Democrats Try to Unify Around Biden’s $1.75 Trillion Plan – Jonathan Curry, Tax Notes ($). “A new, slimmed-down version of President Biden’s Build Back Better plan ditches many of the tax provisions from his earlier proposal in favor of what the White House thinks can gain consensus among Democrats.”
‘I’m pleased to announce that after months of tough and thoughtful negotiations . . . we have a historic economic framework,’ Biden declared in October 28 remarks at the White House. The plan would not only be fully paid for, but would also reduce deficits over the long term, he insisted.
According to a White House release, the new framework was developed after “hearing input from all sides and negotiating in good faith” with Sens. Kyrsten Sinema, D-Ariz., and Joe Manchin III, D-W.Va., congressional leadership, “and a broad swath” of lawmakers, and the administration is confident that it can pass both houses of Congress.
House Democrats later released a rewrite of their Build Back Better Act through the House Rules Committee, trimmed by nearly 1,000 pages compared with the earlier iteration, in an effort to meet demands by progressive House members that they would vote for the separate infrastructure bill only if there was legislative text of the Build Back Better reconciliation bill available to review.
The fate of the Build Back Better bill and the Senate-passed infrastructure bill remain a mystery.
The House Rules Committee, which is charged with preparing legislation for a chamber vote, did not vote on the Build Back Better bill. It is unclear when that vote will occur or when the bill will advance to the House floor.
The House was supposed to vote on the Senate-pass infrastructure bill on Thursday. That vote did not happen and it is not clear when it will occur.
The legislative text to the Build Back Better bill (aka the budget reconciliation bill) is here.
The framework for the budget reconciliation bill released by the White House is here.
A section-by-section summary of the bill is here.
Caution: House Speaker Nancy Pelosi (D-Calif) told reporters on Thursday that the bill's contents could change.
House Puts Off Vote on Infrastructure Bill – Frederic Lee, Tax Notes ($):
The fate of the infrastructure bill — which cleared the Senate August 10 — has long been tied to the fate of the reconciliation bill, as progressives have insisted on linking the two. That means the infrastructure bill has languished in the House while negotiations over the reconciliation bill dragged on for months as Democratic leaders tried to appease moderate Sens. Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona.
Punchbowl News ($) has great intel on why there was not a vote on infrastructure.
But allow me to set the stage: President Biden met yesterday with House Democrats in what was supposed to be an effort to get them to support the infrastructure bill. Take it away Punchbowl:
Strangely, when Biden met with House Democrats Thursday, he didn’t ask them to vote for the bipartisan infrastructure bill, which Pelosi was trying to get to the floor.
Instead, the president urged rank-and-file lawmakers to back both the infrastructure bill and the framework for the Build Back Better Act, which the White House unveiled early that morning. Pelosi had to jump up and say they should vote for the infrastructure bill during Thursday’s caucus meeting. Progressives noticed Biden’s omission, and they later argued that Biden had given them the green light to say no on infrastructure until the reconciliation package is completely agreed upon and turned into legislative text, which may take weeks.
How Biden’s $2 Trillion in Tax Increases Target Companies and the Rich – Alan Rappeport, New York Times. “President Biden’s new plan to pay for his climate change and social policy package includes nearly $2 trillion in tax increases on corporations and the rich. But many of the more contentious and untested proposals that Democrats have been considering in recent weeks were left on the cutting-room floor.”
The latest proposal reflects the reality that moderate Democrats are unwilling to back certain ideas aimed at raising money, including taxing the unrealized capital gains of billionaires and giving the Internal Revenue Service more insight into the finances of taxpayers. Ultimately, the package of tax increases mostly turns up the dial on more conventional tax policies, while adding some new wrinkles to curb maneuvers that allow tax avoidance.
About those tax hikes – Renu Zaretsky, Daily Deduction (Tax Policy Center):
They include a surtax on AGI over $10 million, a 15 percent corporate minimum tax on book income, a 1 percent surtax on stock buybacks, and international tax changes that align with the agreement reached by member nations of the Organization for Economic Cooperation and Development.. It also calls for funding for IRS enforcement.
Yesterday's Roundup includes the tax details, which is here.
