Tax News & Views Democratic Stand-Off Roundup

August 23, 2021

‘Curveballs and obstacles’ face Pelosi this week as Democrats spar over $3.5 trillion budget plan – Tony Romm, Washington Post. “House Democrats are preparing to take the first steps Monday toward adopting a roughly $3.5 trillion spending plan that would enable sweeping changes to the nation’s health care, education and tax laws, but new rifts among party lawmakers threaten to stall the package’s swift advance… Its adoption this week would inch Congress closer to delivering on President Biden’s broader economic agenda.”

But the fate of that vote appears in doubt, as House Speaker Nancy Pelosi (D-Calif.) continues to grapple with persistent political divides among her own fractious caucus. Despite wide-ranging support for some of the new spending, the party’s liberal and centrist wings remain at odds over how exactly to proceed, raising the potential for defections that Democrats simply cannot afford in a chamber where they hold only a slim advantage…

Democrats aspire to finance the proposal through a series of changes to tax laws that raise rates on corporations, investors and wealthy families — unwinding many of the cuts imposed under President Donald Trump. But party lawmakers remain unsettled on the exact size and scope of these tax hikes, reflecting the tough task ahead of them to turn their rough budget outline into legislation. The vote this week would merely unlock the process known as reconciliation, a move that allows Democrats particularly in the Senate to bypass a Republican filibuster. The process of crafting a bill, then shepherding it through the House and Senate, is expected to span months.

Here's what's happening: The House Rules Committee will meet this morning to approve guidelines (AKA: The Rule) for how House lawmakers will debate the budget (which lays the groundwork for the $3.5 trillion tax and spending bill) and the $1.2 Bipartisan Infrastructure Bill (which has already passed the Senate).   

After the Rules Committee approves The Rule, it travels to the House floor where all lawmakers vote on it. This vote is not about passing the bill. It's a procedural vote on how lawmakers will debate the bill(s). The House is scheduled to debate then vote on The Rule tonight. 

No House Republican is expected to support The Rule. This means that House Speaker Nancy Pelosi (D-Calif) can only lose three Democratic votes. If a fourth House Democrat opposes The Rule, it fails. Currently, there are nine House Democrats threatening to oppose The Rule. 

Bottom line: It is not clear if The Rule will pass the House. If it fails, President Biden's economic legislative agenda is essentially stalled. 

The nine House Democrats explained their reason for opposing The Rule in a Washington Post article:

Opinion: Let’s take the win. Let’s do infrastructure first. – Reps. Carolyn Bourdeaux, Ed Case, Jim Costa, Henry Cuellar, Jared Golden, Vicente Gonzalez, Josh Gottheimer, Kurt Schrader and Filemon Vela, Washington Post. “Time kills deals. This is an old business saying and the essence of why we are pushing to get the bipartisan infrastructure bill through Congress and immediately to President Biden’s desk — as the president himself requested the day after it passed the Senate.”

The challenge we face right now is that there is a standoff with some of our colleagues who have decided to hold the infrastructure bill hostage for months, or kill it altogether, if they don’t get what they want in the next bill — a largely undefined $3.5 trillion reconciliation package. While we have concerns about the level of spending and potential revenue raisers, we are open to immediate consideration of that package. But we are firmly opposed to holding the president’s infrastructure legislation hostage to reconciliation, risking its passage and the bipartisan support behind it.

Important to note: The Rule also includes guidelines for how the House will debate the John Lewis Voting Rights Act. If the nine House Democrats vote against The Rule, they will be stopping progress on the John Lewis Voting Rights Act. 

FWIW: Congress's legislative agenda might get tabled if Hurricane Henri turns into another Hurricane Katrina from 2005. After Katrina hit, lawmakers essentially shelved their legislative pursuits and focused on dealing with the storm's aftermath. Fingers crossed we do not repeat history. 


House Back From Recess to Vote on Budget Plan – Sony Kassam and Patrick Ambrosio, Bloomberg ($). “The $550 billion infrastructure bill includes new cryptocurrency reporting requirements and a revival of Superfund taxes on the chemical industry as ways to offset spending on roads, bridges, the power grid, environmental remediation, and other infrastructure projects. The budget resolution will be used as a way to advance a massive tax-and-spend package of up to $3.5 trillion using the reconciliation process, which would bypass a filibuster by Senate Republicans.”


