Tax Update Blog

Tax News & Views Calling Santa Roundup

May 6, 2022 | Blog
By Jay Heflin

Bipartisan energy gang eyes ‘Santa’s list’ of tax credits - Nick Sobczyk, E&E Daily.The bipartisan energy and climate gang led by Sen. Joe Manchin (D-W.Va.) broached the topic of clean energy tax credits last night, but they seem far from putting pen to paper to define what a deal might look like."

The group, in its third meeting, went through a list of the energy-related tax credits that have been proposed in the Senate over the last year in the Finance Committee and in Democrats’ $1.7 trillion “Build Back Better Act,” according to multiple senators who were in the meeting.

It was the group’s third meeting in less than two weeks, but there’s little evidence so far that the senators have a path to a bipartisan deal. On top of energy tax credits, the gang in previous meetings has broadly discussed National Environmental Policy Act permitting reform and a carbon border adjustment… The midterms are fast approaching, however, as are the legislative roadblocks that usually come with them.

This energy pursuit by Manchin has some lawmakers thinking it is a stalling strategy to ensure that Build Back Better doesn't advance in Congress:

Democrats fear Manchin’s bipartisan energy push is a stalling tactic – Alexander Bolton, The Hill. “Sen. Joe Manchin’s (D-W.Va.) new focus on putting together an ambitious bipartisan energy and climate package is being met with strong skepticism from fellow Democrats who view it as a stalling tactic to avoid discussing President Biden’s Build Back Better agenda.”

Manchin told reporters this week that his focus is on crafting bipartisan energy legislation, which would center on proposals to incentivize green energy technologies and bolster the fossil fuel industry, and not on moving Biden’s most ambitious proposals with a budget reconciliation package.  

But the talks over the bipartisan energy bill are at the earliest stages, and the chances of getting a deal are small.  

 

Semiconductor Tax Break Sought by Senators in Competition Bill – Maria Curi and Colin Wilhelm, Bloomberg ($). “Senate Finance Committee leaders want a semiconductor tax credit to be included in a broader China competition measure, but the effort runs the risk of bogging down talks.”

Lawmakers want to send a bill to boost U.S. competitiveness against China to President Joe Biden’s desk by the end of the summer, before they head back to their districts to focus on campaigning. Negotiations are now beginning, with conference members under pressure to find a compromise that can pass in both chambers.

Still, Sens. Ron Wyden (D-Ore.) and Mike Crapo (R-Idaho) told Bloomberg Government they will push for the inclusion of a semiconductor investment credit in the conference. The House- and Senate-passed bills (H.R. 4521 and S. 1260) didn’t include tax breaks for the chips, which facilitate electricity for technology from computers to cars. Adding one could open the door for other lawmakers to try to squeeze in their tax proposals.

This piece of legislation could become a vehicle for other tax provisions. Emphasis on 'could.'

Senate sends strong message on R&D Expensing, Jay Heflin, Eide Bailly:

The Senate on May 4th overwhelming approved a measure that would allow taxpayers to expense R&D outlays in the year incurred instead of amortizing them. There’s just one glitch: the measure is nonbinding.

Tucked inside the House-passed bill is a provision that makes permanent the health coverage tax credit and increases the amount of the qualified health insurance premiums covered by the credit from 72.5% to 80%. This provision means that other tax measures can be added to the bill that the lawmakers are negotiating.

President Joe Biden is eager to sign the innovation/trade bill into law. If tax measures become too problematic, they will likely be struck from the bill. 

The White House this morning put out a call for Congress to pass this bill:

President Biden’s top economic priority is to fight inflation by lowering costs that working families face, and lowering the federal deficit.

One of the best ways to lower the cost of the goods and services that families rely on is to make more things in America, with more secure, resilient supply chains. We’ve learned this the hard way during this crisis – when brittle supply chains and hollowed out manufacturing resulted in backlogs, bottlenecks and higher prices for families.

 

Oil Company Windfall Tax Faces Long Odds, Dem Aide Acknowledges - Erin Slowey. Bloomberg ($). “A big oil windfall profits tax is not very likely before midterms, a Senate Democratic aide said, speaking at a D.C. Bar conference Thursday.”

