Tax News & Views Pass The Salt Roundup

House Sets Up Vote for SALT Cap Marriage Penalty Fix – Cady Stanton, Tax Notes ($):

The House could see a full floor vote as soon as the week of February 5 on a bill that would double the cap on the state and local tax deduction for joint filers after the rule for the bill was approved by an 8-5 vote.

The rule for the legislation advanced during a February 1 emergency House Rules Committee meeting following the January 31 passage of a $79 billion tax deal on the House floor. Blue-state Republicans frustrated with the exclusion of SALT cap changes from the larger tax bill pushed House GOP leadership to hold the meeting after threatening to tank unrelated procedural votes in recent days. House GOP leadership has not yet scheduled a floor vote for the bill.

The SALT Marriage Penalty Elimination Act (H.R. 7160), introduced by Rep. Michael Lawler, R-N.Y., would raise the SALT cap for married filers from $10,000 to $20,000, with a gross income cap at $500,000 for the joint return. The legislation doesn’t have a Congressional Budget Office or Joint Committee on Taxation score.

Will it pass the House?

Capitol Hill Recap: Tax Bill Lives! – Jay Heflin, Eide Bailly:

Ask anyone who closely follows the SALT issue and they will tell you that there are more House lawmakers who oppose increasing the SALT-cap then there are who support increasing it. Logic would suggest that legislation increasing the SALT-cap would fail in the House.

But here’s the thing: A growing number of lawmakers say one thing then do another. This dynamic was on full display during the Rules Committee hearing on the SALT-cap bill.

Some committee members blasted the bill for benefiting certain demographics over others, for its cost not being offset, and condemned it as “bad legislation.” Moments later, many of these naysayers voted to support the measure’s passage.

The question is: How many other House lawmakers will say they oppose a SALT-cap increase, but then support it. There could be a lot of them.

SALT Cap Marriage Penalty Fix Could See Tricky Vote in House – Cady Stanton, Tax Notes ($):

Proponents of adjusting the state and local tax deduction cap got what they wanted in advancing to the House floor a bill that would raise the limit for married couples, but the results of that full vote may not be in their favor.

New York SALT Caucus Republicans saw a win when the rule for the SALT Marriage Penalty Elimination Act (H.R. 7160) advanced through the House Rules Committee on February 1 by an 8-5 vote, setting up the legislation for a possible full floor vote as soon as the week of February 5.

But the expedient pace of the bill in bypassing a hearing and markup, concerns about cost without a Joint Committee on Taxation or Congressional Budget Office score, and the tricky politics of the SALT cap all stand in the way of the legislation becoming law.

There could be consequences if the bill fails.

Why vulnerable House Republicans are still scrambling to fix a tax law – Nick Reisman, Politico:

A largely blue-state tax issue will play an instrumental role in deciding the fate of House Republicans’ razor-thin majority this November. And they know it.

Republicans from swing House districts in high-tax areas of the country will spend the coming days lobbying their red-state colleagues to make changes to the $10,000 cap on state and local tax deductions that particularly hits suburban districts.

One of their arguments: Power in the House could be at stake.

According to people following the SALT issue, the cap is a huge problem for voters in high-tax states. And if the party in charge can't fix this issue, then voters will support somebody else to finish the job. 

My two cents: I was in a meeting last October with tax staffers who said that congressional leaders would only accept raising the cap to $20,000 for joint filers. At that time, pro-SALT-cap-repealers were calling for the cap to be terminated or increased to $100,000 for joint filers.  Congressional leaders were never going to support either option. Now the repealers are calling for the exact same thing that leadership said it would support roughly four months ago. It seems the repealers have finally read the room.

Latest on Tax Bill

Senate Republicans pump brakes on tax deal after big House win – Caitlin Reilly and Aidan Quigley, Roll Call:

The $79 billion tax bill the House passed by an overwhelming margin this week is likely to face a speed bump in the Senate, as Republicans vow to slow down the process and make changes to the package.

Senate Finance Chair Ron Wyden, D-Ore., who negotiated the family and business tax break deal with House Ways and Means Chairman Jason Smith, R-Mo., is pushing for the Senate to move quickly on the bill, given its potential implications for tax filing season. The House voted 357-70 to pass the bill Wednesday evening.

“I’m gonna do everything I can to get this done quickly and get a presidential signature on it,” Wyden said.

Senate Republicans want to amend the bill. One of their issues is limiting who gets the Child Tax Credit. Another contention is using the employee retention credit (ERC) as an offset.

The bill that passed the House this week includes:

• Full expensing of domestic research costs for tax years beginning before 2026, including for 2022 and 2023,
• 100% bonus depreciation for property placed in service in 2023 through 2025, and
• Use of EBITDA in lieu of EBIT in determining the amount of deductible business interest through 2025.