Comparing the Cost of Build Back Better to Other Recent Legislation – Committee for a Responsible Federal Budget. “Lawmakers are preparing to consider both portions of President Biden's Build Back Better agenda – the Senate-passed bipartisan infrastructure bill and a reconciliation bill based on the Fiscal Year (FY) 2022 Senate-passed budget resolution. We estimate that these two bills could add more than $2.1 trillion to the debt directly and set the stage for $3.9 trillion of additional debt over the next decade, excluding interest. If so, they would combine to be more expensive than any legislation since the American Taxpayer Relief Act of 2012(which extended most of the 2001/2003 tax cuts).”


Analysts Question White House Business Tax Claims – Jonathan Curry, Tax Notes ($). “An August 19 White House fact sheet on Biden’s tax plan references an unreleased new analysis by Treasury claiming that just 3 percent of small businesses would see their taxes increase under the president’s plan to raise the top individual income tax rate back up to 39.6 percent… But [Urban-Brookings Tax Policy Center’s Eric] Toder and other analysts noted that even if those numbers are accurate, they leave out important context: the share of small business income that would be affected."

According to publicly available IRS data from 2018, 52 percent of all passthrough business income was earned by taxpayers with adjusted gross income above $500,000, suggesting that a ‘great deal of business activity may be impacted by the administration’s proposals, [American Enterprise Institute’s Klye] Pomerleau said.

The Tax Foundation shared a similar criticism of the fact sheet’s conclusion, contending in an August 20 post that ‘by focusing on the number of people, the Biden administration is misleadingly claiming their tax proposals would have a small effect.’


Additional Guidance on the Employee Retention Credit – Jim Donovan, Eide Bailly. “The IRS recently released additional guidance on the Employee Retention Credit (ERC) in Notice 2021-49 and in Rev. Proc. 2021-33. Notice 2021-49 provides guidance for claiming the ERC in the third and fourth quarters of 2021 as well as providing clarification on previously unanswered questions. Rev. Proc. 2021-33 provides guidance on the exclusion of forgiven Paycheck Protection Program (PPP) loan proceeds and other incentives from the calculation of gross receipts, solely for purposes of the ERC.”


IRS Child Tax Credit Tool Can Now Be Used to Update Address – Allyson Versprille, Bloomberg ($). “Families can now use the IRS’s online tool for managing their monthly child tax credit payments to update their mailing address, the agency announced Friday.”

‘This feature will help any family that chooses to receive their payment by paper check avoid mailing delays or even having a check returned as undeliverable,’ the IRS said in a news release. Families will need to update their address on the IRS’s Child Tax Credit Update Portal before midnight Eastern Time on Aug. 30 for the change to apply to the payments that will be delivered in September.


States' Transfer Pricing Push Raises Privacy Concerns – Maria Koklanaris, Law360 ($). “States seeking to expand their efforts in transfer pricing are increasingly focused on methods that involve the exchange of taxpayer information between governments, raising concern among practitioners troubled by what they see as lax privacy controls.”

Some of the move toward information sharing is taking place via the Multistate Tax Commission's recently revived committee to study transfer pricing methods. In July, the State Intercompany Transactions Advisory Service Committee, or SITAS Committee, put forth an information exchange agreement. The agreement offers a structure by which states that want to pursue transfer pricing can together use the same taxpayer information, which may be confidential. In addition to the information sharing agreement, the committee drafted a charter that requires participating states to sign the information agreement.

Fight Against Tax Shelter Ruling Dismissed By Appeals Court – Jeffery Leon, Bloomberg ($). “The Eleventh Circuit has upheld more than $13 million in tax deficiencies tied to a tax shelter scheme involving artificial losses in a partnership, rejecting multiple challenges to a U.S. Tax Court ruling.”

CPA David B. Greenberg established GC Capital, a California partnership that was involved in a scheme known as a Son-of-BOSS transaction. These shelters involve taxpayers transferring assets with significant liabilities to a partnership in situations that can enable partners to claim large losses on their individual tax returns.

Five States Knocked for Compliance Gaps With Sales Tax Pact – Michael Bologna and Tripp Baltz, Bloomberg ($). “Nineteen states fully comply with the Streamlined Sales and Use Tax Agreement, a tax harmonization pact standardizing tax administration across half the country. But the Streamlined Sales Tax Governing Board, which administers the pact, has concerns about Georgia, Kansas, North Carolina, Tennessee, and Vermont."

