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This week (June 17 - 21)

Congress: The House is in recess the week of June 17, but the Senate is in. Then the Senate is in recess the week of June 24, while the House is in. Both are then out for the Independence Day week.

On June 17-18, AEI is hosting an event , "Complexities, Discontinuities, and Unintended Consequences of US International Tax Rules: Options for Change," to discuss a series of papers considering options for reforming US international tax rules.

Last week (June 10 - 14)

2025: There continues to be immense interest in Washington over what will happen next year pending the outcome of this year's elections, with the primary topic being the end-of-2025 TCJA expirations and what other issues either party could address using the budget reconciliation process if they sweep the House, Senate, and presidency in November. Talks have begun between House and Senate Republicans about how to proceed if they control the government next year. Speaker Mike Johnson (R-LA) attended the weekly Senate Republican policy lunch June 12 to discuss the ambitious House Republican plan for reconciliation in 2025, which he has suggested would be broad in scope and address many issues, including tax. Speaker Johnson said Republicans would be "aggressive within the confines of the rules" in their use of a reconciliation vehicle addressing TCJA expirations, pro-growth policies, and regulatory reform, Bloomberg reported. "Democrats have used reconciliation much more aggressively than the Republican Party has in recent years," Johnson said. "We're not going to make that mistake again." Senators were cited as having warned of the limitations of the reconciliation process, which include blocking proposals that do not produce a change in outlays (mainly entitlements) or revenues. "You have to keep your expectations realistic about what you can do there," said Senate Minority Whip John Thune (R-SD). "We have restrictions over here that the House doesn't have to comply with."

"Johnson is attempting to put together a package of conservative policy priorities that could — in theory — pass during a second Trump term, should Republicans win big this fall … " Politico reported. "Johnson's meeting with Republicans this week shows an intentional effort at early negotiations around any potential deal, theoretically teeing up a bill for Trump to act on quickly should he retake the White House."

Expectations that Republicans would seek to extend the full slate of expiring TCJA provisions, with the inclusion of revenue offsets unsettled, have evolved with comments suggesting the party wants to pursue even more tax cuts. "Speaker Mike Johnson told Senate Republicans on Wednesday that he wants to go big in a possible GOP-run Washington next year. So far, a fresh round of tax cuts is at the top of his wish list," said another Politico report. "Exiting a meeting with the Senate GOP, Johnson said tax cuts and 'regulatory reform,' shorthand for paring back government regulations, are two of his biggest priorities … " House Republican leaders have been reported as aiming for a corporate tax reduction, despite indications that some in the party back increasing the rate to help pay for extending individual and other expiring provisions. Former President Trump told the Business Roundtable group of CEOs June 13 that he wants to further reduce the 21% corporate tax rate by one percentage point to an even 20%, the AP reported. Republicans had eyed a 20% rate for the TCJA, which was reflected in an earlier version of the bill before being bumped to 21%. Trump also met, separately, with House and Senate Republicans on Thursday, with the Senate meeting noted for its cordiality. A June Washington Post story, "Republicans pitch tax cuts for corporations, the wealthy in 2025," said former President Trump has warned of a tax increase if President Biden is re-elected, and some Republicans in Congress are trying to mute talk of a corporate tax increase with a case about the incidence of the tax. "The corporate tax rate has a much bigger impact on individuals than it does on businesses," Sen. Mike Crapo (R-Idaho), who is in line to chair the tax-writing Senate Finance Committee if Republicans win control of the upper chamber, told The Washington Post. "Let me put it this way: Corporate taxes are paid by workers, by retirees and by consumers, so it has a huge impact on everybody in the United States." The story cited some as saying there is a discussion about proposing a corporate rate of just under 15%, to express opposition to the OECD global tax agreement, and that leading Republican tax-writers in Congress have warmed to that idea. "We want to keep rates as low as we can, ideally lower than 21 percent," said Rep. Steve Scalise (R-La.), the No. 2 Republican in the House.

