

Washington Council Ernst & Young