Legislative Text Released for Tax and Spending Bill – Jay Heflin, Eide Bailly:
The legislation includes $1.85 trillion in spending and tax relief, and roughly $2 trillion in tax increases and other increases, according to the budget think tank Committee for a Responsible Federal Budget.
The legislative text of the bill largely follows the 'framework' that the Biden Administration released this morning. However, Speaker Nancy Pelosi (D-Calif) said that the text could be changed as the legislation moves through Congress. (It has been suggested that relief from the SALT cap could be added.)
Short Child Tax Credit Extension Has Silver Lining for Advocates – Kaustuv Basu, Bloomberg ($). “Democrats on Thursday unveiled a simple one-year extension of the expanded child tax credit, rejecting work requirements and a more stringent income cap suggested by some in their caucus. The tax credit was temporarily expanded in March, offering a more generous credit for this year and monthly checks designed to help families make ends meet during the Covid-19 pandemic."
The tax-and-spend framework announced by President Joe Biden Thursday is shorter than the four-year extension House tax-writers approved in September, a step back for proponents who wanted to see the policy made permanent.
Biden Plan Pushes $1 Billion Biofuel Boost and ‘Green’ Jet Fuel – “President Joe Biden’s tax-and spending plan calls for a suite of measures aimed at boosting biofuels, including $1 billion in infrastructure investments and a tax credit to support growth of sustainable jet fuel. The $1.75 trillion package also calls for a four-year extension of the biodiesel tax credit set to expire at the end of 2022, according to text of the draft legislation based on the White House plan.”
Farmers and producers have long been wary of Biden’s stance on biofuels, particularly given the administration’s push to accelerate use of electric vehicles. The industry also is in the midst of a bitter clash with fossil fuel refiners over pending renewable fuel-blending rules expected to be unveiled this year. Advocates say wider biofuel use is crucial in the fight against global warming pollution.
Solar Tax Breaks Will Be Included in U.S. Budget Proposal – Maxwell Adler, Bloomberg ($). “A bill establishing tax credits for U.S. solar manufacturers will be included in the upcoming congressional budget proposal. The Solar Energy Manufacturing for America Act would provide tax credits for the production of solar energy technology in the U.S. and help the country meet the Biden administration’s goal of producing 40% of electricity with solar power by 2035.”
The tax credits would cover every facet of the manufacturing supply chain including the production of polysilicon, inverters, and fully assembled solar modules, and they would work in tandem with existing incentives for solar products.
Voices: Reconciliation bill likely to have a tax impact on energy-efficient buildings – Brian Coddington and Karen Koch, Accounting Today:
With perhaps the most comprehensive climate proposal ever to come out of Washington, a great deal of attention has been paid to public facilities and home weatherization. However, the bill may raise concern for those working in the buildings sector.
That being said, the Ways and Means Committee’s tax bill would modernize the outdated incentives for energy-efficiency improvements for homes and buildings, including more than doubling the incentive levels. The Section 179D incentive for energy-efficient buildings would jump from $1.80 per square foot for efficiency improvements to a sliding scale between $2.50 and $5. It would also implement a new framework for making the deduction more accessible for retrofits to existing buildings. Additionally, the Section 45L credit for energy-efficient new home construction would jump from $2,000 currently to $2,500 for meeting Energy Star requirements and $5,000 for net-zero-energy homes. By shifting to the Energy Star performance metric, it also would be much more attractive for multifamily projects.
Biden Framework Doesn’t Include Financial Data Reporting to IRS – Colin Wilhelm, Bloomberg ($). “A controversial policy to force banks, credit unions, and other financial institutions to send account data to the IRS isn’t part of the revamped tax-and-spend framework rolled out by the White House Thursday, according to an administration official.”
The Treasury Department argued the data would help better target efforts to combat tax evasion, but the plan raised privacy concerns among Republicans and some Democrats, including Sen. Joe Manchin (D-W.Va.) and over 20 House Democrats.
SALT-Break Increase Seen Likely After Omission in Biden Plan – Laura Davison and Erik Wasson, Bloomberg ($). “Democratic lawmakers expressed confidence that Congress will expand the federal deduction for state and local taxes as part of President Joe Biden’s social-spending package even though the proposal was omitted from a framework agreement announced Thursday.”