‘There’s a lot of disagreement about them,’ said Bobby Andres, a senior policy adviser in the Senate Finance Committee. ‘And you know in an evenly split chamber, I think the prospect of getting one enacted in this Congress is pretty slim.’

 

Rubio Targets Citi, Amazon With Bill on Abortion-Travel Benefits – Laura Davison, Bloomberg ($). “Senator Marco Rubio is sending a message to Amazon Inc., The Walt Disney Co., Citigroup Inc.and other U.S. companies that have vowed to pay travel costs for their employees to access abortion services or gender-affirming care for their children: Republicans want to make it more expensive.”

The Florida Republican, a potential contender for the GOP nomination in 2024, is proposing legislation that would prevent companies from writing off these costs for their employees and their families. The tax code generally allows companies to deduct their business costs, including employee health coverage and other benefits.

The legislative text is here.

 

The Elephant in The Room: The Gap Between Federal Retiree Benefits and Taxes Paid - C. Eugene Steuerle, Tax Policy Center. “President Trump was afraid to tackle the dominant set of spending and tax issues facing the federal government. Ditto, so far, for President Biden. Under current law, the Social Security and Medicare trust funds that pay out crucial benefits to retirees will go insolvent by roughly 2034 and 2026, respectively, triggering large mandatory benefit cuts. Meanwhile, the gap between scheduled benefits and taxes paid directly to cover the cost of these programs continues to grow.”

Every elected official knows this. And no one expects benefits for existing retirees suddenly to be cut in 2034 or 2026. But fixing the problem requires some combination of tax hikes and reduction in the rate of growth of future benefits, neither of which pleases Congress’ or presidents’ political palates for admitting to having made promises that couldn’t be kept.

Larger Federal Deficits & Higher Interests Rates Point to the Need for Urgent Action – Government Accountability Office:

‘GAO’s latest report on the nation’s fiscal health paints a sobering picture. Without substantive changes to revenue and spending policy, the federal debt is poised to grow faster than the economy, a trend that is unsustainable,’ said Gene L. Dodaro, Comptroller General of the United States and head of the GAO.

It’s been said a million times that the U.S. can’t tax-increase/spending-cut its way out of debt. The debt hole is simply too big. Adjusting taxes and spending levels will not be enough. Real reform is needed, but so far no one knows what that looks like. 

 

Crypto-Rich Puzzle Over How to Pass On High-Risk Wealth to Heirs - Jill R. Shah, Bloomberg ($). “J.W. Verret has a plan for his heirs to follow when he dies. And it’s unlike anything estate planners could have imagined just a decade ago.”

That’s because the middle-aged law professor has spent two years building up various crypto holdings. To access that wealth, should he meet an untimely end, his three children may have to go through a 25-page document with details on websites to navigate, special wallets to download, web applications to connect and exchanges to cover.

Verret’s scavenger hunt document may seem unusually challenging for an asset class that has ballooned to a nearly $2 trillion market. But it underscores that for all the wealth accumulated in the world of digital tokens in recent years, the best way to pass it along to the next generation is still very much a puzzle -- even for the usual experts.

 

Treasury Official Calls for Input on Tax Regulatory Priorities – Naomi Jagoda, The Hill. “Lily Batchelder, Treasury’s assistant secretary for tax policy, encouraged tax lawyers to weigh in on what regulatory projects deserve attention over the next year.”

During a Thursday virtual conference hosted by the D.C. Bar, Batchelder said the Treasury Department and the IRS welcome lawyers to suggest ideas for guidance items that are desired by their clients.

‘I’d also ask you to put on your hat as a private citizen who is also a tax expert, and ask yourself what regulatory projects you think would most effectively improve tax administration and make the tax code fairer,’ she said. ‘What are we not thinking about that we should be? We would genuinely appreciate your ideas.’

 

Surprise Billing Final Rule Coming Soon, Treasury Official Says - Allie Reed, Bloomberg ($). “An eagerly awaited final rule for resolving payment issues when patients receive emergency health care from out-of-network medical providers is coming soon, a U.S. Department of Treasury official said Thursday.”