The legislation also includes an increase in the amount eligible for small business section 179 expensing, expanded refundability of the child tax credit for lower income taxpayers, protection against double taxation of Taiwan related income, and additional disaster related tax relief.

The cost of the legislation would be offset by requiring ERC claims to be filed by January 31, 2024; extending the period during which the IRS can assess taxes, penalties, and interest with respect to erroneous ERC claims; and by significantly increasing the due diligence burden on employee retention credit promoters as well as penalties for assisting in the filing of erroneous ERC claims.

Senate Republicans want to change the bill. The question is, will they be able to. 

Senate GOP takes hard line on tax deal – Burgess Everett, Politico ($):

Senate Republicans are threatening to block a bipartisan tax deal passed Wednesday night by the House — unless they get a chance to change the legislation.

Despite getting 357 votes in the lower chamber, Senate Minority Whip John Thune (R-S.D.) said the legislation will not be able to clear a filibuster without amendment votes that allow Senate Republicans some say on the deal. The agreement was primarily devised by House Ways and Means Chair Jason Smith (R-Mo.) and Senate Finance Chair Ron Wyden (D-Ore.), leaving members of the Senate minority frustrated over aspects of the deal.

Thune said the expanded Child Tax Credit in the deal is the biggest issue for the GOP, citing “delinking the CTC from the work requirement, which gives a lot of our folks heartburn.”.

This bill will require 60 votes to pass the Senate, so Republican support will be needed. Getting their support could mean allowing the bill to be amended. But timing is a big issue. 

From the Capitol Hill Recap above:

The original goal for this bill was for it to be enacted before the start of the current tax season, which began on Monday. Given this goal, it’ll be interesting to see how quickly the Senate acts on this bill, and if Senators seek to amend the legislation...

Senate Majority Leader Chuck Schumer (D-NY) could decide against committee action on the tax bill and instead bring it to the chamber’s floor as a “stand-alone” bill or attached to another piece of legislation (assuming it already includes a tax title).

Avoiding the committee means a vote on the bill could happen in relative short order if Senators choose to waive several procedural hurdles.

If everything lines up – and Senators do not amend the legislation – a final vote could occur next week. From there, the bill would travel to the White House where President Joe Biden is expected to sign it into law.

However, if Senators raise objections to the process for moving the bill forward, then final action could take weeks.

In a statement, Senate Finance Chairman Ron Wyden (D-Ore.), who co-authored the legislation basically downplayed enacting the bill after the start of tax season:

“The IRS has confirmed that it will be able to process changes to people’s tax refunds quickly, in approximately six weeks. Taxpayers who send their returns to the IRS early in filing season will not need to file amended returns -- the IRS will send them their additional refund automatically…”

House Tax Deal Vote Hasn’t Swayed Senators Seeking Markup – Cady Stanton, Tax Notes ($):

Senate Finance Committee ranking member Mike Crapo, R-Idaho, who has pushed for a committee markup on the bill for weeks, said after House passage that there’s still work to be done in the Senate.

“Now that the House has passed H.R. 7024, the Senate will go through its own process,” Crapo said in a January 31 statement. “I look forward to working with my colleagues to vet the legislation, address concerns, and make the necessary changes to build support.”

Caution regarding timing: If the Senate does not pass the tax bill next week, its next opportunity for passage will be the week of February 26th. The Senate is scheduled to be in recess the weeks of February 12th and the19th. Tick. Tock. 

Treasury Happenings

Remarks by Assistant Secretary for Tax Policy Lily Batchelder on Phase Three of Implementation of the Inflation Reduction Act’s Clean Energy Provisions – Treasury Department:

“Treasury is now launching Phase Three of our implementation. We will work to build on the investments announced so far, providing long-term stability for the market and incorporating additional feedback we have gathered from stakeholders. This will include both finalizing proposed rules, after consideration of robust feedback on the proposed rules, and providing clarity and certainty on other key Inflation Reduction Act provisions, including those that we have not yet addressed.”

I find it interesting that the Treasury Department concealed this announcement in a speech. It normally issues a press release.

Days Left to Generate Input on Clean Energy Manufacturing Credit – Tax Notes ($). “Proposed guidance on the section 45 advanced manufacturing production tax credit — a key component of President Biden’s Made in America agenda — is among the guidance that the IRS wants comments on soon.”

IRS Official: Treasury Nixed ‘Skinny’ Crypto Transaction Form – Jonathan Curry, Tax Notes ($):

The IRS missed the January 1 effective date deadline to have a new form in place for businesses to report cryptocurrency transactions in excess of $10,000, but it wasn’t for a lack of trying.

The agency had been working with Treasury to issue an announcement before the statutory effective date, but “unfortunately, that announcement never went out,” said Herbert Ottenbreit, an IRS senior policy analyst, on a February 1 payroll industry conference call hosted by the Small Business/Self-Employed Division.

