Biden Emphasizes Deficit Reduction in Bid to Pass Economic Agenda – Andrew Duehren and Amara Omeokwe, Wall Street Journal ($). “The Biden administration and top Democrats are embracing efforts to reduce the federal deficit as they seek to gain support for their economic agenda from Sen. Joe Manchin (D., W.Va.), a holdout who views closing the budget gap as a way to combat inflation.”
In a series of recent public remarks, President Biden and party leaders including House Speaker Nancy Pelosi (D., Calif.) are promising anew that their stalled healthcare, education and climate-change package would raise more revenue than it spends. Democrats are also talking up the recent narrowing of the deficit as broad fiscal support for the economy dries up and the labor market strengthens.
Democrats would likely rely on tax increases approved last year in the House—including a 15% corporate minimum tax, higher taxes on U.S. companies’ foreign earnings, new surtaxes on very-high earners and enhanced tax enforcement efforts at the Internal Revenue Service to pay for the package—paired with fewer spending programs in a new bill aimed at reducing the deficit. Those tax plans, along with government savings generated by government-negotiated drug prices, raise nearly $2 trillion over 10 years.
Biden To Issue 2023 Government Spending Plan on March 28 - Justin Sink, Bloomberg ($). “President Joe Biden will release his 2023 budget request on March 28, according to a senior administration official, outlining how he’d enact some of his top priorities and his administration’s spending requests across the government.”
The budget request includes proposed changes to the corporate and individual tax codes sought by the Biden administration.
The annual request is aspirational, meant to guide Congress as it kicks off negotiations over tax and spending legislation.
Biden to Release Fiscal 2023 Budget Proposal March 28 – Doug Sword, Tax Notes ($):
The reconciliation bill includes many of the proposals Biden featured in budget documents released in May 2021 for the fiscal 2022 budget, but it is unclear whether the new budget will present Biden’s tax proposals from his last budget or whether new tax provisions incorporated in Build Back Better might be included.
The administration can likely be expected to shoot for another double-digit percentage increase in the IRS budget, as restoring funding at the agency following almost a decade of flat budgets is a priority for Democrats. For the fiscal 2022 budget, the White House sought a 10 percent increase, which House Democrats bumped to 14 percent. The $1.5 trillion omnibus spending bill had just a 6 percent increase for the agency.
As Democrats eye gas price relief measures, some are skeptical - Lindsey McPherson, Roll Call. “House Democrats, including many of the party’s vulnerable incumbents, are pushing to provide consumers relief from pain at the gas pump through rebates or tax cuts. But some admit the proposals aren’t going anywhere and would amount to little more than political messaging bills.”
‘That’s not happening,’ Rep. Kurt Schrader, D-Ore., said. ‘It’s just unrealistic. I mean, we can't afford to do all that sort of thing at this point in time. It's pandering. Let's be smart.’
Tax breaks percolating - David Lerman and Laura Weiss, Roll Call:
While the fiscal 2022 omnibus spending package steered clear of tax legislation, lawmakers are preparing to push for several tax measures in coming months, including breaks for charitable donations, research and development, employee retention and more.
Approving a tax-cut bill will be easier said than done. Democrats oppose several currently-expired tax cuts that they contend only benefit the wealthy. They also want to increase taxes on the wealthy and businesses. This means Republican support will likely be needed to approve any tax-cut bill, and they may not be too eager to help because it might hurt their chances for retaking the House and Senate after the November elections. The probability of passing a tax-cut bill likely increases after the elections.
Targeting tax credits, and Russia – Bernie Becker, Politico. “Still looking at that: Senate Democrats aren’t backing away at all from the idea of taking away preferential tax treatment for companies still doing business in Russia. Not only that: They’re calling out one very big name in business — Koch — as they push to punish those companies.”
Senate Majority Leader Chuck Schumer and Senate Finance Chair Ron Wyden (D-Ore.) said in a statement late last week that Koch Industries is ‘shamefully’ still keeping its operations running in Russia, even as ‘the democracies of the world make huge sacrifices’ to punish President Vladimir Putin for invading Ukraine.
IRS’s Tech Focus Holds Both Promise and Peril – Jonathan Curry, Tax Notes ($). “There’s bipartisan agreement that the IRS should modernize its technology, but how it does so merits careful scrutiny from Congress and Treasury, according to tax professionals.”
