LEGISLATIVE LOWDOWN
Congressional Tax Staffers Outline
Agenda. Several senior staffers on the House Ways and
Means Committee and the Senate Finance Committee—Andrew
Grossman, Courtney Connell, Derek Theurer and Tiffany
Smith—participated in a conference on tax legislation and
regulatory developments last week held by the D.C. Bar Taxation
Community. The staffers, who serve as tax counsel to either
Republicans and Democrats on the committee, agreed on potential
areas of bipartisan cooperation this Congress: a retirement
security package and possibly an extenders package that could be
considered before the end of the year.
Another potential area for bipartisan agreement, according to the
staffers, is the Facilitating American-Built Semiconductors (FABS)
Act (S.2107). Authored by Sens. Ron Wyden (D-OR) and Ranking Member
Mike Crapo (R-ID), the chair and ranking member on the Senate
Finance Committee, the FABS Act would establish a new 25% tax
credit for investment in semiconductor manufacturing facilities.
The FABS Act is being considered by conferees negotiating the
Bipartisan Innovation Act.
Beyond this, the legislative priorities diverged. The Democratic
staffers insisted that the Build Back Better Act remains the
party's top legislative priority, whereas Republicans warned
against passing large spending packages that could exacerbate
inflationary trends. If Republicans regain control of either
chamber, the staffers said they would seek to make permanent the
Tax Cuts and Jobs Act (P.L.115-97)—something the Democratic
staffers largely opposed.
Staffers Discuss Build Back
Better. On a separate panel at the
tax conference last week, Democratic congressional staffers
discussed the long-stalled Build Back Better Act (BBBA). According
to Robert Andres, a senior policy adviser for Senate Finance
Committee Democrats, the package will not pass in between the
August district work period and the November midterm elections due
to political sensitivities. Should BBBA remain stalled in Congress
before the monthlong break, the next opportunity for passage would
be during the "lame-duck" session, the period after the
midterm elections and before the next Congress. Should Democrats
attempt to move a package then, they will need to initiate a new
budget reconciliation process since Congress will enter a new
fiscal year beginning Nov. 1.
In the meantime, Andres said the BBBA still remains "the best
vehicle to provide long-term certainty for [energy]
incentives."
Alice Lin, a budget policy adviser for House Ways and Means
Committee Democrats, agreed. Should the package ultimately fail,
however, she said lawmakers could still move energy provisions in a
year-end tax extender package. She acknowledged, though, that the
duration of the provisions would likely be shorter if they moved
through an extenders package, suggesting one- or two-year periods
as opposed to five years, for example.
Implementing the Inclusive
Framework. Treasury Secretary Janet Yellen is still
hopeful Congress can enact some version of the Build Back Better
Act this year, and she wants it to include the corporate minimum
tax provisions required for compliance with the Pillar Two global
minimum tax regime endorsed by nearly 140 countries through the
Organisation for Economic Cooperation and Development (OECD) last
October.
While Yellen admitted to not knowing "what will happen with
reconciliation," she nevertheless remains "hopeful that
some reconciliation package will be passed" before adding that
she "believe[s] that this [the global minimum corporate tax
language] will be a component."
In terms of timing, she expects the European Union (EU) to adopt
its Pillar Two measures "this spring" since "the EU
is very close to adopting the global minimum tax." Should this
occur, Yellen contends, "It will be a good example for the
U.S." Pascal Saint-Amans, director of the Center for Tax
Policy and Administration at the OECD, seemingly agreed when he
said at a tax conference last week that the EU would likely pass
the directive enacting the 15% minimum tax this month.
At the same time, however, Saint-Amans was less optimistic about
other countries adopting similar legislation quickly. He said, for
instance, that "there is an extremely ambitious timeline.
We'll see whether it can be met."
Batchelder Addresses Tax Credit
Concerns. Lily Batchelder, Treasury
assistant secretary for tax policy, responded last week to claims
that the global minimum tax agreement would undermine U.S. tax
incentives.
