TAX TIDBIT


Kustoff Joins Ways and Means. Rep. David Kustoff (R-TN) has been selected to replace former Rep. Tom Reed (R-NY), who resigned from Congress earlier this year, on the House Ways and Means Committee. He will sit on the Worker and Family Support Subcommittee, the Oversight Subcommittee and the Social Security Subcommittee, where he will be the second-most senior Republican behind Ranking Member David Schweikert (R-AZ).

In a press release on his new committee assignment, Kustoff said, "As the only Republican from the mid-South on this committee, West Tennessee and the Mid-South region will have a seat at the table on issues such as taxes, trade, and healthcare." He added that he looks "forward to working to advance strong policies that will get our nation's economy back on track and protect hardworking Americans and businesses against the Biden Administration's reckless agenda."

Since joining Congress, Kustoff has introduced one tax bill, the Small Business Taxpayer Bill of Rights Act (H.R.7033). The bill, which was introduced in March 2022 and has no co-sponsors, would modify tax enforcement procedures by:

  • Awarding costs to small businesses for administrative and court proceedings;
  • Terminating IRS employees for misconduct;
  • Allowing tax deductions for a taxpayer's expenses for certain audits; and
  • Establishing a 10-year term for the National Taxpayer Advocate.

Kustoff is serving his third term and previously served on the House Financial Services Committee.

LEGISLATIVE LOWDOWN


Build Back Better. Democratic leadership continues to negotiate a deal with Sen. Joe Manchin (D-WV). In fact, Senate Majority Leader Chuck Schumer (D-NY) and Manchin met last week to discuss the package, but afterwards neither indicated an agreement was imminent.

Inflation—a persistent concern for Manchin—will likely influence the scope of the package. As inflation continues to surge, the package is expected to only become smaller. Democrats had originally passed a budget resolution for a $3.5 trillion spending package, but it appears the package will be closer to $1 trillion, if a deal is ever reached.

Yellen Testifies on Budget Request. Treasury Secretary Janet Yellen testified before the Senate Finance Committee and the House Ways and Means Committee last week to discuss the Biden administration's fiscal year 2023 budget proposal for the Treasury Department.

She appeared first before the Senate Finance Committee, testifying on Tuesday, June 7, at a hearing entitled "The President's Fiscal Year 2023 Budget." The discussion focused on risks posed by inflation, controlling the rise in food and energy prices, a potential international tax agreement and reforming tax legislation to better support low- and middle-income families. Click here for a full readout of the Senate Finance Committee hearing.

She appeared before the House Ways and Means Committee on Wednesday, June 8, at a hearing entitled "Proposed Fiscal Year 2023 Budget with Treasury Secretary Janet Yellen." During this hearing, the discussion focused on the potential international tax agreement, mitigating the impacts of rising food and energy prices, controlling inflationary pressures and the tax reforms included in the president's budget request. Click here for a full readout of the House Ways and Means Committee hearing.

Republican Study Committee Budget Proposal. The Republican Study Committee, a group of conservative Republicans who discuss policy issues and craft legislative proposals, last week released a budget proposal that would balance the federal budget and reduce the tax burden on Americans. Overall, the "Blueprint to Save America" calls for $3.9 trillion in tax cuts over the next 10 years and contains the following tax provisions:

  • Make permanent the individual tax provisions in the Tax Cuts and Jobs Act (TCJA, P.L.115-97);
  • Make permanent the TCJA provision allowing businesses to immediately expense investments in equipment;
  • Accelerate the current 39-year depreciation schedule for nonresidential construction and 27.5-year depreciation schedule for residential construction to 20 years;
  • Adjust the second long-term capital gains bracket to start at $75,000 for single filers;
  • Index capital gains taxes to inflation;
  • Eliminate the estate tax; and
  • Fully repeal the state and local tax (SALT) deduction.

Rep. Kevin Hern (R-OK), who chairs the Budget and Spending Task Force that compiled the report, is also a member of the House Ways and Means Committee. As such, the budget proposal could provide a roadmap of the tax policies House Republicans intend to pursue next Congress if they regain control of the chamber, which is expected.

Direct SALT Appeal. House Democrats from New York and New Jersey sent a letterrecently to Treasury Secretary Janet Yellen and Internal Revenue Service (IRS) Commissioner Charles Rettig asking the Treasury Department and IRS to rescind guidance that prevents states from implementing workarounds to the $10,000 SALT deduction cap.

The letter explained the adverse effects the regulations have on charitable donations. For instance, it said the 2019 regulations, entitled "Contributions in Exchange for State or Local Tax Credits" (RIN: 1545-BO89), "had the perverse effect of further limiting the incentive to make charitable donations." The lawmakers argued that repealing the rule would align with congressional intent, which did not seek to reduce charitable giving.

VMT Resurgence. The Highway Trust Fund (HTF), which provides a source of funding for federal government infrastructure projects, is expected to be depleted in 2027. With gas prices at record high levels, increasing the gas tax—the primary means by which the HTF has been funded—is currently politically untenable.

