Tax News & Views Infrastructure Week (for real!) Roundup

August 2, 2021

Senate Poised to Deliver Infrastructure Win for Biden’s Agenda – Laura Litvan and Steven Dennis, Bloomberg ($). “The U.S. Senate is heading toward passage this week of a $550 billion infrastructure bill that would provide the biggest infusion of federal spending on public works in decades and mark a major milestone for President Joe Biden’s economic agenda.”

The Democratic and Republican senators who negotiated the plan spent the weekend haggling over last-minute details and combing through the 2,702-page bill text before submitting it to the full Senate Sunday night. Majority Leader Chuck Schumer said it would pass ‘in a matter of days.’

No income tax increases are in this legislation:

The bill will be paid for largely by the equivalent of raiding the federal budget couch cushions for cash. Democrats were unwilling to cut much spending elsewhere, while Republicans early on declared a “red line” against Biden’s plans to raise taxes on corporations and the wealthy. Biden in turn nixed early talk of raising the gas tax or imposing a tax on electric vehicles.

Offsets include such items as selling off billions of dollars worth of oil from the Strategic Petroleum Reserve starting in 2028, tapping assorted unspent Covid-19 relief accounts, extending some budget cuts from 2030 to 2031 and delaying a never-implemented prescription drug rebate rule under Medicare.

One item that has drawn fierce opposition in recent days would extend some tax reporting rules to cryptocurrency brokers -- a move the bipartisan group is counting on to raise tens of billions of dollars, but the specifics of which drew a rebuke Sunday from Senate Finance Chairman Ron Wyden.

While there are no income tax increases, there are revenue provisions that raise roughly $50 billion over the next ten years. The Joint Committee on Taxation identifies these revenue provisions here.

The text of the legislation can be found here - all 2,702 pages.

State of Play:

Later this week (possibly today), Senate Majority Leader Chuck Schumer (D-NY) will offer the above legislation as an amendment to  H.R. 3684, which is the infrastructure bill that passed by the House last month. By amending the bill, Schumer will essentially erase all of the provisions that are currently in H.R. 3684 and replace them with the text of the above legislation.

The bill could be further changed because Senators can amend it. Senate Minority Leader Mitch McConnell (R-Ky) expects a vigorous amendment process, according to a statement from his office: “Leader McConnell is looking toward a robust, open amendment process – not one cut short by artificial timelines.” 

Barring some unforeseen development, the legislation has a good chance of passing the Senate, which will require the support from at least ten Senate Republicans. A final vote on the legislation could be delayed as Senators will embark to Wyoming later this week to attend the funeral for Republican Sen. Mike Enzi.

The Senate's changes to the bill will likely not sit well with many House members, who must approve the new text of the legislation (and any amendments added to it) before it can be signed into law.

One House member not thrilled by what the Senate is doing is Rep. Peter DeFazio (D-Ore.), who chairs the House Transportation and Infrastructure Committee (i.e., he basically wrote H.R. 3684). He called the Senate effort to change the bill “crap,” according to reports.

Other House Democrats will not support the Senate infrastructure bill until it acts on the much larger budget resolution that will pave the way for legislation to increase taxes on corporations and wealthier individuals. 

From Bloomberg($):

Rep. Alexandria Ocasio-Cortez (D-N.Y.) said Sunday that a 'very large amount' of the House progressive caucus agreed that they will not support the bipartisan infrastructure bill unless the Senate acts on the reconciliation measure.

‘If there is not a reconciliation bill in the House, and if the Senate does not pass the reconciliation bill, we will uphold our end of the bargain and not pass the bipartisan bill until we get all of these investments in,’ she said on ‘State of the Union’ Sunday.

Infrastructure Bill Now Faces Restive House Progressives – Eliza Collins, Wall Street Journal ($). “As the Senate moves forward with a roughly $1 trillion bipartisan infrastructure package, progressive Democrats are warning party leaders not to take their votes for granted as they try to advance sweeping antipoverty and climate proposals.”

That legislation hasn’t been drafted beyond the top-line number and a list of items Democrats have said they would like to see included. Some Democrats in the Senate, where all 50 are needed for passage, have expressed concerns about the $3.5 trillion cost. In response, progressives in the House—already frustrated they have been left out of the bipartisan infrastructure negotiations—have warned against cuts to the plan and say their votes shouldn’t be taken for granted in the narrowly split House.

The House is not expected to vote on the Senate infrastructure bill until the Senate approves a budget that will allow for tax increases on corporations and wealthier individuals. The House is presently out of session and lawmakers are not expected to return to Washington until September 20th. And it remains to be seen if there even be a legislative package that increases taxes:

Manchin: No guarantee reconciliation package will pass – Kelsey Tamborrino, Politico. “Sen. Joe Manchin would not guarantee Sunday that a Democratic-led reconciliation package would garner the necessary votes for passage, even as he predicted the bipartisan infrastructure package would pass the Senate this week. ‘I can't really guarantee anybody,’ the moderate Democratic senator from West Virginia said on CNN. ‘And I have not guaranteed anybody on any of these pieces of legislation. Would we like to do more? Yes, you can do what you can pay for. This is paid for, our infrastructure bill is all paid for.’”