Court Updates

Biden Names 3 Tax Court Nominees – Asha Glover, Law360 Tax Authority ($). “Kashi Way, a senior legislation counsel at the JCT; Rose E. Jenkins, an attorney in the IRS Office of Chief Counsel; and Adam B. Landy, a special trial judge for the Tax Court, were nominated to be judges of the court, the White House said in a statement.”

DOJ Tells Congress It Won't Challenge Eleventh Circuit ARPA Decision – Christopher Jardine, Tax Notes ($):

The Biden Administration will not challenge the Eleventh Circuit’s decision finding the American Rescue Plan Act's offset provision unconstitutional.

In a January 26 letter sent by U.S. Solicitor General Elizabeth B. Prelogar to House Speaker Mike Johnson, R-La., and Congress, Prelogar said the Department of Justice will not ask the Supreme Court to review the Eleventh Circuit’s decision in West Virginia v. U.S. Department of the Treasury. According to the letter, although the administration believes the Eleventh Circuit erred in finding the offset provision unconstitutional, filing a certiorari petition is unwarranted because the majority of states have satisfied the conditions of the Treasury rule implementing the provision. The letter was filed as a memorandum in Texas v. Yellen in the Fifth Circuit on February 1.

NYC Music Venue Gets 'Last Shot' At Ch. 11 Reorg – Rich Archer, Law360 Tax Authority ($):

A New York bankruptcy judge Thursday gave a New York City music venue what he said was one last chance to get caught up on its state and federal back taxes before it faces a conversion of its Chapter 11 reorganization to a liquidation.

At a brief hearing, U.S. Bankruptcy Judge David S. Jones adjourned a motion to convert the year-old bankruptcy of the operators of Rockwood Music Hall into a Chapter 7 liquidation for the third time, saying it has until early March to settle up its tax bills — including $80,000 allegedly unpaid since the bankruptcy filing — and file a reorganization plan.

"I would believe this would be literally the last shot because this has been going on too long," he said.

Tax Court Denies Claim for Captive Insurance Treatment – Chandra Wallace, Tax Notes ($):

“Nonsense” premiums and “various oddities” in the policy arrangements indicated that taxpayers’ captive insurance wasn’t insurance at all, the Tax Court ruled.

In a February 1 memorandum opinion in Swift v. Commissioner, the Tax Court sustained the IRS’s determination that captive insurance arrangements entered into by taxpayers Bernard T. Swift Jr. and his wife didn’t qualify as insurance. As a result, the taxpayers lost claimed deductions for premium payments and must pay accuracy-related penalties for the 2012 through 2015 tax years.

Texas Couple Can't Deduct $1M In Premiums, Tax Court Rules – Jared Serre, Law360 Tax Authority ($):

A Texas couple who bought insurance policies from agencies controlled by themselves cannot deduct more than $1 million in premiums, the U.S. Tax Court ruled Thursday.

Extra insurance policies taken out by Bernard and Kathy Swift from microcaptive agencies they controlled wrongfully exploited the insurance industry in order to shrink a tax liability, Judge Patrick J. Urda affirmed in the opinion.

Foreign Taxes

India Budget Includes Abrupt End Of Manufacturing Tax Break – Kevin Pinner, Law360 Tax Authority ($):

India plans to allow its reduced corporate income tax rate for manufacturing facilities to sunset in April in an unexpected move, while seeking extensions to tax holidays for startups and sovereign wealth funds, attorneys told Law360 on Thursday about the government's interim budget.

The government of Prime Minister Narendra Modi was expected to extend the 15% corporate tax rate for manufacturing facilities, attorneys said, but under the interim budget released Thursday, the statutory 25% rate would apply to new facilities after March 31. This means companies planning to set up a manufacturing facility in India should try to finish by March 31 to avail themselves of the expiring concessionary rate, said Amit Singhania, founder of Areete Law Offices.

From the “Crossing the Line” file:

GOP AGs Press Treasury To Halt IRS Direct File Program – David van den Berg, Law360 Tax Authority ($):

The U.S. Department of the Treasury should stop the Internal Revenue Service's direct file pilot program because it is unconstitutional and unnecessary, 13 Republican attorneys general told Treasury Secretary Janet Yellen in a letter.

Treasury sidestepped its authority in setting up the direct file program, since Congress only appropriated money to study the feasibility of such a program, not for the program itself, the attorneys general said in their Tuesday letter.

"Congress has never granted the Department of the Treasury authority to create a Direct File program," the state attorneys general said. "We urge the Department to end the IRS-run Direct File pilot program."

If I had a dollar for every time the IRS acted without congressional authority, I’d have a lot of dollars.

Hot Diggity

Happy National Tater Tot Day!  It’s my go-to food.