Biden’s Economic Agenda Heads Into Pivotal Month on Capitol Hill - Erik Wasson, Bloomberg ($):
Crunch time has finally arrived for President Joe Biden’s economic agenda as congressional Democrats scramble for a deal on a slimmed-down version of what was once a multi-trillion-dollar overhaul of domestic policy...
Senate Majority Leader Chuck Schumer has worked closely with Manchin to reach agreement on prescription drug price cuts and extending Medicare’s solvency. More contentious details on energy spending and tax provisions aren’t finalized between the two senators, but Democrats hope to unveil deals on those this week.
The new bill is expected to raise about $1 trillion in revenue, half of which would be used on new spending and half on cutting the deficit over a 10-year period.
Much of the revenue raised is expected to come from tax increases on wealthier individuals and businesses.
What's in so far regarding taxes:
The Medicare piece would require so-called pass-through businesses to pay a 3.8% health surcharge on some income.
Dets on the deal:
Democrats plan to extend Medicare solvency in new Biden tax bill - Erik Wasson, Accounting Today:
The $200 billion in additional funding is paid for by counting distributed profits in pass-through entities as subject to the 3.8% tax instituted by the Obamacare law — but only for individual earners making above $400,000 per year.
The Senate is back in session today and remains that way until August 8. That is plenty of time for Democrats to reach an agreement that only needs their support to pass the chamber. Of course, they’ve been negotiating this deal since last year, so the next three weeks could get weird. The Senate's legislative plate is full and time is short.
There is also this:
Senate Majority Leader Chuck Schumer tests positive for covid – Marianne Levine, Politico:
Senate Majority Leader Chuck Schumer tested positive for Covid and will be working remotely this week, according to his spokesperson…
Schumer’s Covid diagnosis comes as the Senate is set to return Monday from a two-week recess. Schumer’s absence, combined with the uncertain return of Sen. Patrick Leahy (D-Vt.), who is recovering from hip replacement surgery, leaves the Democratic caucus with two expected absences in the evenly divided Senate.
Bottom line: Senate Democrats need all members of their caucus present to vote on anything where a simply majority is required for passage (like Build Back Better and nominations). Until Schumer and Leahy return, votes cannot happen. Schumer will quarantine for a week. It's unclear when Leahy will return. The situation suggests that the August recess could be postponed. They also have to reach and agreement on BBB before voting on it, which has yet to happen:
Senate Democrats submitted legislative text for a prescription drug pricing reform deal to the Senate parliamentarian for review.
But other parts of the package, including its energy and tax provisions, have yet to be finalized.
Here are a few of the outstanding tax issues, according to Punchbowl News ($):
Yet there’s no agreement on a ‘global minimum tax,’ a very important issue for corporate America. And party leaders will have to resolve the state and local tax deduction fight, with a block of blue state House Democrats saying they won’t vote for any reconciliation package that doesn’t address this matter. The price tag for this provision is high, and the politics are tough. How do Democrats vote to give millionaire homeowners a tax break right before an election?
Another big challenge – what to do about enhanced premium subsidies for Obamacare enrollees? This additional support runs out at the end of the year, and millions of enrollees could see massive increases in their premiums if nothing is done. Manchin has concerns about this provision, as we’ve reported. But it’s a big priority for Democratic leaders on the Hill, Democratic governors and the White House.
Expanding the Child Tax Credit to what is was in 2021 is supposedly out. There are Democrats in both chambers who have vowed to oppose the bill if this provisions is absent. Most Washington-insiders think their threat is hollow. Dems could also adopt the plan proposed by Sen. Mitt Romney (R-Utah).
It is also not clear if Democrats will use the legislation to undo the tax cuts from the 2017 tax reform bill. Such changes would likely involve tax rate increases, which some Democrats have said they oppose - and if they stay true to their word - would keep the legislation from passing Congress.
