Tax News & Views Tax Credit Palooza Roundup

February 6, 2023

The Tax Angle: EV Credits Vex Consumers, Lawmakers – Stephen Cooper, Law360 Tax Authority ($):

The Inflation Reduction Act poured billions of dollars into a new round of tax credits for electric vehicles last year, but automakers have been negotiating with the Internal Revenue Service to ensure their vehicles qualify for the incentives. Meanwhile, consumers are trying to figure out what cars to buy before the credits expire and what home modifications to make to lower the cost of EV ownership.

The problem (at least one of them):

There are roughly six dozen EV models for sale in the U.S., including battery, plug-in hybrid and fuel-cell electric vehicles, according to the Alliance for Automotive Innovation, which lobbies Congress on behalf of the major automakers. However, none will qualify for the full credit once the law's additional sourcing requirements take effect as early as next month via rules issued by the U.S. Department of the Treasury.

Problem solved?

Treasury Changes Label Standards For Clean Vehicle Credit – Kat Lucero, Law360 Tax Authority ($):

The clean vehicle tax credit will use a consumer-facing labeling standard to determine whether a new van, sport utility vehicle or pickup truck can qualify for the incentive's retail price limits, the U.S. Department of the Treasury announced Friday…

Congress modified the credit in the Inflation Reduction Act,  which became law in August, to include new restrictions that have limited the eligibility of new vehicles and confused both auto manufacturers and consumers. Among those changes — under Section 30D of the Internal Revenue Code — are requirements that the vehicle must have final assembly in North America. There are also new sourcing requirements for the batteries, battery components and critical minerals that go into the batteries.

More Crossover SUVs to Qualify for EV Tax Credits in US Reversal – Ari Natter and Keith Laing, Bloomberg ($):

The change announced Friday by the Treasury Department effectively expands the number of buyers who can take advantage of a lucrative $7,500 consumer tax credit by broadening the definition of how a sport-utility vehicle is defined. The tweak matters because under Democrats’ Inflation Reduction Act, SUVs costing up to $80,000 can receive the tax credits, while passenger-car buyers get nothing if the vehicle costs more than $55,000.

Specifically, Treasury said it would begin using the Environmental Protection Agency’s fuel economy labeling when deciding which vehicles qualify for an SUV. The adjustment is retroactive to Jan. 1, meaning consumers who already bought vehicles under the new definition can get the credit, the agency said.


Guidance Awaited on Energy Tax Credits in Low-Income Communities - Naomi Jagoda, Bloomberg ($):

Tax professionals and renewable-energy groups are anticipating guidance from the Treasury Department, which could be released in the coming days, about the allocation process under a provision in the tax-and-climate law that provides increased tax credits to solar and wind facilities in low-income communities…

To receive the enhanced credit amounts, companies need to apply for an allocation of ‘environmental justice solar and wind capacity limitation’ from the Treasury Department. There is an annual limit of 1.8 gigawatts of direct current capacity that can be allocated nationwide in each of 2023 and 2024.


Understanding Yearly Changes in Family Structure and Income and Their Impact on Tax Credits – Elaine Maag, Nikhita Airi and Lillian Hunter, Tax Policy Center:

Benefits from the earned income tax credit (EITC) and child tax credit (CTC) play an important role in the financial lives of low- and moderate-income families. Determining how much credit a family qualifies for can be complicated, depending primarily on the number of eligible children, income, and marital status of the tax unit. For a growing share of families with children, these factors change throughout the year and from one year to the next—sometimes in ways that are unpredictable.


Reporting Requirement Set Aside in Land Donation Dispute – Jeffery Leon, Bloomberg ($):

An IRS reporting requirement aimed toward combating abuse of land donation deductions must set aside because the agency didn’t follow the proper rulemaking procedures when issuing the notice, an Alabama district court said.

The ruling is a win for Green Rock LLC, an Alabama-based real estate company that is fighting IRS Notice 2017-10. The notice requires taxpayers to disclose syndicated conservation easements, certain land donation transactions that could be used to avoid taxes. Conservation easements are donated to be protected “in perpetuity” under tax code Section 170(h).


State income tax processing delayed until late February – Ashley Michels, Fox 31:

If you’re trying to file your state taxes online, you’re going to have to wait. Even though we are more than a month into tax season, Colorado’s system isn’t ready yet…

In November, voters changed the tax rate. That’s just one of the multiple new tax laws that the state is scrambling to get in the system in time.

‘All these changes have an impact, and unfortunately, it’s taking us a little longer this year than usual,’ [Mark] Ferrandino [with Colorado Department of Revenue] said.


Fortune Tellers Predict a Roller Coaster Year in State Taxes – Michael Bologna, Bloomberg ($). Reading the tea leaves:

The forecast includes some safe bets, including a prediction that four states will cut rates. Among the riskier wagers is a prophecy that the Maryland Supreme Court will strike down the digital advertising tax. Meanwhile, a proposed California wealth tax is in trouble, and New York’s governor backs keeping the expiring business income tax rate for a bit longer under her proposed budget.


