Senate Passes Democrats’ Climate, Healthcare and Tax Bill - Andrew Duehren and Siobhan Hughes, Wall Street Journal ($):
The legislation, which passed the Senate 51-50 on Sunday with a tiebreaking vote by Vice President Kamala Harris, offers tax incentives for reducing carbon emissions, seeks to allow Medicare to negotiate the price of some prescription drugs, allots roughly $80 billion to the Internal Revenue Service and extends subsidies for health insurance under the Affordable Care Act.
Along with a new 15% corporate minimum tax, it creates a 1% excise tax on companies’ stock buybacks and sets aside roughly $300 billion toward reducing the deficit.
Senate Sends Dems' Landmark Tax, Climate Bill To House - David van den Berg and James Arkin, Law360 Tax Authority ($):
The bill includes a 15% alternative minimum tax on adjusted financial statement income for corporations with profits over $1 billion, and a nearly $80 billion funding boost for the Internal Revenue Service.
The bill is not expected to face many challenges in the House, where Democrats hold a narrow majority. Rep. Pramila Jayapal, D-Wash., chair of the Congressional Progressive Caucus, issued a statement that the caucus was "thrilled" with Senate passage of the legislation. House Speaker Nancy Pelosi, D-Calif., said in a statement the lower chamber would "move swiftly" to send the bill to President Joe Biden's desk.
Senate Passes Democrats’ Landmark Tax, Climate, Drugs Bill - Erik Wasson, Steven Dennis, and Laura Davison, Bloomberg. "The taxes increases are noteworthy for who isn’t affected. Democrats and Biden ran on reversing former President Donald Trump’s 2017 tax cuts, including the corporate rate, which remain untouched. High-earners, including millionaires and billionaires, won’t face higher taxes, either."
Sweeping budget package passes Senate; House on deck Friday - Lindsey McPherson and Laura Weiss, Roll Call:
The new taxes that made it into the Senate's final bill are a 1 percent tax on what public companies spend on stock buybacks and a 15 percent minimum tax based on corporations' income reported to shareholders. Neither tax was part of the more sprawling revenue title that won approval from the House's tax-writing Ways and Means Committee last fall, which included multiple increases on the wealthiest Americans that were ultimately squeezed out.
The minimum tax is aimed at preventing the largest corporations, those earning at least $1 billion, from paying very low effective tax rates. But the final version still offers a range of exemptions for purchases of machinery and other equipment; amortization of wireless spectrum assets; pension plan contributions; net operating losses; tax credits for research expenses, investments in renewable energy and low-income housing projects and more.
Senate Drops Carried Interest Curbs to Secure Sinema's Vote - Benjamin Guggenheim, Tax Notes:
A provision to make it more difficult to claim reduced tax rates on carried interest income has been dropped from the Senate's reconciliation bill at the request of Arizona Democrat Sen. Kyrsten Sinema.
Instead, Senate Majority Leader Charles E. Schumer, D-N.Y., agreed to swap the provision out in favor of an excise tax on stock buybacks that would raise $73 billion.
Companies that don’t benefit as much from accelerated depreciation — a lucrative deduction for capital investments that Sinema insisted should be excluded from the minimum tax following manufacturing industry lobbying — are likely the biggest losers.
How the 15% US Minimum Corporate Tax Would Work - Laura Davison, Bloomberg, via Washington Post ($):
Companies with at least $1 billion in income would be required to calculate their annual tax liability two ways: one using longstanding tax accounting methods, which is 21% of profits less deductions and credits; the other by applying the 15% rate to the earnings they report to shareholders on their financial statements, commonly known as book income. Whichever amount is greater would be what they owe...
Another major critique of the bill as originally drafted was that some companies wouldn’t be able to claim all the deductions allowed under the tax code, notably tax benefits known as depreciation for investments in equipment and buildings. But a late deal struck to secure the pivotal vote of Senator Kyrsten Sinema of Arizona would create an exemption for depreciation tax deductions.
