Legislative Lowdown
House Tax-Writing Committee Advances GOP Economic Bills. The House Ways and Means Committee approved a trio of Republican tax bills along party lines during a markup last week. The economic-growth package, which is comprised of the Tax Cuts for Working Families Act (H.R. 3936), the Small Business Jobs Act (H.R. 3937) and the Build It in America Act (H.R. 3938), incorporates several tax proposals that were previously offered by Republican committee members as standalone bills earlier this year. For Brownstein’s full summary of the tax package, click here.
Democratic lawmakers offered several amendments to the bills throughout the markup, but none were adopted due to unanimous rejection from the Republican majority. Several Democrats targeted the proposed repeal of several green-energy tax credits; Reps. Dan Kildee (D-MI) and Earl Blumenauer (D-OR) offered amendments to maintain the current clean-vehicle and electricity tax credits. Rep. Lloyd Doggett (D-TX) proposed adding a provision that would apply the global intangible low-taxed income (GILTI) regime on a “country-by-country” basis instead of its current global-aggregate approach.
Committee members also debated the merits of proposals to raise the current $10,000 state and local tax (SALT) deduction limit. Rep. Bill Pascrell (D-NJ) offered an amendment that would increase the SALT cap to an inflation-adjusted $60,000 ($120,000 for joint filers) for tax years 2023 through 2032. Although Reps. Nicole Malliotakis (R-NY) and Claudia Tenney (R-NY) noted their support for SALT reform, they sided with the other Republican committee members in rejecting the proposal.
After the markup, several off-committee Republican lawmakers, including Reps. Mike Garcia (R-CA) and Nick LaLota (R-NY), signaled they may not support the bills on the House floor due to the absence of SALT relief. Rep. LaLota said he is pushing other members of the GOP conference to insist on the inclusion of a SALT amendment to the tax package before it receives floor consideration.
Notwithstanding disapproval from some SALT advocates, the House is expected to pass the unamended package in the coming weeks. While the partisan bills are unlikely to receive consideration in the Democratic-controlled Senate, the individual proposals included in the legislation lay the groundwork for the development of future bipartisan tax legislation in the 118th Congress. During the markup, Ranking Member Richard Neal (D-MA) noted that Democrats “stand ready to negotiate some of [the tax] proposals” offered in the bills.
Wyden Expands Investigation into PGA’s Tax Status. Senate Finance Committee Chairman Ron Wyden (D-OR) issued a letter to the leadership of the PGA Tour on June 15 requesting information on the organization’s reported merger with LIV Golf. Chairman Wyden claimed that the agreement with the Kingdom of Saudi Arabia’s Public Investment Fund (PIF), which funds LIV Golf, may affect the PGA’s tax structure and have “implications for data privacy, national security and censorship.”
The letter references the PGA Tour’s current section 501(c)(6) status, with Chairman Wyden alleging that the PGA’s recent executive-compensation agreements raise “broader questions about the appropriateness of the continued tax exemption” afforded to the organization. Chairman Wyden also announced the commencement of a new “wide-ranging investigation” into the details of the merger agreement to determine whether the exemption provided to U.S. sports leagues will apply to the joint PGA-LIV entity.
Last week, Rep. John Garamendi (D-CA) introduced legislation to strip professional sports leagues, including the PGA Tour, of their tax-exempt status. Likewise, Rep. Mike Thompson (D-CA) offered an amendment during the House Ways and Means Committee markup last week that would have rescinded the applicability of the section 501(c)(6) tax exemption for professional sports leagues with more than $1 billion in annual gross receipts; the amendment was not adopted.
In conjunction with the PGA investigation, Chairman Wyden’s letter announced his planned introduction of legislation that would revoke the use of the section 892 tax exemption for PIF. The provision currently exempts most foreign governments and their sovereign wealth funds from U.S. taxes on certain types of U.S. source passive income, including stocks and bonds.
To end the letter, Chairman Wyden posed several questions to the PGA Tour executives, including a request for more information regarding current financial agreements between the PGA Tour and external entities, including PIF and LIV Golf. The letter also solicits a “detailed description” of the structure of the new joint organization and the expected role of its announced chairman, Yasir Al Rumayyan, who is currently governor of PIF. Chairman Wyden requested an answer to his questions by June 23.