That is if an agreement materializes:
Schumer making last-ditch bid to pass reconciliation bill this summer – Alexander Bolton, The Hill:
Sam Runyon, a spokesperson for Manchin, said her boss is glad that Democrats have agreed on a prescription drug proposal that they could pass with a simple-majority vote under special budget rules.
… But the Manchin aide waved off speculation that Schumer and Manchin are close to a deal on a broader reconciliation package…
Jinx alert:
Reading the Tea Leaves on Retirement Legislation – Marie Sapirie, Tax Notes ($). “The odds for retirement legislation moving through Congress are about as good this year as proponents could hope for, and that’s in part because so many provisions in the proposed legislation have the support of different members of Congress across party lines.”
IRS Issues Guidance on Estate-Tax Portability Elections – Naomi Jagoda, Bloomberg ($). “The IRS on Friday issued guidance (Rev. Proc. 2022-32) on a simplified process for estates to obtain an extension in order to make portability elections, which allow decedents’ unused estate-tax exemption amounts to be available to their surviving spouses.”
IRS offers simpler way for estates to extend time to file for tax exclusion – Michael Cohn, Accounting Today. “Revenue Procedure 2022-32, released Friday by the IRS, provides a simplified method for certain estates to obtain an extension of time under Section 301.9100-3 of the Tax Code to file a return on or before the fifth anniversary of the decedent's death to elect portability of the deceased spousal unused exclusion (DSUE) amount.”
Eide Bailly's take:
IRS opens door for more late portability elections - Jennifer McGarry, Eide Bailly:
There is good news today for surviving spouses and their estate planners. The IRS extended the period for ‘portability elections’ to five years after the death of the first spouse.
The portability election allows a surviving spouse to use any estate and gift tax exemption remaining from the first spouse to die. It is an important benefit as the exemption amount is $12.06 million for taxpayers that die in 2022.
The Rev. Proc. is here.
Employee Isn’t Company in Land Donation Summons Dispute – Jeffery Leon, Bloomberg ($). “An investment company under investigation by the IRS into a possible fraudulent land donation scheme can’t squash a separate IRS summons on the company because the business is a distinct entity from its agents, the US Court of Appeals for the Fourth Circuit.”
Fed’s Brainard Says Regulations Must Encompass Crypto - Jonnelle Marte, Bloomberg ($). “Federal Reserve Vice Chair Lael Brainard said recent turmoil in the crypto market does not yet pose a ‘systemic risk’ to the broader financial system, but authorities need to close regulatory gaps to protect consumers and ensure stability.”
Treasury offers framework for regulating crypto internationally – Michael Cohn, Accounting Today. “The Treasury Department has developed a framework with other federal agencies for engaging with foreign countries on the regulation of digital assets, in response to an executive order from President Biden, even as lawmakers in Congress have proposed their own industry-friendly legislation.”
Tax Treatment of Cryptocurrency Still a Challenge for States – Michael Bologna, Bloomberg ($). “Taxing transactions involving cryptocurrency and non-fungible tokens remains a sea of confusion, but several states took steps this week to at least understand these digital assets and create frameworks for long-term tax compliance.”
Truckers, Babysitters Targeted by Feds in Pandemic Loan Cases - Daniel Seiden, Bloomberg ($). “The US Attorney’s Office for the Northern District of Mississippi is leading the way when it comes to the government’s use of the False Claims Act to target alleged Paycheck Protection Program fraud."
Much of the action is happening in Mississippi:
"Oxford, Miss.-based federal prosecutor Clay Joyner has brought more than 80% of the government’s known civil suits seeking to recoup money to which his office asserts some borrowers weren’t entitled, suing an auto mechanic, a baby sitting service, and a landscaper, and obtaining consent judgments from a trucking company and a jeweler."
‘While we cannot speak for what other US Attorney’s offices will be doing, our filings are in direct response to trends and issues we have observed during investigations within our district,’ Assistant US Attorney Stuart Davis, one of Joyner’s deputies, told Bloomberg Law. Joyner has led the office in an acting capacity since March 2021.
