Tax News & Views Unto the Breach Roundup

January 19, 2022

How the White House hopes to save Biden's spending bill - Andrea Shalal and Jarrett Renshaw, Reuters. “The White House is preparing an alternative to its $1.75 trillion spending bill that will keep climate change measures but pare down or cut items like the child tax credit and paid family leave, hoping to appeal to U.S. Senator Joe Manchin and other Democrats as soon as this week…”

President Joe Biden's administration is expected to pivot from a long-shot attempt to pass voting rights legislation through the Senate on Tuesday, then renew talks in earnest with lawmakers on a slimmed-down version of the Build Back Better bill, the sources said.

White House climate czar Gina McCarthy and U.S. Treasury officials will head to Capitol Hill to meet with lawmakers and staff on the bill, the sources said, as part of the effort to preserve some of Biden's economic and environmental agenda.

The revamped measure would likely run over $1 trillion, these people said, and could jettison billions of dollars of funding for social safety net programs like paid family leave, universal pre-kindergarten and home health care.

It is unclear which programs would be slimmed down or scrapped entirely. The White House and Democrats are weighing imposing stricter income caps on the child tax credit and other social safety net measures.

In full Washingtonian style, shortly after the Reuters article was posted online The Hill newspaper reported that the White House said the Reuters article was "wrong" and that no alternative bill was in the works:

White House dismisses report of new Build Back Better package – Morgan Chalfant, The Hill. “The White House on Tuesday dismissed a report that the administration is preparing an alternative spending package to replace President Biden’s climate and social spending proposal. White House spokesman Andrew Bates denied a Reuters report that said the White House is putting together a new package that brings in elements of the roughly $2 trillion Build Back Better bill that has stalled in the Senate, calling it ‘off-base.’”

‘Reuters is wrong,’ Bates said in a statement. ‘We are always in touch with members about this, and the substance and details of this report are off-base.’

Pro Tip: When any administration comes out quickly to deny the accuracy of an article, it usually means that the article is accurate and the administration doesn't want the information to be made public. In the case of the Reuters article, we're hearing that the Biden Administration said the article was wrong because it didn't want House Democrats to learn that provisions were being cut from the bill by the news organization.

Only time will tell whether Reuters or the White House was accurate. But for what it's worth, the Reuters article was barely changed after The Hill reported it was  incorrect. The original lead was changed from:

The White House is preparing an alternative to its $1.75 trillion spending bill that will keep climate change measures but pare down or cut items like the child tax credit and paid family leave, hoping to appeal to U.S. Senator Joe Manchin and other Democrats as soon as this week...


The White House is seeking to 'reset' talks on its $1.75 trillion spending bill, aiming to salvage climate change measures but pare down or cut items like the child tax credit and paid family leave to appeal to U.S. Senator Joe Manchin and other Democrats as soon as this week...

If the Reuters article was wrong, why was it slightly modified and not taken offline? 


It is unclear if all Democrats would even be on board with taking another swing at passing the tax and spending bill. Some want to break up the legislation into smaller pieces and pass it in chunks (at least in the House). 

Swing-district Democrats in need of a midterm reboot push leadership to break up BBB - House Democrats running for reelection in competitive districts, facing increasingly long odds of surviving a potential Republican wave, have confronted party leaders in recent days with demands for a new midterm strategy."

Among the requests of these so-called “front-liner” Democrats is to break up President Biden’s sprawling Build Back Better spending bill that has stalled in the Senate amid opposition from Sen. Joe Manchin III (D-W.Va.) and hold votes on a series of politically popular provisions that would appeal to centrist voters and core Democrats alike.

However, they are looking to push proposals that Democratic leaders have roundly rejected.

Some members were on board with the narrow proposal Manchin presented to the White House last month that included funding for universal prekindergarten, making Affordable Care Act subsidies permanent, billions in climate spending and a billionaire tax.

And there is no agreement on extending an enhanced Child Tax Credit (more on this later).

Members believe it is entirely possible to strip out the prescription drug and the child tax credit provisions and pass them as stand-alone bills because some Senate Republicans have previously expressed supporting reforms. 


Then there is Senator Tim Kaine simultaneously agreeing and disagreeing on moving the tax and spending bill: 

Tim Kaine: Build Back Better is "dead" but core provisions will pass – Yacob Reyes, Axios. “Sen. Tim Kaine (D-Va.) told CBS' ‘Face the Nation’ on Sunday he believes the core of President Biden's Build Back Better legislation will pass but acknowledged that the $1.75 trillion spending bill is dead as a package.”