States Are Flush With Cash, Which Could Soften a Possible Recession – David Harrison, Wall Street Journal ($):

State governments are entering 2023 with record-high reserves, which could help the overall economy weather a recession this year.

The rapid economic recovery from the pandemic combined with an influx of federal stimulus money has filled public coffers, allowing governments to squirrel funds away for emergencies.

The assumption that we are destine for a recession is rather mind-blowing. Predictions from a year ago said we would be in a recession right now. Current projections say we'll be in one later this year. Will forecasters keep forecasting until a recession hits then say "I told you so!"?


Newsom Targets Trusts Set Up to Avoid California Income Tax – Laura Mahoney, Bloomberg ($):

Prospects for a broad tax increase on wealthy Californians may be dim, but Gov. Gavin Newsom is targeting a narrow slice of them for higher tax bills if they have trusts set up out of state.

The Democratic governor’s proposal could apply to about 1,500 Californians who have set up a specific type of trust in a state without an income tax. If enacted, the levy would bring California only a small revenue gain—$30 million in the first year and about half of that in future years as this type of trust is used less. California also would join New York in ending a tax planning strategy the wealthy have used for about 20 years.


IRS says guidance on whether Middle Class Tax Refund is taxable could come next week – Daniel Macht,

The IRS said on Friday that guidance clarifying whether California’s Middle Class Tax Refund payments should be considered income for federal tax purposes could come next week.

As of last month, California’s Franchise Tax Board (FTB) has issued more than $9 billion in payments that have benefitted more than 31 million California taxpayers and their dependents.

The article was posted last Friday, so 'next week' means 'this week.'


Michigan Democrats reach deal on wide-ranging tax cut, featuring rebate checks – Craig Mauger and Candice Williams, The Detroit News:

Michigan Gov. Gretchen Whitmer and the Democratic leaders of the Legislature are preparing a sweeping tax relief proposal they say will reduce tax bills by more than $1 billion and include rebate checks that could be issued directly to residents.

The Friday agreement focuses on a plan to ease taxes on retirement income, boost a tax credit for low-wage workers and issue 'inflation relief checks' in place of a potential cut in the state's personal income tax, which was expected to be triggered by growing revenues, according to a source familiar with the plan.


Iowa Bill Seeks Individual, Corp. Income Tax Cuts – Michael Nunes, Law360 Tax Authority ($). “Iowa would lower its individual income tax rates, adopt guidelines for further reductions and reduce the revenue thresholds needed to decrease the adjusted corporate income tax rate under a bill introduced in the state Senate.”


Minnesota DOR Issues Information on 2023 Federal Conformity for Income Tax – Bloomberg ($). “The Minnesota Department of Revenue (DOR) Feb. 1 issued information on federal conformity for income tax.”


Utah Governor Signs Law Regarding Weighted Pupil Unit Value Property Tax Rate – Bloomberg ($). “The Utah Governor Feb. 2 signed a law regarding the public education base budget and property tax rates.”


More on tax credits:

France Demands Transparency to Defuse Subsidy Fight With the US – William Horobin, Bloomberg ($). “French Finance Minister Bruno Le Maire will head to meetings with counterparts in Washington on Tuesday demanding more transparency from President Joe Biden’s administration on green industry subsidies, in order to avoid an escalation of transatlantic trade tensions.”


From the “Elections have Consequences” file:

Top GOP Tax Legislator Says He’ll Boost Workers, Probe Companies – Richard Rubin, Wall Street Journal ($):

Rep. Jason Smith (R., Mo.), the House’s new top tax writer, is promoting an approach he says would favor working-class Americans over large corporations, a shift in tone from his predecessors that raises questions about companies’ ability to push tax cuts through Congress. 

In speeches, interviews and a 10-year voting record in Congress, Mr. Smith has been a steady supporter of Republican tax cuts, and he says that basic approach isn’t changing. As chairman of the Ways and Means Committee, he says the needs of farmers, small businesses and working-class Americans should come first when setting policy. 

It will be interesting to see how this change in focus plays out. K Street is chock-full of high-paying corporate clients who prefer the focus remain on their tax concerns. 


Happy National Lame Duck Day! What is this day about, you ask? Today marks the ratification of the Twentieth Amendment, which changed when elected officials begin their terms.


The Twentieth Amendment (Amendment XX) to the United States Constitution moved the beginning and ending of the terms of the president and vice president from March 4 to January 20, and of members of Congress from March 4 to January 3.

Why this change was needed:

“Before the ratification of the 20th Amendment to the United States Constitution, Congress had a 13-month delay between election day and the day the newly elected officials took office. In other words, the lame-duck was given a 13-month termination notice, crippling their influence. Hence the ‘lame’ or injured duck," according the National Day Calendar.

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