Manchin called for looking at the reconciliation package — which is expected to tackle social programs and ‘human’ infrastructure — through the same lens. ‘As far as reconciliation goes, it should be looked at the same,’ Manchin said. ‘That's why I said we're going to get the budget resolution. Let's start the process and then see where it goes.’

Translation: Sen. Manchin is advocating to offset the cost of a $3.5 trillion bill over ten years. If he gets his way, it is hard to imagine that Congress could pass that bill. 

Sen. Manchin is not the only congressional Democrat who is uneasy with passing legislation that spends $3.5 trillion and increases taxes:

House moderates may oppose budget without infrastructure vote – Lindsey McPherson, Roll Call. “Speaker Nancy Pelosi’s plan to link the Senate’s $550 billion bipartisan infrastructure plan to a $3.5 trillion budget reconciliation package is starting to backfire, as moderate Democrats warn they may not vote for a budget resolution needed to begin the reconciliation process unless it’s paired with a vote on the Senate bill.  Rep. Ed Case said in an interview Friday that he wouldn’t be able to vote for the budget resolution without Pelosi also committing to holding a vote on the bipartisan infrastructure bill. The Senate is planning to vote on both measures in the next week or two.”

‘I have many concerns with a proposed $3.5 trillion budget resolution,’ the Hawaii Democrat said. ‘Those are separate concerns from the linkage to the infrastructure bill. But for the purposes that we’re talking about here, I do not support the speaker’s insistence that this bill would not pass without the budget resolution, so I hope she changes her mind because I can’t — I don’t support the direction that she has taken.’  Case said he’s ‘not at all alone’ in his thinking, which interviews with other members confirmed. 

Crypto Investors Get Ready for More Taxes — but Clearer Rules - Ben Steverman, Claire Ballentine and Donald Moore, Bloomberg ($). “Sure, you might have to actually pay U.S. taxes on those crypto trades. But at least it will be easier to figure out how much you owe. A new push by Congress to require crypto brokers to report transactions to the Internal Revenue Service could create some unwelcome tax bills but could clarify rules for traders and users of Bitcoin and other digital tokens, potentially strengthening the system in the long run, people in the industry say.”

Sen. Ron Wyden (D-Ore.), chairman of the tax-writing Senate Finance Committee, is not a fan for how the crypto provision is written. From Twitter:

The Republican provision in the bipartisan infrastructure framework isn’t close to being that solution. It’s an attempt to apply brick and mortar rules to the internet and fails to understand how the technology works.


How to Evaluate the Biden Administration's Tax Compliance Plan – Fred Forman, Fred Goldberg, Charles Rossotti, Tax Notes ($). “Treasury recently proposed a comprehensive tax compliance plan under the administration’s American Families Plan that would include third-party reporting on summary inflows and outflows of financial accounts and long-term funding to rebuild the IRS’s technology and workforce. Treasury estimated that this proposal would produce a revenue gain of $778 billion over 10 years and an additional $1.3 trillion over the following 10 years.”

Some skepticism about the amount of revenue such a program would produce is understandable. And questions about how it would affect taxpayers, how it would be implemented, and how Congress could monitor its progress are reasonable and need to be answered. In due course, administration officials will undoubtedly be testifying before Congress about those issues.


How a Landlord Making $75,000 a Year Could End Up in the Millionaire Tax Bracket – Rachel Louise Ensign, Wall Street Journal ($). “Five brick apartment buildings in this horse-country town make up Paul Settle’s retirement nest egg. He purchased the complex 27 years ago and has spent almost every day since tidying the grounds, repairing garbage disposals and collecting rent checks. Mr. Settle, 64 years old, pays himself about $75,000 a year. The idea was always to one day sell and retire off the proceeds.”

“But now his plans are on hold. The Biden administration’s tax proposal would increase the capital-gains taxes Mr. Settle would pay on the sale of the apartments, which he expects to fetch over $2 million. Mr. Settle’s tax adviser estimates the changes could halve his after-tax proceeds to about $400,000 after paying off the mortgage.”

The Biden plan would increase the top capital-gains tax rate to 43.4% from 23.8% for those earning over $1 million. In any given year, only a sliver of taxpayers fall into this top bracket. Of taxpayers who filed Schedule D, the form for reporting capital gains and losses, only 2.7% had adjusted gross income of $1 million or more in 2018, according to a Tax Policy Center analysis of Internal Revenue Service data.

While many of the wealthiest people in the world are in this group, others more closely resemble Mr. Settle: They usually make less than $1 million, but capital gains from the sale of a property or business pushes them over that threshold for one year only. Under the Biden plan, with some exceptions, they would be taxed at the same top rate as Jeff Bezos if he were to sell stock.


Trump’s Tax Returns Can Be Released to Congress, DOJ Says – David Yaffe-Bellany and Laura Davison, Bloomberg ($). “The Justice Department directed the Treasury Department to hand over former President Donald Trump’s tax returns to Congress, a move that means six years of Trump’s personal and business financial information could become public.”

