Tax News & Views Lobbyists at the Starting Line Roundup

December 3, 2021

Business Roundtable Q4 CEO Economic Outlook Index: U.S. Businesses Expect Strong First Half of 2022, See Risks from New COVID Variants, Tax Increases – Business Roundtable:

‘As the economy reverts to a normal cadence, sound economic policy can help sustain strong growth over the long term,’ said Business Roundtable President & CEO Joshua Bolten. ‘The recent bipartisan Infrastructure Investment and Jobs Act, which directs much-needed resources to upgrade our nation’s physical infrastructure and broadband connectivity, is an important investment in the long-term health of the economy.’ 

Bolten continued: ‘Tax increases on employers would create headwinds for business investment and innovation and impose economic risk at a time when American families are already experiencing the impact of rising inflation. We urge Congress to reject harmful tax increases like those included in the House-passed Build Back Better Act, which would be a shift in the wrong direction for our economy, American businesses and workers.’ 


SALT-Cap Negotiations Falter, Dimming Hopes for a Deal This Week – Kaustuv Basu and Laura Davison, Bloomberg ($). “Senate Democrats negotiating an expansion of the state and local tax deduction aren’t near a deal, raising the prospect that talks will spill into next week -- and potentially next year. Democrats have been divided over how generous to make the tax break, which benefits people in high-tax areas like New York and New Jersey, in President Joe Biden’s tax and spending plan.”

Senator Bob Menendez of New Jersey is pushing for the largest tax break possible without adding to the deficit, while others, including Senator Bernie Sanders of Vermont and Michael Bennet of Colorado say the benefits should be modest so that wealthy households don’t receive a tax cut…

The SALT deduction is one of the most contentious parts of Biden’s economic agenda. A deal on the tax break isn’t likely until the Senate is nearing a vote on the legislation, Senator Mark Warner, a Virginia Democrat also involved in the talks, said.

GOP ramps up attacks on SALT deduction provision – Naomi Jagoda, The Hill. “Republicans are ramping up attacks on a key tax provision under discussion for President Biden’s social spending package, even as Democrats have yet to reach a consensus among themselves on the issue. Democrats from high-tax states such as New York and New Jersey want the spending package to undo the $10,000 cap on the state and local tax (SALT) deduction. But some progressives and some moderate Democrats are concerned that rolling back the cap would benefit wealthy Americans.”

Republicans, who created the cap in their 2017 tax law, are highlighting the potential impact of a roll-back for high-income households in an effort to prevent the SALT deduction cap from being changed in the social spending bill. Republicans also hope to use the SALT deduction issue against Democrats in the midterm elections.

‘This is something that will bring down their Build Back Better [Act], because it was really a blue-state billionaire bailout,’ Sen. Chuck Grassley (R-Iowa) said at a news conference on Wednesday.


Basis and Earnings Rules in Budget Bill Seen as ‘Tracing Nightmare’ – Chandra Wallace, Tax Notes ($). “The House-passed tax overhaul plan could require corporations to track earnings and profits in ways that analysts warn have never before been necessary and may require a reversal of 100 years of tax law. A proposal in the Build Back Better Act (H.R. 5376) would, in practical application, require E&P to be traced on a per-share basis over the history of stock shares, according to tax professionals at a December 2 Practising Law Institute conference — a daunting prospect given that it would require historical records that may not have been retained because they are not required under current law.”

The new proposed section 1059(g) would create a per se rule that dividends from controlled foreign corporations not already subjected to U.S. tax must be treated as ‘extraordinary dividends.’ That treatment would in turn require the shareholder receiving the extraordinary dividend to reduce its basis in its shares. Under prior law, such a dividend would not be ‘extraordinary’ if the shareholder had owned its shares for at least two years before the CFC dividend, but the new rule would apply regardless of how long the shares had been held.


Ways and Means Chair Neal Suggests Biden Plan May Drag Into 2022 - Colin Wilhelm, Bloomberg ($). “House Ways and Means Chair Richard Neal told reporters Wednesday that he is skeptical work on tax-and-spend legislation will be done by Christmas, the deadline Senate Majority Leader Chuck Schumer (D-N.Y.) set to pass the reconciliation package.”

