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This week (September 16-20)

Congress: The House and Senate are in session and facing a September 30 deadline to extend government funding and other programs. Both the House and Senate are expected to go out of session September 27 until after the elections.

The Senate Banking Economic Policy Subcommittee has scheduled a hearing on "The Macroeconomic Impacts of Potential Tax Reform in 2025" for Wednesday, September 18 (2 p.m.).

There are two health hearings in the tax-writing committees:

• The Senate Finance Committee has scheduled a hearing, "Lower Health Care Costs for Americans: Understanding the Benefits of the Inflation Reduction Act," for Tuesday, September 17 (10 a.m.).
• The House Ways & Means Health Subcommittee has scheduled a hearing on "Investing in a Healthier America: Chronic Disease Prevention and Treatment," for Wednesday, September 18 (2 p.m.).

Last week (September 9-13)

Elections: Though neither has a fully developed tax plan, both Democratic presidential candidate Vice President Kamala Harris and Republican candidate Former President Donald Trump have been rolling out tax proposals piecemeal in the past few weeks. Notably, Harris broke from the Biden administration in calling for a 28% capital gains and dividends rate, and Trump called for a 15% corporate rate on an undefined measure of income related to domestically produced products ("solely for companies that make their product in America"). The candidates diverge drastically on tax policy in that VP Harris is expected to support extension of TCJA provisions expiring at the end of 2025 only for those with annual income below $400,000 and paid for with tax increases on corporations and high-income individuals, borrowing heavily from Biden budget proposals. Former President Trump is likely to support extending all expiring provisions of the TCJA, his signature Republican law, along with additional tax cuts like exempting from tax tip income, Social Security benefits, and now overtime income. "I am also announcing that, as part of our additional tax cuts, we will end all taxes on overtime," he said at a Tucson, AZ, rally September 12. "That gives people more of an incentive to work. It gives the companies a lot. It's a lot easier to get the people … The people who work overtime are among the hardest-working citizens in our country." He has stated that he would rely on economic growth to pay for tax cut extensions.

VP Harris September 4 announced that she supports long-term capital gains and qualified dividends taxed at a maximum rate of 28% - lower than the ordinary income treatment proposed by the President but higher than the current 20% rate, or 23.8% with the NIIT. The New York Times reported that, while Harris "has said she would increase taxes on the wealthy, the capital-gains adjustment was a message to investors and corporate executives: Ms. Harris is a different type of Democratic nominee." The Washington Post said September 9 that VP Harris faced pressure to distance herself from the Biden billionaire's tax proposal to tax unrealized gains for those with wealth over $100 million, and also faced concerns that the campaign tax agenda was overly aggressive. "Amid the pressure, Harris's campaign advisers debated dropping the proposal," the report said. "But when she released a revised set of tax priorities last week, she kept the billionaire income tax. Instead, she modified another part of the Biden tax plan, calling for a more modest increase in the tax on capital gains for investors with more than $1 million in taxable income." Indeed, Harris said September 4 she supports "a billionaire minimum tax and corporations paying their fair share."

Of course, if either party sweeps in the elections, they would be expected to pursue a budget reconciliation bill focused on extending the expiring TCJA provisions as they see fit — the specific items that are extended, the degree to which the cost is offset, and how. Reconciliation allows revenue bills meeting certain requirements to pass the Senate with a simple majority vote, rather than the 60-vote threshold that applies to most legislation. Even so, members of the same party reaching agreement on a revenue number and other details can be difficult. Tax increases are possible under a Republican sweep, a Democratic sweep, and divided government, with parties splitting control of the House, Senate and White House, with the latter scenario requiring bipartisan negotiation to get to 60 Senate votes (because reconciliation isn't available). A WCEY Alert discussing this further is available here.

CAMT: On September 12, the Treasury Department issued over 600 pages of long-awaited proposed regulations (REG-112129-23) on the application of the 15% corporate alternative minimum tax (CAMT) on the adjusted financial statement income (AFSI) of large corporations. The proposed regulations propose comprehensive rules for determining AFSI, whether a corporation is an applicable corporation, including rules for foreign-parented multinational groups, and the CAMT foreign tax credit. They generally incorporate interim guidance previously issued by Treasury and the IRS in notices over the past two years, but also differ from the prior guidance in some notable respects. Treasury also issued penalty relief (Notice 2024-66) for corporations that fail to pay estimated taxes with respect to CAMT liabilities for tax years that begin after December 31, 2023, and before January 1, 2025. An EY Alert is available here.

EVs: The House September 12 approved by a 217-192 vote H.R. 7980, Rep. Carol Miller's (R-WV) bill addressing involvement by prohibited foreign entities for purposes of the new clean vehicle credit, tightening the Foreign Entity of Concern (FEOC) definition. Seven Democrats voted in favor of the measure and no Republicans voted against. The vote was part of a series of bills this week addressing foreign adversaries. The White House stopped short of a veto threat but nonetheless issued a litany of criticisms of the bill. "The Administration opposes H.R. 7980, which would raise taxes on American consumers, punish American auto manufacturers, threaten good-paying auto jobs, undermine our Administration's work to protect the American automotive supply chain … and set back efforts to achieve energy security and combat climate change."

