Tax News & Views Please Pass The SALT Roundup

June 16, 2023

Smith, SALT Members Meet - Samantha Handler, Bloomberg ($) (Scroll down for article). House Ways and Means Chairman Jason Smith (R-Mo.) met with Republicans in high tax states who would like to increase the SALT cap or get rid of it entirely. The meeting apparently didn’t go well for the SALT folks.

Rep. Marc Molinaro (R-N.Y.) told reporters Thursday that members will keep negotiating on a SALT measure. Smith was open to the lawmakers’ concerns, Molinaro said.

'Chairman Smith heard us and is willing to continue to listen and continue to talk,' Molinaro said.

Smith didn’t comment Thursday on the meeting. Rep. Nick LaLota (R-N.Y.) was less optimistic but emphasized that members will continue working on the issue.

'Right now it’s fair to say the conference is pretty far apart on an accommodation on SALT,' LaLota told Bloomberg Tax.

Back Story: The House Ways and Means Committee approved tax legislation on June 13th. During this meeting, upping the SALT cap was discussed, but not approved. It wasn’t added to the bill because some lawmakers on the Committee - who support lifting or getting rid of the SALT cap - did not support lifting said-cap. There was talk that maybe in the next tax bill a SALT cap increase could be included. This logic is akin to not being asked to the prom but told that maybe someone will invite you to the next prom.

Tax Talks Continue - Samantha Handler, Bloomberg ($) (Scroll down for article):

Some Republicans are still pushing for their other priorities even though the GOP tax package advanced with the support of all GOP Ways and Means members.

Rep. Brian Fitzpatrick (R-Pa.) told Bloomberg Tax that he still supports a child tax credit expansion to lower-income individuals, and there will be more chances to come to an agreement with Democrats on the issue. The tax package’s Tuesday markup wasn’t the time to have that conversation, Fitzpatrick said, as the Democrats’ amendment expanding a child tax credit wasn’t germane.


Passing the SALT:

House Tax Bill Racing Toward Floor Vote but Has a SALT Problem – Doug Sword and Cady Stanton, Tax Notes ($). This tax bill was originally expected to be voted on in July, according to House Ways and Means Chairman Jason Smith (R-Mo). Now, it appears that next week is the target.

‘If we don’t get it done next week, then we’re out of here for two weeks,’ said senior House Ways and Means Committee member Mike Kelly, R-Pa. After that recess, the House reconvenes July 11 for three weeks and then takes a six-week recess until September 12.

When lawmakers return in September, they will be focused on funding the federal government beyond September 30th to avoid a partial shutdown.

However, House passage of the tax bill is not a lock:

Muddying the picture is a slowdown on the House floor because of a flap within the GOP caucus over the recent debt limit deal. Another hurdle will be to win support from Republicans in high-tax states who want a boost in the $10,000 deduction cap on state and local taxes to be included in the legislation.

Capitol Hill Recap: Tax Bill Moves Forward, Don’t Get Excited – Jay Heflin, Eide Bailly:

Some House Republicans are warning they will oppose the bill if it doesn’t include a SALT fix for the $10,000 cap that is current law. Democrats are not expected to support the bill, and if more than five House Republicans oppose it, the legislation will not pass the chamber.

A SALT fix could be added to the bill when it gets a hearing in the House Rules Committee. This panel decides how and if legislation will be debated on the House floor. It also decides if amendments will be allowed and how much debate time the bill gets.

The House must approve the Rule before voting on the actual bill. Recently, some lawmakers have opposed the Rule, thereby blocking a vote on the legislation. It is not clear if this scenario will affect a floor vote on the tax bill. 

This tax bill has bigger problems: Currently, it's not expected to pass the Senate or become law. 


Beside the SALT situation, another reason for why the House tax bill is unlikely to pass the Senate is because it doesn't expand the Child Tax Credit, a top priority for Senate Democrats.