Neal (D-Mass.) said lawmakers have a number of issues that need to be addressed first, including the debt limit, which he described as an ‘immediate fuse that needs to be extinguished.’ The Treasury Department has warned that it could exhaust its ability to cover the federal government’s debt obligations as soon as Dec. 15 if Congress doesn’t act, though the Congressional Budget Office this week suggested Treasury could buy some extra time by deferring a scheduled transfer to the Highway Trust Fund.

‘It’s desirable to get it done’ before the end of the year, Neal said of the reconciliation package. ‘But there’s a series of issues that have to be completed in the next couple weeks, so we should be addressing those pretty forcefully.’

Sinema tells colleagues BBB won’t pass until after Christmas – Punchbowl News ($):

News: Sen. Kyrsten Sinema (D-Ariz.) has been privately telling colleagues she doesn’t believe the Build Back Better Act will pass until after Christmas, according to multiple sources who have spoken to her.

This isn’t Sinema’srequest or hope, but rather her prediction, the sources told us of Sinema’s remarks. The Arizona Democrat’s office declined to comment.

Important to note: No Senate Republican is expected to support this bill. If one Senate Democrat opposes its passage, the legislation will not pass the Senate. Sinema’s belief that the bill won’t pass until after Christmas could be a self-fulfilling prophesy if a vote occurs before the holiday and she’s a “no” on passage. 

More from the article:

Sinema and Sen. Joe Manchin (D-W.Va.) are the two most critical Democratic votes on the BBB. Manchin is publicly saying he thinks a vote may have to wait until 2022. Now Sinema is privately echoing the same message to her Senate colleagues. This puts pressure on Senate Majority Leader Chuck Schumer, who has repeatedly said the chamber can finish work on the legislation in just a few weeks. 

Sinema ducked a question on BBB timing during a CNN interview on Thursday. The first-term senator also wouldn’t commit to voting for the package, which is the linchpin of President Joe Biden’slegislative agenda.


How Tax Compliance Must Evolve in a Transformed Business Culture - Isaac Saft, Bloomberg ($). “COVID-19 has completely changed the game for business—and no matter how much many industries may want things to go back to the way they were, current business trends don’t show that as being likely.”

Just in the last few weeks, reports have come about top companies such as Amazon and PwC embracing a permanent work from home/anywhere policy, joining the likes of Microsoft, Twitter, Spotify, and many others. Remote work is here to stay—and just as the pandemic accelerated this practice, a permanently distributed workforce will hasten other disruptive trends.

Now is the time for businesses to adapt to these new realities and lead the charge on revised strategies, lest they risk falling off the board entirely.


Senate Clears Stopgap Government Spending, Averting Shutdown – Erik Wasson and Laura Litvan, Bloomberg ($). “The Senate on Thursday night passed a stopgap spending bill to avert a U.S. government shutdown, sending the measure to President Joe Biden for his signature. The bipartisan 69-28 vote came hours after House passage of the legislation on a largely party-line basis.”

The Senate vote followed day-long negotiations between Senate leaders and a group of conservative Republicans who demanded consideration of an amendment that would block Biden’s Covid-19 vaccine mandates. In exchange, they agreed to not throw up procedural obstacles for the spending bill, which threatened to trigger a partial closing of the government after midnight Friday.

That amendment failed, 48-50, and the Senate moved quickly to passage of the temporary government funding.

The House of Representatives passed this bill before the Senate. Keeping the federal government running is the most basic task for lawmakers. And yet it makes news. This "achievement" is tantamount to local business owners making front page news by paying their bills. 


Crypto’s Wild Swings Are Accountants’ Nightmares (Podcast) - Nicola White, Bloomberg ($):

We’re now at the stage where companies, not just individuals, are investing in cryptocurrencies. But that means that accountants have to find a way to quantify crypto’s famously volatile price swings on their company’s financial statements.

There is no specific reference to crypto in U.S. financial accounting rules. But many investors, crypto fans, and even companies themselves want accounting rulemakers to change this—and there are signs the accounting standard-setters may be listening.


Senate Republicans Press IRS to Identify Source of Tax Data Leak - Kaustuv Basu, Bloomberg ($). “Senate Finance Republicans are increasing pressure on the IRS to probe the leak of private tax information of some of America’s wealthiest individuals.”