Tax markup - The House Ways & Means Committee September 11 approved five bills:

• the Saving Gig Economy Taxpayers Act (H.R. 190), to restore the previous $20,000 de minimis exception for third party settlement organizations Form 1099-K reporting, rather than the $600 limit approved in the American Rescue Plan Act (ARPA) that was postponed twice by the IRS and planned with a $5,000 phase-in for 2024, was approved 22-16
• the USA Workforce Investment Act (H.R. 9461), addressing charitable contributions to a workforce development or apprenticeship training organization was approved 22-15
• the Educational Choice for Children Act (H.R. 9462), addressing charitable contributions to a scholarship granting organization, was approved 23-16 after several Democratic amendments preventing the benefit if schools don't meet conditions regarding disabilities and other issues were defeated, all by 16-23 votes
• H.R. 9495, which extends due dates for certain Federal tax matters for hostages and persons wrongfully detained, was approved 38-0
• H.R. 3269, addressing the taxation of a less-than-lethal projectile device, was approved 21-15

The lengthy debate, especially regarding the education-focused bills, pushed the duration of the hearing past five hours. Republicans generally touted the educational contributions measures as providing freedom for students to pursue diverse opportunities. Democrats argued that there was insufficient protection against fraud and discrimination. Chairman Jason Smith (R-MO) said in an opening statement, "By stopping an intrusive IRS, keeping our communities safe, and providing relief for Americans held hostage and their families, the legislation before us today will help Americans tackle serious challenges."

2025/Tax avoidance hearing: During the September 12 Senate Finance Committee hearing on "The 2025 Tax Policy Debate and Tax Avoidance Strategies," Democrats highlighted the generational tax-avoidance potential of policies like stepped-up basis, while Republicans focused on the risks of allowing the Section 199A pass-through deduction to expire. Chairman Ron Wyden (D-OR) continued to highlight the "Buy Borrow Die" tax avoidance strategy under which, he said, "an ultra-wealthy investor uses his riches to acquire valuable assets … borrows against that value to generate cash," then avoids tax at death due to stepped-up basis. Ranking Member Mike Crapo (R-ID) said taxpayers face uncertainty over taxes amid the question of whether Democrats will let portions of the TCJA expire and tax increases to take hold. Senator Mark Warner (D-VA) said the last true assessment of tax expenditures in Washington was the 2010 Bowles-Simpson commission, when members winced at federal debt of $16 trillion or $17 trillion that is now double that, at $35 trillion. He warned of the impact of interest on the debt, which, he said, "is going to eat us up." A WCEY Alert is available here.

The staff of the Joint Committee on Taxation released a report, "Present Law and Background on The Income Taxation of High Income and High Wealth Taxpayers," which described empirical information, legal background, and policy considerations related to topics considered in the hearing.

199A: Featured prominently at the hearing was an EY macroeconomic analysis, released in conjunction with NFIB, that concluded that making the 20% small business deduction permanent would create 1.2 million new jobs each year for the first ten years and 2.4 million annually every year thereafter. It would also result in a $750 billion GDP increase in the small business sector over the first ten years, and a $150 billion increase annually after that.

Housing: Senator Tim Scott (R-SC), Ranking Member Crapo, and others September 11 introduced the ROAD to Housing Act (S. 5027), with provisions including reforms to housing counseling and financial literacy programs, eliminating the cap on the number of public housing units that may be converted under the Rental Assistance Demonstration (RAD), homelessness reforms, and requiring HUD to prioritize awarding of competitive grants relating to the construction or preservation of housing to recipients located in or that primarily serve communities designated as Opportunity Zones.

Rail bill: Chairman Wyden and Ranking Member Crapo September 11 introduced the Short Line Railroad Tax Credit Modernization Act (S. 5008) to increase the tax credit available for track rehabilitation and maintenance from $3,500 per mile to $6,100 per mile. It would also make more track eligible for the credit. The base credit was made permanent in 2020. A House companion bill (H.R. 9522) is co-sponsored by Reps. Earl Blumenauer (D-OR) and Mike Kelly (R-PA).

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

CAMT

• September 12, 2024 - Proposed regulations (REG-112129-23) on the application of the 15% corporate alternative minimum tax (CAMT) on the adjusted financial statement income (AFSI) of large corporations generally incorporating interim guidance previously issued by Treasury and the IRS in notices over the past two years
• Penalty relief (Notice 2024-66) for corporations that fail to pay estimated taxes with respect to CAMT liabilities for tax years that begin after December 31, 2023, and before January 1, 2025

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
• June 28, 2024 — Final regulations (TD 10002) regarding the reporting and payment of the excise tax on repurchases of corporate stock

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

45Q carbon sequestration credit

• July 24 — Notice 2024-60 provides initial guidance, describing information that must be included in a written report known as the lifecycle analysis (LCA) report and provides the procedures a taxpayer must follow to submit the report along with required supporting information to the IRS and the Department of Energy for review

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, 2024 — 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

• June 18, 2024 — Final regulations (TD 9998) providing employers and workers with more clarity on what's required for recordkeeping, and employers to adopt worker-centric practices like project labor agreements

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