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November 10, 2024
2024-2064

This Week in Tax Policy for November 11

This week (November 11-15)

Congress: The House and Senate are scheduled to return on November 12.

Leadership elections: On November 13, there are leadership elections for Republicans in both the House and Senate. The current slate of House leaders is vying to remain in power: Speaker Mike Johnson (R-LA), Majority Leader Steve Scalise (R-LA), and Majority Whip Tom Emmer (R-MN). In the fourth position is Rep. Elise Stefanik (R-NY), a Trump ally reportedly under consideration for an Administration post, possibly UN Ambassador. Rep. Kevin Hern (R-OK), a Ways & Means member active on tax issues, is running for Republican Policy Committee Chairman. House Democrats are holding leadership elections November 19, and the current leadership is similarly running to remain at the top: Democratic leader Hakeem Jeffries (D-NY), Democratic Whip Katherine Clark (D-MA), and Democratic Caucus Chairman Pete Aguilar (D-CA).

Running in the November 13 election to replace Mitch McConnell (R-KY) as Senate Republican leader, and Majority Leader in the next Congress, are tax-writers John Thune (R-SD) and John Cornyn (R-TX), and Senator Rick Scott (R-FL). Senator John Barrasso (R-WY) is running for Whip. As Finance Committee members, Senators Thune and Cornyn could use their long experience in tax issues in a role to help broker a budget reconciliation bill anchored by extensions of TCJA provisions expiring at the end of 2025

Hearings: The Senate Finance Committee is holding a hearing on Thursday, November 14 (10 a.m.) on the nominations of Deva Kyle to be Director of the Pension Benefit Guaranty Corporation, replacing Gordon Hartogensis, term expired, and David Samuel Johnson to be Treasury Inspector General for Tax Administration, replacing J. Russell George, who passed away. Kyle has held positions at PBGC and Treasury and was detailed to the House Ways & Means Committee. Johnson is currently Assistant Inspector General for Investigations at the U.S. Department of Veterans Affairs.

Last week (November 4-8)

2024 elections, 2025 tax cliff: Former President Trump will return to office in 2025 after sweeping the battleground states in what was projected to be a historically close, toss-up election. Republicans won control of the Senate with what is shaping up to be a potential 53-47 majority. Senator Bob Casey's (D-PA) defeat in Pennsylvania brings the number of Democrats departing the Finance Committee in the next Congress to five, with Sherrod Brown (D-OH) also losing re-election and three members retiring (Cardin, Carper, Stabenow). Democrats Jacky Rosen (D-NV) in Nevada and Ruben Gallego (D-AZ) in Arizona, versus Republican Kari Lake to replace Kyrsten Sinema, are ahead in their races. House control remains undetermined and may not be known for days but is leaning Republican. If Republicans retain control of the House after winning the presidency and Senate majority, they will have the opportunity to use the budget reconciliation process to enact a GOP-only bill, anchored by extensions of end-of-2025 expiring TCJA provisions, with a 51-vote simple majority rather than the 60-vote filibuster threshold applicable to most other legislation. If Democrats prevail and take control of the House, budget reconciliation would not be pursued as a way around bipartisan negotiations, and Republicans would be required to negotiate with at least some Democrats to gain 60 votes.

Even if a GOP trifecta in Washington allows for budget reconciliation, there still must be intraparty negotiations over issues like a revenue target for the bill — determining how much of the cost of the bill will be paid for and how much will be added to the budget deficit. A November 7 New York Times story said, "lawmakers and advisers to Mr. Trump are undecided about how much money they can commit to lowering the nation's taxes again. The cost of just preserving the status quo is steep." The Congressional Budget Office has put the cost of TCJA extensions at $4 trillion before interest costs, and outside groups have said Trump's additional campaign tax proposals could cost trillions more. The story said "some Republicans said the party would have to show some fiscal discipline. 'We can't just have it be unlimited, whatever we want to it to be,' Senator James Lankford, a Republican of Oklahoma and member of the Finance Committee, said of the cost of a tax bill next year."

A story in the November 7 Wall Street Journal, "A Tax Gamble is About to Pay Off," said Republican power in Washington increases chances of extending the tax cuts — including rate cuts, a higher standard deduction and Child Tax Credit (CTC), the passthrough deduction, and larger estate tax exemption — but the party must face intraparty philosophical differences on issues like a higher CTC versus lower marginal rates. The story also noted that some Republicans have called for rolling back Inflation Reduction Act (IRA) energy credits, but "those credits are funding projects in Republican districts, and many GOP lawmakers are wary of full repeal." Further, "They would, again, consider temporary extensions of many provisions because the reconciliation rules don't allow them to expand budget deficits beyond a 10-year period."

