Tax News & Views Tax Bill Cometh? Roundup

November 4, 2023
Tax Reform

Key Takeaways

  • Chief tax-writer optimistic on year-end tax bill
  • House cuts IRS funding
  • Rollinson nom as IRS chief counsel advances
  • HSA mind-meld
  • EU Parliament throws down the gauntlet on global tax to U.S.
  • Sunsetting ERC withdrawal program
  • Loving sandwich day!

Senate Sighting - Naomi Jagoda, Bloomberg ($) (Sroll down for article):

House Ways and Means Chair Jason Smith (R-Mo.) crossed the Capitol Thursday and spent time on the Senate floor, where he was spotted chatting with several senators.

The move was unusual because members of the House and Senate typically spend a majority of their time working in their own chambers. Smith demurred on why he was at the Senate vote, but said his discussions with Finance Chair Ron Wyden(D-Ore.) on a potential year-end tax deal were positive.

“Overly optimistic of getting a tax package,” he said. “Not saying what it’s going to be attached to, but I really enjoy working with Senator Wyden.”

Capitol Hill Recap: Rumor Mill Romp – Jay Heflin, Eide Bailly:

Rumors are currency on Capitol Hill. They often contain at least an ounce of truth and sometimes are used to see how other lawmakers react to them (rumors in the latter case are called “trial balloons”).

Currently, there is a rumor that lawmakers could add a tax bill to legislation that extends funding for the Federal government beyond November 17th. The tax provisions that would be included in the legislation would be R&D expensing, expanding the 163(j)-interest deduction (from EBIT to EBITDA), upping Bonus Depreciation to 100%, and expanding the Child Tax Credit. The bill could also include a fix for the SALT cap. It is not clear if these measures would be retroactive.


Johnson: House GOP looking at new twist to stopgap funds fight – David Lerman and Aidan Quigley, Roll Call:

Federal agencies, meet the “laddered” continuing resolution.

Speaker Mike Johnson said Thursday that Republicans are considering a new approach to stopgap funding that would extend pieces of current appropriations for different time periods, effectively setting up a series of funding cliffs while avoiding a single deadline that could trigger a partial government shutdown for all agencies.

With current funding for the entire government set to expire on Nov. 17, Johnson has proposed a CR to extend funding through Jan. 15, though that date is the federal Martin Luther King Jr. Day holiday. But the Louisiana Republican said at a press conference some GOP members raised the idea of a “laddered CR” to extend funding on a piecemeal basis.

“I’ll unpack for you what that means here in the coming days, but potentially you would do a CR that extends individual pieces of the appropriations process, individual bills,” Johnson said. “We’ll see how that goes. I think we can build consensus around it.”

If I’m reading this right (and I might not be), the House plans to stagger when funding ends for certain agencies. For example (and I’m making this up), IRS funding would end on Monday while funding the DoJ would end on Tuesday.

If I am correct in my assumption, there could be ample opportunities to pass tax legislation this year. For example (again, I’m making this up), the tax bill is not ready on Monday so it can’t be added to the IRS funding bill. However, the tax bill is ready on Tuesday and it can be added to the DoJ funding bill.

Also related:

House Tax Panel Sends Disaster Relief Bill To Floor – Asha Glover, Law360 Tax Authority ($):

Wildfire relief payments to California and Hawaii victims would be excluded from taxable gross income under legislation advanced Thursday by the House Ways and Means Committee.

The committee unanimously passed the Federal Disaster Tax Relief Act of 2023, or H.R. 5863. Under the bill, the gross income exclusion for wildfire loss compensation would apply to payments received during taxable years between Dec. 31, 2019, and Jan. 1, 2026.

The bill would also exclude disaster relief payments received by victims of February's train derailment in East Palestine, Ohio. Additionally, it would allow victims of the wildfires, the derailment and last year's Hurricane Ian to claim itemized deductions for personal casualty losses.

Could the tax portion of these bills become a vehicle for passing business tax breaks? We’ll have to wait and see.


House GOP Passes Israel Aid Bill With $14B IRS Funding Cut – Asha Glover, Law360 Tax Authority ($):

House Republicans passed legislation Thursday that would rescind $14.3 billion in Inflation Reduction Act funding for the Internal Revenue Service to offset an aid package for Israel, sending the proposal to the Democratic-led Senate, where lawmakers are working on their own aid bill.

