Research Expense Amortization Complications Abound – Nathan Richman, Tax Notes ($):
Taxpayers hit by the new requirement to amortize their research expenses may see a benefit in other tax provisions, but modeling is key, according to tax professionals…
Many have wrung their hands over the need for additional substantive and procedural guidance to implement the change to section 174 under the Tax Cuts and Jobs Act. So far, there’s only been one batch of procedural guidance (Rev. Proc. 2023-11, 2023-3 IRB 417) describing how taxpayers can make the required tax accounting method changes under the provision, which took effect for tax years beginning after December 31, 2021.
R&D amortization was never supposed to take effect, but it did. Now, many lawmakers who supported its passage are now griping about the provision they enacted.
There is also bipartisan, bicameral support in Congress to allow R&D outlays to be expensed:
Bipartisan Call in Congress for R&D Expensing – Jay Heflin, Eide Bailly:
Lawmakers from both political parties during a House Small Business Subcommittee hearing on June 6th urged Congress to allow R&D outlays to be expensed, instead of the current law that requires domestic costs to be amortized over five years.
That being stated, there is one hang-up that is keeping all lawmakers from supporting this tax change.
Enactment of R&D expensing (along with 100% Bonus Depreciation and a broader interest deduction) has been tied to expanding the Child Tax Credit.
An enhanced Child Tax Credit provision does not have bipartisan, bicameral support, and the fight over this measure has kept R&D expensing from being enacted for over a year.
2024 and the global minimum tax - Benjamin Guggenheim, Politico:
TAXES AND GLOBALISM: It’s difficult to overstate just how influential the 2024 elections will be over U.S. tax policy for years to come. Whichever party gains the most power in Congress and the White House will have the biggest say over how to reckon with the trillions of dollars’ worth of Trump-era tax cuts that are set to expire in 2025.
But besides determining the trajectory for income tax rates, estate taxes and family relief like the Child Tax Credit, among many other items, the 2024 elections will likely also have huge consequences for the international effort to stop multinational companies from shifting their profits to different countries to avoid taxes.
IRS Publishes Reference Price for Energy Production Credit – Tax Notes ($):
Section 45 was amended by section 13101 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). The IRA changed the manner in which the section 45 credit amounts are calculated for any qualified facility placed in service after December 31, 2021. The IRA also removed the one-half reduction of the credit amount under section 45(b)(4)(A) for qualified hydropower facilities and marine and hydrokinetic renewable energy facilities placed in service after December 31, 2022. In the case of any qualified facility placed in service before January 1, 2022, the section 45 credit amounts are determined under the calculation rules provided by the prior version of section 45.
IRS Hard Line on ERC Eligibility Earns Kudos From Tax Pros – Caitlin Mullaney, Tax Notes ($):
Employers that experienced pandemic-related supply chain disruptions aren’t eligible for the employee retention credit on that basis alone, the IRS has advised in a clarification that was unsurprising to and welcomed by the tax community.
‘The IRS opinion seems to be in lockstep with our position and that of many of our members who have concluded that supply chain issues are in fact a weak argument for ERC qualifications,’ Tom O’Saben of the National Association of Tax Professionals told Tax Notes.
So, businesses suffering from supply chain issues that were triggered by the pandemic don’t qualify for tax relief aimed at helping businesses that were negatively affected by the pandemic. Confused? Eide Bailly has you covered:
What to Know About the Employee Retention Credit – Tonya Rule and Jim Donovan, Eide Bailly:
The Employee Retention Credit (ERC) is a refundable tax credit that was designed to help organizations keep their employees on payroll.
The credit allows up to $5,000 per employee for 2020. For 2021 the ERC can be up to $7,000 per employee per quarter for the first three calendar quarters of 2021.
Previous Eide Bailly coverage on this development is here (scroll down).
IRS will hold a webinar on this subject on July 25th.
A Retirement Tax Break That Ends the Fear of Outliving Your 401(k) – Ashlea Ebeling, Wall Street Journal ($):
Starting this year, Americans can use up to $200,000 of their retirement accounts to purchase qualified longevity annuity contracts, or QLACs. The new contribution limit, set by Congress, is up from $145,000 or 25% of your balance, whichever was lower.
An annuity is an insurance contract that you can buy to provide a steady income like a pension, making it easier to plan for the uncertainty of life expectancy. QLACs have existed for a decade and offer significantly more income for life than a typical immediate annuity, since the payments don’t start until later in life, at, say, age 80 or 85. They also have a special tax benefit.