Speaking at a tax conference, Batchelder said the administration is
"confident that the value of many [domestic] business credits
is preserved under the OECD rules." She explained that tax
breaks related to low-income housing and renewable energy, in
addition to the New Markets Tax Credit, would not be affected
because "the income or loss and the income tax consequences of
those investments typically will be excluded from the effective tax
rate calculation."
In response to questions about other U.S. tax credits such as the
research and development credit, Batchelder said the U.S. has
"established a process with the OECD for working towards
additional clarifications." Under the current OECD model
rules, non-refundable credits would adversely affect a
company's effective tax rate calculation, potentially
subjecting it to a top-up tax under the proposed global minimum tax
regime.
Commissioner Rettig Testifies on the
Hill. The Senate Appropriations Subcommittee on
Financial Services and General Government held a hearing last week on the fiscal year 2023
budget request from the Internal Revenue Service (IRS).
Commissioner Charles Rettig testified before the
committee—his third time appearing before Congress within the
last few weeks. During his remarks, he updated lawmakers on several
issues:
- Processing Backlog:
Rettig, reporting that the paper return backlog was 5.8 million as
of April 21, repeated his commitment to addressing the backlog by
the end of the year. When asked if the IRS had plans to implement
paper scanning technology to assist with the processing of paper
returns, Rettig reminded the lawmakers that 2-D barcode scanning
would still require IRS personnel to be personally involved, so it
would not entirely automate processing.
- Workforce: Rettig also thanked Congress
for providing the IRS with direct hiring authority, which he said
would allow the agency to more quickly onboard employees. He
announced that since the IRS received that authority on March 15,
it has begun onboarding 2,500 employees. The IRS wants to hire
another 5,000 new employees this year and an additional 5,000 in
2023.
- ID.me: Rettig also discussed the agency's transition from ID.me to Login.gov. He said Login.gov is currently attempting to increase its authentication and transaction-per-second rate to meet standards set by the National Institute of Standards and Technology. According to a Government Accountability Office report issued last week, Login.gov should be available for taxpayers in either November or December 2022.
Finally, Rettig acknowledged during the hearing that it could be
his last. His term expires in November 2022, and there is no
guarantee Rettig, who was nominated by then-President Donald Trump,
will be renominated by President Joe Biden.
Senate Finance Examines Tax Exempt
Orgs. The Senate Finance
Subcommittee on Taxation and IRS Oversight held a hearing last Wednesday on the laws and
enforcement governing the political activities of tax exempt
entities. The politically charged hearing focused on the current
reporting and oversight requirements concerning tax exempt entities
and their influence activities.
Democrats, in particular Subcommittee Chair Sheldon Whitehouse
(D-RI), expressed concern about attempts by foreign organizations
to influence U.S. elections and attempts by organizations to bypass
donor reporting requirements. To address these concerns and others,
some Democrats have supported the DISCLOSE Act (S.2371). Introduced by
Senate Majority Leader Chuck Schumer (D-NY) in October, the bill
would, among other things, prevent foreign influence in U.S.
elections and enhance disclosure requirements.
Republicans, on the other hand, warned of legislative attempts to
benefit one political party over another by changing the rules and
regulations. Subcommittee Ranking Member John Thune (R-SD), for
instance, objected to calls for turning the Federal Elections
Commission, an independent regulatory agency responsible for
overseeing campaign spending, into a more partisan body.
1111 CONSTITUTION AVENUE
2022 Filing Season Interim Results. The
Treasury Inspector General for Tax Administration (TIGTA) issued
a report Thursday detailing interim results
for the 2022 tax filing season, which concluded on April 18.
The IRS began processing individual tax returns on Jan. 24, 2022,
and it is clear the processing backlog remains high. As of the week
concluding on March 12, 2022, the IRS has over 500,000 pieces of
unopened mail and about 4.5 million outstanding paper tax returns.
According to the report, the IRS expects to receive more than 160
million individual income tax returns. However, as of early March,
it had received only 53 million, or about one-third of the
total.