Top 5 State & Local Tax Policies Of 2022: Midyear Report – Sanjay Talwani, Law360 Tax Authority ($). “With budgets brimming with surpluses, state lawmakers scrambled in the first half of 2022 to return money to taxpayers, with individual income tax rate cuts among the most popular targets, followed closely by gas tax suspensions.”
Texaco Building Tax Credit Loan Satisfied, Texas Court Says – Perry Cooper, Bloomberg ($). “The developer responsible for renovating the old Texaco headquarters in Houston satisfied its tax credit bridge loan obligations by completing the historic tax credit rehabilitation of the building, a Texas appeals court ruled.”
Arizona Loses Bid for 9th Circuit Redo of Covid Aid Limits Case – Perry Cooper, Bloomberg ($):
The US Court of Appeals for the Ninth Circuit denied Arizona’s request for a partial rehearing of its ruling allowing the state to challenge federal restrictions on nearly $200 billion in Covid-19 aid to states.
In May, the court found the state has standing to challenge the American Rescue Plan Act because there’s a real danger the federal government will enforce the act’s limits on how states can spend the money, and because the act potentially infringes on state sovereignty. Arizona asked the panel to clarify one aspect of its ruling: whether the spending clause demands only that Congress disclose the condition prohibiting states from using ARPA funds to directly or indirectly offset a reduction in net tax revenue.
Pa. Legislature OKs Corp. Tax Cuts, Other Tax Changes – Jaqueline McCool, Law360 Tax Authority ($). “Pennsylvania would reduce its corporate net income tax rate annually until 2031 and make several changes to the state tax code under an omnibus bill approved by the Legislature that goes next to Gov. Tom Wolf.”
Here’s What Businesses Should Know Before Leaving California – Serigo Broholm, Jack Frisbie and Jeremy Babener, Bloomberg ($). “Large corporations have the legal resources to navigate moving elsewhere, but small businesses are often left wondering what it takes to leave California. Shartsis Friese’s Sergio Broholm, Kirkland & Ellis summer associate and USC law student Jack Frisbie, and Structured Consulting’s Jeremy Babener look at five steps to moving a business out of the Golden State.”
Ark. Gov. Calls For Tax Relief During Special Session – Jaqueline McCool, Law360 Tax Authority ($). “Republican Gov. Asa Hutchinson said he was calling a special session so the Legislature could address taxes after finding that revenue collection in June was $150 million more than forecast. Hutchinson said the state's annual net surplus of $1.6 billion showed the state was collecting too much in tax revenue.”
The Global Tax Revolution for Tech Giants Is Delayed to 2024 – William Horobin and Christopher Condon, Bloomberg ($). “A global taxation deal heralded as a ‘revolution’ for the profits of multinational tech firms has run into a thicket of technical difficulties that will delay implementation to 2024 at the earliest.”
Further down the article:
‘These are complex and very technical negotiations in relation to some new concepts that fundamentally reform international tax arrangements,’ OECD Secretary-General Mathias Cormann said Monday. ‘We will keep working as quickly as possible to get this work finalized, but we will also take as much time as necessary to get the rules right.’
Global adoption of anything can be tough, even impossible. Remember the U.S. adoption of the metric system? Of course you don't because it never happened. But it was supposed to occur soon, at least that is what I was taught in elementary school - during the Watergate era.
From the Does-He-Know-What-He's-Talking-About department:
Off the Beaten Tax: Gaetz Learns IRS Has Guns – Andy Sheets, Tax Notes ($). “Rep. Matt Gaetz, R-Fla., introduced legislation to ban the IRS from obtaining ammunition after appearing on the Fox News show Jesse Watters Primetime to mock the agency’s weapons and ammunition purchases.”
‘Call me old-fashioned, but I thought the heaviest artillery an IRS agent would need would be a calculator,’ Gaetz said June 21. ‘I imagine the IRS in green eyeshades and cubicles — not busting down doors and emptying Glock clips on our fellow Americans.’
Dear Old-fashioned: The IRS has a criminal division. It also got its start busting-down bootleggers’ doors.
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