Tax News & Views Party Pooper Roundup

December 9, 2022

Sinema switches to independent, shaking up the Senate – Burgess Everett, Politico:

Arizona Sen. Kyrsten Sinema is changing her party affiliation to independent, delivering a jolt to Democrats’ narrow majority and Washington along with it.

In a 45-minute interview, the first-term senator told POLITICO that she will not caucus with Republicans and suggested that she intends to vote the same way she has for four years in the Senate. ‘Nothing will change about my values or my behavior,’ she said.

What this means:

  • Senate Democrats will still hold a 51 seat majority in the chamber.
  • Sinema was always a wildcard when it came to counting votes and will continue to be.
  • Large bills that advance progressives’ agenda (i.e., tax increases on individuals and companies) will have a harder time advancing in the Senate since Sinema can now say she is no longer with the political party that supports these initiatives. (Also, Sen. Manchin is still in the Senate, who also doesn’t support progressives agenda.)
  • Bottom line: It was tough passing legislation in the Senate before. It will be tough passing legislation now. Passing bills is tough, that's why Congress is referred to as a "sausage grinder" and not a "candy factory."


Who Would Benefit From Restoring The Full CTC, EITC, and The TCJA’s Business Tax Breaks? – Howard Gleckman, Tax Policy Center:

Who benefits most?

If Congress agrees to all the changes, TPC found the biggest beneficiaries, measured in terms of percent change in after-tax income, would be the lowest-income households. They’d get an average tax cut of 2.1 percent in 2023, or $370… At the other end of the income distribution, the highest-income households, those making about $4.4 million or more, would see their after-tax incomes rise by an average of about 0.2 percent. In dollar terms, they’d be the big winners, with their average incomes rising by about $22,000.

Tax provisions in play on Capitol Hill:

fiscal cost of extending tax cuts and jobs act business provisions and a more generous child tax credit and earned income tax credit

It is unclear if Congress will pass a year-end tax bill, largely because of the Child Tax Credit.

Advocates hopeful about getting expanded child tax credit over lame-duck finish line – Tobias Burns, The Hill:

Advocates say they’re making inroads with Republican senators on a beefed-up version of the child tax credit (CTC), which has become a top priority for Democrats during the lame-duck session.

Passage of a tax bill during the lame duck session will require the support from at least ten Senate Republicans and all Democrats in that chamber. There are not ten Senate Republicans who support modifying the Child Tax Credit, according to sources close to the negotiation.

If lawmakers cut the Child Tax Credit from the tax bill, it is still unclear if the legislation will pass. This is because passage also requires support from Democrats, who have made modifying the Child Tax Credit a high priority. Many of them could oppose the bill because it doesn't address their primary concern.

For a year-end tax bill to pass Congress, it appears that one party should back away from its current position.

There is also political disagreement over the amount of money that the IRS should receive:

IRS Budget Fight Heats Up as Republicans Look to Curb Tax Agency – Richard Rubin, Wall Street Journal ($):

Internal Revenue Service funding has emerged as a point of tension in bipartisan negotiations over federal spending, as lawmakers seek a deal to keep the government funded for the full year ahead of a deadline this month.  

The dispute previews intense partisan fights next year about the size and reach of the tax agency, with Democrats leaning on the IRS to boost enforcement and tax revenue and Republicans looking to limit its expansion.

The core issue: What should happen to the IRS’s base budget—$12.6 billion in fiscal year 2022—now that the agency has $80 billion in separate, guaranteed funding for the next decade? Democrats passed the $80 billion earlier this year as part of the health-and-climate law known as the Inflation Reduction Act, and the IRS is now working on a detailed plan for that spending.

Important to note: There might not be a legislative vehicle to pass a year-end tax bill or fund legislative priorities. In short, lawmakers say that Congress must pass an "Omnibus" spending bill to move a tax and funding package and not a "Continuing Resolution." Odds are growing that a Continuing Resolution (CR) could pass:

Parties play chicken on omnibus as shutdown deadline approaches – Aidan Quigley, Lindsey McPherson, and David Lerman, Roll Call:

Speaker Nancy Pelosi told reporters Thursday that given the military and veterans' needs backed by both parties, Republicans weren't offering enough money to meet other priorities.

