Tax News & Views ESG Is The Word Roundup

August 7, 2023

ESG’s Impact Is Emerging on Net Earnings Before Interest, Taxes - James Hendershot and Luis Galarza, Bloomberg ($):

Shifting toward sustainable operations requires capital expenditures that many companies, particularly in the private sector, have struggled to prioritize. The last few turbulent years, marked by a pandemic, supply chain issues, inflation, and energy disruptions linked to military conflict, have only increased that struggle.

However, the advent of meaningful federal climate legislation has brought the promise of $394 billion in energy and climate funding in the form of tax credits over the next decade. Of the available funds, $216 billion is expected to go to large corporations, while over $120 billion in loans and grants has been earmarked for small business owners and underserved or overburdened communities.

ESG Investors Take Aim at Clean Energy Tax Credits to Meet Goals – Erin Slowey, Bloomberg ($). This article is about the popularity of the expanded clean energy tax credits and their transferability that became law in the Inflation Reduction Act.

C-suites, government relations, and sustainability executives—who advise corporations on tying investments to environmental, social and corporate governance goals—all want in on the action now, tax professionals said.

Health-care companies with ESG strategic goals to become energy-efficient are more attracted to the credits, especially those that are nonprofits, said Devin Hall, a managing partner at Crowe LLP.

Tax-exempt organizations can get a piece of the tax incentives even though those organizations often don’t have the tax capacity to use the credits. The new direct payment option from the law gives these organizations cash in lieu of the credit.

Certain congressional lawmakers are trying to repeal or scale back these measures. Their efforts are not expected to be successful since Congress is politically divided.

Regulator’s Penalty for Grid Delays Splits Clean Energy Builders - Daniel Moore, Bloomberg ($):

US energy regulators are betting that the threat of financial penalties on both clean energy developers and transmission providers will help to tackle a backlog of solar, wind, and battery projects waiting for years to connect to the power grid.

A sprawling final rule published late last week by the Federal Energy Regulatory Commission has largely pleased clean energy developers, who pressed for changes to the wonky process as they ramp up investment and project announcements. But the rule has also been met with opposition from transmission providers who are overwhelmed with requests.


US Eyes Phased Hydrogen Tax-Credit Plan to Spur Industry Growth - Jennifer Dlouhy, Bloomberg ($). “A top climate adviser to US President Joe Biden signaled the administration could phase in some requirements for a valuable new hydrogen tax credit in a bid to nurture a nascent industry critical to decarbonizing industrial operations.”

‘We’re very optimistic that we can get this right and strike the right balance,’ said John Podesta, White House senior adviser for clean energy innovation, as the Treasury Department drafts guidance for claiming the full credit worth up to $3 per kilogram of green hydrogen.


IRS Issues Transition Rule for Home Renovation Energy Credit - Erin Slowey, Bloomberg ($):

The IRS will propose regulations on the requirements for home energy audits for the energy efficient home improvement tax credit, the agency said in guidance released Friday.

The tax credit, amended in the Democrat’s Inflation Reduction Act, allows for a 30% tax credit to be used for qualified energy efficiency improvements installed during the year, residential energy property expenditures, and home energy audit.

IRS Expands on Audit Info for Home Improvement Energy Credit – Mary Katherine Browne, Tax Notes ($):

Created by the Energy Policy Act of 2005, section 25C provides a nonrefundable tax credit for the purchase and installation of specific energy efficient improvements in taxpayers’ principal residences.

The credit amount was amended by the Inflation Reduction Act (P.L. 117-169) to be equal to 30 percent of what taxpayers pay during the relevant year for qualified energy efficient improvements installed during the year, residential energy property expenditures, and home energy audits.

The statute defines a home energy audit as an inspection and written report regarding a dwelling unit located in the United States and owned or used by the taxpayer as their primary residence.

The Notice is here.


IRS Issues Proposed Consolidated Returns Cleanup Rules - Lauren Vella and Genevieve Douglas, Bloomberg ($):

The agency on Friday released an 89-page proposed rule (RIN: 1545-BJ87) updating the regulations under tax code Section 1502, a part of the code that stipulates the Treasury secretary has the power to “prescribe” rules for a related group of entities that are required to file taxes on a consolidated return.