Four different agencies issued an interim final rule in September 2021 telling arbitrators to pick the offer closest to a health plan’s median in-network rate for the services the patient received. Hospitals and doctors said the rule would hurt their finances, while health insurers and employers said it would tame inflation.

 

IRS Is Six Months Behind on Refunds for People Who File by Mail – David Hood, Bloomberg ($). “Taxpayers will have to wait at least six months to get refunds on paper tax returns filed this year, National Taxpayer Advocate Erin Collins said.”

The IRS’s well-documented problems with a backlog of unprocessed paper returns are the culprit for the delay, Collins said. Even if returns were filed in January, refunds for paper-filed returns may arrive in June, she said, speaking Thursday at a D.C. Bar conference.

Collins also said amended returns, even if they were filed electronically, are being processed as if they were paper. Amended returns, she said, are 'just as backlogged as the original return.'

And the hits just keep on comin':

Despite Drop in Phone Calls, IRS Customer Support Plummets – Alexander Rifaat, Tax Notes ($). “Taxpayers’ access to live customer service from the IRS declined during the 2022 tax return filing season, despite a significant drop in the number of phone calls received, according to the Treasury Inspector General for Tax Administration.”

In a preliminary report released May 5, TIGTA found that IRS telephone assisters answered about 2.7 million calls and provided a 19.5 percent response rate during the 2022 season, compared with 4.4 million calls and a 27.3 percent response rate the previous year.

And coming:

IRS still hampered by backlog and staffing shortages – Michael Cohn, Accounting Today:

The Internal Revenue Service is continuing to face staffing challenges that are holding back its efforts to process both last year’s and this year’s tax returns, according to a new report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, found that backlog inventories left over from the 2021 filing season are larger than those in the 2020 filing season. More than 16.4 million individual tax returns, transactions and Accounts Management cases remained in inventory as of the end of calendar year 2021. 

The TIGTA report is here.

 

IRS Sees Previously Taxed Income Regs Issued Around Year End - Michael Rapoport, Bloomberg ($). “The IRS expects to issue the first set of its much-awaited proposed rules on previously taxed income around the end of 2022, an IRS official said Thursday.”

That timing is slightly more precise than the government previously discussed. The Treasury Department said in the past it hoped to issue the first tranche of the regulations by the end of the year.

IRS Aims to Release PTEP Regs Near Year-End – Andrew Velarde, Tax Notes ($):

John Merrick of the IRS Office of Associate Chief Counsel (International) indicated that it is the agency’s hope and expectation that the first tranche of PTEP regs will be released near the end of the year.

Confirming some specifics of guidance that the government previously indicated would be released, Merrick said the first set of proposed regs would deal with timing and adjustments related to midyear share transfers, section 961(c) matters, and controlled foreign corporations owned by partnerships. He added that the rules would be “very well developed.”

Under section 961(c), stock basis adjustments are made — similar to those under section 961(a) and (b) — to a U.S. shareholder of a CFC that is owned by another CFC.

Speaking on a later panel, Brenda Zent of the Treasury Office of International Tax Counsel also said that the regs would address the application of section 961(a). Regarding CFCs held by partnerships, Zent said that whether a partnership receives increased basis in CFC stock has become more important with domestic partnerships now treated as aggregates for purposes of subpart F and the global intangible low-taxed income regime.

 

IRS Says Passive-Investment Rules Would Boost Compliance Burden – Michael Rapoport, Bloomberg ($). “Proposed rules on passive foreign investment companies, or PFICs, could mean a bigger compliance burden for partnerships’ individual partners, an IRS official acknowledged Thursday.”

The rules proposed in January (RIN 1545-BP94; REG-118250-20) deal with domestic partnerships’ income from PFICs, which are foreign companies that derive their income from passive sources like dividends and royalties.

 

IRS Preps Updates to Domestic Violence Forms, Refund Notices – David Hood, Bloomberg ($). “The IRS will update form instructions for taxpayers who are victims of domestic violence to better serve them, the agency said in response to an internal watchdog report.”

Victims of domestic violence or spousal abandonment (VDOV) can file a return as married filing separately to claim premium tax credits, a credit to help individuals and families cover health insurance through Affordable Care Act markets. Form 8962, the form to claim the credit, should include instructions that explicitly spell that out for domestic violence victims, the Treasury Inspector General for Tax Administration (TIGTA) said in a new report.