Generally, Republicans want the IRS to modernize its ancient technology so that the agency can get a better bang for the bucks it’s appropriated each year; Democrats, meanwhile, are more eager to see the IRS use technology to better crack down on tax evasion. Both aims can and should be realized, but some caution is warranted, panelists said during a March 18 discussion hosted by the University of Florida Levin College of Law.
Senators call for Donor-Advised Funds reform – Jay Heflin, Eide Bailly. “During the Senate Finance Committee’s March 17th hearing on the charitable sector, lawmakers from both political parties called to reform Donor-Advised Funds so that the donation’s tax deduction and charitable benefit are better synchronized.”
‘You have the predicament that the donor gets the deduction now, but the charitable benefit may not happen for years,’ said Senator Sheldon Whitehouse (D-RI), adding, ‘there's an estimated $140 billion set aside for future gifts in donor advised funds with no requirements for the funds to actually be distributed to charities.’
Easement Partner Can’t Keep IRS From Talking to Investors – Nathan Richman, Tax Notes ($). “A tax matters partner defending a syndicated conservation easement deduction isn’t entitled to a protective order barring the IRS from asking participants in the transaction for information, a Tax Court judge ruled.”
Tax Court Judge Albert G. Lauber rejected the petitioner’s claim in Oconee Landing Property LLC v. Commissioner that a comment to a model ethical rule against a litigant talking to a represented party applied to the IRS’s contact with investors in an easement transaction.
‘If these investors believe that informal communication with respondent will best serve their own interests, then they should be free to speak,’ Lauber wrote in his March 18 order.
IRS Corrects Proposed Regs on Required Minimum Distributions – Tax Notes ($):
The IRS has corrected grammatical errors in proposed regulations (REG-105954-20) on required minimum distributions from qualified plans, annuity contracts, custodial accounts, and retirement and deferred compensation plans.
The IRS has delivered more than 45 million tax refunds. This is the average payment – Kate Dore, CNBC. “The IRS has issued more than 45 million tax refunds worth almost $152 billion in total, as of March 11, the agency reported Friday.”
Nearly half of Americans expect refunds this season, according to a Capital One report, providing a needed financial boost for a large percentage of filers.
The average payment is currently $3,352 through March 11, $537 larger than last year’s $2,815, but it may still change with four weeks until the April 18 deadline.
The IRS document is here.
Taxpayers Must Check Off Cryptocurrency Question, IRS Says – Bloomberg ($):
Taxpayers are required to answer a ‘yes or no’ virtual currency question at the top of certain forms, the Internal Revenue Service said Friday.
The question concerns all taxpayers who file Form 1040, Form 1040-SR or Form 1040-NR, not just those who transacted virtual currency in 2021, the agency said.
IRS Reminds Taxpayers to Answer Crypto Reporting Question – Tax Notes ($):
The IRS further reminded taxpayers that any disposition of virtual currency that was held as a capital asset through a sale, exchange, or transfer must be included as a capital gain or loss. Also, taxpayers who received virtual currency as compensation for services must report it as they would any other income.
Billionaire Seeks to Ease IRS Liens With $1.45 Billion Offer - David Voreacos, Bloomberg ($). “The billionaire facing the largest U.S. tax-evasion case against an individual is urging a judge to accept his family trust’s offer to put up $1.45 billion in exchange for the IRS relaxing liens on his property and assets.”
Robert Brockman’s offshore charitable trust is willing to move money from Switzerland into U.S. accounts, according to a Friday filing by his lawyers in federal court in Houston. In return, Brockman wants the Internal Revenue Service to lift its so-called jeopardy assessment, which is imposed on taxpayers the agency fears may leave the country or fail to pay their bill.
That assessment has led the IRS to seize funds from accounts owned by Brockman and his wife, place liens on their former home and other properties, and attach his retirement pay from Reynolds & Reynolds, the auto dealership software company Brockman built.
Remote Tax-Exempt Bond Hearings Are Now a Permanent Option – Erin Slowey, Bloomberg ($). “Tax-exempt bond hearings held remotely now are a permanent option for qualified private activity bonds, the IRS announced.”
The guidance (Rev. Proc. 2022-20) for public approval requirements under tax code Section 147(f) follows temporary accommodations extended in August 2021. The Treasury Department and the IRS received requests to permanently allow hearings by teleconference or webinar.