Finance ranking member Mike Crapo (R-Idaho) and 13 of his Republican colleagues, in a letter to IRS Commissioner Chuck Rettig, said it is troubling that the IRS hasn’t been able to identify the source of the leak in the nearly six months since ProPublica began publishing articles based on the information.

In the letter, released Thursday, the lawmakers asked Rettig to answer a series of questions by Dec. 15. those questions include whether the agency has been able to find out of there was a data breach, how many employees are investigating the issue, and what progress has been made in carrying out recommendations made by the Government Accountability Office to improve security around taxpayer data.


Form 941 Instructions to Be Further Revised, IRS Says - Jamie Rathjen, Bloomberg ($). "Form 941’s instructions, but not the form itself, are to be further revised to reflect the employee retention credit’s rescission for the fourth quarter of 2021, an Internal Revenue Service official said Dec. 2. The lines on Form 941, Employer’s Quarterly Federal Tax Return, to claim the leave-related Covid-19 credits and the COBRA premium assistance credit are also to remain on the form, as some employers may be able to claim the credits in the first quarter of 2022, the official said during the IRS’s monthly payroll-industry teleconference."

The Infrastructure Investment and Jobs Act (Pub. L. 117-58), which was signed Nov. 15 by President Joe Biden (D), retroactively ended the employee retention credit after the third quarter of 2021 for employers that are not recovery startup businesses. The revisions to the instructions would clarify that the credit only applies to recovery startup businesses, the official said.


IRS to allow electronic signatures on certain documents through October 2023 – Renu Zaretsky, Tax Policy Center’s Daily Deduction:  

The agency will continue to permit e-signatures on certain tax forms through October 31, 2023. The decision extends a policy it began last April so filers wouldn’t need to visit tax practitioners’ offices during the pandemic. Most of the allowable forms are for business or for relatively unusual individual income tax situations. Of course, the IRS has allowed e-filing of the Form 1040 for years.  

The IRS document is here.


Proposed Regs Address Minimum Essential Coverage – Tax Notes ($):

The IRS has issued proposed regulations (REG-109128-21) providing that minimum essential coverage, for purposes of health insurance-related tax laws, does not include Medicaid coverage that is limited to COVID-19 testing and diagnostic services provided under the Families First Coronavirus Response Act.

The regs can be found here.


La. Shelves Worker Misclassification Tax Amnesty Program – Paul Williams, Law360 ($). “Louisiana delayed the rollout of a tax amnesty program for businesses that voluntarily report that they improperly classified their workers as independent contractors rather than employees, citing a warning from the federal government that the program would violate federal law.”

The state Department of Revenue issued a notice Wednesday saying that certain provisions of the Fresh Start Program, which was enacted in legislation this year and slated to begin Jan 1, has been shelved after the Louisiana Workforce Commission adopted an emergency rule on Nov. 8 to delay the program. The program would allow employers that self-reported misclassifications and agreed to property classify workers prospectively not to be held liable for any withholding tax, unemployment tax, interest or penalties for prior periods.


San Francisco’s Board of Supervisors unanimously approves suspending citywide cannabis tax – Adoubou Traore, Bay City News Service. “The San Francisco Board of Supervisors on Tuesday unanimously approved an ordinance to suspend the city's Cannabis Business Tax through the end of next year, in an attempt to curb illegal marijuana sales.”

According to Supervisor Rafael Mandelman, suspending the city business tax through the end of 2022 would help support legal cannabis retailers. He argued that dispensaries struggle to compete with illegal cannabis sellers, who pay no taxes. He said that the legislation will help create better working conditions for cannabis workers, as well as improve the quality of the cannabis on the market.


Texas Sees Boost In Oil And Gas Tax Revenue – Asha Glover, Law360 ($). “Texas natural gas production tax revenue totaled $291 million in November, a 282% increase compared with November 2020, the Texas comptroller said.”

Comptroller Glenn Hegar said in a statement Wednesday that revenue from Texas oil production tax amounted to $480 million last month, marking a 141% increase from the previous November. Increased drilling drove higher collections from the oil and gas mining sector, the comptroller said.

According to the statement, collections from other major taxes increased significantly compared with the previous year. Hegar said that total sales tax revenue increased by nearly 20% compared with November 2020, and revenue for the three months ending in November 2021 was up by 22% compared with the same period a year ago. Sales tax is the state's largest source of funding, according to the statement.


