Tax News & Views Weekly Roundup: AI/Data Center Fears, Rescinding Credits, and Dictionaries

More AI/Data Center Questions

Democratic tax writers demand Meta explain use of research credits tied to data centers - Brian Faler, Politico:

The letter was signed by Sen. Ron Wyden (D-Ore.), the ranking Democrat on the tax-writing Finance Committee, and six of his colleagues on the panel. One of the letter’s signers, Sen. Peter Welch of Vermont, separately wrote last week to IRS CEO Frank Bisignano, asking the tax agency for information on how Meta and other major tech companies are using the R&E tax credit.

It comes as data centers have emerged as a major bipartisan issue in the midterm elections amid widespread voter backlash against the facilities. Budget forecasters say tax breaks claimed by companies for the AI infrastructure buildout are now big enough to put a dent in federal tax receipts.

The tax code has long included subsidies for corporate research and development programs, which have been broadly supported by lawmakers in both parties. Republicans beefed up the provisions part of their 2025 tax cuts.

IMF Chief Alarmed at ‘Slow-Moving Tsunami’ of AI for Jobs, Taxes - Bloomberg Tax ($):

Speaking at a session on AI’s impact on employment, she said the technology is already hollowing out demand for many human workers by taking over routine, repetitive tasks. At the same time, it’s increasing low-paying jobs in sectors like construction, which she said is “not a story to celebrate.”

It’s a transformation with far-reaching consequences for public finances, Georgieva said. The risk is that AI strains government revenues by tilting the economy toward capital and away from labor — traditionally the main source of tax income.

Government Must Justify Why AI Data Cards Are Exempt Under FOIA - Kristen A. Parillo, Tax Notes ($):

The IRS must provide more details on why data cards for the artificial intelligence models it uses to help select complex partnerships for audit are completely exempt from disclosure under the Freedom of Information Act, a federal court held.

In an October 14 memorandum opinion in Tax Analysts v. IRS, Judge Christopher R. Cooper of the U.S. District Court for the District of Columbia said he agreed with the IRS that the data cards are covered by the FOIA exemption for law enforcement techniques.

However, the IRS didn’t carry its burden under FOIA of demonstrating that no nonexempt portions can be reasonably segregated from the records, Cooper said. He therefore ordered the IRS to file a supplemental Vaughn index and/or a supplemental declaration by November 4 clarifying why no portions of the requested documents may be released.

OBBBA Implementation

IRS Plans to Bar Immigrants From Health Insurance Tax Credit - Jeffrey Horst and Lauren Clason, Bloomberg Tax:

The Trump administration proposed rules Wednesday to block lawfully present immigrants from accessing the tax credit that lowers premium costs for those using Affordable Care Act subsidies.

The IRS regulations would disallow certain immigrants whose income is 100% below the poverty line and are ineligible for Medicaid due to their immigration status from accessing the premium tax credit in tax years starting in 2027.

The proposed rules stem from provisions included in the Republicans’ 2025 tax-and-spending law and marks the second batch of rules to block some immigrants from accessing certain federal tax credits.

US Clean Energy Set to Reach New Highs as Tax-Credit Cliff Looms - Leslie Kaufman and Will Wade, Bloomberg Tax ($):

The US is on track to install record amounts of clean energy this year and next as developers race to claim expiring federal tax credits and as soaring data-center electricity demand stimulates growth.

But the same data-center boom is also driving a major expansion of natural gas, undercutting the climate benefits of the renewables buildout.

On Wall Street

A Popular Tax-Saving Trade is Juicing Wall Street’s Borrowing Binge - Hannah Erin Lang and Miriam Gottfried, The Wall Street Journal ($):

The rip-roaring popularity of a strategy that helps individual investors lower their tax bills is powering an unprecedented borrowing binge.

Charles Schwab said Thursday that margin loan balances on its books had swelled to roughly $188 billion in the third quarter, nearly doubling year over year. A significant driver: Long-short tax-aware strategies that promise to beat the market without paying taxes on all of the capital gains.

Schwab’s margin balance included roughly $61 billion related to long-short strategies, according to the company’s report. On a call with analysts, Chief Executive Rick Wurster said adoption of the strategy had grown “exceptionally quickly” this year.

