Legislative Lowdown
Ways and Means Committee Overwhelmingly Passes Tax Package. On Jan. 19, the House Ways and Means Committee completed a markup of the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), which was favorably reported by a vote of 40-3. The bill was unveiled on Jan. 16 as the result of negotiations between House Ways and Means Committee Chair Jason Smith (R-MO) and Senate Finance Committee Chair Ron Wyden (D-OR). The bill includes numerous bipartisan tax provisions that benefit both businesses and individuals. At the core of the package are provisions restoring three business tax provisions addressed in the Tax Cuts and Jobs Act (Pub. L. 115-97): research and development amortization, bonus depreciation, and the limitation on the deductibility of business interest. The three business provisions were balanced with expansions to the amount and eligibility of the child tax credit. For a full list of provisions included in the bill, please see the Jan. 17 issue of Taxation & Representation.
The three members voting in opposition to the tax package were Reps. Lloyd Doggett (D-TX), Linda Sanchez (D-CA) and Gwen Moore (D-WI), all of whom expressed concern that the expansion of the child tax credit was not large enough to pair with the business tax provisions. These “no” votes foreshadow a key issue to be debated when the tax package is brought before the full House, potentially next week. The White House has indicated that the President is pleased with the contours of the bill and supports its advancement, according to Press Secretary Karine Jean-Pierre.
House leadership has expressed interest in “fast-tracking” the bill in the House through the suspension calendar, which allows the bill to bypass the House Rules Committee and be considered without amendments. However, a bill considered through the suspension calendar requires a two-thirds majority to be approved by the House. On Jan. 23, House Republicans formally posted the tax bill on the House calendar, designating the bill as an item that may be voted on next week, when the House returns from recess. The decision suggests that House Republican leadership is eager to advance the bill.
In anticipation of House passage, tax writers on the Senate Finance Committee are assessing their options, with some calling for a committee markup, which appears unlikely. With the tax filing season set to open on Jan. 29, the Senate will need to consider the legislation, including any amendments senators may press to include, in fairly short order given the provisions of the bill affecting the child tax credits that may be claimed on 2023 tax returns. A lengthy delay will further complicate the filing season for families claiming the child tax credit and strain the normal filing-season resources of the Internal Revenue Service (IRS).
Congress Averts Government Shutdown Once Again. On Jan. 18, both chambers of Congress swiftly moved to pass House Speaker Mike Johnson’s (R-LA) stopgap funding bill that would fund the government until at least March 1, a funding measure that took effect with President Biden’s signature on Jan. 19. The bill funds Military Construction-VA, Agriculture-FDA, Transportation-HUD and Energy-Water until March 1, and the other eight appropriations bills, including funding for the Department of the Treasury and Internal Revenue Service, until March 8.
The House Freedom Caucus, which disapproved of the bill due to Speaker Johnson’s negotiations with Senate Majority Leader Chuck Schumer (D-NY) and other Democratic congressional leadership to develop a bipartisan bill, has stated that they will seek to stymie the passage of Republican messaging bills as an act of retaliation against Speaker Johnson. It remains to be seen whether this band of Republicans will seek to oust the speaker from his role, as was the case when former House Speaker Kevin McCarthy (R-CA) passed a bipartisan government funding bill in October 2023.
Supreme Court Could Deal Blow to Federal Agencies’ Regulatory Deference. On Jan. 17, the United States Supreme Court heard oral arguments in Relentless, Inc. v. Department of Commerce and Loper Bright Enterprises, Inc. v. Raimondo, which challenge the “Chevron doctrine,” established in Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). The Chevron doctrine provides that courts may defer to federal agencies’ interpretation of ambiguous statutes, as long as the interpretation is found to be reasonable. Rulemaking authority is frequently utilized by agencies, including by the Treasury Department and the Internal Revenue Service (IRS), to address ambiguities in a statutory provision’s definitions or operation. The petitioners brought the two cases in response to a rulemaking issued by the National Marine Fisheries Service (NMFS) concerning the Magnuson-Stevens Act, arguing that the NMFS imposed a fee on employing fishing monitors required to maintain compliance with fishery rules, outside of what was authorized by the Magnuson-Stevens Act.