IRS Isn’t Feeling Charitable Toward Promoter-Inspired Foundation – Erin McManus, Tax Notes ($). “The IRS says an organization that claims to be assisting closely held businesses make charitable contributions is one of several illegitimate arrangements concocted by the same promoter.”
New Jersey Governor Signs Tax Credit for Remote Workers - Angélica Serrano-Román, Bloomberg ($):
Remote workers in New Jersey who are subject to New York’s income tax can now claim a credit against their state tax liability under a bill signed by Gov. Phil Murphy (D) Friday.
The new law attempts to address the tax liability of New Jersey residents employed by New York companies, but who work remotely from the Garden State. The measure (A4694) allows remote workers to claim a tax credit to offset their state tax obligation and incentivize more workers to move to New Jersey.
Treasury Hits Pause on Imposing New Foreign Tax Credit Rules - Isabel Gottlieb and Michael Rapoport, Bloomberg ($):
Taxpayers can temporarily go back to following the former rules on the foreign tax credit in most respects, while the IRS considers whether to modify its newer, controversial standards for claiming the credit.
The surprise move, which the IRS announced in a notice Friday, (Notice 2023-55), is a boost for companies that have complained that the IRS’s 2021 rules overhauling the use of the credit are too strict. Many have complained that the new rules would prevent them from crediting some of the foreign taxes toward their US tax bills, even in cases where they’d previously been allowed to do so.
The Notice is here.
Beyond the Numbers: Another Look at the JCT Pillar 2 Report – Stephanie Soong, Tax Notes ($):
During the Ways and Means Tax Subcommittee hearing, ranking member Mike Thompson, D-Calif., mused that estimating the revenue effects of the United States’s actions on pillar 2 “is an extremely difficult exercise, even for the most qualified economist at JCT.” He then asked Michael Plowgian, Treasury deputy assistant secretary for international tax affairs, what the subcommittee should take away from the JCT estimates.
The analysis shows that if the 40-plus pillar 2 compliant jurisdictions make good on their plans to adopt pillar 2, and the United States does nothing in response, ‘then the impact of pillar 2 on U.S. revenues could vary by $400 billion dollars depending on their assumptions on profit shifting,’ Plowgian said. ‘If you just look at the midpoint of that range, what they're seeing is that pillar 2 adoption by those 40-plus jurisdictions and no action by the U.S. is an increase in U.S. tax receipts of $25 billion,’ he added.
During the hearing, lawmakers repeatedly argued over the findings in the JCT report, but the hearing wasn’t all partisan bickering
Eide Bailly’s coverage of the hearing was in last week’s Recap:
Capitol Hill Recap: Possible Shutdown Adds More Uncertainty To Passing Tax Legislation – Jay Heflin, Eide Bailly (scroll down to find story):
There was a flash of bipartisanship when it came to the OECD needing to recognize that U.S. tax credits (like for R&D) should not trigger the top-up tax.
Rep. Miller asked Michael Plowgian, Treasury Department’s Deputy Assistant Secretary for International Tax Affairs who testified before the subcommittee, about actions the administration was taking to ensure that U.S. tax credits don’t enlarge tax bills.
Plowgian’s reply: "It’s [the concern that U.S. tax credits will increase taxes] a shared and consistent priority across the administration that have participated in these negotiations to protect U.S. interests, to protect U.S. businesses and to protect American workers."
From the “You’ve Come a Long Way, Baby” file:
IRS’s Danny Werfel Picks His Battles to Keep the Haters at Bay - Naomi Jagoda and Chris Cioffi, Bloomberg ($):
Werfel hasn’t been immune from GOP criticism. House Ways and Means Committee Chair Jason Smith (R-Mo.) has argued that the IRS employees were retaliated against despite Werfel’s pledge that the agency wouldn’t retaliate against those who blow the whistle.
Still, decades of experience at the IRS, the Office of Management and Budget, and the private sector working on public sector issues seems to have given ‘Danny’ the name recognition and goodwill to buy himself time.
I’ve taken note of IRS commissioners since President Clinton left office. Out of all of them, Werfel is the best at working a room.
Happy National Drive-Thru Day and National Tequila Day! In some states you can celebrate both by buying tequila through a liquor store drive thru!
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