Energy Boost
Guidance Package on Monetizing IRA Tax Credits. The Treasury Department and Internal Revenue Service (IRS) on June 14 released a package of guidance to implement new options for taxpayers to monetize energy credits enacted as part of the Inflation Reduction Act (IRA, Pub. L. 117-169), including:
- Temporary regulation (T.D. 9975) outlining the mandatory information and registration requirements for taxpayers that elect to receive direct payments of energy credits or to transfer such credits.
- Proposed regulations under section 6417 providing rules for the direct-payment election.
- Proposed regulations under section 6418 governing the transfer of applicable credits.
- Frequently Asked Questions (FAQs) covering the new rules for applicable entities that earn clean-energy credits and choose to monetize the credits.
The temporary regulations require applicable entities intending to claim clean-energy credits as direct payments or transfer them to an unrelated third party to complete a “pre-filing registration” before the election can be made. Pre-filing registration does not automatically ensure credit eligibility, and applicable entities must still establish that they meet specified requirements on their tax returns before the payment or transfer occurs.
The pre-filing registration will occur through a new IRS electronic portal expected to be available in the fall of this year. The applicant must complete the online registration form specifying each credit for which it intends to make an election, as well as provide certain details concerning the energy project that generates the credit. Subsequently, the IRS will review the information and issue a registration number for each credit property for which the applicable entity provided sufficient verifiable information. The registration numbers must be included on the applicable entity’s tax return when claiming a direct-payment or transfer election.
The temporary regulations have a projected effective date of Aug. 21 (60 days after their publication in the Federal Register). The proposed regulations apply to taxable years ending after the date the final regulations are adopted, although taxpayers may rely on the proposed rules for direct payment of applicable IRA credits after Dec. 31, 2022, in taxable years ending before the final rules are adopted.
The regulatory guidance is open to public feedback, with comments due on the two proposed regulations by Aug. 14 and comments on the temporary regulations due on Aug. 21.
Guidance Released on Energy-Community Bonus Credit. The Treasury Department and IRS released additional guidance on June 15 regarding the energy-community bonus credit enacted as part of the IRA. Notice 2023-45 clarifies and supplements Notice 2023-29, issued on April 4, which provides interim rules for identifying qualifying areas for the bonus credit as well as clarifications regarding timing and location requirements for the increased credit amounts available to facilities and clean-energy projects located in an energy community. The notices, along with the accompanying Frequently Asked Questions, are expected to be reflected in forthcoming proposed regulations implementing the new bonus credit.
For the production tax credit (PTC) and investment tax credit (ITC) under sections 45 and 48, respectively (as well as the technology-neutral credits under sections 45Y and 48E), the IRA provides a bonus credit of up to 10% (stackable on top of the PTC and ITC) applicable to projects located in qualifying areas.
The Department of Energy has developed an energy-communities mapping tool that reflects the energy communities qualifying for the bonus credit under both notices. The mapping tool allows taxpayers to input the specific geographic locations of prospective projects to determine if the area satisfies the energy-community criteria.
1111 Constitution Avenue
Treasury Reaches Agreement with the White House to Expedite Tax-Regulation Process. The Treasury Department and Office of Information and Regulatory Affairs (OIRA) signed a memorandum of agreement (MOU) excepting tax-regulatory actions from the White House’s centralized review process. The agreement rescinds a 2018 MOU that began requiring OIRA to review all significant Treasury Department regulations to ensure the agency did not overstep its authority in implementing the Tax Cuts and Jobs Act (Pub. L. 115-97).
The Biden administration MOU is expected to hasten the promulgation of new tax regulations significantly, circumventing the previous roadblock of OIRA approval. The action will have immediate consequences for the ongoing rulemaking process concerning the clean-energy and corporate-tax provisions of the Inflation Reduction Act (IRA, Pub. L. 117-169). In the coming months, the Treasury Department and Internal Revenue Service (IRS) will continue to address outstanding questions regarding the new IRA tax provisions, albeit now with significantly reduced White House oversight.
