Tax News & Views Intense Week Ahead Roundup

September 27, 2021

Pelosi’s Democrats Head For Showdown This Week on Biden’s Agenda – Erik Wasson and Laura Litvan, Bloomberg ($). “House Democrats are heading toward a showdown this week over President Joe Biden’s economic agenda, with a planned vote on a $550 billion infrastructure package that has riven the caucus in two and still more negotiations on broader tax and spending plan."

On Sunday night, she told House Democrats in a letter that the infrastructure legislation will be voted on Thursday. Party leaders are continuing to negotiate among factions on the second bill encompassing much of the rest of Biden’s plans… The problem for Democrats is not the substance of the infrastructure bill, which has broad support, but the factional battle for influence over the second, larger bill, which the party is pursuing on its own.

The $3.5 trillion reconciliation bill is about to get a haircut, from the article:

Pelosi said that it 'seems self-evident' that the bigger measure will be less than the $3.5 trillion allowed in the budget resolution that Democrats are working with, because of objections from moderates in the House and Senate.

The goal with the reconciliation bill is to have the House and Senate agree on its details before either chamber votes on it. That agreement appears to be far off:

Pelosi Confident Infrastructure Bill to Pass – Sony Kassam and Patrick Ambrosio, Bloomberg ($):

While the House is advancing its proposed reconciliation bill, it isn’t yet clear how large the final package will be, given that Sen. Joe Manchin (D-W.Va.) and others oppose the idea of a $3.5 trillion bill. While Democrats have settled on 'a menu' of tax increases to possibly include in reconciliation, there isn’t an agreement on the specifics of what could pass both chambers.

For example, a Senate staffer said Friday it is too soon to say what carried interest proposal, if any, will be included in the final reconciliation package.

'We’re still working out the final contours of the legislation,' Sarah Schaefer, a senior tax policy adviser on the Senate Finance Committee, said Friday at a meeting held by the American Bar Association’s tax section.

For Schumer and Pelosi, the Challenge of a Career With No Margin for Error – Jonathan Weisman, New York Times: “Senate leaders wish Ms. Pelosi had not let her committee leaders draft pieces of the bill on their own, since the measure being stitched together this weekend is likely to cost well over $3.5 trillion and build expectations that will have to be dashed.”

House Democrats have been kept largely in the dark about the Senate’s plans, since Mr. Schumer is writing his version behind closed doors. But, they complain, he has not pushed his committee chairmen to nail down their positions and line up their votes, so they can begin negotiating with their House counterparts.


House Budget Dems approve unfinished $3.5T social spending plan – Jennifer Scholtes and Caitlin Emma, Politico. “House Budget Democrats approved their $3.5 trillion spending plan in a rare Saturday session, sending more than 2,400 pages of text to the floor as the party looks to signal progress on the massive bill heading into a critical week.”

Usually committee passage would be a sign that the package is finalized, since the Budget panel is tying together a dozen pieces of the broader bill Democrats want to enact to carry out President Joe Biden’s promises of social assistance such as child care subsidies, paid leave, education aid and more comprehensive Medicare coverage. But majority party leaders are still grasping for an endgame compromise that can pass both the House and Senate.

House Budget Committee approves Budget Reconciliation Bill during a Saturday session – Jay Heflin, Eide Bailly. “The House Budget Committee on September 25th approved by a 20-17 vote the $3.5 trillion budget reconciliation bill that includes tax increases on corporations and wealthier individuals as well as tax incentives for renewable energy.”

The $3.5 trillion bill goes to the House Rules Committee. This committee is charged with preparing legislation for a vote on the House chamber’s floor. It can also amend bills, which is expected to happen to this legislation.

As Budget Bill Talks Intensify, Here Are the Five Biggest Issues Dividing Democrats – Gabriel Rubin, Wall Street Journal ($):


Senior Democrats on the Senate Finance Committee and House Ways and Means Committee have prepared a long menu of options to pay for the spending, along with tax credits that will add to the bill’s overall cost. At this point, nothing has been firmly settled upon, and for members who demand that the entire bill be paid for upfront, agreeing on taxes is a prerequisite for deciding what programs get funded.

