Tax News Update    Email this document    Print this document  

This week (May 13-17)

Congress: Both chambers are in session this week and each week until Memorial Day (May 27). The only hearing currently scheduled in the tax-writing committees is a May 16 Senate Finance Committee hearing on "Rural Health Care: Supporting Lives and Improving Communities."

House Ways & Means Committee Republicans May 8 introduced a series of bills on tax-exempt issues and disclosure of taxpayer information:

• H.R. 8290, to require the public disclosure of grants made by certain tax-exempt organizations to foreign entities, by Rep. Lloyd Smucker (R-PA)
• H.R. 8291, to prohibit certain tax-exempt organizations from providing funding for election administration, by Rep. Claudia Tenney (R-NY)
• H.R. 8292, to increase penalties for unauthorized disclosure of taxpayer information, by Chairman Jason Smith (R-MO) and others
• H.R. 8293, to provide for the public reporting of data on certain contributions received by tax-exempt organizations from foreign sources, by Rep. Dave Schweikert (R-AZ)
• H.R. 8314, to impose penalties with respect to contributions to political committees from certain tax-exempt organizations that receive contributions from foreign nationals, by Rep. Nicole Malliotakis (R-NY)

Some of the issues were raised during a December 2023 Oversight Subcommittee hearing. Committee Republicans said H.R. 8292 would increase the maximum penalty for the unauthorized disclosure of tax information to a fine in any amount up to $250,000, or imprisonment up to 10 years, or both; and would clarify that each taxpayer impacted by disclosed tax information counts as a distinct violation of the law. Morning Tax reported the Committee could take up the bill this week.

Last week (May 6-10)

CBO: The cost of extending TCJA individual and passthrough provisions at the end of 2025 and freezing certain business provisions at current rates and thresholds, including international tax provisions, has increased from last year's Congressional Budget Office (CBO) estimate, to roughly $4 trillion over 10 years. The higher price tag, in this year's version of the report on Budgetary Outcomes Under Alternative Assumptions About Spending and Revenues, comes as President Biden and Congress are already talking about how to address next year's tax cliff amid increasing concerns about the deficit, which has been forecast upward by CBO to $2 trillion for 2024 from $1.6 trillion projected in February, attributable to the national security supplemental, student loan forgiveness, and other factors.

CBO said, if extended over the 2025–2034 period:

• TCJA individual provisions would increase deficits $3.3 trillion
• estate and gift tax changes would increase deficits by $167 billion
• bonus depreciation would increase deficits by $378 billion
• other business tax provisions, including GILTI, FDII and BEAT, would increase deficits by $172 billion

CBO also said extending:

• other tax provisions, including IRA energy tax credits, would increase deficits by $199 billion
• expanded Affordable Care Act premium tax credits would increase deficits by $335 billion

In floor remarks, Senate Majority Leader Chuck Schumer (D-NY) said: "This report should come as no surprise: we all saw what happened when Donald Trump and Republicans first pushed their tax cuts a few years ago. They blew a nearly $2 trillion hole in our deficit. They left American families out to dry, with no trickle-down stemming from the benefits for the very wealthy and corporations. The Trump tax cuts were a dud for our economy and a political loser at the same time for the Republican party. So, I ask my Republican colleagues: are they really willing to double down on the disastrous Trump tax law and blow a $4.6 trillion hole in our deficit?"

Revenue offsets: There is disparity among Republicans over the need for revenue offsets in 2025. Some Senate Finance Republicans appear inclined to rely, at least in part, on the economic growth potential for tax cuts and the argument that revenue increases are not necessary to extend existing policies, while House Republicans perhaps are more open to offsets. At an off-Hill policy conference May 8, House Ways & Means Committee Chairman Jason Smith (R-MO) acknowledged tensions within the party, that even some Republicans want to increase the 21% corporate tax rate, and that other offsets beyond that may be necessary. "Whether it's Democrat or Republican, there's people on both sides of the aisle that believe that the corporate tax rate is not enough," Chairman Smith said, according to the Bloomberg Daily Tax Report.

President Biden has made his revenue offset ideas well-known in his budget proposals. National Economic Advisor Lael Brainard, speaking on the "Tax Debate Ahead" May 10, called for not only paying for tax cuts that are extended, but using the "2025 tax debate as an opportunity to meet our national needs by raising revenue overall by asking the wealthy and large corporations to pay their fair share." She mentioned proposals to increase the corporate rate to 28%, the CAMT rate to 21%, and the stock buyback tax to 4%.