In a letter to leaders of Congress's main tax committees, the House Ways and Means Committee and the Senate Finance Committee, the AICPA said it believes the corporate alternative minimum tax proposal violates a number of elements of good tax policy and could lead to unintended consequences that should be carefully considered.
"Imposing tax according to financial statement income takes the definition of taxable income out of Congress' hands and puts it into the hands of industry regulators and others," said the AICPA in a news release. "Among the many key conceptual differences between financial income and taxable income is the concept of materiality. Public policy taxation goals should not have a role in influencing accounting standards or the resulting financial reporting."
Reminder that Corporate Taxes Are the Most Economically Damaging Way to Raise Revenue - Alex Durante and William McBride, Tax Policy Blog. "While the Inflation Reduction Act book tax is an unconventional way to raise corporate taxes, that doesn’t make it any less economically destructive."
Democrats go with ‘the least bad’ tax - Brian Faler, Politico. Quoting Capital Alpha Partners’ James Lucier: “We don’t believe it’s a good thing for investors, but given the options for increased revenue on the table to help pay for the Inflation Reduction Act (IRA), it’s probably the least bad.”
‘Miraculous’ IRS Funding Boost Won’t Transform Agency Overnight - Jonathan Curry, Tax Notes ($):
But the clearest reason to expect the new spending to be slow to take effect comes from Treasury. A May 2021 report detailing the Biden administration’s tax compliance agenda describes how the funding should be phased in over a 10-year period, such that the IRS would spend only about $1.5 billion in its first year and gradually build up to $15 billion by year 10.
Even if the IRS sticks to that 15 percent hiring pace, that still amounts to a major hiring spree, and one that should get off the ground relatively quickly, particularly with the direct-hire authority the agency has been granted. In January IRS Commissioner Charles Rettig said to “look for epic hiring” across the agency’s functions if the funding proposal was enacted.
Even with a hiring spree, it will take time to get new IRS agents up to speed on whatever portions of the tax law they will be assigned to enforce. You can't hire 10 first-year agents and expect them to do the work of someone with 10 years of experience.
Got Hidden Income? The IRS May Get More Money to Find You - Laura Saunders, Wall Street Journal ($):
Treasury and IRS officials have said the new funds for enforcement won’t increase audit rates on filers making less than $400,000, and on Aug. 4 IRS Commissioner Chuck Rettig sent letters to Congress stating this. The bill omits an earlier proposal requiring banks to report account cash-flow information to the IRS.
Former Treasury secretaries, IRS commissioners, and tax-policy specialists across the political spectrum have endorsed the funding proposals. But the American Institute of CPAs has expressed reservations, given the massive backlog of more than 17 million unprocessed paper returns.
Tax Provisions in the Inflation Reduction Act of 2022 - Congressional Research Service. A handy summary of the bill. By my count, the bill has at least 23 energy-related tax credit provisions.
Tax Credits for Cash: A Game Changer for Renewable Energy? - Benjamin Guggenheim, Tax Notes ($):
Democrats’ new reconciliation package would allow renewable energy companies to sell their tax credits to third parties for cash, fundamentally changing how those businesses finance their projects.
Tax equity financing involves an outside entity agreeing to make an equity investment in a clean energy business in exchange for the right to the credits. Finding companies with both the tax appetite and risk tolerance to invest in early stage renewable companies can be a difficult and time-consuming task.
Inflation Reduction Act of 2022: The energy tax provisions you need to know about - Eversheds Sutherland. "The Act provides for an election for direct payment in lieu of a tax credit. Any direct payment election must be made on a per facility/project/equipment basis. Direct pay is allowed for many of the credits mentioned in this alert... Additionally, taxpayers may make a yearly election to transfer all (or any portion) of an eligible credit to an unrelated taxpayer, provided that consideration for such transfer is paid in cash. Such consideration is not includible in the transferor’s gross income, and is not deductible by the transferee."