‘SALT will be in the endgame, yes,’ House Ways and Means Chairman Richard Neal told reporters after a House Democratic caucus meeting with Biden at the Capitol on Thursday. He said he’s ‘waiting to see’ if the SALT plan will resemble the latest idea of restoring the full deduction for two years, then returning to the current $10,000 limit for four years.
Democrats Consider Tax Cuts for Many High Earners in New York, New Jersey and California – Richard Rubin, Wall Street Journal ($). “High-income coastal professionals look likely to emerge as significant winners from the Democrats’ proposed tax agenda, escaping rate increases and regaining a deduction for state and local taxes that was capped at $10,000 in 2017. The potential result: Many residents of New York, New Jersey, California and other states who make more than the $400,000 threshold that President Biden set for tax increases could end up with tax cuts atop the tax cuts they got four years ago."
The details aren’t final yet, and lawmakers still need to vote on this as part of the Biden administration’s broader healthcare, education and climate-change agenda. The break wasn’t in the framework that the president released Thursday, but Democratic lawmakers said they expect changes to the cap to be added before a final vote.
Democrats haven’t settled on a plan, but one option would repeal the cap for 2022 and 2023 and reinstate it in 2026 and 2027. In those first two years, that repeal could outweigh all of the tax increases on high-income people, according to the Committee for a Responsible Federal Budget, which has criticized plans to remove the cap.
Partnerships Cry Foul on IRS Denial of Easement Deductions – Kristen Parillo, Tax Notes ($). “Three partnerships have filed Tax Court petitions contesting the IRS’s denial of conservation easement deductions totaling nearly $106 million. The filings in BroSis Properties LLC v. Commissioner, Cattail Holdings LLC v. Commissioner, and Rocky Branch Timberlands LLC v. Commissioner add to the growing inventory of Tax Court cases challenging the IRS’s hard-line stance on syndicated easement deals.”
BroSis Properties, filed August 26 and served on the IRS September 24, concerns the IRS’s denial of a $38.4 million deduction the partnership claimed on its 2017 tax return for donating an easement over 87.36 acres of land in Franklin County, Georgia, to Southern Conservation Trust Inc. An appraisal concluded that assisted living and senior housing would have produced the highest and best use of the property before the easement was granted.
Tax Pros Push Congress for Clarity on Retention Credit Sunset – Genevieve Douglas, Bloomberg ($). “Businesses need reassurance that they won’t be penalized for claiming a Covid-19 relief credit for keeping employees on payroll while Congress’ plans to sunset the program early remain in flux, a major accounting group said.”
The Senate-passed bipartisan infrastructure package (H.R. 3684) would terminate the employee retention credit as of Oct. 1, three months before its scheduled expiration. That early sunset date has passed and the legislation is still tied up in the House, creating confusion for taxpayers and their financial advisers, the American Institute of CPAs wrote in a letter to congressional tax-writing panels released Thursday.
States Mulling Income Tax Expansion Under Multistate Tax Pact – Michael Bologna, Bloomberg ($). “The Multistate Tax Commission is pushing states to expand the reach of their income tax regimes based on business taxpayers’ internet activities, but no state has adopted the intergovernmental body’s legal interpretation allowing such changes.”
Richard Cram, director of the MTC’s national nexus program, said Thursday the states are still studying the commission’s revised statement on Public Law 86-272, a federal statute that prohibits states from imposing income taxes on out-of-state businesses if their only activity within the state is soliciting sales of tangible property. The revised statement endorses a general rule holding that businesses interacting with customers via a website or an app engage in a business activity within the customer’s state, and could be subject to tax.
Florida Company to Pay $30,000 to Settle PPP Loan Allegations – Bloomberg ($):
Florida-based duct cleaning company Sextant Marine Consulting LLC agreed to pay $30,000 in damages and civil penalties to settle allegations that it obtained more than one Paycheck Protection Program loan in 2020, according to a Justice Department news release.
Congress created the Paycheck Protection Program in March 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act, also called the CARES Act, to provide emergency financial support to millions of Americans and small businesses suffering the economic effects caused by the Covid-19 pandemic.