As the IRS continues to struggle hiring enough personnel, staffing
shortfalls remain a significant contributor to backlog woes. As IRS
Commissioner Charles Rettig testified last week, the agency has
recently onboarded new personnel but is still far below its hiring
goals for the year. As the report notes, TIGTA said the IRS has met
only 9.5% of its Submission Processing Center hiring goal,
estimating that the agency is facing a total staffing deficiency of
4,952 employees.
Taxpayer service has also suffered. The report notes that IRS
employees answered 2.7 million calls compared to 4.4 million the
previous year. It also took the IRS longer to answer phone calls,
requiring taxpayers to wait an average of 24 minutes to speak with
a representative compared to 18 minutes last year.
Complicating matters further were multiple changes to tax laws
during the COVID-19 pandemic, requiring the resource-thin agency to
quickly adapt. The report explains that, under the American Rescue
Plan Act alone, the IRS had to make changes to the Child and
Dependent Care Tax Credit, the Child Tax Credit, the Earned Income
Tax Credit, the Premium Tax Credit and a new Recovery Rebate
Credit—all of which further strained the agency.
IRS Meeting Expedited PLR
Goals. In January 2022, the IRS
established a new program allowing for expedited processing of
private letter ruling (PLR) requests that fall under the
jurisdiction of the Office of Associate Chief Counsel. If approved
for consideration, the program aims to process PLRs within 12
weeks. The program has thus far proven effective, according to an
IRS official last week.
Kelly Madigan, senior counsel at the Office of the Chief Counsel,
reported that no deadline has been missed and no applicants have
been denied. According to Madigan, the office has "taken the
program very seriously and have been working hard and efficiently
to make sure [it] meet[s] the fast-track deadlines."
GLOBAL GETDOWN
IRS Receiving FTC Reg Input. The Treasury
Department and IRS will continue consulting with industry
stakeholders before making decisions on changing foreign tax
credit final regulations issued in late December
2021.
At a tax conference last week, Isaac Wood, an attorney-adviser in
the Office of Tax Policy at the Treasury Department, said the
administration will continue receiving feedback from corporate
taxpayers and their advisers. According to Wood, the Treasury
Department is "going to continue that process before we
determine the precise contours of any change or changes to this
rule."
Wood commented on some of the concerns raised by stakeholders so
far, including the significant changes in the regulations on the
treatment of royalties. While Wood said it would be difficult for
taxpayers and the IRS to assess the place of use for all
intangibles, "place of use" could be determined in a more
administrable way when, for example, the terms of a license
agreement expressly limit the license to a single country. These
are the types of issues the administration is currently working
through, according to Wood, who said "those considerations
about other administrable approaches are exactly the questions that
we're considering at this time."
The comments come shortly after a May letter signed by Republicans and
Democrats on the House Ways and Means Committee requesting that the
administration coordinate with companies to provide more
comprehensive guidance on the regulations. The lawmakers raised
concerns that the rules could cause businesses to face double
taxation of income subject to tax in another jurisdiction and
argued the rules could 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.
AT A GLANCE
- Senate Warm to Frost:
The Senate confirmed Joshua Frost 54-42 to serve as assistant
secretary for financial markets at the Treasury Department.
- Democratic Unity on Book
Minimum. Sen. Elizabeth Warren
(D-MA) said last week that all 50 Senate Democrats support
establishing a new 15% "book income" tax on large
corporations. Warren specifically said she has "50 Democrats
in favor of a minimum book tax" and that she "believe[s]
this is going to happen."
- Intuit Settlement. Intuit, owner of TurboTax, agreed last week to pay $141 million to customers who paid for its products after the company advertised its free services. In an announcement about the agreement, New York Attorney General Letitia James said Intuit "mislead the most vulnerable among us to make a profit" and "cheated millions of low-income Americans out of free tax filing services."
BROWNSTEIN BOOKSHELF
- Implementation of PTC. The Treasury
Inspector General for Tax Administration issued a report last week on implementation of the
Premium Tax Credit provisions enacted under the American Rescue
Plan Act.
- Prepopulation of Tax Forms. A new study authored in part by two Treasury Department officials in the Office of Tax Analysis found that the IRS could potentially prepopulate tax forms for up to almost half of taxpayers.
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