As a matter of style, Speaker Johnson's and President Trump's outspoken speculation about tax plans is contrasted by Senator Crapo, who would likely chair the panel if the Senate flips, largely demurring on the issue and keeping the activities of the Finance GOP tax working groups under wraps compared to the more public Ways & Means tax teams. "We aren't there yet to answer those kinds of questions," he said, according to Politico. "I'm not making decisions on any policies that we should move next year until we have the whole picture understood and in front of us — which would include knowing who controls the White House, who controls the Senate, who controls the House." Setting expectations for how much speculation he will offer, Crapo said, "I am not going to tell you that this is what we ought to do next year, or this is what we ought not to do next year because we are looking at all of it now."

Revenue offsets: While there is apparent unanimity within the party on the need to extend TCJA provisions, House and Senate Republicans are not as unified on the need to pay for the extensions. House members are more inclined to recognize the need for revenue offsets, while Senators maintain that pro-growth tax provisions need not be paid for. A Politico story cited House Ways & Means Chairman Jason Smith (R-MO), who has said some Republicans support a corporate tax rate increase (but he is not advocating for that), as saying he could see lawmakers coming up with a total of $2.5 trillion or so in savings, but $4 trillion would be a "huge task." (That is the approximate cost of a full TCJA extension, according to CBO, not accounting for interest.)

Democrats would be expected to back 2025 TCJA extensions only for household incomes below $400,000 and have a whole host of proposed revenue offsets from President Biden's budget proposals and bills in Congress, including an increase in the corporate tax rate and other tax increases on corporations and high-income individuals. They continue to criticize the TCJA benefits that apply to higher-income individuals and the hit to the deficit if all provisions are extended. Senate Majority Leader Chuck Schumer (D-NY), who has made multiple floor speeches highlighting CBO's $4.6 trillion (including interest) projected cost for the TCJA extensions, is raising the contrast between the parties on tax policy even in mainstream media interviews. On CNN's OutFront with Erin Burnett June 13, Leader Schumer said, "The overwhelming majority of his tax cuts went to the wealthiest people; very little went to anyone else when you look at them as a whole, they went against the blue states because we actually do something to help poor people, working people, et cetera. That was not a fair thing to do. Overall, the tax rates plummeted down for the wealthy; if you made lots of money, you did [benefit] much more, and then they stopped the auditing of all these very wealthy people who were using loopholes. "

Wall Street hearing: Similarly, during a June 12 Senate Budget Committee hearing on "Making Wall Street Pay Its Fair Share," Democrats advocated long-proposed ideas for increasing taxes on higher-income individuals and corporations, particularly in the financial industry, and Republicans made the case for TCJA extensions. Chairman Sheldon Whitehouse (D-RI), listing tax increase ideas that he has long espoused, said Congress should change the treatment of carried interest and "lock in a real corporate minimum tax on foreign profits so huge corporations can't pay zero." Ranking member Chuck Grassley (R-IA) emphasized that average Americans increasingly own stocks, either directly or indirectly through retirement plans, and said IRA direct pay and transferability provisions make it easier for corporations, banks, and private equity firms to pay lower taxes. In questioning from Senator Alex Padilla (D-CA), witness Joseph Stiglitz said stepped-up basis allows wealthy Americans to totally avoid taxes on income through capital gains. Senator Mitt Romney (R-UT) said, "The idea of eliminating the tax-free step up in basis at death is one thing we ought to look at and probably makes sense."