The IRS agreed with the recommendation, saying it would include instructions in the next revision of the instructions for the form.

 

Former Official: Liberty Global ‘Breathtaking in Its Ignorance’ – Andrew Velarde, Tax Notes ($). “The former appellate section chief for the Justice Department Tax Division had some choice words for a district court that invalidated temporary regs limiting the dividends received deduction over Administrative Procedure Act failures.”

‘When I read this case, I think the opinion is breathtaking in its ignorance into how long it takes for an IRS reg to be issued,’ said Gil Rothenberg, now an adjunct professor at American University Washington College of Law and the University of Pennsylvania Law School.

 

Recommendation for Spousal Relief is Advisory, Says Tax Court – Jeffery Leon, Bloomberg ($). “The ex-wife of a taxpayer indicted in a tax shelter scheme can’t claim innocent spousal relief on a recommendation from the IRS’s office handling the issue because it is advisory, the Tax Court found Thursday in a precedent-setting ruling.”

Michelle DelPonte is the ex-wife of William Goddard, who was indicted in 2009 for selling “exceptionally aggressive” tax avoidance schemes to clients. DelPonte sought innocent spousal relief for the three years that she filed with Goddard, to seek relief from the millions in taxes Goddard owed from his crime and hid from her. The IRS referred her claim to the IRS’s Cincinnati Centralized Innocent Spouse Operation (CCISO) to make a determination about her entitlement to spousal relief.

The CCISO determined she was entitled to relief under tax code Section 6015, which it communicated to the IRS Office of Chief Counsel. The IRS overrode the decision, asking DelPonte for more information. DelPonte petitioned the Tax Court, asking that it grant her relief because CCISO determined relief and its decision was binding on the Office of Chief Counsel.

 

Table is set for end-of-session debate over tax cuts – Brian Bakst, MPR News. “One critical decision left for the Minnesota Legislature in the remaining two-plus weeks of its session is how much to cut taxes and for whom.”

The Minnesota House set up those end-of-session negotiations Wednesday with passage of a plan that’s more-limited than one that the Senate advanced earlier this year. 

It would be difficult for lawmakers to reach a deal for dispersing the rest of Minnesota’s giant budget surplus unless at least some is sent back as tax relief.

 

Washington State Defends Tax Increase on Banks to Supreme Court – Perry Cooper and Michael Bologna, Bloomberg ($). “The U.S. Supreme Court shouldn’t take up a suit filed by two banking groups challenging the state of Washington’s 2019 tax increase on large financial institutions, the state told the high court.”

The Washington Bankers Association and the American Bankers Association are asking the court to overturn a Washington Supreme Court ruling upholding the state’s surtax on gross receipts of financial institutions with more than $1 billion in income. They argue the tax violates the commerce clause of the U.S. Constitution by discriminating against out-of-state banks.

 

Gov. Kelly signs tax exemption and reduction bill – Joseph Hennessy, WIBW. “The bill cuts property taxes while providing additional tax relief for Kansas veterans and the elderly through property tax refunds.”

House Bill 2239 gives tax credits to teachers who purchase school supplies out of their own pockets.

‘In the next three years, we’re cutting more than $1 billion, again, $1 billion in taxes for Kansans. These are common-sense tax cuts that’ll put money back in people’s pockets,’ said Governor Laura Kelly.

 

Georgia Governor Signs Bill Allowing Consolidated Returns - Angélica Serrano-Román, Bloomberg ($). “Affiliated corporations in Georgia can file consolidated income tax returns beginning in 2023 under a bill signed Thursday by Gov. Brian Kemp (R).”

The measure will eliminate the requirement for affiliated corporations to file separate returns unless the Department of Revenue has previously requested or approved the filing of consolidated returns.

‘As a small business owner for more than 35 years, I have always applied a pro-business approach to governing, helping cut red tape and ensure we have an environment that allows good Georgia companies to thrive and serve their customers,’ Kemp said in a release.

 

California Effort To Restore Inherited Property Tax Break Fails – Laura Mahoney, Bloomberg ($). “California voters won’t be asked in November if they want to repeal a law limiting property tax breaks for people who inherit homes from parents or grandparents.”