Despite argument from Solicitor General Elizabeth Prelogar, contending for the government that overturning Chevron would be “an unwarranted shock to the legal system,” most of the court’s conservative justices seemed inclined to overturn Chevron or severely limit its application. Justice Kavanaugh observed that the Chevron doctrine “ushers in shocks to the system every four or eight years when a new administration comes in,” due to agencies’ differing interpretations of statutes based on the sitting administration’s policy priorities.
Justices Clarence Thomas, Samuel Alito, Neil Gorsuch and Brett Kavanaugh appeared to be the most willing to overturn Chevron. Chief Justice John Roberts and Justice Amy Coney Barrett also expressed interest in overturning Chevron, but with limitations or restrictions on the scope of the decision. Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson, comprising the court’s liberal bloc, generally agreed that the Chevron doctrine should be upheld. The court is expected to issue a decision in June.
Republican Ways and Means Member Introduces Estate Tax Repeal Bill. On Jan. 18, Rep. Randy Feenstra (R-IA) announced his introduction of the Death Tax Repeal Act of 2023 in the House. The legislation would permanently repeal the estate tax, commonly known as the “death tax,” a tax that is imposed on an individual’s property owned at the time of his or her death. For taxpayers who pass away in 2024, the tax affects estates with a date-of-death value of over $13,610,000, with marginal tax rates on taxable estates of up to 40%. Advocates for the estate tax contend that the exemption amount is excessive, as the Institute of Taxation and Economic Policy noted in a study from December 2023, which found that the estate tax only applied to 0.08% of American taxpayers in 2019. Feenstra argued that the estate tax is a significant instance of double taxation, disproportionately affects generationally owned businesses and farms, and is levied at an inappropriate time while families and heirs are grieving. He also stressed that repealing the tax would “ensure that hardworking families, farmers, and small businesses keep more of their hard-earned money, and strengthen family-owned-and-operated enterprises ….”
The bill was introduced with 162 co-sponsors, including by House Ways and Means Committee Chair Jason Smith (R-MO). The companion bill in the Senate (S. 1108) was introduced in March 2023 by Sen. John Thune (R-SD).
Senators Scrutinize ERTC Advertising Promotion Schemes. Led by Sen. Catherine Cortez Masto (D-NV) and Senate Finance Committee Chair Ron Wyden (D-OR), nine members of the Senate Democratic Caucus wrote a letter to Federal Trade Commission (FTC) Chair Lina Khan and Commissioners Rebecca Slaughter and Alvaro Bedoya on Jan. 18, requesting the agency to investigate suspected deceptive advertising practices promoting the Employee Retention Tax Credit (ERTC) that led to rampant fraud and abuse. The letter cites recent Internal Revenue Service (IRS) action, such as the moratorium imposed on the filing of amended returns claiming the ERTC and almost 1 million claims yet to process, as reasons to investigate marketers who advised clients to retroactively claim the ERTC through an amended return, despite potentially not being eligible. The letter states that “it is incumbent upon the FTC to prevent the very practices taking place that are causing Americans to place themselves unknowingly in trouble,” and urges the FTC to collaborate with the IRS to identify offenders and punish wrongdoers for violating deceptive practices laws and misleading claimants.
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IRS Delays Guidance of CAMT and Stock Buyback Excise Tax. Speaking at a New York State Bar Association meeting on Jan. 16, Treasury Deputy Tax Legislative Counsel Brett York said that final rules implementing the Corporate Alternative Minimum Tax (CAMT) are “not imminent in a private sector sense” and that the Treasury Department cannot provide “specific time frames” as to when guidelines will be issued. Regarding the stock buyback excise tax, Internal Revenue Service (IRS) Associate Chief Counsel Peter Blessing said that guidance will come out “in the next few months.” Both taxes were enacted in 2022 as part of the Inflation Reduction Act (IRA, Pub. L. 117-169).
The CAMT requires corporations averaging at least $1 billion in annual adjusted financial statement income to pay a minimum of 15% tax. Guidance on the CAMT is expected to address tax treatment with foreign-parented groups, mark-to-market gains, and partnership income. To date, the IRS has provided limited interim guidance on the CAMT, most recently in a Dec. 15, 2023, notice regarding the determination of AFSI by U.S. shareholders that receive dividends from controlled foreign corporations.