Online Biz Tax Shield May Have New Weak Spots, Pros Say – Maria Koklanaris, Law360 ($). “An emerging concern over the Multistate Tax Commission's recently adopted guidance on whether internet business activities exceed federal protections against state income tax centers on whether the activities are truly taking place within the taxing state, tax professionals said Thursday.”
There are not as many questions about the activities themselves, said Jess Morgan, senior manager at EY. The activities presented in the MTC's updated statement on the Interstate Income Act, more commonly known as P.L. 86-272, seem mostly to adhere to the act's standard that the act, passed in 1959, insulates businesses from tax on net income when the soliciting of tangible personal property orders is their only connection to a state.
The more central question is whether that connection to the state truly exists for internet activities, Morgan said. She and fellow panelists spoke at a conference in Nashville, Tennessee, hosted by the Paul J. Hartman State and Local Tax Forum. The panel addressed nexus issues, including those presented by the MTC's updated statement advising states on how to deal with the act with respect to today's commerce, which is largely conducted over the internet.
Global Tax Pact Boosts State Interest In Combined Reporting – Maria Koklanaris, Law360 ($). “A recent agreement among countries to rewrite international corporate tax rules, along with tax overhauls in the U.S., has heightened already strong interest by states in combined reporting, tax professionals said Thursday.”
States are looking at the comprehensive overhaul of the international corporate tax system that was finalized Oct. 8 by 136 jurisdictions, which agreed to a global 15% minimum tax rate and rules that would rewrite how profits of large multinational businesses are allocated among jurisdictions, the professionals said. They spoke on a panel at a conference in Nashville, Tennessee, hosted by the Paul J. Hartman State and Local Tax Forum.
Biden Administration and House Appear to Be Uniting Behind BEAT – Andrew Velarde, Tax Notes ($). “In an apparent 180, the new Build Back Better framework endorses the base erosion and antiabuse tax while spurning the replacement the Biden administration had championed, seemingly bringing the administration more in line with Congress.”
Released October 28, the administration's new framework states that as part of its goal to stop profit shifting, it envisions a “Penalty Rate for Foreign Corporations Based in Non-Compliant Countries (i.e. Base Erosion and Anti-Abuse Tax).” The release came the same day as new legislative text from House Democrats also detailing the BEAT.
A House Democratic staffer familiar with the framework confirmed that the stopping harmful inversions and ending low-tax developments (SHIELD) proposal is no longer being contemplated by the administration, and changes to the BEAT are favored now instead.
Think Tank Says U.S. May Gain $67 Billion Under OECD Minimum Tax – Stephanie Soong Johnston, Tax Notes ($). “The United States could raise €57 billion ($67 billion) annually under the 15 percent minimum tax provisions of an OECD global tax reform overhaul, but substance-based carveouts may slash those gains, EU researchers said.”
In a note published October 27, the EU Tax Observatory, an independent think tank, estimated new revenue effects of pillar 2 of the two-pillar plan for modernizing the international corporate tax architecture.
Biden Tax Plan Meant to Align With OECD Global Minimum Tax Pact – Isabel Gottlieb and Michael Rapoport, Bloomberg ($). “The revamped White House tax and spending plan released Thursday attempts to bring U.S. taxes on foreign income into alignment with the recent global tax agreement.”
The draft legislation would raise the U.S. minimum tax on foreign income—known as global intangible low-taxed income (GILTI)—to 15%, the same as a global minimum tax rate that 136 countries agreed to earlier this month. Thursday’s bill also makes other changes that bring the U.S. tax more into line with the new global tax regime.
On the international tax provisions, the bill appears to take its cues from a September proposal by the House Ways and Means Committee that called for more modest changes than proposed by the administration and the Senate Finance Committee.
It’s Frankenstein Friday! Much like Taco Tuesday, only scarier. In preparation for the big event on the 31st, the last Friday in October is National Frankenstein Friday to recognize “author Mary Shelly, the novel Frankenstein, or the Modern Prometheus, her characters, Dr. Frankenstein and the monster. Dating back to the 1800s, Frankenstein’s monster is one of the best-known horror characters of all time,” according to National Day Calendar.
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