Here is the exchange he had with show host Margaret Brennan, according to CBS News:

Margaret Brennan: Even the White House economist is using the past tense when referring to Build Back Better. It's dead. You don't have the votes in the Senate.

Sen. Kaine: Yeah, I don't agree with you, Margaret, you're right that it's dead...


Here is the rest of his response: 

[T]he most recent version of it is not going to happen, but if you look at the core of the bill, I think the core is education and workforce and things like reduced child care and education expenses, workforce training and then support for the workforce in areas like health care. There are other pieces of the bill that are more controversial. I still believe we're going to find a core of this bill, whatever we call it, we're going to find the core of the bill and pass it, and it will deal directly with some of these inflation concerns.


Regarding the tax increases that are expected to be in the tax and spending bill (aka: Build Back Better bill), Treasury Secretary Janet Yellen this morning might have hinted that the legislation will only include international tax increases. She said the following at the 90th Winter Meeting of the U.S. Conference of Mayors:

[C]ongressional negotiations are ongoing regarding the Build Back Better legislation. While we don’t know the final form this will take, it will revolutionize how we care for children in this country, invest in climate change, and overhaul the international tax system to ensure corporations pay their fair share.


Regarding the Child Tax Credit:

No child tax credit deal in sight as monthly benefits lapse -  Laura Weiss and Lindsey McPherson, Roll Call. “Monthly payments of up to $300 per child didn’t go out Friday for the first time in six months, and some families may never see benefits as generous again.”

Democrats are working to restore an expansion of child tax credits they enacted on a temporary basis last year. But they don’t have the votes to do so without curtailing the benefits to appease Democratic skeptic Sen. Joe Manchin III or at least 10 Senate Republicans.   

Democrats are currently more willing to work with Manchin than Republicans.

For now, Democratic leaders remain focused on winning over Manchin, rather than trying to work out a compromise with Senate Republicans even though several have expressed interest in expanding the current credit. A version that could win at least 10 GOP votes to pass the Senate could involve cutting off undocumented immigrants and maintaining work requirements, among other obstacles to a bipartisan deal. 

Ineligible Taxpayers May Be Able to Keep Child Tax Credits – Benjamin Guggenheim, Tax Notes ($). “Taxpayers who were erroneously issued advance child tax credits may be able to keep some or all of those credits, according to two enrolled agents.”

In a January 18 Tax Talk Today webinar, David and Mary Mellem of Ashwaubenon Tax Professionals said they advise clients in those situations to prepare to pay the full amount of the credits back. However, depending on their income brackets, those clients may not have to pay the credits back at all, or they may be entitled to some of the advance credit for which they weren’t technically eligible.


Budget ‘Gimmick’ Dissolves Cost of Bringing Back R&D Expensing – Doug Sword, Tax Notes ($). “Republicans, along with Sen. Joe Manchin III, D-W.Va., blasted what they called budget gimmicks in the Build Back Better Act relating to the child tax credit and the state and local tax deduction limit.”

But something at least as gimmicky, with bipartisan support, has drawn hardly a complaint: the proposed four-year delay in requiring companies to amortize their research and development costs over five years.


Dems Press Manchin On BBB Act's Coal Tax ProvisionsAlan Ota, Law360 ($). “Sen. Joe Manchin, D-W.Va., faces pressure from colleagues and stakeholders to advance his own stalled tax priorities for coal miners as part of a broader push to clear the way for Senate passage of Democrats' Build Back Better Act.”

Senior Democrats said several Manchin-backed tax priorities for coal miners contained in the House-passed BBB Act, H.R. 5376, could be at the center of talks aimed at winning passage of the bill in the evenly divided Senate. They said a proposed four-year extension of higher excise tax rates for the Black Lung Disability Fund and a 10-year revival of the advanced energy project credit could face roadblocks unless they move in the BBB Act, a filibuster-proof reconciliation bill.

For his part, Manchin has suggested he could try to move tax priorities for coal miners, including a renewal of the advanced energy project credit under Internal Revenue Code Section 48C, on their own if necessary, with or without a deal on the BBB Act.


Group: Tax rich to fund vaccines for poor hit by pandemic – Kelvin Chan, Associated Press. “Anti-poverty organization Oxfam called Monday for governments to impose a one-time 99% tax on the world’s billionaires and use the money to fund expanded production of vaccines for the poor — part of an effort to combat global inequality widened by the coronavirus pandemic.”

The ranks of the super-rich have swelled during the pandemic thanks to ample financial stimulus that pumped up stocks, the group said. Meanwhile, poor countries have suffered more than their share from COVID-19 because of unequal access to vaccines, which have mostly gone to rich nations, Oxfam said in a report aimed at informing discussions at the World Economic Forum’s online gathering of political and business leaders this week.