There isn't unanimity among Republicans on paying for tax cut extensions. President-elect Trump has said resulting economic growth would cover the cost and incoming Senate Finance Committee Chairman Mike Crapo (R-ID) has noted the precedent of not paying for extensions of current tax policy, though some members of Congress are likely to push for a package to be at least partially offset. There is also uncertainty about how Republicans in Congress will regard Trump's additional tax proposals beyond TCJA extensions. He has proposed a family tax credit for caregivers who care for a parent or loved one, exempting tip and overtime income and Social Security benefits from tax, making auto loan interest tax deductible, providing tax relief for expats, and restoring the SALT deduction. "I'm not endorsing or not endorsing any of those ideas," Senator Crapo said in September, referring to Trump's tax proposals. "I think that we are going to have a very broad, deep discussion." Senator John Thune (R-SD), the current second-ranking Republican and vote-counting Whip who is running for Majority Leader, said in a September 18 Washington Post report, "We'll take them very seriously and into consideration as we try and put this thing together."

The expectation is that Republicans want to try to move the tax bill before acting on debt limit legislation required sometime mid-year after extraordinary measures are exhausted following the expiration of the current suspension (enacted in the June 2023 Fiscal Responsibility Act) expires on January 1, 2025. Republicans have already been in discussions about a reconciliation bill addressing expiring tax provisions and perhaps much more. Speaker Mike Johnson (R-LA) met with Senate Republicans June 12 to discuss the ambitious House plan for reconciliation in 2025 and suggested it would be broad in scope and address many issues, including tax. "The Democrats have used reconciliation much more aggressively than the Republican party has in recent years. And so, we're not going to make that mistake again. We have big policy changes that we'd like to enact," he said. "To us these are important fixes, and I think things that can be done early in the Congress." An earlier report cited Johnson as preparing Republicans for a far-reaching bill aimed at addressing a wide range of issues at once. "Back in the 2017 timeframe and in previous years, we Republicans, kind of took a single-subject approach to reconciliation. We did one round of health care reform, one round of tax reform. But we're looking at for [fiscal year 2025], we want to have a much larger scope, multiple issues to address in addition to the expiration of the Tax Cuts and Jobs Act," he said.

Trump's main proposed revenue offset is tariffs, describing them as at least 10%-20% for imported products, more for those from foreign adversaries and nations seen contributing to US immigration issues, and even more for some foreign automakers. There isn't a guarantee that Trump's proposed tax ideas get enacted as-is, and advisors have made comments in the press suggesting efforts to try to enact change in the spirit of the proposals if not to the letter. A WSJ analysis said, "As for Trump's own plans, he may not raise tariffs as much as threatened, opting for negotiations over trade war. Congress may water down his tax plans. Finally, presidents are seldom the main driver of economic performance." The thinking has been that tariffs imposed by the President, through various laws that provide authority, couldn't officially count as revenue to offset legislation, but tariffs enacted by Congress could. Politico reported November 7 reported, "Advisers close to President-elect Donald Trump have been in discussions with House Ways and Means Chair Jason Smith (R-Mo.) on a broad tax package that is partially paid for by tariffs approved by Congress … As part of those conversations, staffers and advisers close to the Trump team have also investigated whether House rules need to be changed to use tariffs as offsets for tax cuts." The story said, "Congress has not raised tariffs through legislation in almost 100 years — the Smoot-Hawley Tariff Act of 1930 — and that has led to some confusion over how lawmakers should handle the issue as part of a broader tax package."

Republicans have laid at least some of the groundwork for considering issues related to the 2025 tax cliff, through bicameral discussions and the GOP-only Tax Teams that operated over the course of the year. "In the House, Republicans have been working to get as many budget scores back as possible from the Joint Committee on Taxation to guide conversations in the lame duck … That includes estimates for tax proposals that came up based on tax team feedback and options to address Trump's campaign trail promises," Punchbowl News reported November 6. "Smith said in our interview that depending on the House margin, he could have to 'thread the needle' on concerns about the debt, the state and local tax deduction and some issues 'very important to people in Iowa, in Nebraska' — an area where biofuels are a big constituency."

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
  • September 12, 2024 — 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
  • October 18, 2024 — Notice 2024-74 provides that a taxpayer who uses a 40BSAF-GREET 2024 safe harbor in Notice 2024-37 must use the October 2024 version of the model

Transferability

  • April 25, 2024 — Final regulations (TD 9993) describing rules and definitions for the transfer of eligible credits in a tax 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

IRC Section 30C Alternative Fuel Vehicle Refueling Property Credit

  • September 18, 2024 — Proposed regulations (REG-118269-23) on credit up to 30% for installing alternative fuel vehicle refueling property, such as chargers and hydrogen refueling property

IRC Section 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

IRC Section 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

IRC Section 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
  • October 24, 2024 - Final regulations (TD 10010) allowing taxpayers to include materials costs and extraction costs in production costs for applicable critical minerals and electrode active materials, provided certain conditions are met

IRC Sections 45Y, 48E clean electricity credits

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

IRC Section 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

IRC Section 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

IRC Section 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
  • October 24, 2024 — Proposed regulations (REG-118264-23) provide procedures and requirements that a manufacturer of specified property must follow to be treated as a qualified manufacturer

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

IRC Section 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 IRC Section 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
  • October 22, 2024 — Final regulations (TD 10009) provide additional clarity on the definition of what constitutes an "advanced manufacturing facility," including clarifying the inclusion of semiconductor wafer production in the definition of semiconductor manufacturing
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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young