Tax News & Views Losing Momentum? Roundup

Tax deal framework includes child credit expansions, restored business breaks, sources say – Benjamin Guggenheim and Brian Faler, Politico ($):

Some details of a possible tax deal started leaking out Wednesday, including an expansion of the Child Tax Credit through 2025 and the restoration of three breaks prized by businesses…

The business side of the deal, pushed for by Republicans but also supported by many Democrats, includes a restoration of more generous business interest deductions; full deductions for research and development expenses; and an extension of bonus depreciation.

About the R&D measure:

The cost of the research and development item will be less than originally predicted because it includes full deductions for domestic R&D only, and not foreign R&D, according to another source familiar with the negotiations.

Also, there isn’t agreement on the plan with leaders of the tax-writing committees:

Negotiations over the package remain fluid…and tax writers were struggling Wednesday to nail down an agreement amongst themselves.

Support from Congressional leaders is still an unknown:

[T]here is a still a big question mark over whether party leaders would get on board with the plan.

Lawmakers might consider limiting the Employee Retention Tax Credit to help pay for the cost of the bill. It is not clear how this would be accomplished.

Taxpayer Advocate Finds Issues With ERC Processing, Messaging – Lauren Loricchio, Tax Notes ($):

The national taxpayer advocate expressed concern about the IRS’s processing of employee retention credit claims, which she says has come to a near standstill in her annual report to Congress…

There was a backlog of about 1 million ERC claims “as of early December,” according to the report. From mid-August through mid-October of last year, taxpayers filed ERC claims at an average weekly rate of about 45,000, but IRS processing of those claims slowed to an average weekly rate of 150, the report said. “Continuing at this rate, the IRS will carry over almost 1.3 million ERC claims” into the 2024 filing season, according to the report.

Important to note: Earlier this week the plan was for the tax details to be released later this week. News reports now say that the timeline has been postponed until next week, which could suggest a loss in momentum. Tax chiefs might release a statement this week on the bill:

The top obstacles to a tax deal - Laura Weiss and Brendan Pedersen, Punchbowl News ($):

House Ways and Means Committee Chair Jason Smith (R-Mo.) and Senate Finance Committee Chair Ron Wyden (D-Ore.) still have some outstanding policy debates to settle…

Smith and Wyden are still hoping to release a joint statement announcing a framework agreement as soon as today, though that timeline is in flux. The two know they need to show momentum as opposition in both parties builds behind the scenes.

Snippets from the article: “Senate GOP pessimism… House Democrats iffy…”

Bottom line:

Any effort to pass the tax package would likely start in the House. But between the pressure from the right on Speaker Mike Johnson and government funding deadlines about to hit, there’s not much room to maneuver here.

The tax details that have been reported are based on what reporters have heard from sources. We won’t know what measures the plan includes until the details are released, and it appears that the particulars are still being debated:

Tax Package Details Drip, but a Deal Isn’t Necessarily Looming – Doug Sword and Cady Stanton, Tax Notes ($):

Specifics of proposals for a family and business tax break deal emerged on Capitol Hill, but there’s dissonance among Congress’s top taxwriters over how imminent an agreement may be…

“As of the moment, you know, this notion that this is just around the corner doesn’t seem to be very plausible,” Ways and Means ranking member Richard E. Neal, D-Mass., told reporters January 10 after committee Democrats met in a closed meeting to discuss particulars put forth by Wyden and Smith.

“If you remember, we were talking about a larger number,” Neal said about earlier talks centered on $94 billion, or $47 billion for the child tax credit and $47 billion for the three business tax breaks. “And there seemed to be, at the time, some consensus about the larger number.”

Finance Committee ranking member Mike Crapo, R-Idaho, agreed a deal is not quite imminent.

The current plan is to have this tax bill pass Congress and enacted into law before the start of tax season, which is January 29th. This could be a hard row to hoe. 

Speaking of tax season:

Filing Season Tax Changes Could Be Challenging for Direct File – Jonathan Curry, Tax Notes ($):

As Congress works out the details of a potential tax package over the coming weeks, lawmakers’ decisions could throw a wrench into the rollout of the IRS’s direct-file pilot.

The IRS intentionally limited the direct-file pilot to taxpayers with relatively simple tax situations in an effort to start small and then grow the program if it proves successful in 2024. But Congress is contemplating changes to common tax provisions, like expanding the child tax credit, that could force the IRS to make last-minute or mid-filing-season changes to its direct-file programming.

“We’re aware that it’s out there. We’re waiting to see,” Bridget Roberts, head of the IRS’s direct-file program, said January 10 at a conference sponsored by the District of Columbia Bar Taxation Community. Whether congressional action will affect the pilot “will depend on the scope of the changes and how sweeping those changes might be,” she said.

“I think if something happened . . . it’d be challenging,” added Maria Dooner of the Treasury Office of Tax Policy.

Werfel Pitches Senators on Fixes to Employee Retention Credit - Chris Cioffi, Bloomberg ($):

IRS Commissioner Danny Werfel pitched fixes to the troubled employee retention tax credit in a meeting with senators Wednesday, in an effort to overcome challenges with the pandemic-era program…

Werfel met in a closed-door session with Senate Finance Committee members on the issue and said afterward that he recommended three things: extending the statute of limitations by two years, allowing the IRS to impose stronger penalties on tax preparers who facilitate fraudulent claims, and prohibiting contingency fees.