Meet Erin Collins, National Taxpayer Advocate for the IRS – Kate Dore, CNBC:
The National Taxpayer Advocate hotline fielded nearly 3 million calls between Oct. 1, 2020 and Sept. 30, 2021, a 990% increase from the previous 12 months, and received 264,343 new cases.
And currently, the IRS is buried by a backlog of tens of millions of unprocessed returns, which Commissioner Charles Rettig expects to clear by the end of 2022.
States, Businesses Back Kentucky on Pandemic Fund Tax Cut Limits – Perry Cooper, Bloomberg ($). “Seventeen states and several business and taxpayer groups are backing Kentucky and Tennessee in the U.S. Treasury’s appeal of a ruling that let states challenge federal restrictions on $195 billion of Covid-19 aid.”
In September, the U.S. District Court for the Eastern District of Kentucky agreed with the states that restrictions on the pandemic aid sent to state and local governments under the American Rescue Plan Act are unconstitutional because they intrude on state sovereignty. The judge permanently enjoined Treasury Secretary Janet Yellen from enforcing a provision of the law that would claw back funds used to offset revenue losses from a tax cut.
Kansas Lawmakers Eye Supermajority Rule for Tax Increases – Michael Bologna, Bloomberg ($). “2022 will no doubt be remembered as a historic year for tax-cut fever in state capitols based on the volume of legislation slashing income taxes, sending rebates to taxpayers, and extending gasoline tax holidays to motorists.”
Most of the bills describe short-term strategies allowing states to kick revenue surpluses back to taxpayers, but a few states are restructuring their tax codes in ways that could affect their capacities to raise revenue and fund services for decades. This week the Center on Budget and Policy Priorities identified Colorado, Missouri, Montana, Nebraska, and Texas as states considering property tax restrictions that could impact school funding.
Kansas also stands out for pursuing a proposal frequently criticized by progressive tax policy analysts. SCR 1620 would ask voters to amend the state constitution in November to require supermajority voting in the Kansas Legislature for any tax increases. The resolution won approval Tuesday in the Senate Committee on Assessment and Taxation and now seeks support from the entire chamber.
State Tax Revenues Rose 22% in Fourth Quarter; New York Up 73% - Bloomberg ($):
State tax revenues increased 22% to $335.7 billion in the fourth quarter compared with the same period last year, according to U.S. Census Bureau data.
- Tax receipts rose $61.6 billion from last year and $34.2 billion, or 11%, from the previous quarter
- Among the 10 biggest states by tax revenues:
- New York increased the most, up 73% from the year-earlier quarter to $33.3 billion
- Washington increased the least, up 2.1% to $8.06 billion
No New Taxes, but Plenty to Fight Over in New York’s Looming Budget - Luis Ferré-Sadurní, New York Times ($). “The yearly race to cobble together New York State’s gargantuan budget is officially on.”
Gov. Kathy Hochul, buoyed by an influx of federal aid and unexpectedly robust tax revenues, unveiled a $216.3 billion budget proposal in January aimed at jump-starting the state’s pandemic recovery through investments in infrastructure, education and health care.
Ms. Hochul and state lawmakers have until the end of the month to bridge their differences on competing spending priorities — ranging from higher wages for health care workers to helping families afford child care — and to finalize a budget that is not expected to include raising taxes.
California Has So Much Cash, Wall Street Wants an Early Payback - Romy Varghese, Bloomberg ($). “California is so awash with money that Wall Street is advising it to buy out some of its debt investors.”
Morgan Stanley and Loop Capital Markets suggested to Treasurer Fiona Ma that her office consider paying off some bonds early, public records obtained by Bloomberg News show. The pitches underscore the financial strength of California given that the state’s proposed $213 billion budget is bolstered by a $45.7 billion surplus. The state’s progressive tax system rakes in more revenue when the income of its highest earners rises.
California Film, TV Tax Break Yields $24 for Every $1 in Credits – Laura Mahoney, Bloomberg ($). “California’s film and television tax credit generates $24 in economic output for every dollar in allocated credits, the California Film Commission said Friday.”
The commission examined the program from 2015 to 2020, when the state allocated $330 million per year to productions including ‘Being the Ricardos,’ ‘Licorice Pizza,’ and ‘Winning Time: The Rise and Fall of the Lakers Dynasty.’ Findings are based on data from the Los Angeles Economic Development Corporation.
