Legislative Lowdown
Tax Package Update—Crapo Goes Public: On Feb. 28, Senate Finance Committee Ranking Member Mike Crapo (R-ID) issued a public statement regarding his current stance on the Tax Relief for American Families and Workers Act (H.R. 7024), his first formal comment since the framework for the package was announced by House Ways and Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR). In the statement, Ranking Member Crapo confirmed that he is willing to advance the bill, but that Senate Republicans will not “rubber-stamp” the bill without an opportunity to amend the bill, emphasizing the expanded child tax credit (CTC). Crapo reiterated concerns regarding the CTC’s “lookback” provision—which would allow families to calculate the amount of the CTC based on their earned income from the prior tax year—as potentially disincentivizing work. Crapo’s statement also expressed some Senate Republicans’ growing concerns that the bill’s provisions would retroactively apply to tax filers who have already filed their 2023 tax returns, resulting in potential compliance and processing issues.
Senate Finance Committee minority tax policy advisor Kate Lindsey echoed Crapo’s comments at the 2024 Federal Bar Association Tax Law Conference on March 1. However, House Ways and Means Committee minority chief tax counsel Andrew Grossman urged Senate Republicans to resist cutting CTC benefits, stressing that doing so would be “unwise” and may lead to the loss of some House Democrats’ support of the bill.
Building off Crapo’s commitment to seek “a bipartisan resolution that a majority of Senate Republicans can support,” efforts continue to identify the policy priorities necessary to achieve a compromise that can pass the Senate. Leaders are reportedly targeting the end of the Senate’s current work period, March 22, for such a compromise to be considered by the Senate, potentially by taking up H.R. 7024 as a standalone bill or attaching the compromise package to the final set of appropriations bills if they are completed by that date.
Appropriations Update—Congress Averts Another Shutdown While Second Funding Deadline Awaits; Appropriators Release Text for Six Bills: Following intense negotiations and a high-profile White House meeting last week, congressional leaders and appropriators came to an agreement to avoid a partial government shutdown. The agreement contains a short-term continuing resolution (CR) and a framework to pass all 12 fiscal year (FY) 2024 appropriations bills. Under the CR, the deadline for the Transportation-HUD, Interior-Environment, Energy and Water, Military Construction-VA, Agriculture-FDA and Commerce-Justice-Science bills will now be extended to March 8. The remaining six bills will be extended until March 22 to provide congressional leaders additional time to strike a deal on some of the more contentious appropriations bills, including funding for the Treasury Department and Internal Revenue Service. On Thursday, Feb. 29, the House voted to advance the CR under suspension of the rules (320-99), over objections from House Freedom Caucus conservatives. The Senate passed the measure on Feb. 29 on a bipartisan basis (77-13), sending the bill to President Biden, who signed the bill on March 1. Additionally, both chambers passed a short-term extension of the Federal Aviation Administration (FAA) authorization, including the airline ticket tax, through May 10.
On March 3, congressional leaders released bill text for the first six-bill appropriations package, and both chambers will be looking to take up the legislation this week.
Senate Confirms Rollinson as IRS Chief Counsel: On Feb. 29, the Senate voted to confirm Marjorie Rollinson as the IRS chief counsel by a vote of 56-41, filling a position that has been vacant since the beginning of the Biden administration. All Democrats voted for her nomination, along with Republican Sens. Bill Cassidy (R-LA), Susan Collins (R-ME), Lisa Murkowski (R-AK), Mitt Romney (R-UT), Mike Rounds (R-SD) and Thom Tillis (R-NC).
Energy Boost
DOE May Seek to Modify Hydrogen Tax Guidance: According to anonymous Department of Energy (DOE) staffers, the DOE is pushing the Treasury Department to relax its Section 45V hydrogen tax credit guidance, a credit enacted as part of the Inflation Reduction Act (IRA, Pub. L. 117-169). Despite being publicly supportive of the proposed regulations, DOE officials are reported to be concerned that the rules’ clean-electricity restrictions, in particular the incrementality requirement, will hurt the agency’s regional hydrogen production hubs program and hinder the development of the domestic hydrogen industry. According to these sources, DOE officials also have concerns about the proposed rules’ hourly matching requirements and originally pushed the Treasury Department to adopt a less stringent approach before the proposed regulations were issued in December 2023. DOE did not confirm whether it is seeking changes to the tax guidance, nor have the White House and Treasury Department commented on the reports. The Treasury Department has received nearly 30,000 comments on the proposed regulations and is not expected to issue final guidance on the hydrogen credit until later this year, potentially after the November election.