Research Amortization Regs May Address Double Capitalization – Nathan Richman, Tax Notes ($):

The IRS and Treasury plan to flesh out the rules suggested by their first guidance on the new research amortization requirement in proposed regulations likely to be released in the first half of 2024, two government officials said.

For example, the goal for the proposed regs in implementing changes to section 174 enacted in the Tax Cuts and Jobs Act will be to make double capitalization in contract research arrangements the exception and not the rule, Shamik Trivedi of the Treasury Office of Tax Legislative Counsel said January 10 at a conference sponsored by the District of Columbia Bar Taxation Community.

Paper processing still a major problem for IRS: NTA – Jeff Stimpson, Accounting Today:

The Internal Revenue Service has substantially improved taxpayer services and has good plans for improvement, but it continues to struggle with such problems as paper processing, response times for tax professionals, and ID theft and the Employee Retention Credit conundrum, according to the 2023 Annual Report to Congress from National Taxpayer Advocate Erin Collins…

Despite the IRS eliminating its overhang of paper-filed 1040s, backlogs in processing Forms 1040-X, amended business tax returns and correspondence continued. At the end of calendar 2019 (the most recent pre-pandemic year), the report said, the IRS backlog of unprocessed amended returns was 500,000. The backlog as of late October 2023 was 1.9 million. Taxpayer correspondence and related cases more than doubled over the same period, to 4.3 million. The percentage of "overage" correspondence cases in 2023 reached its highest level in recent years: Nearly 70% of pending cases exceeded normal processing times as of late October.

The report is here. 

Yellen Welcomes Energy Tax-Break Uptake Despite Extra Costs - Christopher Anstey and Christopher Condon, Bloomberg ($):

Treasury Secretary Janet Yellen said she welcomed the greater-than-expected uptake of tax breaks under President Joe Biden’s signature clean energy bill, despite the extra budget costs that would incur.

Yellen said she didn’t disagree with rising cost estimates associated with tax incentives offered through the Inflation Reduction Act, arguing that’s a sign of the legislation’s powerful impact.

IRA Credits Key to U.S. ‘Soft Landing,’ Yellen Says – Alexander Rifaat, Tax Notes ($):

The energy tax credits enacted as part of the Inflation Reduction Act are a major factor behind America’s better-than-expected economic outlook, Treasury Secretary Janet Yellen argued in an appearance intended to boost President Biden’s reelection bid.

Speaking at Roxbury Community College in Boston January 10, Yellen said the energy subsidies, which encourage domestic production of clean energy technologies and consumer purchases of electric vehicles, helped to continue the administration’s goals first set out in the American Rescue Plan Act of 2021 and the CHIPS and Science Act of 2022 to ramp up investment in and rebuild the American manufacturing base.

If certain people are elected into office after the 2024 elections, these credits could be on the chopping block.

Release of Proposed Regs on CAMT Expected ‘Shortly’ – Kristen Parillo, Tax Notes ($):

Tax professionals’ wait for the package of proposed regulations implementing the corporate alternative minimum tax may soon be over, according to a Treasury official.

“I do hope that they will be released shortly in the coming days,” Sarah Haradon of the Treasury Office of Tax Legislative Counsel said January 10 at a conference hosted by the District of Columbia Bar Taxation Community.

Haradon noted that Treasury and the IRS had aimed to release the “behemoth” package of proposed rules by the end of 2023. “But that just didn’t happen, so we are expecting it [in] early 2024,” she said.

Book Minimum Tax Guidance to Include Longer Term Safe Harbor - Caleb Harshberger, Bloomberg ($):

A forthcoming package of proposed rules on the corporate alternative minimum tax, or CAMT, will include a safe harbor for 2024 and beyond that would give companies that are unlikely to be subject to the tax an easier way to calculate if they can rule themselves out, a Treasury Department official said Wednesday.

Timothy C. Powell, tax policy adviser for Treasury’s Office of Tax Policy, said the department is working on a notice of proposed rulemaking for a safe harbor that will be included in a larger package of CAMT guidance.

The move addresses companies’ requests to extend a CAMT safe-harbor test. Treasury had previously indicated it would provide a safe harbor only for 2023, the first year CAMT was in effect.

From the “Headline I Thought I Would Never See” file:

In Defense of Billionaires – Michael Strain, American Enterprise Institute:

Billionaire innovators create enormous value for society. In a 2004 paper, the Nobel laureate economist William D. Nordhaus found “that only a minuscule fraction” – about 2.2% – “of the social returns from technological advances” accrued to innovators themselves. The rest of the benefits (which is to say, almost all of them) went to consumers.

According to the Bloomberg Billionaires Index, Amazon founder Jeff Bezos is worth $170 billion. Extrapolating from Nordhaus’s findings, one could conclude that Bezos has created over $8 trillion – more than one-third of the United States’ annual GDP – in value for society. For example, Amazon has reduced the price of many consumer goods and freed up an enormous amount of time for millions of Americans by eliminating the need to visit brick-and-mortar retailers. Bezos, meanwhile, has received only a tiny slice of those social benefits.

Facts are sometimes hard to swallow, but disliking the wealthy can be easy.  

It’s National Step in a Puddle and Splash Your Friends Day! Want to anger your friends? Drench the bottom of their pant legs with muddy water. You’ll likely be the only one laughing at the hijinks.