The board recently announced a public comment period linked to its annual compliance review process and issued a report about the status of the 23 member states and Tennessee, its only affiliate member. While most states were in full compliance with the SSUTA, the board found Kansas hadn’t completed all recertification documents required during the annual review process. The report attributed the gap to the fact Kansas only passed its marketplace facilitator law in May, with an effective date of July 1. Kansas 'hopes to have the answers by the end of October,' the report added.

Arizona Appeals Court Finds Taxpayer Liable for Unpaid Luxury Tax on Tobacco – Bloomberg ($):

The Arizona Court of Appeals Aug. 19 found Taxpayer was liable for unpaid luxury tax on tobacco for excise tax purposes. Taxpayer, a tobacco distributor, purchased tobacco and didn’t report it under the 'smoking tobacco' category, instead reporting it under the 'cavendish tobacco' category. The Department of Revenue (DOR) audited Taxpayer’s accounts and stated the purchase should be reported as 'smoking tobacco.' Taxpayer protested and the Tax Court granted summary judgment in favor of the DOR. Taxpayer appealed. The appeals court found: 1) the definition of 'cavendish tobacco' that Taxpayer cited wasn’t retroactively applicable; and 2) the tax court correctly determined the taxability of Taxpayer’s purchase. Therefore, the appeals court affirmed the tax court’s decision. [Rebel Empire, LLC v. Dep’t of Revenue, Ariz. Ct. App., No. 1 CA-TX 20-0010, 08/19/21]

Pandemic Aid Restrictions Already Harm States, Court Told – Daniel Tay, Law360 ($). “An Alabama-led group of states told a federal court a provision barring states from using pandemic aid to offset tax cuts has already harmed states by interfering with the passage of tax legislation, repeating a request to block the law.”

Because the states have already experienced concrete injury in the form of an intrusion on their sovereign authority to set tax policy, the group has standing to challenge the provision, the group said in a brief filed Thursday. The provision is part of the American Rescue Plan. The group slammed the U.S. Department of the Treasury's request to dismiss the case, saying that the department had ignored that the states have already been injured in favor of arguing that the provision does not prohibit tax cuts and was not unconstitutionally ambiguous.


IRS Stresses Amended Returns Need Consistency on Foreign Taxes – Michael Rapoport, Bloomberg ($). “Consistency is the key when a taxpayer amends its returns to change how it treats foreign taxes, even when the statute of limitations might work in its favor, the IRS indicated Friday.”

The ruling from the IRS Office of Chief Counsel involves a taxpayer that wanted to amend its tax returns to claim foreign tax credits instead of deductions for foreign taxes paid. The amended returns led to the taxpayer owing taxes in some years and due refunds in other years. But the taxes-due years were past the statute of limitations for the IRS to collect, and the agency refused to accept some of the amended returns.

 The Ruling can be found here.

Big Tech Is Moving Profit to the United States – Martin Sullivan, Tax Notes ($). “Several leading U.S. tech companies had a dramatic increase in the domestic share of their worldwide profits in 2020, according to the most recent annual reports available. For the 20 companies examined here, domestic profits in 2020 are estimated to be about $40 billion above what they would have been without passage of the Tax Cuts and Jobs Act. For Big Tech, it appears that the intended effects of the international provisions of the TCJA may be taking hold.”

Global Tax Talks Must Aim For Symmetry, Google Exec Says – Natalie Olivo, Law360 ($). “Current negotiations for a global corporate tax overhaul need to continue earlier efforts in the U.S. to move the federal tax system more in alignment with how other countries operate, a Google executive said."

It's necessary that international discussions for new corporate tax rules, including a global minimum tax, keep moving toward more symmetry between the U.S. system and other countries, according to Adam Cohen, Google's director of economic policy. Before the 2017 federal tax overhaul, when the U.S. was more of an outlier, there were tensions about its divergent system, he said, speaking Thursday during a virtual discussion with Thornton Matheson, a senior fellow at the Urban-Brookings Tax Policy Center.


Happy National Ride the Wind Day! Today “commemorates the anniversary of the first human-powered flight to win the Kremer prize. On August 23rd of 1977, the Gossamer Condor flew the first figure-eight course specified by the Royal Aeronautical Society at Minter Field in Shafter, California. Slowly cruising at only 11 mph, it traveled a distance of 2,172 meters.”

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