IRA: At stake in this year's elections from a tax perspective includes: (1) How to address the expiration of TCJA individual and passthrough provisions at the end of 2025 and scheduled changes to business provisions (like GILTI, FDII, and BEAT), plus a potential corporate rate increase and any number of other proposals that could be pulled in to pay for those extensions; (2) the OECD global tax agreement, which Republicans in Congress have very vocally opposed; and (3) Inflation Reduction Act (IRA) energy tax credits. Ahead of former President Trump's June 13 meetings with House and Senate Republicans, Axios reported June 11, "Trump already is plotting with [Speaker Johnson] to hit the ground running with an agenda that includes tax cuts and rolling back Biden energy policies." There continues to be discussion of the risk of GOP-controlled government to IRA energy tax credits, which not only face Congressional Review Act (CRA) disapproval resolutions but proposed repeal of at least some of the credits to pay for other priorities. Bloomberg reported Senate Majority Leader Schumer said June 12 that protecting IRA credits is a priority for Democrats. "This is a seminal issue in the election," Schumer said during a briefing with the League of Conservation Voters at the Capitol. "Our Republican colleagues say that if they get into office, they will use reconciliation to repeal the IRA … This is no idle threat." Conversely, "If Democrats retain power after the election, 'we're going to go way beyond' the IRA on climate and clean energy initiatives, Schumer said. 'You ain't seen nothing yet.'"

Tips: Former President Trump's comments during a June 9 campaign event in Nevada about eliminating taxes on tip income if re-elected have garnered significant attention in the press. "So, this is the first time I've said this. And for those hotel workers and people that get tips, you're going to be very happy," former President Trump said. "Because when I get to office, we are going to not charge taxes on tips, people making tips." President Trump didn't propose exempting tips from tax during his first term. A story in the June 11 Wall Street Journal cited David Kautter, former Assistant Treasury Secretary for Tax Policy during the Trump Administration, as saying the proposal also wasn't considered or studied during the first Trump term. The story said the proposal "introduces an untested idea to raise take-home pay that would encourage businesses and employees to recharacterize taxed wages as untaxed tips. Such a move could further complicate Americans' messy relationships with tips, which have spread to new corners of the economy in recent years even as consumers express growing exasperation with requests for voluntary payments on top of prices."

"Under current law, all gratuities that workers receive must be taxed at the same rate as their regular income, and many employers report their workers' tips to the IRS — but much is paid in cash and never reported to the IRS. More than 6 million workers had tips reported to the IRS in 2018, the most recent year for which complete IRS data is available … " said a story in the June 10 Washington Post. "The IRS considers cash and noncash tips as income subject to federal income taxes, as well as Social Security and Medicare taxes. In 2018, the latest year for which complete IRS data is available, the average worker who had tips reported on their W-2 had $6,249 in tips that were taxed."

Tax Court: The Finance Committee met in executive session on June 13 to favorably report the nominations of James Ives to be Treasury Inspector General (by a 26-1 vote), and Rose Jenkins (25-2), Adam Landy (26-1), and Kashi Way (25-2) to be judges on the United States Tax Court.

IRS: In Notice 2024-47, the IRS waived the penalty under IRC Section 6655 for a corporation's failure to pay estimated tax payments attributable to a portion of the corporation's alternative minimum tax (CAMT) due on or before August 15, 2024, for a tax year beginning in 2024. This is the third time the IRS has waived the penalty. In June 2023, the IRS waived the penalty for the 2023 tax year. In April 2024, the IRS waived the penalty for the installment due on April 15, 2024, for a tax year beginning in 2024 (and May 15, 2024, for a fiscal-year taxpayer with a tax year beginning in February 2024).

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

Domestic Content Bonus

• May 16, 2024 — Notice 2024-41 expands list of Applicable Projects to include hydropower

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

Sustainable Aviation Fuel

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

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

Alternative Fuel Vehicle Refueling Property Credit

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

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

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

45Y, 48E clean electricity credits

• May 29, 2024 - Proposed regulations (REG-119283-23) on greenhouse gas emission rates

45Z Clean Fuel Production Credit

• May 31, 2024 — Notice 2024-49 on registration requirements

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
• May 22 — IR-2024-144 announced that the DOE Qualified Advanced Energy Project Credit Program Applicant Portal (48C Portal) is open for any applicants to register for a new round of allocations

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

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

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
• June 7, 2024 — Notice 2024-48 publishes lists of information that taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category as described for purposes of qualifying for energy community bonus credit amounts or rates under IRC Sections 45, 45Y, 48, and 48E

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"

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