The stock buyback excise tax requires companies to pay a 1% tax on stock repurchases. Guidance on the buyback tax is expected to provide details for the annual reporting and payment of the tax. Prior IRS guidance indicated that the tax will be reported on Form 720 and that both reporting and payment of the tax would be due the first fall quarter after the close of the taxpayer’s tax year, without extension. However, the guidance suspended the reporting and payment of the excise tax until regulations are issued. The proposed rules are also expected to revise the “funding rule” that was proposed in the interim guidance and criticized as overly broad in its effort to prevent avoidance of the excise tax through certain foreign financing subsidiaries.
Treasury Department Issues Guidance on Section 30C Alternative Fuel Refueling Property Credit. On Jan. 18, the Treasury Department and Internal Revenue Service (IRS) released Notice 2024-20, concerning the Qualified Alternative Fuel Vehicle Refueling Property Credit under Section 30C, which was expanded as part of the Inflation Reduction Act (Pub. L. 117-169). The notice provides clarity on “eligible census tracts” through which projects would qualify for the credit. For non-depreciable property, the credit amount is 30% of the cost of the qualified property placed in service during the tax year, limited at $1,000. For depreciable property, the credit amount is 6% of the cost of the qualified property, but increased to 30% if applicable prevailing-wage and apprenticeship requirements are satisfied.
The press release accompanying the notice includes frequently asked questions about the credit, and contains two appendices listing all eligible census tracts in which the credit is available. The Department of Energy, in partnership with Argonne National Laboratory, has also released a mapping tool “intended to reflect all eligible locations for the 30C credit,” although it notes that the map does not constitute formal IRS guidance, and interested parties should fully confirm whether a certain census tract is eligible under the IRS guidance.
Treasury Department Announces That Taxpayers May Delay Crypto Reporting Transactions. On Jan. 19, the Treasury Department and the Internal Revenue Service (IRS) announced that taxpayers will not have to report the receipt of digital assets in the same way that they must report cash receipts, and that taxpayers should wait until regulations are issued.
As part of the Infrastructure Investment and Jobs Act (IIJA, Pub. L. 117-58), taxpayers who received more than $10,000 in compensation in the form of digital assets as part of a trade or business they are engaged in must report it, as the legislation considered digital assets to be equivalent to cash. In the announcement, the agencies provided transitional guidance, and noted that taxpayers submitting 2023 tax returns will not yet have to report digital asset receipts when determining whether cash received in a transaction meets the $10,000 reporting threshold. The announcement did not provide a timeline or indication as to when regulations are expected to be issued.
At a Glance
Treasury Department Assistant Secretary Lily Batchelder Announces Departure. On Jan. 19, it was reported that Treasury Department Assistant Secretary for Tax Policy Lily Batchelder would leave the department at the end of February. Batchelder has been serving in the position since September 2021, where she oversees negotiations between the Treasury Department and the Organisation for Economic Co-Operation and Development (OECD) in the two-pillar global tax regime. She is also in charge of the implementation of the CHIPS and Science Act and the Inflation Reduction Act. After her stint at the Treasury Department, she will return to New York University as a professor at the NYU School of Law.
IRS Finalizes Regulations on Pension Plan Value Requirements. On Jan. 18, the Internal Revenue Service (IRS) issued final regulations on minimum present value requirements applicable to certain defined benefit pension plans. The regulations provide guidance on amendments to the Pension Protection Act of 2006, and will affect participants, beneficiaries, sponsors and administers of applicable pension plans.
IRS Names 12 New Members to Advisory Council. On Jan. 17, the Internal Revenue Service (IRS) announced that the agency would appoint 12 new members to the Internal Revenue Service Advisory Council (IRSAC). IRSAC is a public forum for IRS officials and representatives to discuss tax administration issues and is tasked with writing and publishing an annual report in November. The new IRSAC members are Robert Barr, Andrew Bloom, Elizabeth Boonin, Beatriz Castaneda, Steven Grieb, Lawrence Sannicandro, Peter Smith, Cory Steinmetz, Hussein Tarrad, Lucinda Weigel, Thomas Wheadon and Nicholas Yannaci. Annette Nellen will serve as IRSAC chair for 2024.
Hearings and Events
House Ways and Means Committee
The House Ways and Means Committee has no hearings scheduled for this week.
Senate Finance Committee
The Senate Finance Committee has no hearings scheduled for this week.
Other
On Jan. 24, the Brookings Institution, a thinktank, will hold a briefing titled “SECURE 2.0 after one year and the future of retirement policy.”
On Jan. 25, the Center for American Progress, a thinktank, will hold a briefing titled “How Cities Can Take Advantage of Direct Pay."