Proponents of a ballot measure to repeal inherited property provisions of the 2020 law (Proposition 19) said they failed to gather enough signatures to qualify for the statewide ballot. The Howard Jarvis Taxpayers Association enlisted 13,000 volunteers who gathered more than 402,000 signatures, falling well short of the 997,139 needed by May 2 to reach the November ballot.

 

Theme-Park Rebound Fuels Record March Hotel Taxes for Orlando - Christopher Palmeri, Bloomberg ($). “Florida’s Orange County collected record monthly hotel tax revenue in March, showing the theme-park capital of the world has bounced back from the pandemic.”

The county, which includes the City of Orlando, collected $38.6 million in hotel taxes, more than double what it generated in the same period a year ago, according to a statement Thursday from the comptroller. That beat the previous high set in March 2019.

The region, which is home to theme parks run by Walt Disney Co., Comcast Corp. and others, has been seeing a rebound in travel as U.S. consumers get out again.

 

Doubts Escalate Over Timeline for Implementing Global Tax Deal - Christopher Condon, Bloomberg ($). “The top tax official at the Organization for Economic Cooperation and Development signaled his uncertainty over whether national governments will keep to the agreed timetable for implementing a historic global tax agreement, yet he warned there was no going back on the deal if officials wanted to avoid a further breakdown of international tax rules.”

The OECD is continuing to host technical negotiations on the details of an agreement that was backed, in principle, by almost 140 countries last year. Its current timetable calls for the deal to be in force globally by the end of 2023.

‘We are in the middle of the negotiation,’ Pascal Saint-Amans said Thursday in an event hosted by the District of Columbia Bar Association. ‘There is an extremely ambitious timeline. We’ll see whether it can be met.’

The OECD today published the public consultation document “Pillar One – Amount A: Regulated Financial Services Exclusion” with a May 20 response deadline. The document is here.

 

U.S., OECD Working to Clarify Credits’ Minimum Tax Treatment – Isabel Gottlieb and Michael Rapoport, Bloomberg ($). “The U.S. Treasury has been working with the OECD to clarify the treatment of credits under the globally agreed minimum tax, a department official said Thursday.”

‘We’re confident that the value of many of our general business credits is preserved under the OECD rules,’ Lily Batchelder, Treasury Assistant Secretary for Tax Policy, told a D.C. Bar event. ‘And we’ve established a process with the OECD for working towards additional clarifications.’

 

Public Should Have Say on Full Tax Reallocation Rules, U.S. Says - Isabel Gottlieb, Bloomberg ($). “The U.S. Treasury is pushing for the public to have a chance to comment on the global tax deal’s profit reallocation plan in full, after its pieces are individually released, a department official said Thursday.”

Under the 2021 global tax agreement, a portion of the largest multinationals’ profits are to be reallocated to the countries where they make sales. The Organization for Economic Cooperation and Development, which is leading the project, has been releasing individual “building blocks” of that portion of the global deal, known as Amount A.

But the U.S. believes stakeholders need time to look at the whole picture and provide input, Michael Plowgian, a counselor at the Treasury Department’s Office of Tax Policy, told participants at a D.C. Bar event. That would address a concern that by commenting on each piece individually, businesses and groups may miss issues arising from the interaction of the pieces.

 

U.S. Tax Break Accounting Plan Draws Inspiration from Overseas - Nicola M. White, Bloomberg ($). “U.S. accounting rulemakers will issue in the coming weeks an early-stage plan asking how companies should report tax incentives and government grants in their financial statements.”

For multinational companies and their auditors, the plan will look familiar. That’s because the board will issue the entirety of IAS 20, the international accounting rules for recognizing and measuring incentives and breaks, and ask whether all or some of it could work in the U.S, Financial Accounting Standards Board Technical Director Hillary Salo said Thursday.

‘People were interested in a project on the recognition and measurement of government grants, but not necessarily looking for the board to create a brand new model,’ Salo said at a Baruch College financial reporting conference.

 

It’s National Military Spouse Appreciation Day and National Beverage Day. Raise a glass to those who sacrifice so much for this country!


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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.