‘We may just have to go to a CR […]” Pelosi said.


Congress Readies Last-Ditch Effort to Limit Land Tax Deductions – Kaustuv Basu and Aysha Bagchi, Bloomberg ($):

Two years after a Senate report vilified syndicated conservation easements as sham tax shelters, congressional critics of the practice hope to pass legislation this month to deter the land transactions that have cost the Treasury billions of dollars.

The measure has bipartisan support and would cap the deduction taxpayers can take to no more than two and a half times their initial investment, a ceiling far below what many have been taking.

Further down the article:

Syndicated easements involve promoters who organize partnerships to buy land, then donate away rights to develop the land, a process that generates huge tax deductions. Both the IRS and the Senate investigators assert some investors use wildly inflated appraisals of the properties and take outsized deductions.

There is bipartisan, bicameral support for the measure and it is expected to be in the retirement legislation that is expected to pass Congress this year.


House Approves Marriage Bill Despite Tax-Exempt Status Concerns – Fred Stokeld, Tax Notes ($):

The House has approved legislation providing federal protection to same-sex marriages despite objections by some Republicans that it could threaten the tax-exempt status of religious groups that support traditional marriage.

Further down the article:

The substitute amendment, which the Senate approved November 29, includes provisions to protect religious liberty, including religious organizations’ tax-exempt status.


Opponents in the House weren’t reassured by the substitute amendment’s religious liberty protections, which Senate Finance Committee member Rob Portman, R-Ohio, during Senate debate on the bill, said ‘guarantees that this bill cannot be used to target or deny benefits, including tax-exempt status... because a person or organization holds a traditional belief about marriage.’


Democrats Amp Up Pressure on Big Oil, Seek Tax Loophole Cut - Kevin Crowley, Bloomberg ($):

Democratic senators are demanding that US oil companies pay more tax at a time when they’re raking in record profits, ratcheting up the war of words between the party and the energy industry.

Seven senators led by Bob Menendez of New Jersey are proposing to remove key tax provisions enjoyed by oil producers such as drilling cost deductions, deepwater royalty relief and carbon capture credits for enhanced oil recovery, according to legislation introduced on Thursday. The ‘Close Big Oil Tax Loopholes Act’ would also tighten up rules around deducting foreign taxes and the ‘depletion allowance’ for oil and gas wells.

This bill will likely go nowhere in the current Congress. One could even question why it was reported. The reason is because at this time of year there are very few things happening on Capitol Hill beyond funding the federal government and approving must-pass legislation. However, a congressional reporter must report something, and explaining introduced bills is a great way to spill some ink and get your editor off your back. 


Judge Apologizes For Shaking Up High Court MoneyGram Suit – Maria Koklanaris, Law360 Tax Authority ($). “A U.S. Supreme Court-appointed special master advising on a dispute over abandoned MoneyGram checks apologized to the justices and to the states involved in the case for partially changing his mind and submitting a revised interim report, according to a transcript released Thursday.”


Biden’s pick for IRS commissioner would face backlog of tax returns while gearing up for next filing season – Tami Luhby, CNN:

Even though the Internal Revenue Service has been steadily chipping away at its major backlog of tax filings, millions of individuals and businesses are still waiting for their tax returns to be fully processed and their refunds to be sent.

Dealing with this mountain of paperwork, as well as deploying the nearly $80 billion that Congress gave the agency earlier this year, could fall to Daniel Werfel, whom President Joe Biden nominated last month to be the next IRS commissioner.

The Senate has yet to announce a confirmation hearing for Werfel. With lawmakers embroiled in a fight over funding the federal government (and other things), this hearing might occur early next year - like during tax season. 


Compliance Worries Mount as IRS Takes on Tax Credit Labor Rules – Rebecca Rainey and Erin Slowey, Bloomberg ($).

The Biden administration has tasked the IRS with ensuring companies are following the labor requirements tied to green energy tax incentives in this year’s tax-and-climate law, creating a new role for the agency with little time to stand up its enforcement plans.

Businesses and investors could see a beefed-up tax credit of 30% if they agree to follow certain labor rules in the Inflation Reduction Act, including paying laborers and mechanics the local prevailing wage and using trained workers participating in a registered apprenticeship program to complete a share of the work.

