Note: We will break from our regular From the Hill email next week, returning to the normal schedule on Tuesday, December 5.
Lately on the Hill
Here’s a look at recent tax-related happenings on the Hill, which includes court decisions, IRA updates, and the CHIPS Act.
Last week, Congress passed a second continuing resolution, further funding the government into early 2024. The bipartisan measure passed both houses by wide margins, averting a government shutdown and paving the way for continued debate on the budget as lawmakers also seek to identify a vehicle for tax legislation. The bill extends appropriations for several agencies until January 19, with the remaining funded until February 2.
House Republicans continued to struggle to pass the five remaining appropriations bills. Several such bills were brought forward last week, all failing in what is widely seen as an act of retribution by members opposed to the passage of the continuing resolution. Votes are scheduled to continue after the holiday recess on November 28.
Hot off the Senate hearings centered on high-income earners, Chairman of the Committee on Finance Ron Wyden (D-OR), along with nine other Democrat colleagues, reintroduced the Ending the Carried Interest Loophole Act. A long-standing target of prior legislation, the bill seeks to recognize ordinary income on the deemed compensation of a partner’s applicable partnership interest. The deemed compensation amount is calculated on a specified rate of return on the partner’s share of invested capital and would be recognized annually. Current rules allow beneficial capital gain treatment as long as the investment is held longer than three years.
Noteworthy Decisions
- The Tax Court held that a foreign investment fund was engaged in a U.S. trade or business by attribution of a hired U.S. agency that managed its assets. The company was therefore liable for §1446 withholding tax in excess of $44 million on its foreign partners’ allocated taxable income effectively connected to that trade or business. (YA Global Investments, LP, et al. v. Commissioner)
- The Fifth Circuit Court of Appeals affirmed the decision of a district court, upholding the tax deficiency of an S corporation whose research and development credit claim was found improper as the contemplated projects yielded no viable business components and met the definition of “funded” research. (United States v. Grigsby)
Other Important Developments
- The IRS released Notice 2023-74, which delays the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023. Under this notice, the IRS will treat 2023 as another transition year and not require 1099-K reporting unless a taxpayer receives over $20,000 and has more than 200 transactions in 2023. In a related news release, the IRS indicated it is planning a $5,000 threshold for tax year 2024 as part of the phase-in to implement the $600 reporting threshold that was enacted under the American Rescue Plan.
- Proposed regulations (REG-112916-23) concerning the statutory disallowance rule promulgated by the SECURE 2.0 Act disallowing deductions for a qualified conservation contribution by a partnership or an S corp if the value of the contribution exceeds 2.5 times the sum of each partner’s or shareholder’s relevant basis. The proposed regulations detail appropriate methods for determining relevant basis, statutory exceptions, and reporting requirements.
- The Financial Crimes Enforcement Network (FinCEN) has provided FAQs in response to the new Beneficial Ownership Information Reporting Rule.
- The IRS is requesting comments on regulations on certain transfers of stock or securities by U.S. persons to foreign corporations. The regulation provides that the U.S. target company must follow reporting requirements for a U.S. person to qualify for a taxable transaction exception under §367(a).
- The IRS has released the December applicable federal rates per Rul. 2023-21.
- November updates for the 24-month average corporate bond segment rates, 30-year treasury securities interest rates, and the monthly yield curve have been released by the IRS in Notice 2023-76.
- The American Institute of CPAs has released revised Statements on Standards for Tax Services effective January 1, 2024. The revisions contain three new standards regarding data protection, reliance on tools, and representation of clients before taxing authorities.
- The IRS encourages taxpayers (IR-2023-210) to begin preparations now for the 2023 tax return filing season beginning in early 2024. Suggested preparations include creating an online account, gathering tax records, and verifying that sufficient taxes have been paid.
- Internal Revenue Bulletin 2023-47 has been published containing the following:
- 2024 adjusted limits on qualified retirement plan benefits and contributions (Notice 2023-75)
- Disciplinary sanctions (Announcement 2023-32)
- Revocation of IRC sections 501(c)(3) and 170(c)(2) determinations for certain organizations (Announcement 2023-33)
- Proposed regulations regarding fees as required in the federal independent dispute resolution process under the No Surprises Act (REG-115762-23)
- Internal Revenue Bulletin 2023-46 has been published containing the following:
- Proposed regulations to update the IRS approval requirements for a plan sponsor of a single-employer defined benefit plan to use plan-specific tables to calculate present value for minimum funding calculations in lieu of the generally applicable mortality tables. (REG-103525-23)
- Final regulations containing mortality tables for most defined benefit pension plans (TD 9983)
- Revocation of IRC sections 501(c)(3) and 170(c)(2) determinations for certain organizations (Announcement 2023-31)
Continued Coverage of the Inflation Reduction Act (IRA) & CHIPS Act
- Proposed regulations (REG-132569-17) have been issued detailing the types of qualifying energy property under §48, application of the prevailing wage and registered apprenticeship requirements, and application of the retrofitted property “80/20 Rule” among other provisions.
- In a letter to Treasury Secretary Janet Yellen, Senator Joe Manchin (D-WV) urges strict standards in defining the IRA term “Foreign Entity of Concern” (FEOC). The legislation allows, under section 30D, an FEOC to qualify for the clean vehicle credit. In his letter, Senator Manchin seeks to “ensure the minerals in electric vehicles are, to the greatest extent possible, sourced in the United States or from legitimate allies.”
- The IRA provides a couple new ways for tax-exempt and governmental entities to benefit from clean energy tax credits. In the past, these types of entities have been unable to claim such credits because they do not pay federal income tax. Going forward, tax-exempt and governmental entities that invest in activities qualifying for clean energy tax credits may file an annual tax return and claim “elective pay” for the value of the credit. By making this election, the credit amount is considered a payment of tax and any overpayment would be refunded. There are certain eligibility requirements to use elective pay. For entities not eligible, they may transfer or sell their credits to third-party buyers.
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.