Progressives and centrists are divided on a new corporate tax rate (anywhere between the current 21% and 26.5%), the top individual rate (probably between the current 37% and the old top rate of 39.6%), as well as whether to include measures to raise taxes on private-equity managers, capital gains and supersize Roth IRAs used by the ultrawealthy.

And on top of it all, several House members, primarily from higher-tax blue states, want to reinstate part or all of the state and local income-tax deduction, which Republicans capped at $10,000 in 2017. Many progressives oppose this idea, since it would benefit the wealthy and would add costs to the bill that would likely have to be cut from other areas.


Biden Expresses Support for Annual Tax on Billionaires’ Unrealized Gains – Ken Thomas and Richard Rubin, Wall Street Journal ($). “President Biden expressed support for a proposal under consideration in the Senate to place an annual income tax on billionaires’ unrealized capital gains.”

The potential tax increase, being pursued by Senate Finance Chairman Ron Wyden (D., Ore.), would be among a number of tax provisions that Mr. Biden is seeking to pay for a proposed $3.5 trillion spending plan that encapsulates much of his first-term agenda. It is an alternative to some administration tax ideas that have flopped in Congress, and it would generate money from the wealthiest sliver of Americans, whose incomes can be a fraction of their wealth.

The Constitutional Uncertainty of a Broad Mark-to-Market Rule for Derivatives – Philip Balzafiore, Mike Gaffney and Dylan Lionberger, Tax Notes ($). “In this article, the authors examine cases before and after the 16th Amendment by focusing on the uniformity and apportionment requirements and they consider whether recent proposals to tax an individual’s unrealized gains on a mark-to-market basis should stand as a tax on income rather than a tax on property, under the Constitution.”


Democrats Consider Adding Carbon Tax to Budget Bill – Jonathan Weisman and Coral Davenport, New York Times ($). “Opposition from a single moderate Democrat to corporate and income tax rate increases has revived efforts in the Senate to draft a tax on carbon dioxide pollution as a way to pay for the Democrats’ proposed $3.5 billion budget bill.”

Senator Kyrsten Sinema of Arizona has not advocated for a carbon tax, which President Biden and other key Democrats have shied away from as a huge political risk. But her resistance to tax rate increases to pay for the Democrats’ ambitious social policy and climate legislation has set off a scramble for alternatives, including a carbon tax, international corporate tax changes and closing loopholes for businesses that pay through the individual income tax system.

Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, confirmed that the Senate majority leader had asked him to craft legislation that would put a price on carbon emissions but to ensure that the policy would respect Mr. Biden’s pledge not to raise taxes on families earning less than $400,000.


SOS: Save Our Section 199A - Thomas Nichols, Tax Notes ($). “In this article, Nichols examines the effective repeal of section 199A for large passthrough enterprises as well as estates and trusts.”


Accountants face challenges with ESG reporting – Michael Cohn, Accounting Today. “Financial professionals are confronting some big obstacles when it comes to environmental, social and governance reporting, according to a new survey, including competing and sometimes conflicting disclosure frameworks, reporting methodologies and stakeholder demands.”

The report, released Thursday by Financial Executives International’s Financial Education & Research Foundation, polled 53 chief accounting officers and controllers from some of the largest U.S. companies, and found that 53% of the respondents indicated they had not yet started to integrate ESG reporting with their financial reporting, while 43% said they had only just started to do so. Data is the biggest single challenge to ESG reporting, with questions related to collection, collation, analysis and control among the biggest ESG-related data questions. The plethora of competing standards and frameworks is also a big challenge, with 85% of companies using multiple ESG reporting frameworks. Finance professionals reported they had a hard time hearing through all the noise and providing relevant, concise ESG metrics in telling their organization’s ESG story.

A link to the report is here.