However, the provisions, which President Joe Biden said will be the key to federal green investments and good-paying union jobs, create myriad new responsibilities for everyone. The provisions also are sparking concerns about how investors and developers will comply, as well as whether the government can ensure the tax credits aren’t being abused.


IRS Issues Rules for Examinations in Partnership Audit Regime – Genevieve Douglas and Naomi Jagoda, Bloomberg ($):

The IRS released rules governing examinations under the centralized audit process for partnerships created by a 2015 budget law.

The final rules, (TD 9969, RIN: 1545-BP01), issued Thursday, exempt certain partnership-related items from the audit regime and lay out alternative rules for examining those items. The rules also updates existing regulations to reflect tax-code changes, the IRS said in a summary of the regulations.

The final rules follow proposed rules issued on these topics in 2020.

 The rule is here.

Final Partnership Audit Regs Retain Rules on Non-Income Items – Kristen Parillo, Tax Notes ($):

Treasury and the IRS refused to budge from their position in final regulations updating the centralized partnership audit rules that non-income adjustments must be included in the computation of imputed underpayments.

The final regs (T.D. 9969), issued December 8, made some clarifications but mostly adopted the provisions in the November 2020 proposed regs (REG-123652-18), which addressed various matters under the centralized partnership audit regime created by the Bipartisan Budget Act of 2015 (BBA).


How Will Congress Assess The Success Of Its $80 Billion Investment In The IRS? – Janet Holtzblatt, Tax Policy Center:

How will we know whether the Inflation Reduction Act’s $80 billion ten-year investment in the Internal Revenue Service is successful? Unfortunately, measuring performance isn’t easy, and Congress has left it to the Executive Branch to define success.

At a recent Tax Policy Center event, three former IRS commissioners and three top officials from government agencies with oversight responsibilities listed their top candidates for performance metrics. But their caution about some of the most obvious measures—the tax gap, returns on investments, audit rates, and answered telephone calls—reveals how hard it will be to know whether that $80 billion is well-spent.


The IRS Goes After Your Side Hustle (Opinion) – The Editorial Board, Wall Street Journal ($):

There’s a new job for those 87,000 new employees at the Internal Revenue Service, and it isn’t chasing billionaires. It’s digging around to discover if you reported that extra $600 you made from selling grandma’s heirlooms at your garage sale.

The IRS is reminding Americans that the reporting rules have changed for payment-card and third-party payment network transactions. This means that if you received a payment of more than $600 via such networks as Venmo, PayPal, Amazon or Square, you will probably receive a Form 1099-K this year. The reporting limit for receiving a Form 1099-K used to be $20,000 a year.

In speaking with Treasury officials, they don’t think the 1099 issue will be problematic. We’ll see.


State Sales Tax Revenue Rises 5.9% Year-Over-Year in October – Bloomberg ($):

Sales tax revenue increased 5.9% to $27.1 billion in October from the same month in 2021, according to U.S. Census Bureau data for 29 states compiled by Bloomberg. Oregon rose the most, up 52.1%, and Delaware fell the most, down 94.4%.


Michigan Eases Rules for Business Interest Expense Deductions - Michael Bologna, Bloomberg ($):

Large multi-tiered businesses operating in Michigan would be allowed to calculate their deductible business interest expenses at the group level rather than the individual level under a bill approved by the state Legislature.

Further down the article:

On Wednesday, the last day of the legislative session, lawmakers passed S.B. 195, which modifies the state’s filing rules for the business interest limitation for unitary business groups under federal tax code Section 163(j). The law would be applied retroactively to Jan. 1, 2022. A fiscal note estimated the measure would cost the state $10 million annually.


Bonus Scams, His-Hers Benzes: Trump Company Trial Lifts the Veil – Greg Farrell and Patricia Hurtado, Bloomberg ($):

Every December, the Trump Organization would cut a check to a mail room employee. In a good year, the check was for $5,975. In less prosperous times, it was closer to $4,000.

It didn’t matter to the mail room guy. The money wasn’t for him.