A one-off 99% tax on the 10 richest men’s pandemic windfalls could earn more than $800 billion and be used to fund that effort and other progressive social spending, the group said.

In related news, millionaires and billionaires call on people of their ilk to pay more taxes:

To put it simply, restoring trust requires taxing the rich. The world - every country in it - must demand the rich pay their fair share. Tax us, the rich, and tax us now.

This isn't the first time that rich people have called on themselves to pay more taxes. As a reporter I covered such events and would inform the presenters that a person can overpay their taxes without having the law changed - pay more than you owe and deny your refund. The IRS will contact you and tell them to keep the money. Most presenters didn't like what I said. It appeared that they were more interested in talking about paying more in taxes than actually doing it. 


Bitcoin millionaires are moving to Puerto Rico for lower taxes and island living – MacKenzie Sigalos, CNBC. “In March 2021, crypto entrepreneur and investor David Johnston moved his parents, wife, three daughters, and company with him to Puerto Rico. The 36-year-old, who has been involved in the crypto ecosystem since 2012, says the decision to relocate from Austin was kind of a no-brainer.”

Beyond the fact that Puerto Rico offers a year-round tropical backdrop with picturesque beaches, the U.S. territory also has crypto-friendly policies, including huge tax breaks to those who spend at least 183 days on the island each year. Residents can keep ahold of their American passports while at the same time not having to pay any taxes on capital gains. It certainly helped seal the deal for Johnston, though for him, the bigger incentive was an overwhelming fear of missing out.

‘That’s where all my friends are. I don’t have one friend left in New York, and maybe the pandemic accelerated this, but every single one of them has moved to Puerto Rico,’ he said, noting that many of his California friends have also made the move. 

Major U.S. Bank Trade Group Says Industry Isn’t Anti-Crypto – Allyson Versprille, Bloomberg ($). “A key banking trade group wants you to know that Wall Street lenders aren’t against crypto.”

As the market for digital assets explodes, U.S. banks are looking for ways to offer services that will allow their customers to buy and sell coins, Rob Nichols, president of the American Bankers Association said in a blog post Tuesday. But many token platforms are doing business akin to traditional lenders, so they should be regulated as such, Nichols said.

'It is critical to ensure that all market participants are held to the same high standards as banks,' Nichols said, adding that his group has invested in Bitcoin servicer NYDIG. 'ABA believes that customers who choose to access these markets are best served when they can do so through fully regulated banks.'

UK cracking down on 'misleading' crypto advertising – Lexi Lonas, The Hill. “The United Kingdom is cracking down on 'misleading' cryptocurrency advertising as more citizens get involved in the digital assets.”

Finance Minister Rishi Sunak announced his plan on Tuesday to amend financial promotion legislation to include cryptocurrency.

The finance minister said even though 2.3 million people in the U.K. own cryptocurrency, more than 3 percent of the population, understanding of the digital currency is declining.

Bringing ads for cryptocurrency under the Financial Conduct Authority will put it under similar standards for other financial promotions, such as stock ads.  


Wyden Continues Investigation Into Big Pharma Tax Practices - Senate Finance Committee. “Senate Finance Committee Chair Ron Wyden, D-Ore., today continued his investigation into Big Pharma’s tax practices, and how loopholes in the tax code have allowed multinational companies to further abuse tax havens and avoid paying U.S. taxes on prescription drug sales. Wyden wrote to Bristol Myers Squibb to request information about their reported use of offshore subsidiaries in Ireland in a manner that may have violated longstanding IRS anti-abuse rules.”   

‘According to public reports, in 2012 Bristol Myers developed a sophisticated tax avoidance strategy where it shifted intellectual property rights for several prescription drugs to a newly created offshore subsidiary to shift untaxed gains and generate amortization deductions. At the time, Bristol Myers’s U.S. operations held patents on several drugs with a fair market value that had already been fully amortized for tax purposes, while an Irish Bristol Myers subsidiary held patents that it had not yet fully amortized and thus would produce tax deductions. Bristol Myers then reportedly formed a new foreign partnership in Ireland by transferring the patent rights from existing U.S. and Irish affiliates to the newly created partnership. Bristol Myers then proceeded to allocate tax deductions from the new partnership structure in a way that would use amortization deductions associated with Irish patents to offset U.S. taxes [while simultaneously shifting untaxed gains of the U.S. affiliates to the foreign affiliate] and substantially lowering its tax rate. This strategy was extraordinarily effective, as Bristol Myers’s effective tax rate declined from 24.7 percent in 2011 to negative 7 percent in 2012,’ Wyden wrote.