Yesterday, Senate Democrats revealed the type of expansion they would support:

Warner, Kaine, & Colleagues Introduce Legislation to Cut Taxes for Workers and Families – Sen. Kaine’s office:

U.S. Senators Mark R. Warner and Tim Kaine joined Senators Sherrod Brown (D-OH), Michael Bennet (D-CO), Cory Booker (D-NJ), Reverend Raphael Warnock (D-GA), Ron Wyden (D-OR), and Dick Durbin (D-IL) in introducing the Working Families Tax Relief Act, legislation that would cut taxes for low- and middle-income American workers and families by expanding the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC). The American Rescue Plan, which Warner and Kaine helped passexpanded these tax credits during the pandemic, but the expansion expired in December 2021; this bill would make the expansions permanent to continue to help families.

Making these provisions permanent would break the bank. Republicans in both chambers are highly unlikely to support this measure if it gets added to the House tax bill.

A SALT cap fix and CTC expansion are just two of the reasons why the House tax bill is not expected to pass the Senate. And yes, there are other reasons, but too many to list here.

CTC payments were also problematic for the IRS:

IRS had a hard time reconciling CTC payments – Michael Cohn, Accounting Today:

The Internal Revenue Service had to scramble to reconcile the monthly advance payments of the Child Tax Credit it distributed in 2021 with the amount of credits later reported by recipients.

Many of them never filed a tax return, and there was an estimated $1 billion in erroneous advance payments sent, according to a new report.

The report on this is here.


IRS Releases New Info for Energy Communities on Credit Increases – Mary Katherine Browne, Tax Notes ($):

The IRS and Treasury provided further clarity to taxpayers on what areas qualify for bonus credit increases and the brownfield site safe harbor in the latest round of guidance releases.

On June 15 the government released Notice 2023-45, 2023-29 IRB 1, and Notice 2023-47, 2023-29 IRB 1, which modify and expand on information that the IRS provided for taxpayers in April (Notice 2023-29, 2023-20 IRB 1) regarding what constitutes energy communities for the bonus credit under sections 45, 45Y, 48, and 48E.

IRS, Treasury update Notice 2023-29 related to energy community bonus credit amounts under the Inflation Reduction Act – IRS:

The Internal Revenue Service today issued Notice 2023-45, which updates Notice 2023-29, that describes certain rules that the IRS intends to include in forthcoming proposed regulations for determining what constitutes an energy community for the production and investment tax credits.

Notice 2023-45 addresses the update to Notice 2023-29 that occurred on April 7, 2023, which added to Section 4.01(2), Special Rule for Beginning of Construction, clarifying that this guidance applies to taxpayers that begin construction on or after Jan. 1, 2023.

Treasury's press release on this subject is here.

More energy developments were reported in yesterday’s Roundup.


Insurance Market Sees Entry Into Sellable Energy Tax Credits - Erin Slowey, Bloomberg ($):

The August 2022 Inflation Reduction Act creates paths for taxpayers to increase their clean energy tax credit amount to up to 70% of project costs and allows for many of those credits to be bought and sold.

But the newness of the law and remaining ambiguities leave many companies weighing the risk of claiming credits. If there is a challenge to a tax credit in an audit, an insurance policy could help pay the tax that is owed and some additional expenses accrued.


Reasonable Cause Defeats Conservation Easement Reporting Faults - Aysha Bagchi, Bloomberg ($):

The US Tax Court on Thursday rejected the IRS’s efforts to have deductions for three conservation easement donations denied in full, but upheld major valuation penalties for two of the donations…

The IRS initially challenged deductions for five easements donated by the Murphy family, but later conceded that two of the easements were deductible. The cases were tried together but addressed in two opinions.


Speaking of the Child Tax Credit... 

Congress Ended Pandemic Cash for Parents, but Some States Have Embraced the Idea – Dana Goldstein, New York Times:

For a brief period during the coronavirus pandemic, the federal government gave most parents monthly cash — up to $300 per child — with no work requirements or restrictions on how the money could be spent.

The experiment, through an expanded child tax credit, died last year after 12 months, when Republicans and Senator Joe Manchin III, the moderate West Virginia Democrat, refused to renew it.

But a growing number of states are moving forward with their own programs… Minnesota’s program, which became law last month, is the most generous, guaranteeing families earning $35,000 or less with up to $1,750 in cash annually for each child under 17.


