Legislative Lowdown
Bipartisan Innovation Act: More Tax Talk. The
conference committee to reconcile the House-passed America Creating
Opportunities for Manufacturing, Pre-Eminence in Technology and
Economic Strength Act (COMPETES, H.R.4521) and the Senate-passed
U.S. Innovation and Competition Act (USICA, S.1260) will soon
officially begin its work. First, the Senate must vote on nearly 30
motions to instruct—nonbinding instructions for conferees on
provisions to include in the final package.
Among those motions is one proposed by Sen. Maggie Hassan (D-NH), a
member of the Senate Finance Committee. The Senate will vote on her
motion to include a research and development tax credit for small
businesses and renew immediate expensing of research and
development costs. Members from both parties have supported the
provision.
Other members are urging conferees to include a provision that
would provide relief for certain companies that use "last in,
first out" (LIFO) accounting measures. Due to global supply
chain issues, some companies that fail to maintain a certain amount
of inventory, such as automakers, can be subject to recapture
taxes. Rep. Dan Kildee (D-MI), a member of the House Ways and Means
Committee, has pushed conferees to adopt his bill, the Supply Chain
Disruptions Relief Act (H.R.7382), during negotiations. The bill
has strong bipartisan support in both chambers and would provide a
statutory determination that the requirements for a qualified
liquidation under Section 473 have been satisfied for new motor
vehicle dealers that have had a reduction of new vehicles held in
LIFO inventory.
Senate Preparing Retirement
Legislation. The House Ways and
Means Committee and the House Education and Labor Committee have
both advanced retirement legislation this Congress—the
Securing a Strong Retirement Act ("SECURE 2.0," H.R.2954)
and the Protecting America's Retirement Security Act
(H.R.7310). The Ways and Means product, SECURE 2.0, passed the
House in March 2022 with overwhelming bipartisan support, but the
Education and Labor measure, the Protecting America's
Retirement Security Act, only advanced along party lines out of
committee in early April 2022.
On the Senate side, work on a potential retirement package
continues. The Senate Health, Education, Labor and Pensions (HELP)
Committee and Senate Finance Committee are expected to advance
their own retirement packages.
Senate HELP Chair Patty Murray (D-WA) and Ranking Member Richard
Burr (R-NC) are crafting the retirement package they hope to move
"later this spring." Other committee members may attempt
to have separate retirement legislation considered by the panel.
Sens. Tim Scott (R-SC) and Jacky Rosen (D-NV), both of whom sit on
the committee, introduced the Small Business Retirement Choices Act
(S.4086) last week. That bill would amend existing law to allow
small businesses to use retirement plan funds to pay expenses
associated with retirement plan design changes.
Sen. Rob Portman (R-OH), who is crafting a retirement package with
Sen. Ben Cardin (D-MD), said last week he expects the Senate
Finance Committee to consider their legislation, the Retirement
Security and Savings Act (S.1770), in May. However, Senate Finance
Committee Chair Ron Wyden (D-OR) said earlier in the week that he
plans to hold a markup on SECURE 2.0 after the current work period,
which ends around Memorial Day.
With such strong bipartisan support, a final retirement package is
currently expected to pass during the "lame-duck"
session, the period after the midterm elections and before the
start of the next Congress.
Neal Outlines Appropriations
Priorities. Senate Appropriations
Committee Chair Pat Leahy (D-VT) wants appropriators to reach a
topline spending agreement "in the next couple of weeks."
His remarks came shortly after a meeting of top Democrats and
Republicans on the House and Senate appropriations
committees—a meeting Leahy described as "excellent"
and one devoid of "any political posturing from anybody in
either party." At the same time, Leahy acknowledged that
discussions remain in early stages. "Where's the top line?
We're not there yet," he said. "It may be a
while."
As government funding discussions continue, Rep. Richard Neal
(D-MA), who chairs the House Ways and Means Committee, sent a
letter last week to House Budget Committee Chair John Yarmuth
(D-KY) outlining his top priorities for the spending package. Neal
said he aims to ensure U.S. tax policy and administration "are
fair for families and small businesses", strengthen retirement
security, improve health care affordability and modernize U.S.
infrastructure, among other things.
Diving deeper into the tax component of his budget priorities, Neal
highlighted the importance of tax policy on wage levels, housing
and health care markets, access to higher education and the cost of
raising children. To address these issues, Neal said the committee
will "examine policies that deliver more inclusive economic
growth that supports and grows America's middle class." He
said the committee will pursue "worker-focused policies"
that "will include infrastructure investment, retirement
savings, workforce development, access to higher education, and
small business growth."
IRS Commissioner Charles Rettig testified today before the Senate Appropriations
Subcommittee on Financial Services and General Government.
1111 Constitution Avenue
GAO Examines Free File. The Government
Accountability Office (GAO) issued a report last week revealing the findings of
its review of the Free File program, which allows taxpayers with
incomes below $73,000 to prepare and file their tax returns for
free. The Free File program is operated by the IRS and Free File
Inc., a group of eight tax preparation companies. The current
agreement between these companies and the IRS runs through October
2023.