Money don't matter tonight/It sure didn't matter yesterday:

Prince’s Estate Valued at $156.4 Million, Ending Heirs’ IRS Spat – Jeffery Leon, Bloomberg ($). “The estate of pop music icon Prince Rogers Nelson will be valued at roughly $156.4 million under a settlement between the IRS and his heirs.”

Prince’s estate and the IRS have been disputing the worth of the pop icon’s music rights and other assets following his 2016 death of an accidental fentanyl overdose. The agreed-upon valuation, detailed in a Jan. 14 notice filed with the Carver County District Court in Minnesota, is closer to the Internal Revenue Service’s $163 million estimate than the estate’s $82 million claim.

The agreement also calls for the IRS and the Minnesota Department of Revenue to waive assessed penalties on the estate.


State Corporate Income Tax Rates and Brackets for 2022 – Janelle Cammenga, Tax Foundation:

Key Findings

  • Forty-four states levy a corporate income tax. Rates range from 2.5 percent in North Carolina to 11.5 percent in New Jersey.
  • Six states—Alaska, Illinois, Iowa, Minnesota, New Jersey, and Pennsylvania—levy top marginal corporate income tax rates of 9 percent or higher.
  • Eleven states—Arizona, Colorado, Indiana, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, Oklahoma, South Carolina, and Utah—have top rates at or below 5 percent.
  • Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes. Gross receipts taxes are generally thought to be more economically harmful than corporate income taxes.
  • South Dakota and Wyoming are the only states that levy neither a corporate income nor gross receipts tax.

 2022 State Corporate Tax Rates including State Corporate Income Tax Rates and Brackets Corporate Income Tax Rates and Brackets by State


Hochul’s $216 Billion N.Y. Budget Offers Property-Tax Relief – Keshia Clukey and Donna Borak, Bloomberg ($). “New York Governor Kathy Hochul unveiled a $216.3 billion budget on Tuesday, a 3.1% spending increase that would boost funding for schools, health care and property-tax relief.”

The spending plan is Hochul’s first since taking over as governor in August after Andrew Cuomo resigned amid a sexual-harassment scandal. Armed with a healthy supply of cash, Hochul called for accelerating tax cuts instituted under her predecessor. Middle-class families would get full, phased-in credits of $1.2 billion as soon as 2023 rather than a yearly break through 2025.

NY Gov. Seeks Short-Term Rental Tax, Biz Tax Relief In Budget - Paul Williams, Law360 ($). “New York would subject all short-term rentals to state and local sales taxes while offering billions in tax relief to residents, businesses and property owners under a $216 billion budget Democratic Gov. Kathy Hochul proposed Tuesday.”

The governor's proposed fiscal year 2023 spending plan seeks to require sales taxes, including a New York City hotel fee, to be collected on vacation rentals to 'create a level playing field' between the short-term rental industry and hotels.

Hochul's budget plan also incorporates suggestions she laid out in her State of the State address earlier this month to accelerate scheduled cuts to certain personal income tax rates, provide a property tax rebate and offer tax relief to businesses as the state recovers from the coronavirus pandemic.


New Mexico Governor Would Kill Tax on Social Security Benefits - Brenna Goth, Bloomberg ($). “New Mexico should end its tax on Social Security benefits, Gov. Michelle Lujan Grisham (D) said during her State of the State address Tuesday.”

  • Lujan Grisham called on lawmakers to act during this year’s 30-day session to 'unburden' residents who rely on the income.
  • The governor also reiterated her proposal to cut the state’s gross receipts tax rate for the first time in decades. The plan would save taxpayers $170 million annually, she said.
  • The state this year can afford to return money to taxpayers, Lujan Grisham said.


New Jersey Bolsters SALT Workaround for Pass-Through Entities – Donna Borak, Bloomberg ($). “New Jersey businesses can now expect improved perks on a tax break to help ease the pain of a $10,000 federal cap on individuals’ deductions for state and local taxes.”

On Tuesday, Democratic Gov. Phil Murphy signed into law a bill (S. 4068) that would allow pass-through entities—partnerships, limited liability companies, and S corporations—additional tax relief under a series of changes made to the previously enacted alternative tax bill in January 2020.

High-tax states have sought workarounds for the past four years even as their federal representatives continue to clamor to remove the SALT cap or at least modify. New Jersey is among more than 20 states where legislators have passed a workaround.

