Tax News & Views Weekly Roundup: Midterm Frenzy--Data Center Focus Continues, OBBBA in Spotlight, and Custard Filling

AI and Data Centers Still Center-Stage

Data Center Backlash Draws Focus to Taxes Ahead of Midterms - Cady Stanton, Tax Notes ($):

“The data center backlash is so enormous, and I feel like it caught people in Washington unprepared,” Zorka Milin of the FACT Coalition said. “It feels as if it came out of nowhere, but actually it’s been bubbling up for a while, just from a more local level, because it’s just not something that people want in their communities. It’s pretty extreme and pretty bipartisan.”

Parsing out whether these tax policy ideas can make it to the finish line — and whether tax policy is the right tool to address concerns with the data center industry — is a bigger challenge, especially in an election year. Several candidates in House, Senate, and gubernatorial races are running ads highlighting their opponents’ support of data centers, tying candidates who back their construction to issues of affordability and the impact of AI on the job market.

While taxing revenue is a convenient tool to measure and create policy on data centers, it isn’t likely to address the acute problems raised with their construction and operation, according to Adam Michel of the Cato Institute.

Wyden unveils plan to raise taxes on data centers - Brian Faler, Politico:

The Senate’s top Democratic tax-writer unveiled a plan Friday to slap a new excise tax on data centers and restrict their use of widely available business tax breaks, including those for investments.

Sen. Ron Wyden (D-Ore.), the ranking member of the tax-writing Finance Committee, wants to create a new, as-yet-undetermined excise tax on the gross receipts attributable to data center services. At the same time, he wants to curb their ability to claim popular tax breaks for depreciation, research and development, investments in so-called Opportunity Zones and benefits associated with real estate investment trusts.

OBBBA Reactions

Republicans Cut Taxes to Win the Midterms. It May Not Work Out. - Andrew Duehren, The New York Times ($):

Of all the tax cuts Republicans passed last year, the higher limit on the SALT deduction would seem to be the most politically potent. It was one of the most expensive changes, with its benefits concentrated in places like the suburbs that Mr. Lawler represents. Lawmakers from New York had loudly demanded a higher cap for years, making the policy more salient in the district.

Even then, the tax cut may not sway many of the voters it was meant to convince.

“I mean, I don’t think anybody wants to pay more taxes,” said Emer Flounders, a 43-year-old resident of the district. Still, Mr. Flounders said he would not be voting for Mr. Lawler. “Whatever benefit there was, I’d easily forgo it to have somebody else in there,” he added.

Top Senate Finance Democrat maps out clean energy plan - Kelsey Brugger, Politico:

Wyden said in a press release the numbers prove there is “massive demand” for “any and all” programs that lower energy costs and rebuild aging infrastructure, after Republicans gutted many of these wind and solar tax credits in their tax and spending megalaw last summer.

“When Democrats have a trifecta of power, reinstating the wind and solar tax credits and bolstering the Direct Pay Program will be a top priority to help bring an end to Trump’s energy crisis,” said Wyden, who is poised to take back the Finance gavel if control of the Senate flips in the midterms.

Anti-Abuse Measures

New IRS Team Will Crack Down on Abusive Life Insurance Structures - Lauren Loricchio, Tax Notes ($):

A new specialty group within the IRS that will focus on attacking abusive tax shelters and schemes will also examine sophisticated issues like those related to private placement life insurance (PPLI), IRS Chief Tax Compliance Officer Jarod Koopman told Tax Notes.

In an October 22 interview at the UCLA Extension Tax Controversy Conference, Koopman said that the group, which will comprise 10 to 20 people, will also focus on the abuse of Puerto Rico Act 60 tax incentives, Malta pension plans, and abusive structures set up in other countries to shift assets and income.

Koopman, who also serves as chief of the IRS Criminal Investigation division, said the team will include “folks from different civil business units sitting and working with the criminal side that are experts or special teams from both civil and criminal elements.”

Wyden Probes Accounting Firms on Malta Tax Advice - Cady Stanton, Tax Notes ($):

The top Senate Democratic taxwriter is asking the Big Four accounting firms to provide details on any work advising multinational corporations to offshore profits to low-tax jurisdictions, including Malta.