Of course, how lawmakers approach the 2025 tax cliff largely depends on who controls the White House, House, and Senate, and all are seen as up for grabs in this year's elections. Budget reconciliation has been used in times of single-party control, and both parties would be expected to attempt to use the process to advance their vision for tax and other issues. Some members are talking about it publicly, including Rep. Andy Barr (R-KY) saying Wednesday that Republicans would use reconciliation for tax and other issues if they sweep in the elections. There has also been discussion about a potential divided government scenario.

Outside groups have begun to propose revenue offsets. The Tax Foundation May 7 provided two options: (1) make the TCJA's increase in the estate tax exemption permanent, switch the IRC Section 163(j) limitation on interest back to EBITDA but at a lower percentage (17% instead of 30%), and allow the IRC Section 199A pass-through deduction and non-corporate loss limitation to expire; and (2) the aforementioned changes plus "ending the income tax exclusion for employer-provided fringe benefits, most notably health insurance."

FAA: The Senate May 9 passed 88-4 a $105 billion, five-year reauthorization of the Federal Aviation Administration (FAA), sending the bill over to the House, which had adjourned for the week. After a week of failed talks on which of many proposed amendments to bring to the floor for votes — including the House-passed Wyden-Smith tax bill, a data privacy bill for children and the Durbin-Marshall Credit Card Competition Act - the Senate passed the bill without considering any amendments. The FAA's authorities and excise taxes were set to expire today May 10, but the Senate cleared a House-passed, one-week extension of the FAA's authorities and ability to collect taxes, moving the deadline for action to May 17. The bill's status as one of the last remaining "must pass" vehicles in this Congress attracted dozens of amendments from senators. But after days of haggling over whether to consider amendments that were not germane to aviation policy, and which aviation-related measures to consider, the sense among senators was that if one person's amendment was chosen for the floor, many others would insist on theirs as well. The most expeditious path as the clock ticked to Friday was to simply pass the bill, as modified by a bipartisan, bicameral manager's amendment assembled by Commerce Committee Chairman Maria Cantwell (D-WA), Ranking Member Ted Cruz (R-TX) and their House counterparts, released April 29.

The FAA bill — which would set aviation policy for years ahead, including provisions to boost hiring of air traffic controllers, address flight disruptions and adopt new technology — includes a controversial provision to add five additional round-trip flight slots at Ronald Reagan Washington National Airport. The proposal generated friction among airlines and sparked a conflict between Virginia's senators and those from states that would benefit from the new flights, including Sen. Cruz. On Thursday, Leader Schumer sought unanimous consent to allow a vote on a single amendment, a compromise offered by Virginia Sens. Tim Kaine (D) and Mark Warner (D) that would authorize the Transportation secretary to decide the National Airport issue based on how the new slots would impact flight delays and safety. But Schumer's request was blocked by Sen. Cruz, and shortly afterward Sens. Kaine and Warner agreed to expedite the vote.

Tax bill: Senate Finance Committee Chairman Ron Wyden (D-OR) filed an amendment to the FAA bill reflecting the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) and its improvements to the child tax credit, extension of TCJA pre-cliff tax incentives to promote economic growth (R&D expensing, and more generous interest deduction calculation and bonus depreciation), implementing through the tax code the benefits of a bilateral tax treaty with Taiwan, disaster tax relief, and improvements to the low-income housing tax credit. Senate Republican leaders would have been expected to object to any effort to add the tax bill had the amendment process presented an opportunity. H.R. 7024 remains stalled over various objections stated by Finance Committee Republicans.

Ways & Means Chairman Smith May 8 expressed disbelief over Senate Republican intransigence against consideration of H.R. 7024. "I'm confused about the decision of Senate Republicans to not support it," he said. Tax Notes reported Chairman Wyden, at another off-Hill event, as lauding Chairman Smith's comments — the two worked together to develop the bill. Wyden recognized Smith's suggestion that the Senate has the votes to pass the tax bill. "I think we're going to be in a position to get a vote on this … I believe we have the votes," he said.

Global tax: A May 3 panel at the American Bar Association Tax Section meeting included discussion of whether a double benefit may arise from the Pillar Two calculation from a dual consolidated loss (DCL) that existing DCL rules would eliminate when there is a foreign use of the loss. The IRS stated in Notice 2023-80 (released in December) that losses prior to 2024 (referred to as legacy losses in the Notice) wouldn't be considered a foreign use. The panel included government speakers, one of whom suggested the Treasury Department and IRS continue to think through the interaction of the DCL rules with the GloBE Model Rules from a policy perspective.