The Cost of Fighting Climate Change: More Drilling - Thornton Matheson, TaxVox. "The IRA offers about $260 billion in environmental tax credits, the most important of which are the renewable energy production tax credit (PTC) and investment tax credit (ITC). The PTC provides a subsidy of up to 2.6 cents per kilowatt hour of renewable energy produced for a project’s first 10 years, and the ITC provides an investment tax credit of 10-30 percent of a renewable energy project’s capital cost. In the absence of federal carbon pricing, these two credits form the core of the US energy transition policy."
Thinking about an EV? First-ever $4,000 tax credit for used electric vehicles, and $7,500 for new, nears approval - Rachel Koning Beals, Morningstar. "But consumers will have to balance excitement over these purchase sweeteners -- a conditional $4,000 tax credit for the purchase of used EVs and $7,500 for new ones -- against scarce inventory and vital semiconductor chip shortages. Cars, trucks and SUVs, especially EVs, are now much less mechanical and more digital."
Here’s how the Inflation Reduction Act’s rebates and tax credits for heat pumps and solar can lower your energy bill - Rachel Koning Beals, MarketWatch. "The legislation provides for $9 billion in total energy rebates, including the $4.28 billion High-Efficiency Electric Home Rebate Program, which returns a rebate of up to $8,000 to install heat pumps that can both heat and cool homes, and a rebate up to $1,750 for a heat-pump water heater. Homeowners might also qualify for up to $840 to offset the cost of a heat-pump clothes dryer or an electric stove, such as a high-efficiency induction range."
Senate Passes Climate Bill. The Rush to Renewable Energy Is On - Avi Salzman, Barrons ($):
The Inflation Reduction Act, as the climate and tax bill is called, extends and boosts lucrative tax credits for wind and solar, allowing homeowners and project developers to claim up to 30% of the value of a project as a credit in the case of solar and a per-watt credit for wind. That could take $6,000 off the cost of a standard-size $20,000 system.
Solar and wind aren’t the only beneficiaries of the bill. It also makes it easier to claim a tax credit for battery storage, a major boost to people who want to disconnect from the electric grid entirely or have a backup system in case the grid goes down. More tax benefits are available if the equipment is made in the U.S. It vastly expands credits available to people who buy electric vehicles and heat pumps, too.
16 back-to-school sales tax holidays in August - Kay Bell, Don't Mess With Taxes. "If you have no children, or your kiddos have moved out, you still could benefit from a couple of states' more unusual sales tax holidays this month."
Reimagining Tax Administration: Social Programs Through the Tax Code – Characteristics of the EITC/Advance CTC Population - Nina Olson, Procedurally Taxing. "Traditionally, the IRS is a revenue collector. However, because the agency has access to most income and personal information, it is also in the best position to administer benefits to the public. With each tax return, the IRS gains access to the financial and personal information of the filer and any individuals associated with that taxpayer’s return, such as a spouse or any dependents. Additionally, because filing requirements are determined without regard to immigration status, the IRS can collect information on non-citizens and other residents."
Lesson From The Tax Court: Non-Receipt of 1099 Does Not Get You Out of Penalties - Bryan Camp, TaxProf Blog. "Judge Leyden was unimpressed either way. She first notes that non-receipt of an information return copy does not excuse the failure to report amounts that the taxpayer actually knew they received."
Brockman, Defendant in Pending Major Tax Crimes Case, Dies - Jack Townsend, Federal Tax Crimes:
As readers of this blog and other blogs and news in general know, the Government has been pursuing a major tax crimes case against Robert Brockman. See One Big Fish Indicted and Lesser Big Fish Achieves NPA for Cooperation (Federal Tax Crimes Blog 10/16/20), here; and Brockman Found Competent to Stand Trial (Federal Tax Crimes Blog 5/24/22), here.
Brockman died late yesterday, Friday, June 5. See David Voreacos and Neil Weinberg, Robert Brockman, Software Developer Who Fought IRS, Dies at 81 (Bloomberg 8/6/22), here (highly recommended). This moots the criminal case, but the civil side (involving both administrative investigations and civil cases) will continue.