N.J. Gov. Murphy Greenlights Travel Facilitator Tax Collection – Donna Borak, Bloomberg ($). “New Jersey will begin collecting sales tax from travel marketplace facilitators and travel agencies under a law signed Tuesday by Gov. Phil Murphy.”

The bill (S3715/A5804) marks the state’s latest effort to assert its authority to collect taxes following the U.S. Supreme Court’s landmark 2018 ruling in South Dakota v. Wayfair , which permitted states to impose tax collection duties on remote retailers based on their economic activity rather than their physical presence.


Justices Won't Review Va. Church's Housing Tax Break Denial - Maria Koklanaris, Law360 ($). “The U.S. Supreme Court declined Tuesday to hear a Virginia church's claims that a lower court violated the First Amendment in denying a tax break for a church-owned property after determining its occupants weren't the church's ministers.”

The justices passed on hearing the church's dispute with a Virginia city over the tax break for the church-owned property, which the city denied after determining the occupants were not the church's ministers. As is the court's custom, the majority did not offer a reason for its denial, but Justice Neil Gorsuch penned a dissent from the decision.

‘I would grant the petition and summarily reverse’ the trial court, Justice Gorsuch wrote. He said the city had no place in telling the church who was a minister and who was not.


Ohio Justices Urged To Take Up Telework Tax DisputeAsha Glover, Law360 ($). “A free-market organization urged the Ohio Supreme Court to review a lower court's rejection of the organization's attempt to invalidate a law that temporarily allowed cities to impose income tax on remote workers in other municipalities during the coronavirus pandemic.”

Counsel for the Buckeye Institute said in a brief filed Friday that Ohio's highest court should review an appeals court's unanimous decision in November to uphold a 2020 law deeming remote work performed during the pandemic to occur at an employee's principal place of work. The organization argued that the law is unconstitutional and an overreach of state legislative authority and the appeals court's decision conflicts with the state Supreme Court's holding that a city can tax work performed by nonresidents within its limits, but not beyond them.


Netflix, Hulu Face Suit From Indiana Cities Over Franchise Fees – Michael Bologna, Bloomberg ($). “Cities in Indiana won a critical victory in their bid for millions in purportedly unpaid local franchise fees from Netflix, Hulu, Disney, Dish Network, and DirecTV after a judge rejected the companies’ motion to dismiss a lawsuit brought by the municipalities.”

Presiding Judge Heather Welch of the Indiana Commercial Court Docket in Marion County on Tuesday found no basis for halting a class action filed against the streaming entertainment and satellite TV companies by four cities including Indianapolis. The lawsuit alleges streaming video services rely on locally regulated broadband internet connections to deliver services and should be required to pay the same operational fees cable TV companies pay to use public rights of way. The suit, one of several filed by cities and counties in at least 13 states, seeks massive judgments against the defendants Netflix, Inc., Disney DTC LLC, Hulu, LLC, DirecTV, LLC, and Dish Network Corp.


France Faces Skeptics Over Quick Implementation of Minimum Tax - William Horobin, Bloomberg ($). “French Finance Minister Bruno Le Maire’s demand that the European Union swiftly adopt new rules for a global minimum tax met with renewed skepticism from some member states at a meeting in Brussels.”

France has made progress on new international taxation rules a priority for its presidency of the EU in the first half of this year after a deal between about 140 countries was struck in October at the Organization for Economic Cooperation and Development.

But some European nations have raised concerns about the feasibility of implementing the global accord in 2023, while others are demanding more progress on the another part of the overhaul concerning rights to tax multinational firms.


Some EU Ministers Doubt Minimum Tax Can Go Live In 2023Todd Buell, Law360 ($). “Several European Union finance ministers said Tuesday that the EU is trying to implement the second part of an internationally agreed tax deal too quickly, arguing that putting a minimum tax into countries' laws next year might not be possible.”

Finance officials said they broadly backed the European Commission's Dec. 22 directive on the minimum tax, part of the two-pillar approach that was agreed to by nearly 140 jurisdictions working through the Organization for Economic Cooperation and Development last October. Some ministers, such as those from Estonia and Sweden, expressed doubts about the EU's ability to implement the tax in 2023 during their meeting in Brussels, which was webcast. 

Transposing the EU directive into domestic law over the next year ‘might be a problematic thing and might simply be not achievable,’ said Keit Pentus-Rosimannus, the finance minister from Estonia — one of the lastEU countries to give its support to the minimum tax. Sweden's finance minister Mikael Damberg also said that getting the law in place by that time is ‘a concern for us.’


Ha! It’s National Let’s Laugh Day! “We have all heard the saying, ‘Laughter is the best medicine.’ This is the day to take your medicine,” according to National Day Calendar.

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