Biden Administration Misses Deadline for Revised Section 40B SAF Guidance: The Biden administration missed a self-imposed March 1 deadline to issue initial guidance on the Section 40B sustainable aviation fuel (SAF) tax credit, a credit enacted as part of the IRA. The guidance is expected to include emissions modeling specific to SAF as well as clarification as to whether fuel derived from certain feedstocks would qualify for the credit. Biden administration officials stated that more time is needed to “mak[e] progress on critical decisions” and “plan to finalize updates in the coming weeks.”
Senators Urge Treasury Department to Revise Section 45X Tax Guidance to Bolster U.S. Solar Industry: Sen. Jon Ossoff (D-GA), joined with 11 other Democratic senators, sent a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel on Feb. 29, urging the Treasury Department and the Internal Revenue Department (IRS) to issue revised guidance for the Inflation Reduction Act’s domestic-content bonus credit with respect to solar facilities. The lawmakers assert that the initial guidance implementing the domestic-content bonus credit “undermines building out a comprehensive American solar supply chain” and urge the Treasury Department and the IRS to issue guidance only allowing solar-grade polysilicon and wafers produced in the United States to qualify for the credit. The letter contends that the initial guidance allows solar components from China to qualify, despite China controlling nearly 100% of global solar wafer production and almost 80% of solar-grade polysilicon production. A companion letter by House Democrats, led by Rep. Dan Kildee (D-MI), was sent to Secretary Yellen on Feb. 26.
1111 Constitution Avenue
IRS Announces Effort to Combat Wealthy Return Non-Filers: On Feb. 29, the Internal Revenue Department (IRS) announced a new effort to identify high-income taxpayers who have failed to file at least one tax return in the last seven years, and thus may not be complying with their tax obligations. Potential evaders are reportedly being flagged using information received from third parties, such as Form W-2, that indicate that a filer had a tax-filing obligation yet neglected to file. The IRS stated that it will begin mailing CP59 Notices to roughly 20,000 to 40,000 delinquent taxpayers per week, starting with the taxpayers having the highest unreported income. At the launch of the initiative, IRS Commissioner Daniel Werfel said the IRS will “ultimately help ensure fairness for everyone who plays by the rules.” The effort is part of a larger effort by the IRS to scrutinize wealthy individuals, large corporations and complex partnerships more closely through Inflation Reduction Act enforcement funding.
At a Glance
Biden’s State of the Union to Discuss Tax Issues: President Biden is slated to deliver the State of the Union address on Thursday, his last such address to Congress before the 2024 presidential election. Biden is expected to focus on the central themes of his reelection campaign, with a focus expected on individual and corporate taxation issues. Biden is likely to reiterate his vow not to raise taxes on individuals and families earning less than $400,000 per year, and he may renew his call on Congress to raise the maximum corporate tax rate from 21% to 28%, among other tax increases. Biden is expected to tout the infrastructural achievements of the CHIPS and Science Act, and may also highlight the Inflation Reduction Act’s energy tax credits.
IRS Discusses Improvements to ‘Where’s My Refund?’ Tool: On Feb. 28, the Internal Revenue Department (IRS) issued a press release, noting enhancements to their “Where’s My Refund?” tool, which informs individual taxpayers of the status of their federal tax return for the past three tax years. Improvements to the tool include a messaging feature designed to minimize call rates, and notifications on the platform indicating whether the IRS needs additional information from the taxpayer to continue processing his or her return.
Brownstein Bookshelf
CBO Report Details Consequences of IRS Funding Rescissions: On Feb. 29, the Congressional Budget Office (CBO) released a report describing how Internal Revenue Department (IRS) funding affects CBO’s revenue projections, and the effect that IRS funding rescissions will have on baseline projections of revenues. The report estimated that, over a 10-year time frame, a $5 billion rescission would reduce revenues by $5.2 billion and increase the cumulative deficit by $0.2 billion. The CBO found that IRS funding rescission would reduce revenues on an exponential scale, with a $20 billion rescission yielding an estimated $44 billion revenue loss, and a $35 billion rescission resulting in an estimated $89 billion revenue loss.
Hearings and Events
House Ways and Means Committee
On Thursday, the House Ways and Means Subcommittee on Tax will hold a hearing titled “Hearing on OECD Pillar 1: Ensuring the Biden Administration Puts Americans First.”
Senate Finance Committee
The Senate Finance Committee has no tax hearings scheduled for this week.