Alabama Governor Signs Bill to Lower State Food Sales Tax - Angélica Serrano-Román, Bloomberg ($). “Alabama residents will pay a bit less at the grocery store after Gov. Kay Ivey (R) signed a bill Thursday to gradually reduce the 4% state tax on groceries.”


Oregon Town’s Marijuana Boom Yields Envy in Idaho – Kurtis Lee, New York Times:

Every day, hundreds of customers and workers like Mr. Leeds make the pilgrimage from Idaho to Ontario, Ore., a small city nestled along the Snake River that is home to 11 dispensaries — roughly one for every 1,000 residents. They can compare the aromas of various strains of marijuana and gather the staff’s insights on THC levels in edibles.

The cannabis boom is helping to drive a thriving local economy — and tax revenues that have paid for new police positions, emergency response vehicles, and park and trail improvements.


Vt. Legalizes Sports Betting, Will Tax Winnings – Jaqueline McCool, Law360 Tax Authority ($). “Vermont legalized sports betting and will require winnings to be included in residents' taxable income as well as establish a revenue-sharing agreement that functions as a tax on operators' betting revenue under a bill approved by the governor.”


Titus, Groups Tout Bill to Study Issues Faced by Americans Abroad – Andrew Velarde, Tax Notes ($):

Rep. Dina Titus, D-Nev… spoke to reporters at a press briefing June 15 about the Commission on Americans Living Abroad Act of 2023 (H.R. 2729), which she introduced April 19. The bill calls for the creation of a 10-member bipartisan commission that would examine, among other issues, how financial reporting requirements of the Bank Secrecy Act and the Foreign Account Tax Compliance Act affect U.S. citizens abroad. The commission would be empowered to conduct hearings and obtain official data, subject to section 6103 limitations…

According to Rebecca Lammers of Democrats Abroad, overseas Americans have suffered a ‘raft of unintended consequences’ from previous legislation. Those consequences include a lack of resources for overseas individuals looking to file a tax return, she said.

With a name like “Democrats Abroad,” good luck getting a bill passed through a Republican controlled House.


Wyden Launches Investigation of PGA-Saudi PIF Deal, Announces Plan to Revoke Saudi PIF’s Special Tax Treatment – Senate Finance Committee. "Senate Finance Committee Chairman Ron Wyden (D-Ore.) today opened a wide-ranging investigation into the 'merger' agreement between the PGA Tour and the Kingdom of Saudi Arabia’s Public Investment Fund (PIF)."


Chile Treaty Vote Teed Up - Samantha Handler, Bloomberg ($). “The full Senate could vote on a US tax treaty with Chile as soon as June 21, barring any blocks from Sen. Rand Paul (R-Ky.).”


From the “Ka-Ching” file:

Lawsuit Seeking $14,729 Tax Refund Could Lead to Corporate Windfall – Richard Rubin, Wall Street Journal ($). On the Supreme Court docket:

The case involves the 2017 Republican tax law, which lowered rates for individuals and corporations. To help pay for that, Congress created a one-time tax on companies that had accumulated profits that hadn’t been brought home. It also applied to people who owned at least 10% of certain foreign companies that had earned profits. 

The rule snagged a Washington couple for $14,729. They argued (and lost) in lower courts that they weren’t liable for the tax. A win in the Supreme Court could change how lawmakers write future tax bills.

If the court sides with them, it could mean much larger refunds for multinational corporations that owed the one-time tax and future challenges to other tax-code provisions. It also could prevent Democrats from one day advancing ideas such as President Biden’s plan to tax wealthy Americans’ annual unrealized gains as income and Sen. Elizabeth Warren’s (D., Mass.) proposed wealth tax. 

The couple’s argument in the case before the Supreme Court is that they shouldn’t have to pay tax on “profits they didn’t control and didn’t receive,” the article reports.

The wealth tax proposed by Biden and championed by Warren seeks to tax unrealized capital gains. The bill has not gained much traction in Congress. A Supreme Court win for the plaintiff would basically block Congress from taxing profits that taxpayers don’t control or have not received, which is basically the definition for unrealized capital gains.


It’s National Fudge Day! Need I say more?

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