Final IRS Rules Establish Fee for Estate Tax Closing Letters – Allyson Versprille, Bloomberg ($): “ Individuals requesting letters to confirm the IRS has accepted an estate tax return will be required to pay a $67 fee under new final regulations. The rules (TD 9957, RIN 1545-BP75), released Sept. 27, follow the IRS’s 2015 decision to stop issuing the letters, known as estate tax closing letters, automatically. Estate executors, local probate courts, state tax departments, and others often rely on the letters, which include useful information such as the net estate tax amount, for confirmation that the IRS has completed its examination of a return. The IRS has said the fee will help the government recover the costs it incurs providing estate tax closing letters.”


Tax Zappers Found in One-Fifth of California Restaurants – Michael Bologna – Bloomberg ($). “If a five-year probe of California businesses is any guide, a substantial number of U.S. restaurants are using high-tech methods to skip out on taxes.”

‘Zappers,’ illegal software applications used by unscrupulous business owners to evade sales and income taxes, were found in nearly a fifth of California restaurants during a five-year audit initiative, state revenue officials say.

Despite the extensive use of zappers, fewer than 1% of restaurant owners found with the illegal software faced state criminal charges. Under California’s sales and use tax code, any person purchasing, installing, or using automated sales suppression devices or software is guilty of a misdemeanor, punishable by up to three years in prison and $10,000 in fines per offense.

Kentucky Wins Legal Challenge to Pandemic Aid Tax Cut Limits – Sam McQuillan, Bloomberg ($). “Two federal judges have now ruled against restrictions on the $350 billion in pandemic aid sent to state and local governments as part of the American Rescue Plan.”

The U.S. District Court, Eastern District of Kentucky on Friday ruled in favor of Kentucky, permanently enjoining Treasury Secretary Janet Yellen from enforcing a provision of the law that would claw back funds used to offset revenue losses from a tax cut. The decision follows a similar ruling in Ohio, where a federal judge found the restriction cannot be enforced because it’s unclear what it prohibits. Legal challenges from 10 other states are pending.

Judge Gregory F. Van Tatenhove declined to address Kentucky’s ambiguity claim, instead ruling the law unconstitutional for intruding on state sovereignty.

Minnesota Tax Court Denies Property Tax Exemption for Preschool – Laura Mahoney, Bloomberg ($). “A Minnesota preschool’s state license and high ratings aren’t enough to qualify for a property tax exemption available to educational institutions, the Minnesota Tax Court said.”

Under the Rainbow Early Education Center failed to meet its burden to show it should be exempt from property tax, the court said. The center, in Redwing, had said its license from the Minnesota Department of Human Services as a child care center and its four-star rating from Parent Aware, a federally funded rating program, was evidence it is entitled to the exemption.


House Ways and Means Draft Would Redesign GILTI Pragmatically – Mindy Herzfeld, Tax Notes ($). “The international tax regime now has four reform proposals on the table: the Biden administration’s plan, a sketch of ideas from the Senate Finance Committee, the OECD’s global minimum tax with backups, and now a draft from the House Ways and Means Committee.”

Of all the ideas being floated, the Ways and Means drfaft is the most pragmatic approach to revising international tax rules enacted under the Trump administration in a way that accommodates President Biden’s progressive agenda while acknowledging the challenges that agenda poses to cross-border investment and the glitches in the Tax Cuts and Jobs Act. However, in proposing a compromise between the administration’s headline priorities and U.S. competitiveness concerns, the Ways and Means bill adds even more complexity.

Multinationals Wary Of House Dems' BEAT Expansion - Dylan Moroses, Law360 ($). “Foreign multinational corporations could face new taxes on inventory-related payments from their U.S. affiliates under Democrats' proposed changes to the base erosion and anti-abuse tax — an element of the BEAT rewrite that attorneys said may disrupt global supply chains.”

Certain payments typically considered business transactions and currently exempt between foreign-parented multinationals and their U.S. affiliates would generate new tax liabilities under the proposed BEAT changes in the tax plan approved by the House Ways and Means Committee this month, tax attorneys said.


Get. Out. Of. Town! It’s National Chocolate Milk Day! This delightful drink was first considered a medicine, and, for me, it still it: It calms me nerves!  

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