‘We conclude that the secretary must comply with the Ways and Means Committee’s June 16, 2021 request’ for the tax returns and related tax information, the department’s Office of Legal Counsel said in a 39-page opinion posted on its website Friday.

Trump is owed a $1 million tax refund for his Chicago skyscraper but local officials are trying to block it – Kelsey Vlamis, Yahoo News. “Former President Donald Trump is owed a tax refund of $1 million for his Chicago skyscraper, but local officials are trying to stop it from being issued. An Illinois tax agency ruled last month that Trump paid too much on his 2011 tax bill after the value of Trump International Hotel and Tower's rooms and retail space was over-assessed by the Cook County Board of Review, the Chicago Sun-Times reported.”

The ruling by the Illinois Property Tax Appeal Board means Trump is owed $1.03 million, which would come from property taxes due to the city and other government agencies. Chicago Public Schools would lose out on about $540,000, according to the Sun-Times.


N.Y. Won’t Revisit Penalties for CPAs’ Failure to E-File Returns – Donna Borak, Bloomberg ($). “New York’s Tax Appeals Tribunal denied an exception requested by two certified public accountants to reopen and reargue a case for failing to comply with an electronic tax return filing mandate. Instead, the court affirmed an administrative law judge’s determination to dismiss the argument from Ronald P. Bellantonio and Richard Rock, who had a partnership, that the advanced age and lack of financial sophistication of some of their clients constituted a reasonable cause not to file electronically.”

More: The law imposes a $50 penalty for each non-electronically filed return submitted by tax preparers unless they show the failure to file electronically was due to reasonable cause and not willful neglect.

Court Action: 'In our view, a tax return preparer’s knowing refusal to comply with a statutory requirement amounts to willful neglect,' the tribunal wrote in a July 22 decision. The court denied the request for a refund of penalties.

When Are New Taxes Unconstitutional for Revenue-Raising? – Benjamin Willis and Jed Bodger, Tax Notes ($). “Some state constitutions require supermajority approval of legislation that constitutes a new tax. But determining whether a new tax has been created can be complicated — especially when the definition of a “new tax” varies by state, and states attempt to broaden the approval restrictions to avoid the new tax designation. If increased revenue creates an unconstitutional new tax, most taxes would be invalid unless the legislative body voted annually to approve the change — an unquestionably absurd result. That is why canons of statutory tax interpretation must be heeded more closely.”

Trade Groups Seek Quick Strike Down of Maryland’s Digital Ad Tax – Michael Bologna, Bloomberg ($). “A coalition of business and internet trade associations seeking to strike down Maryland’s tax on digital advertising called on a federal judge to grant summary judgment in their challenge. The U.S. Chamber of Commerce and three other trade associations argued Thursday that Maryland’s one-of-a-kind law on the Digital Advertising Gross Revenues Tax violates the federal Internet Tax Freedom Act by imposing a discriminatory levy on e-commerce. The plaintiffs further argued the law violates the commerce and due process clauses of the Constitution and the principles of free speech."

States Seek Guidance on Digital Taxes from Multistate Tax Group – Tripp Baltz, Michael Bologna, Bloomberg ($). “States are looking for uniform guidance on taxation of digital products, services, and goods. To that end, members of the Multistate Tax Commission’s Uniformity Committee on Wednesday approved a project to prepare a white paper to identify potential best practices and areas for increased uniformity in digital taxation. The vote came during the virtual annual meeting of the committee, the major policy-setting arm of the commission, an intergovernmental agency that promotes uniform state tax policy and administration.”

Investment Value for Out-of-State LLCs Sets Tax, California Says – Laura Mahoney, Bloomberg ($). “Two out-of-state limited liability companies with small shares in California real estate investments owe state tax because the value of their shares is large enough to be deemed as doing business in the state, the Office of Tax Appeals said.”

Priests’ Residence Qualifies for Religious Tax Exemption – Adrianne Appel, Bloomberg ($). “A single-family house used by Catholic priests as a residence and public worship space qualifies for a property tax exemption, the New Jersey Tax court found. The Priestly Society of Venerable John Henry Cardinal Newman, located in Pine Beach, N.J. and a 501(c)(3) under the Internal Revenue Code, showed the court that it met the three requirements to be exempted from property taxes for religious reasons, the court said in a July 29 opinion.”


SHIELD Won’t Ordinarily Hit U.S.-Parented Companies – Andrew Velarde, Tax Notes ($). “Treasury is attempting to assuage fears that the stopping harmful inversions and ending low-tax developments (SHIELD) proposal could hit U.S.-parented multinationals, but it hasn’t gone as far as saying they are excluded altogether. Whether SHIELD affects U.S. parents already subject to the global intangible low-taxed income regime has been a significant unanswered question since the Biden administration rolled out its green book in May. Treasury previously suggested that it could be possible to invoke statutory regulatory authority to excuse GILTI payers from SHIELD.”


Lunch! Today is National Ice Cream Sandwich Day – so it’s a sandwich and not dessert. Therefore, it's a meal and not a snack. Love it!

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