Critics of the MOU note that the agreement removes an essential check against the Treasury Department’s unilateral rulemaking authority. The removal of OIRA review also eliminates a key metric previously available for stakeholders tracking the development of specific tax regulations. The MOU, dated June 9, took effect immediately.
At a Glance
Senate Democrats Increase Efforts to Expand CTC. Last week, the Senate Finance Committee held a hearing to discuss potential tax reform to assist children and families. The hearing came alongside the reintroduction of The Working Families Tax Relief Act (S.1992) by Sen. Sherrod Brown (D-OH). The bill would increase the child tax credit (CTC) to $3,000 per child for taxpayers with children less than 17 years old, and it would increase the credit by an additional $600 for each child under age 6. Sen. Brown’s proposal would also reinstate the COVID-19-era monthly advanced CTC payment system and make the credit fully refundable. Beyond its expansion of the CTC, the bill would significantly increase the value of the earned income tax credit (EITC), especially for individuals without children. Some Republicans raised concerns regarding the proposal, including Sen. Thom Tillis (R-NC), who expressed skepticism over “declaring [previous CTC expansions] to be highly successful with only five months of data.”
Senate Expected to (Finally) Ratify Chile Tax Treaty in Coming Weeks. Senate Majority Leader Chuck Schumer (D-NY) filed cloture on a tax treaty between the United States and Chile last week, setting the stage for a possible Senate vote as early as today. The Senate Foreign Relations Committee voted 20-1 on June 1 to approve the measure to ratify the treaty. Since 2010, the treaty has been advanced by the Foreign Relations Committee on four occasions but never considered by the full Senate. The treaty is expected to increase investment by U.S. and Chilean companies by reducing applicable taxpayers’ withholding tax rates on dividends, interest and royalties.
Bernstein Confirmed as White House’s Top Economic Adviser. The Senate confirmed Jared Bernstein to become chairman of the White House Council of Economic Advisers (CEA) by a 50-49 vote last week. Senate Energy and Natural Resources Committee Chairman Joe Manchin (D-WV) sided with every voting Republican in opposition to the nomination, citing Bernstein’s perceived “willingness to disregard the need for all-of-the-above energy policies.” Throughout the nomination process, Senate Republicans attempted to characterize Bernstein as inexperienced and frequently noted his previous support for proposals to raise the estate, gift and generation-skipping transfer taxes as evidence for his partisan biases. Bernstein was formerly a member of the CEA and, before that, served on then Vice President Joe Biden’s staff as a senior economic adviser.
Brownstein Bookshelf
IRS Delays Implementation of CAMT Penalties. The IRS announced earlier this month that it would waive some penalties for taxpayers that do not pay estimated taxes associated with the 15% corporate alternative minimum tax (CAMT).
ACP Endorses Compromise Hydrogen Guardrails. The American Clean Power Association (ACP), a renewable-energy trade group, published a framework last week advocating for modified additionality, regionality and hourly-matching requirements for taxpayers claiming the hydrogen production tax credit.
Study Concludes Significant Yields for High-Income Audits. Researchers from the Treasury Department, Harvard University and the University of Sydney published a report estimating that each “additional $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue.”
House Tax Writers Introduce Methane-Capture Incentive Proposal. Reps. Carol Miller (R-WV) and Terri Sewell (D-AL), members of the House Ways and Means Committee, introduced legislation last week that would expand the section 45Q credit for carbon-oxide sequestration to incentivize the capture of mine methane.
Hearings and Events
House Ways and Means Committee
On Thursday, the full committee will hold a business meeting entitled “Documents Protected Under Internal Revenue Code Section 6103.”
House Budget Committee
On Thursday, the full committee will hold a hearing entitled “Reigniting American Growth and Prosperity Series: Incentivizing Economic Excellence Through Tax Policy.” The following witnesses will testify:
- Kevin Kuhlman, Vice President of Federal Government Relations, National Federation of Independent Business
- Will McBride, Vice President, Tax Foundation
- Kyle Pomerleau, Senior Fellow on Tax Policy, American Enterprise Institute
- Mark Mazur, Former Assistant Secretary for Tax Policy, Treasury Department
Senate Foreign Relations Committee
On Wednesday, the full committee will hold a markup on several pieces of legislation, including the Taiwan Tax Agreement Act of 2023 (S.1457).