Senate Finance Committee ranking member Ron Wyden, D-Ore., sent letters on October 21 to the CEOs of PwC, KPMG LLP, Deloitte, and EY asking them whether they’ve advised U.S. corporate clients to use Maltese entities and subsidiaries to reduce their tax liabilities in the United States or globally.

The letters cite reporting from the New York Times in August that found the four firms are “aggressively marketing” strategies to shift profits to Maltese entities to reduce tax liability.

“This scheme to use employee-free shell companies in Malta to artificially drive down taxes merits further investigation,” Wyden said in a press release.

Tax Enforcement

After DOGE Cuts, IRS to Now Hire About 1,000 for Civil Divisions - Erin Slowey, Bloomberg Tax ($):

The IRS is beefing up its civil and crime unit workforce again after steep losses from Elon Musk’s purge of the federal government.

The IRS will hire roughly 1,000 employees for the small business and self-employed and large business and international divisions, Jarod Koopman, chief of compliance and criminal investigation at the IRS told Bloomberg Tax at the UCLA Tax controversy conference Thursday. The crime unit is hiring about 175 workers.

Musk’s Department of Government Efficiency incentives to leave the government drove about a quarter of the IRS workforce out of the agency last year. SBSE lost roughly 35% of its workers, LB&I lost about 20%, and CI lost about 10% to the deals.

Meta

Meta Reports 2% Tax Rate, Citing Benefit From Treasury R&D Move - Michael Rapoport, Bloomberg Tax ($):

The $8 billion benefit led Meta to record an overall tax benefit and a sharply negative effective tax rate for the first quarter, which has been balanced out by more normal circumstances in the following quarters. Meta’s effective tax rate for the third quarter was about 24%.

The issue stems from the 2025 law’s restoration of companies’ ability to immediately deduct domestic R&D expenses in the same year they’re incurred, instead of amortizing them over five years. As part of that change, companies were allowed to take catch-up deductions on previously incurred R&D costs they hadn’t yet been allowed to deduct under the previous regime.

Zuckerberg makes deal with Meta to help him pay billionaire tax if it passes - Sophie Austin and Wyatte Grantham Philips, Associated Press:

Actions announced by the tech giant on Wednesday will keep Zuckerberg as the majority owner of the company — and also give him the ability to sell some of a new class of non-voting shares “for any reason,” including to pay potential bills from the wealth tax.

The compromise came after Zuckerberg told the board he was considering selling his Palo Alto home last month in anticipation of the proposed tax. But he later struck the deal and committed to staying in California for eight years, unless “material unforeseen circumstances” arise that make it “prudent or advisable for him to reside elsewhere,” according to the filings.

A few hundred billionaires live in California, according to the nonpartisan Legislative Analyst's Office. The tax would apply to anyone with a primary residence in the state as of Jan. 1, 2026.

Social Security

Five Ideas to Start Fixing Social Security’s Finances - Richard Rubin and Kara Dapena, The Wall Street Journal ($):

Social Security is on the path to insolvency, prompting lawmakers and experts to hunt for ways to address its long-term finances.

The program already spends more on benefits than it receives in tax revenue. Within a few years, reserves built up in flush years will be exhausted, raising the prospect of benefit cuts that exceed 20%.

No one in Congress expects that to happen. But Congress hasn’t figured out what to do instead.

Blogs & Bits

Can You Make Whiskey At Home? The Supreme Court Will Decide, Kelly Phillips Erb, Taxgirl. "Nearly 160 years after Congress enacted restrictions on home distilling, the U.S. Supreme Court has agreed to decide whether those restrictions exceed Congress’s constitutional authority."

Expensing Concentrates the Corporate Tax Burden on Economic Profits, Erica York, The Tax Foundation Tax Policy Blog. "Expensing is the right policy because it eliminates the tax burden on the normal return to investment—the margin that matters most for growing the capital stock—and it concentrates the burden of the corporate tax on economic profits."

Congress Faces Difficult Choices To Close The Highway Trust Fund Shortfall, Yonah Freemark and Thomas Brosy, Tax Policy Center TaxVox blog. "Congress therefore has to determine not only how much to collect, but also who should bear the cost, how different approaches could affect travel and vehicle choices, and whether the policies would advance or work against other transportation, social, and environmental goals."

What Day Is It?

Cream Pie

It's Boston Cream Pie Day!

A delicious treat that began at the Parker House Hotel (no relation) in downtown Boston.