An alternative to raising adequate revenue could be a vehicle miles traveled (VMT) tax which faces opposition from Americans who drive long distances on a daily basis in rural areas. Rather than tax drivers on fuel consumption, a VMT would tax consumers on the number of miles driven—a metric some say more accurately reflects the damage each driver imposes on the road.

Rep. Peter DeFazio (D-OR), who chairs the House Transportation and Infrastructure Committee and is retiring this year, supported a VMT in remarks in recent weeks. He said Congress has to "look beyond gas and diesel tax" and "move toward a sustainable way to fund it and in my mind, it will be vehicle miles traveled." DeFazio thinks there may be an opportunity to partner with Republicans who take issue with electric vehicle drivers who do not pay gas tax.

However, DeFazio said some issues must still be resolved, including those related to privacy and equity. DeFazio discussed these issues, saying last week that a VMT structure will "have to have congestion pricing if you're going to have equity and fairness."

1111 CONSTITUTION AVENUE


IRS Finishes "Dirty Dozen" Scam Warnings. The IRS has finalized its "Dirty Dozen" scams list for 2022, popular methods by which defrauders attempt to mislead taxpayers. In last week's release, the IRS said warned of the following scams:

  • Concealing assets in offshore accounts and improper reporting of digital assets;
  • High-income individuals who don't file tax returns;
  • Abusive syndicated conservation easements; and
  • Abusive micro-captive insurance arrangements.


Earlier in June, the IRS announced four heavily promoted abusive deals that taxpayers should avoid:

  • Use of charitable remainder annuity trust to eliminate taxable gain;
  • Maltese (or other foreign) pension arrangements misusing tax treaties;
  • Puerto Rican and other foreign captive insurance; and
  • Monetized installment sales.


Finally, the IRS has highlighted a number of common scams that often target average taxpayers, rather than high-income individuals and businesses:


According to IRS Commissioner Charles Rettig, "these tax avoidance strategies are promoted to unsuspecting folks with too-good-to-be-true promises of reducing taxes or avoiding taxes altogether."

Clausing Leaving, Leiserson Could Replace. Kimberly Clausing, deputy assistant secretary for tax analysis at the Treasury Department, recently left the Biden administration. In that role, she advised other administration officials on profit shifting by companies.

Clausing could be replaced by Greg Leiserson, who currently serves as the senior economist on the Council of Economic Advisers, a role he also held during the Obama administration.

In between the Obama and Biden administrations, Leiserson served as director of tax policy at the Washington Center for Equitable Growth, a left-of-center think tank. While there, he specialized in the equitable taxation of wealth and income. He could use this expertise in his new role to promote the Biden administration's new minimum tax on high-income individuals known as the "Billionaire Minimum Income Tax." This proposal, floated under the administration's fiscal year 2023 budget request, is expected to require the highest-income earners to pay at least 20% on their annual income as well as unrealized gains.

Leiserson received a bachelor's degree from Swarthmore College and a Ph.D. from the Massachusetts Institute of Technology.

GLOBAL GETDOWN


No FTC Delay Coming. The Biden Treasury Department has no plans to delay the effective date of its foreign tax credit (FTC) regulations despite calls from industry players and a bipartisan group of House members to do just that. The IRS issued final FTC regulations in January 2022 that businesses have since said could cause serious problems, and congressional offices have suggested in recent weeks a delay would be reasonable.

Recently, however, a top IRS official has said otherwise. Associate International Chief Counsel Peter Blessing said the IRS "had some experience with postponing things that then seem to get postponed forever."

Blessing nevertheless acknowledged the need for the IRS to amend the final regulations. For instance, he is reported to have said the IRS recognizes "that the regulations need loosening and some clarifications, and even some changes in some respects."

AT A GLANCE

  • Retirement Package Markup. The Senate Finance Committee is tentatively planning a June 23 markup of the Securing a Strong Retirement Act (H.R.2954), or "SECURE 2.0," which passed the House in March 2022. According to Sen. Ben Cardin (D-MD), while this is "the target date," it could change since "scheduling is always a challenge."
  • CBO Estimates. The Congressional Budget Office estimated last week the federal budget deficit to be $423 billion in the first eight months of fiscal year 2022—about one-fifth of the $2.1 trillion shortfall recorded during the same period in 2021. Revenues, however, were $768 billion, or 29%, higher and outlays were $873 billion, or 19%, lower than during the same period a year ago.

BROWNSTEIN BOOKSHELF

  • Venmo Tax. Bloomberg published an article last week entitled "The IRS Is Coming for Your Venmo Income" that explained why small business owners who use services like Venmo, PayPal, EBay and Airbnb will soon receive more scrutiny from the IRS.
  • Spanberger Questions Backlog. Last week, Rep. Abigail Spanberger (D-VA) sent a letter to IRS Commissioner Rettig expressing her "deep concern about the backlog's impact on the Taxpayer Advocate Service's ability to accept inquiries from congressional caseworkers and the subsequent disproportionate impact on seniors, rural residents, small business owners, freelance workers, and lower-income filers."

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