Government Win on Foreign Account Penalties Sets Up SCOTUS Case - Aysha Bagchi, Bloomberg ($). “The federal government’s broad winning streak over foreign bank account reporting requirements continued this week, but an appeals court split has emerged that could soon attract the Supreme Court’s attention.”

The U.S. Court of Appeals for the Fifth Circuit ruled Tuesday in favor of the government, finding that penalties for non-willful failures to report foreign bank accounts apply to each unreported account—not to each year in which accounts aren’t reported. That differs from a March ruling by the U.S. Court of Appeals for the Ninth Circuit, and also from how the Fourth Circuit suggested in 2020 that it would rule on the issue.


Global Minimum Tax Legislation Agreed, But Not Out, OECD Says - Isabel Gottlieb, Bloomberg ($). “Officials missed a Nov. 30 deadline to release model legislation for a new global minimum tax, though the rules have been agreed on by government delegates, the OECD’s top tax official said.”

Nearly 140 countries have signed an October agreement on a 15% global minimum tax rate for corporations and the reallocation of a portion of the largest multinationals’ profits to more countries. Now governments are working to implement the plans—starting with model rules for the minimum tax, known as Pillar Two. The October agreement said the rules would be out by the end of November, but they had not been released at the time of publication for this article.


CFC Election for Dividends Deduction May Be Difficult in Practice – Andrew Velarde, Tax Notes ($). “A provision of the House’s Build Back Better Act meant to soften the blow of a new requirement limiting the dividends received deduction (DRD) to controlled foreign corporations could cause difficulties for taxpayers in practice.”

The Build Back Better Act (H.R. 5376), which passed the House on November 19, would amend IRC section 245A so that the 100 percent DRD no longer applies to specified 10-percent-owned foreign corporations. Before the Tax Cuts and Jobs Act, dividends from noncontrolled foreign subsidiaries were not deductible, but a section 902 deemed paid foreign tax credit was available. Section 902 would remain repealed under the new act.

‘The result would be a fully taxable dividend to the U.S. shareholder,’ Aaron Junge of PwC said on a December 2 webcast sponsored by the District of Columbia Bar Taxation Community. ‘For the first time in over 70 years, [there is] no mechanism to mitigate double taxation on those earnings. . . . They were already subject to some foreign taxation at the foreign corporation level, and now they are subject to U.S. tax at the shareholder level.’


Wide-Reaching Final FTC Regulations Reach OIRA – Michael Smith, Tax Notes ($). “The U.S. Treasury Department soon will release more guidance on foreign tax credits, with final regulations now pending review at the Office of Management and Budget's Office of Information and Regulatory Affairs.”

According to OIRA’s website, the final regs were received for review November 29. The new rules, which follow up on proposed regs (REG-101657-20) released in November 2020, are deemed economically significant, a designation for rules expected to have an annual non-revenue effect on the economy of $100 million or more.

The proposed regulations include a major jurisdictional nexus change that could affect digital services taxes as well as taxes imposed under pillar 1, and experts have argued that it was a response to unilateral DSTs and OECD developments. But the IRS has asserted that the nexus rule was drafted with more than DSTs in mind.


Comparing Europe’s Tax Systems: Consumption Taxes – Daniel Bunn, Tax Foundation:

According to our Index, Switzerland has the best-structured consumption tax among OECD countries. At a rate of 7.7 percent, Switzerland levies the lowest VAT rate of all European OECD countries. (The United States has the lowest sales tax rate in the OECD at an average of 7.4 percent.) The Swiss VAT is levied on 70 percent of final consumption, making it the OECD country with the fifth broadest consumption tax base. Switzerland’s VAT is the easiest to comply with among OECD countries, requiring on average only eight hours a year in compliance time.


Happy National Bartender Day! As a former bartender, I can say that it is one of the most stressful jobs I ever had. The calls to make drinks can become so daunting that a person freezes-up. There’s a term for this: ‘In the weeds.’ It means that the number of immediate chores is too numerous to know what to work on first. After bartending I had a job pricing mutual funds, which for some was stressful. For me, pricing the funds (an extremely time-sensitive task) was a walk in the park because I learned how to handle on-the-job stress while bartending. Bottom line: Tip your bartenders and wait staff! Them jobs ain't easy!

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