His job was to cash the check at a local bank, lug the bills back to Trump Tower, take the elevator to the 26th floor and hand the money over to Allen Weisselberg, the company’s longtime chief financial officer. Weisselberg would then use it to tip garage attendants, his apartment doormen and others over the holidays, the jury learned in the criminal tax fraud trial of two Trump Organization business units that ended Tuesday.

Why would a supposedly billion-dollar company even perform this charade?


Xerox, Texas Tussle Over Franchise Taxes at State High Court - Perry Cooper, Bloomberg ($). “Xerox Corp. and Texas Comptroller Glenn Hegar don’t see eye to eye in briefs to the state high court over which franchise tax rate applies to the company’s sales-type leases of printer and copier equipment.”


Tax Compact Panel Approves Coupon Exclusion Option – Paul Williams, Law360 Tax Authority ($). “States that exclude manufacturer coupon values from sales tax would remain in compliance with the Streamlined Sales and Use Tax Agreement under an amendment to the compact that a council under the board that oversees the agreement advanced Thursday.”


Ga. Extends Fuel Tax Suspension Into New Year – Michael Nunes, Law360 Tax Authority ($). “Georgia Gov. Brian Kemp extended the suspension of the state's motor fuel excise tax until mid-January via an executive order Thursday, but he suggested at a press conference that this would be the final extension of the tax break.”


OECD Issues Global Deal’s Draft Transfer Pricing Reform - Isabel Gottlieb, Bloomberg ($):

The OECD on Thursday released draft details on its plan to simplify some transfer pricing, as part of the global tax reform deal agreed upon by 137 countries last year.

The part of the global tax agreement known as Amount B aims to streamline some transfer pricing rules—which govern transactions between entities in the same multinational group—to help ease administration and avoid disputes for companies and tax authorities, particularly in developing countries. It would apply to baseline marketing and distribution activities, seeking to eliminate disputes about those relatively less contentious scenarios.

Tax challenges of digitalisation: OECD invites public input on the design elements of Amount B under Pillar One relating to the simplification of transfer pricing rules – OECD:

As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD is seeking public comments on the main design elements of Amount B under Pillar One.

As part of the Two-Pillar Solution agreed in October 2021, Amount B provides for a simplified and streamlined approach to the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.


CRS Examines Corporate Alternative Minimum Tax – Tax Notes ($):

The CAMT is different from the 15% Pillar 2 global base erosion (GLoBE) tax proposed by the Organisation for Economic Co-operation and Development and G20 (OECD/G20) and endorsed by 130 countries. The CAMT imposes a minimum tax on worldwide income, whereas GLoBE would impose a minimum tax in each country. The tax base is different in numerous ways as well. Other minimum taxes currently in force — the tax on global intangible low taxed income (GILTI) and BEAT — also are not imposed on a per country basis. It is unclear how these taxes would interact with GLoBE, which, if adopted, would allow foreign countries to tax income of U.S. multinationals if effective tax rates are below 15%.


From the “NOT hitting the ground running” file:

Ways and Means chair contenders hone closing arguments – Laura Weiss, Roll Call.

The race for the House Ways and Means Committee chairmanship remains close as contenders prepare to make their final pitches to lead the powerful tax-writing panel.

Reps. Vern Buchanan of Florida, Jason Smith of Missouri and Adrian Smith of Nebraska are vying for the chairman job after current lead Republican Kevin Brady of Texas retires at the end of this month.

It's unclear exactly when the Republican Steering Committee will meet to decide the race and other contested bids for committee chair positions. One lawmaker with knowledge of the situation expects the decision to be pushed back until after the Jan. 3 vote for speaker, though the situation remains in flux.

Granted, this is Washington inside baseball, but this committee is responsible for creating tax legislation. If they wait until January to pick a chairman, that means other organizational decisions, like adding new members to the panel, will happen after the chairmanship election. Sources familiar with organizing congressional committees expect the process to take until March. If true, so much for passing tax legislation from the get-go.

Current members on the House Ways and Means Committee wanted to pass legislation that reduces taxes in January. That is not going to happen under the current plan.


Your day has been made! It’s National Christmas Card Day and National Pastry Day! Serve up your favorite quiche (or any pastry) and eat up while signing holiday cards.  

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