The proposal partially or completely withdraws many notices of proposed rulemaking to avoid the cross-referencing of temporary regulations, rules that have expired, and temporary rules that are no longer serving taxpayers practically.

The proposed rule is here.


Ad blitz on IRS free filing system hits key GOP districts – Benjamin Guggenheim, Politico Tax Weekly.

Tax prep companies have spent tens of millions on lobbying the federal government over the years and recently brought on a slate of lobbyists, including former tax counsels for Congress’s tax writing committees, just as the IRS is preparing to launch a pilot program for an agency-run system that would make the same services offered by those companies available to taxpayers for free.

We’ve seen similar battles in the past, and tax prep companies certainly have the resources to mount fierce lobbying campaigns on Capitol Hill.

However, a new campaign called Better IRS, which was created by the liberal Groundwork Action advocacy group, has a message for the powerful tax prep industry: We’re not going down without a fight.


Higher Ed Groups Have Lesson Plan of Tax Priorities for Congress – Fred Stokeld, Tax Notes ($):

Although it’s unlikely that Congress will pass a major tax bill during the remainder of 2023, tax provisions could be included in another vehicle, Steven Bloom of the American Council on Education observed.

Repealing the taxability of Pell grants would be well received by the college and university sector, Bloom told Tax Notes August 2.


Navigating Fiscal Uncertainty: Weak State Revenue Forecasts for Fiscal Year 2024 – Lucy Dadayan, Tax Policy Center:

After a run up in 2022, preliminary data show a substantial weakness in state tax revenues for the first 11 months of fiscal year 2023 (July 2022 through May 2023). Overall, state tax revenues declined 5.3 percent in nominal terms, largely driven by declines in personal and corporate income tax revenues, while sales tax revenues increased in nominal terms.

States are continuing to feel the impact of high inflation, volatility in the stock market and oil prices, as well as the shift in federal monetary policy and changes in consumer spending. But due to differences in state economic conditions, employment rates, industry compositions, and tax structures, these macroeconomic factors are affecting individual states differently.


Australia Plans New Laws to Crack Down on Tax Adviser Misconduct - Jason Scott, Bloomberg ($):

Australia’s government will legislate ‘the biggest crackdown on tax adviser misconduct’ in the nation’s history, including boosting some monetary penalties 100—fold, Treasurer Jim Chalmers said Sunday.

The measures will give watchdogs stronger powers to investigate and prosecute perpetrators, and boost transparency including by giving more protection for whistleblowers, Chalmers said in a statement. The legislation will be introduced this year, with consultation on reforms starting ‘shortly,’ he said.


From the “Congressional Morass” file:

Congress Ended a Tax Break. How That May Help Higher Earners. – Laura Saunders, Wall Street Journal ($):

Many retirement savers are furious about a law set to take effect in January, and at first glance it’s easy to see why. 

The provision, enacted in late 2022, denies a key tax deduction to workers aged 50 and older who had $145,000 or more in wages the prior year. They’ll no longer be able to put ‘catch-up’ contributions into traditional 401(k) or similar plans, which allow upfront deductions on dollars going in but impose income taxes on future withdrawals. Catch-up contributions, which help bump up workers’ savings late in their careers, currently add $7,500 to the $22,500 annual limit for many savers. 

Instead, catch-up contributions must be put in Roth accounts, which is money that has already been taxed at the federal and state level before it goes into the account. This change is scheduled to occur on January 1, but will it?

The January date for the new Roth 401(k) requirement may be delayed to give employers more time to get ready and also allow Congress or the Internal Revenue Service to fix a drafting glitch in the current provision. 

If this delay occurs, it will likely be included in a year-end bill that passes Congress on New Years Eve - roughly one day before its original effective date -- when most everyone is celebrating the holidays and not focused on tax law.


It’s National Sea Serpent Day. What occurred to make this day happen? I’m glad you asked:

National Day Calendar:

[I]n August 1848, several men aboard the HMS Daedalus couldn’t believe their eyes when they looked out upon the South Atlantic. Several passengers and officers on a voyage to Saint Helena spied a 60-foot-long creature bearing a peculiar maned head above the ocean water. National Sea Serpent Day commemorates this siting and the many other stories that continue to be told.

Imagine being on a boat and seeing a “60-foot-long creature,” which is the length of six basketball goals. Its head – which is above water and possibly looking at you – resembles a wolf or a bat? I’d rather fly.

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