The House of Representatives passed the Israel Security Supplemental Appropriations Act, or H.R. 6126, by a vote of 226-196, mostly along party lines. The bill proposes rescinding $14.3 billion in unobligated funding that the IRS received under the Inflation Reduction Act to pay for aid to Israel.

Cuts to IRS funding actually increase deficits:

Capitol Hill Recap: Rumor Mill Romp – Jay Heflin, Eide Bailly:

[C]utting IRS funding is projected to increase the deficit. The reason is because the funding is expected to bolster enforcement efforts and collect more revenue than what the funding costs. The Congressional Budget Office’s estimates that rescinding IRS funding will increase deficits by $12.498 billion from 2024 thru 2033. The estimate is here.

Despite the facts, here is the new Speaker strongly suggesting that the Congressional Budget Office is wrong.

Even a very influential, right-leaning think tank doesn’t think pairing Israel funding with IRS cuts is a good idea.

Don’t Mix US Tax Administration Policy with the Israel-Hamas Conflict – Alex Brill, AEI:

If Congress wants to hold hearings on proper funding levels for the IRS, that’s fine. But right now, partisan jockeying needs to be set aside so that a bipartisan, bicameral agreement can be reached on assistance to Israel.

Left-leaners also don’t like it:

Israel, the I.R.S. and the Big Grift – Paul Krugman, New York Times (opinion piece):

Historians of propaganda are familiar with the concept of the Big Lie, a claim so extreme that many people end up accepting it because they can’t believe that authority figures would make up something so at odds with reality.

It often seems to me that we need a term to describe a somewhat similar phenomenon in policy debates, which we might call the Big Grift. What I mean are policy proposals so corrupt, so obviously designed to benefit an undeserving few at everyone else’s expense, that many voters balk at the notion that seemingly respectable politicians actually advocate such things.

A case in point is the current demand by House Republicans that funding for Israel in this moment of crisis be tied to budget cuts that would undermine the ability of the Internal Revenue Service to crack down on wealthy tax cheats. This should be a major scandal, but my suspicion is that many voters just won’t accept the idea that G.O.P. leaders would do something so cartoonishly villainous.

This bill is DOA in the Senate:

House Approves Israel Bill and IRS Cuts With Some Dem Support – Cady Stanton, Tax Notes ($):

Even with some Democratic support in the House, the bill is dead on arrival in the Senate, where Majority Leader Charles E. Schumer, D-N.Y., called the proposal — especially in light of the Congressional Budget Office’s score of the bill — a joke in floor remarks November 2.

“The Senate will not consider this deeply flawed proposal from the House GOP,” Schumer said.

The Senate will instead work up its own bipartisan emergency aid package that also includes funding for Ukraine and Taiwan and humanitarian aid for Gaza, and addresses competition with the Chinese government, he added in a post on X, formerly known as Twitter. The White House has vowed to veto the House bill should it reach President Biden’s desk.


Rollinson Wins Committee Vote Despite GOP IRS Protest – Doug Sword, Tax Notes ($):

The Senate Finance Committee voted 16 to 11 to recommend confirmation of Marjorie Rollinson as IRS chief counsel, with two Republicans joining a unanimous bloc of Democrats.

Finance Committee Chair Ron Wyden, D-Ore., would be no more specific than “I hope soon” when asked when Rollinson’s nomination might come before the full Senate. Scheduling might be complicated by the avalanche of confirmations of more than 300 generals and admirals beginning to come to the floor after months of delays over Pentagon policies related to abortion.

The votes against Rollinson didn’t appear to be a reflection of her qualifications, as several Republicans said they voted against her to signal their frustration with an agency that has increasingly become a political target of conservatives.

It's hard believe that Republicans admitted that the agency was their rationale for opposing Rollinson. They let their frustration with the agency cloud their judgement on whether she was qualified for a role at the IRS. Could they not separate the two?


Remediation Rebates Aren’t Taxable Income, Lawmakers Say – Tax Notes ($). “Reps. Chris Pappas, D-N.H., and Dan Kildee, D-Mich., have requested guidance clarifying that rebate payments under state programs for remediation of a potentially harmful chemical substance do not constitute federal taxable income, saying that this position is consistent with the federal tax treatment of similar special payments made by 21 states in 2022.”