Michigan Governor Says No to Income, Gas Tax Cuts – Michael Bologna, Bloomberg ($). “As promised, Michigan Gov. Gretchen Whitmer vetoed an income tax-cutting measure passed by the Republican-controlled Legislature, saying Friday the bill would have blown ‘a recurring, multi-billion-dollar hole’ in the state’s budget."
And Whitmer, a first-term Democrat, said she would veto a ‘misguided proposal’ suspending the state’s 6% sales tax on motor fuel if it reaches her desk.
Whitmer vetoed S.B. 768, which would have cut the personal income tax rate to 3.9% from 4.25%, effective Jan. 1, 2022. S.B. 768 also promised a $500 nonrefundable child tax credit per dependent child, and lowered taxes on retirement income. A legislative analysis by the House Fiscal Agency estimated the legislation would have cost the state $951 million for the current fiscal year and $3.1 billion for fiscal year 2022-23.
Challenge to Maryland digital tax could save companies millions - Andrew Silverman, Bloomberg ($):
A state court challenge to Maryland’s digital tax, which could cost companies such as Amazon.com $250 million a year, appears poised to succeed, though recently finalized regulations weaken Maryland’s case. Digital companies may save billions annually if Maryland’s tax is struck down, as other states might steer clear.
Income Tax Can Follow Residents Who Leave State, Pros Say - Maria Koklanaris, Law360 ($). “Residents who leave one state for another are often not aware that taking gains in the state they left may keep them open for taxation there, tax professionals said Friday.”
The state tax professionals, both of whom handle residency and tax issues as a large part of their practices, said sourcing back to the original state for nonresidents is a ‘huge audit issue.’ Once you are a nonresident, a state can tax only your income associated with that state, but not everyone realizes that the income is still sourced there, the professionals said. They spoke on a panel at the American Bar Association and Institute for Professionals in Taxation Advanced Tax Seminars, held online.
EU Advisers Urge Go-Slow Approach on Minimum Tax Directive - Hamza Ali, Bloomberg ($). “The European Tax Adviser Federation wants the EU to wait for more details on global minimum tax rules before finalizing a directive implementing it in the single market.”
In October, over 130 countries signed up to a two-pillar plan to rewrite how multinationals are taxed. The second pillar of this plan will create a global minimum tax rate of 15% for large multinationals.
Multinationals Fret Over Foreign Tax Credits as U.S. Tightens Rules – Richard Rubin, Wall Street Journal ($). “The owners of Pizza Hut, Burger King and Outback Steakhouse are alerting investors about a potential threat to profits: foreign tax credit rules.”
The restaurant chains and other multinational companies said in recent securities filings that they are analyzing complicated new Treasury Department rules. The regulations, which limit when companies can claim U.S. tax credits for paying foreign taxes, were released in December and are now in effect.
Companies are just beginning to get a sense of which foreign tax credits they may no longer claim and how the rules affect their profits. Analysts say many more companies are likely to provide details on how the rules affect their financial statements and disclose any impact in first-quarter earnings reports that are due out this spring.
Trade groups that represent large multinational companies—such as the U.S. Council for International Business, the Alliance for Competitive Taxation and the National Foreign Trade Council—have asked the Biden administration to delay or reconsider the rules.
US Could Lose Tax Revenue If It Neglects OECD's Pillar 2 - Dylan Moroses, Law360 ($). “Further details unveiled this past week on the Organization for Economic Cooperation and Development's global minimum corporate tax plan show the U.S. could lose tax revenue if it doesn't conform to the second pillar of the OECD deal.”
The U.S. may cede taxing authority to jurisdictions where U.S. multinationals covered by Pillar Two have subsidiaries that pay effective tax rates lower than the global minimum of 15% unless Congress is able to revise existing international tax laws.
The U.S.' current international tax system is less likely to be considered a qualifying Pillar Two regime based on further details unveiled March 14 by the OECD. While legislationpending in Congress would better align U.S. tax laws with the global tax overhaul, its passage remains uncertain.
Happy National French Bread Day! When well prepared, it is the perfect food. And it has an interesting history, according to National Day Calendar:
'Over time, French law has established what is and what is not a baguette. In 1920, a labor law prevented bakers from starting their day before 4 a.m. Bread makers know that breadmaking is a tactile industry. The kneading and resting of the dough are just as important as the ingredients. When the law limited their day, the bakers knew their product so well they adjusted by re-shaping their loaves of bread. The long, narrow loaves baked more quickly and evenly. As a result, patrons found the new loaves more convenient for slicing and storing.'
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