The Bloomberg Daily Tax Report (DTR) followed up on the comments May 6, saying: "US multinational companies may lose the ability to deduct up to hundreds of millions of dollars' worth of losses incurred from their income starting this year under the new global minimum tax. The loss in deduction can arise from the interaction of the 15% minimum tax rules, known as Pillar Two, and US rules that prevent companies from 'double dipping' — getting deductions on losses in the US and another jurisdiction on the same income. The IRS hasn't announced how it will rule on the issue." The report further said: "Practitioners said the IRS shouldn't consider the OECD's safe harbor to be a foreign use because businesses don't use it to compute their tax liability and that it's not an income taxing regime."

IRA guidance tracker: This list describes select IRS guidance related to the Inflation Reduction Act (IRA).

CAMT

• 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

Stock buyback excise tax

• April 9, 2024 - Proposed regulations (REG-115710-22) that, among other things, would impose the excise tax on many ordinary course intercompany funding transactions, including distributions, between US subsidiaries and a foreign parent unless the taxpayer can assert the transactions did not have a principal purpose of funding a stock buyback by the foreign parent

EVs

• May 3, 2024 — Final rules (TD 9995) on clean vehicle credits under IRC Sections 25E and 30D, transfer of credits, critical minerals and battery components, and foreign entities of concern

Transferability

• April 25, 2024 — Final regulations (TD 9993) describing rules and definitions for the transfer of eligible credits in a taxable year, including specific rules for partnerships and S corporations

Direct pay

• March 5, 2024 — Final regulations (TD 9988) include rules for the elective payment of credit amounts, including definitions and special rules applicable to partnerships and S corporations and regarding repayment of excessive payments

45V clean hydrogen credit

• December 22, 2023 — Proposed regulations (REG-117631-23) include definitions of key terms in the statute, including lifecycle greenhouse gas emissions, qualified clean hydrogen, and qualified clean hydrogen production facility

Sustainable Aviation Fuel

• April 30 - Notice 2024-37 provides guidance and safe harbors using the 40BSAF-GREET 2024 model

45X Advanced Manufacturing Production Credit

• December 14, 2023 — Proposed regulations (REG-107423-23) clarifying definitions and confirm credit amounts for eligible components, including solar and wind energy components, inverters

Low-income Communities Bonus Credit

• August 10, 2023 — Final regulations (TD 9979) and Revenue Procedure 2023-27 provide guidance necessary to implement the Program, including, in relevant part, information an applicant must submit, the application review process, and the manner of obtaining an allocation

Advanced Energy Project Credit

• February 13, 2023 — Notice 2023-18, first allocation round (Round 1), which began on May 31, 2023, $4 billion of qualifying advanced energy project credits
• April 29, 2024 — Notice 2024-36 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

48 ITC

• November 17, 2023 — Proposed regulations (REG-132569-17) update types of energy property eligible for the energy credit, requirements and rules generally applicable to energy property

Alternative Fuel Vehicle Refueling Property Credit

• January 19, 2024 — Notice 2024-20 provides guidance on eligible census tracts

45J Nuclear Credit

• March 9, 2023 — Notice 2023-24 provides guidance for computing credit, amount of unutilized NMCL, apply for and allocating unutilized NMCL, and transfer to "eligible project partner"

Wage and apprenticeship

• August 29, 2023 — Proposed regulations (REG-100908-23) provide details on satisfying the requirements and how taxpayers can cure their initial failure to comply with the requirements by making correction payments to workers and paying penalties to IRS

Energy Community Bonus Credit

• June 15, 2023 — Notice 2023-45, guidance for purposes of the production tax credit (PTC) under IRC Sections 45 and 45Y and the investment tax credit (ITC) under IRC Sections 48 and 48E for electricity facilities

Domestic Content Bonus

• May 12, 2023 — Notice 2023-38, under IRC Sections 45, 45Y, 48, and 48E

45L Energy Efficient Home Credit

• September 27, 2023 - Notice 2023-65 addresses: person eligible for the credit, determining the applicable credit amount, energy saving, certification and substantiation requirements

CHIPS Act 48D Advanced Manufacturing Investment Credit

• March 21, 2023 — Proposed regulations (REG-120653-22) address the eligibility requirements, including defining what constitutes an eligible taxpayer, qualified property and an advanced manufacturing facility
• March 5, 2024 — Final regulations (TD 9989) on direct pay