IRS Wins $109 Million Court Case, Defeats ‘Project Soy’ Tax Maneuver – Richard Rubin, Wall Street Journal:

The Internal Revenue Service won a $109 million victory in federal court this week that will help the tax agency combat aggressive corporate tax maneuvers and collect more money from other companies.  

The IRS defeated telecommunications company Liberty Global, which used a maneuver it dubbed “Project Soy” to exploit a gap in the 2017 tax law and was seeking a refund. 

“It appears that the only substantial purpose of the transaction was tax evasion,” wrote Judge R. Brooke Jackson of the U.S. District Court in Colorado.


Tax Court Holds 90-Day Deficiency Petition Deadline is Strict - Jeffery Leon, Bloomberg ($):

The US Tax Court will continue to honor the 90-day window for filing petitions challenging IRS notices of deficiency because the Fourth Circuit—where the taxpayer’s dispute can be appealed—hasn’t ruled on the matter, a divided Tax Court said Tuesday.

The 90-day period under tax code Section 6213(a) is “jurisdictional,” meaning that the court had no power to hear taxpayer challenges that are filed after the deadline, the Tax Court ruled. It dismissed a petition by taxpayer Tiffany Lashun Sanders challenging an IRS deficiency notice because it was mailed three days after the deadline.

The court pointed to its 2022 ruling in Hallmark Research Collective v. Commissioner , which held that the petition deadline was jurisdictional because of Section 6213’s history and precedent.


IRS Must Improve Audit Tracking, User Controls, Watchdog Says - Caleb Harshberger, Bloomberg ($):

The IRS must better track audit trail data and improve user controls, the Treasury Inspector General for Tax Administration said in a report released Thursday.

The report found that although the agency has made recent improvements, as of May 2023 it was still failing to document and demonstrate compliance of all of its systems with all event logging requirements laid out by the Federal Information Security Modernization Act of 2014.

The report is here.


Confused About Health-Savings Accounts? Here’s What to Know - Cheryl Winokur Munk, Wall Street Journal:

Health-savings accounts, and the triple tax benefits they can bestow, aren’t necessarily a secret anymore. But these accounts remain an enigma for many Americans. 

Not everyone has the option to participate in an HSA, but even if they do, many don’t use it fully. This is underscored by data showing that about 73% of employees with an HSA contributed to their account in 2021, according to the Plan Sponsor Council of America, a nonprofit trade association for employers.

Yet that still leaves many eligible workers who haven’t opened an account or, if they have, they haven’t contributed or invested the money for growth. These are missed opportunities, financial advisers say, given that deposits are tax-deductible, growth is tax-free and withdrawals are, too, as long as the money is used to pay qualified medical expenses.


Global Minimum Tax Becoming Reality, EU Parliament Tells US - Danish Mehboob, Bloomberg ($):

A delegation from European Parliament told US Congress members the global minimum tax “will become a reality,” according to a Wednesday statement that also criticized US attempts to tackle tax evasion.

Members of European Parliament’s subcommittee on tax matters, led by chair Paul Tang, said in a firmly worded address that it told US counterparts the “ship has sailed” on implementing the 15% global minimum tax as the EU and other countries prepare to enact it starting in 2024.


From the “News, Not News” file:

Sunset for ERC Withdrawal Initiative to Be Determined – Lauren Loricchio, Tax Notes ($):

Employers that want to retract questionable employee retention credit claims submitted to the IRS have the option, but it won’t last indefinitely.

Faced with a pile of ERC claims, many of which are expected to be inaccurate, the IRS announced October 19 a special withdrawal option that allows employers that filed an ERC claim but haven’t received a refund to rescind their submission and avoid repayment, interest, and penalties.

“We do anticipate to sunset the program,” John J. McInelly, an IRS official overseeing the ERC initiative, said during a November 2 webinar. “We don't have that date nailed down yet.”

News: The ERC withdrawal program will end, which most already knew.

Not News: No clue on when the program will end. Your guess is as good as mine. 


Hot Diggity, it’s National Sandwich Day! Pastrami, Swiss cheese, and brown mustard on rye? You bet!

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