“Saving money on taxes is something our clients love to do,” Wurster said. “That demand is likely to continue.”

International

OECD Negotiators Preparing to Restart Digital Tax Discussions - Ryan Hogg, Bloomberg Tax ($):

Discussions surrounding Pillar One stalled prior to the 2024 US presidential election. However the Trump administration committed to reopening discussions after the January agreement on a package that would mostly carve out US multinationals from the the global minimum tax, also known as Pillar Two.

Tax issues related to the digital economy was the focus of a recent meeting of the Inclusive Framework Steering Group, a smaller leadership group guiding the work of the OECD’s BEPS work, as well as at regional touchpoint meetings, Cormann said.

BRICS Is Expanding Its International Tax Ambitions - Nana Ama Sarfo, Tax Notes ($):

The creation of the new BRICS international tax working group arrives at a time when the group’s members are already active in the U.N. framework convention negotiations. However, the countries’ positions are not always aligned within the U.N. discussions. During the August negotiating session, BRICS countries differed on issues ranging from the allocation of taxing rights and gross-basis taxation of cross-border services to the convention’s interaction with existing bilateral treaties. In this light, the working group may provide a valuable forum for negotiating common BRICS positions.

August’s negotiations concerning the U.N. framework convention revealed that BRICS countries do not have a unified substantive tax agenda within the convention negotiation discussions and have differing priorities, based on remarks made by country delegates.

California

How California's Ultrarich Are Trying to Stop the World's First Billionaire Tax - Michael Steinberger, The New York Times Magazine ($)

Khanna, a 50-year-old Democrat running for a sixth term, had easily fended off a primary challenge in June from a tech entrepreneur who was against Proposition 40. But when I spoke with him before the town hall, Khanna said his endorsement of the tax had been politically costly in other ways. “I’ve lost at least 20 percent of my donor base,” he said. That included several tech billionaires who had previously contributed to his campaigns. It puzzled Khanna that they couldn’t recognize what seemed self-evident to him: that the tax was actually in their best interest.

Khanna recalled that when he was growing up, people like Steve Jobs and Lee Iacocca were seen as heroes. But now, tech barons and other business leaders are widely loathed. “Eric Schmidt’s getting booed at commencements,” he said of the former chief executive of Google.

In his view, the wealth tax — a one-time 5 percent fee on total worldwide assets — is modest and a small price to pay if it helps blunt some of the rage directed at billionaires. Khanna’s message to them was simple: Read the room. “Mamdani or the next generation want your heads,” he said. “They are coming with pitchforks.”

Pardon Me?

Remission Robs the Republic: How Pardons Harm the Fisc - Carrie Brandon Elliot, Tax Notes ($):

Presidential grants of clemency like pardons and sentence commutations are often accompanied by erasure of unpaid fines, restitution, and forfeiture. The intended recipients of those payments, fraud victims and governments, never recoup their losses. The tax treatment of a penalty imposition and its later elimination can compound those losses.

Blogs & Bits

IRS Announces New Interest Rates For November: What They Mean For Loans And Estate Planning, Kelly Phillips Erb, Taxgirl. "These rates don’t set your bank’s mortgage rates or the interest you’ll earn on a savings account. Instead, they serve as benchmarks for certain transactions that can have federal tax consequences."

Washington Voters Will Decide Whether to Keep or Reject an Income Tax on High Earners, Jared Walczak, The Tax Foundation Tax Policy Blog. "But especially as lawmakers start discussing ways to expand the tax to more taxpayers before it even takes effect, many voters may be inclined to do what voters in many previous Washington elections have done: reject an income tax."

Testimony: ITEP’s Nick Johnson weighs in on revenue options for the District of Columbia, Nick Johnson, Institute on Taxation and Economic Policy. "In raising revenues, improved progressivity should be a goal. Research shows that increasing tax progressivity is associated with better outcomes for children and workers and stronger overall economic growth, and it makes a place attractive for businesses and households of all income levels, including the very wealthy."

What Day Is It?

Dictionary

It's National Dictionary Day! (Also Noah Webster's 268th birthday.)

Whether you're an experienced littérateur, a committed logophile, or simply an individual often requiring abetment when summoning an impeccable conclusion for a sentence, a great day to unfasten these essential volumes and emblazon the centuries of exertion that's gone into them.