Two companies—Intuit and H&R Block—have left the
Free File program in recent years, after which the percentage of
taxpayers using Free File dropped. In fact, the GAO reported that
while over 70% of taxpayers are eligible for Free File, only about
4% of taxpayers use the service.
The report detailed ways in which the IRS might improve the Free
File program. The IRS could, for instance, optimize Free File for
mobile devices, improve access for taxpayers with disabilities and
expand the number of foreign languages.
The GAO also explored the potential advantages of the IRS
developing its own filing system, rather than operating through
Free File Inc. Stakeholders told the GAO that the IRS has an
informational advantage relative to industry with respect to data
it receives from third parties. They suggested the IRS could
potentially prepopulate tax returns—automatically entering
third-party information into a taxpayer's return. However, the
GAO said this could be accomplished through the existing Free File
arrangement and would not require the IRS to operate its own
program. Nevertheless, the GAO said laws to ensure taxpayer
information privacy would make it easier for the IRS to offer this
capacity rather than industry. But previous studies have found that
it might be difficult for the IRS to obtain relevant third-party
data in a timely manner.
Finally, the GAO said the IRS faces risks from relying too heavily
on Free File Inc., particularly if companies continue to
abandon the program. The IRS has limited leverage over the
companies because it does not pay them for participating in the
program, so others leaving the Free File program could cause
significant disruptions.
IRS Names New SB/SE Division Leads. The
IRS announced last week that Lia Colbert will
be the new commissioner of the Small Business/Self-Employment
(SB/SE) Division. In this role, Colbert will be responsible for
overseeing 20,000 employees dedicated to helping more than 57
million small businesses and self-employed taxpayers understand and
meet their tax obligations.
Prior to this new role, Colbert served as director for the Taxpayer
First Office within the Office of the National Taxpayer Advocate.
Before that, she served in multiple roles at the IRS, including
chief of staff to IRS Commissioner Charles Rettig. In the release
announcing Colbert's new appointment, Rettig said, "This
is a crucial position for the IRS, and Lia's background
provides a unique perspective for this important role."
The IRS also announced that Maha Williams will serve as deputy
commissioner for examination within the SB/SE Division. In this
role, Williams will be responsible for "providing executive
expertise and direction for special projects covering major
segments of SB/SE including Campus Exam/Automated Under Reporter
(AUR), Field Exam, Specialty Exam, Headquarters Exam and Exam
Performance & Planning Analysis." In this role, she will
also provide support for all IRS efforts in identifying abusive tax
transactions, tax schemes and emerging abusive arrangements. Prior
to her appointment, Williams held various positions in SB/SE,
including deputy director for examination and director for case
selection.
Global Getdown
FTC Regs in Need of Attention. A
bipartisan group of 10 House Ways and Means Committee lawmakers
sent a letter to Treasury Secretary Janet Yellen last week urging
the administration to reconsider foreign tax credit (FTC) final regulations issued in late December
2021.
The lawmakers specifically raised concerns that the rules could
cause businesses to face double taxation of income subject to tax
in another jurisdiction. They explained that “denying credits
for foreign taxes that were previously creditable may lead to
unintended consequences with compounding effects for U.S.
businesses, such as double-taxation or U.S. firms making decisions
to offshore intellectual property.” The result could be fewer
investments in U.S. emerging markets and a decrease in U.S.
competitiveness, the letter contends.
The letter also presented a common objection to the rules often
expressed by industry players: they will
negatively affect companies operating in foreign countries without
a U.S. tax treaty, particularly with respect to how they domicile
intellectual property or are subject to withholding taxes.
To address these issues, the letter requested the IRS to
coordinate with companies to provide more comprehensive guidance
and consider offering safe harbors “to make clear the
regulations do not disallow credits for taxes that are clearly
imposed on net income attributable to the taxing
country.” Importantly, the letter also recognizes the
effect that the new regulations are having on financial statements
filed by publicly traded companies and stresses that “for
those elements where Treasury is unable to provide further
administrative guidance to clarify the application of these
regulations, we respectfully request that Treasury extend the
implementation window for the final regulations.”
The letter was signed by Reps. Brad Schneider (D-IL), Kevin Hern
(R-OK), Stephanie Murphy (D-FL), Drew Ferguson (R-GA), Ron Kind
(D-WI), Jodey Arrington (R-TX), Jimmy Panetta (D-CA), Ron Estes
(R-KS), Stacey Plaskett (D-U.S. Virgin Islands) and Jackie Walorski
(R-IN).
AT A GLANCE
- GDP Falls. Gross domestic product (GDP)
declined by an annualized 1.4% rate during the first quarter, well
below the 1% growth rate expected by some economists. It was the
first time GDP declined since 2020—the beginning of the
COVID-19 pandemic.
- Gas Price Plan. House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) announced legislation last week to address rising gas prices. The legislation would provide additional authorities to federal and state agencies to combat alleged “price gouging and profiteering” by oil and gas companies.
BROWNSTEIN BOOKSHELF
- JCT: Excise Tax Revenues. The Joint
Committee on Taxation issued a report last week on income and payroll
tax offsets to changes in excise tax revenues for 2022-2032.
- CRS: Opportunity Zones.The Congressional Research Service released a report last week on tax incentives for opportunity zones.
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