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Columns at the Delaware County Court of Common Pleas, Media, Pennsylvania

From the Hill: December 13, 2023

As the legislative session winds down, House Speaker Mike Johnson outlined plans for the remainder of the session and the beginning of the next.
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Here’s a look at recent tax-related happenings on the Hill, which includes a tax subcommittee hearing regarding tax issues as well as business leaders calling for immediate action on Section 174 research and experimentation (R&E) tax policy changes.

Lately on the Hill

As the legislative session comes to an end, Speaker of the House Mike Johnson (R-LA) released a letter to fellow House colleagues outlining plans for the remainder of the session and the beginning of the next. In addition to addressing legislative priorities relating to the National Defense Authorization Act, the Foreign Intelligence Surveillance Act, and security funding for the U.S. southern border, Ukraine, and Israel, the Speaker also reaffirmed his intention to “complete action on full-year bills” by the January 19 and February 2 deadlines, without consideration of any additional temporary measures.

The Tax Subcommittee of the House Ways and Means Committee held a hearing on “Tax Policies to Expand Economic Growth and Increase Prosperity for American Families” covering a wide array of topics, including expiring provisions of the Tax Cuts and Jobs Act of 2017 and alternative tax regimes such as a national retail sales tax. Prior to the hearing, the Joint Committee on Taxation released JCX-58-23 to provide a “background on cash-flow and consumption-based approaches to taxation.” The document includes descriptions of various consumption-based tax protocols, including value-added tax (VAT), flat tax, the X-tax, and a national retail sales tax. The overview also explains general criteria used in the analysis of tax systems, namely: efficiency, equity, simplicity, and administration.

More than 1,000 business leaders throughout the country signed a letter to the chairs and ranking members of the House Ways and Means Committee and Senate Finance Committee urging immediate action related to §174 R&E tax policy changes. The policies were described in the letter as a “70-year step backward” and made comparisons to China and 10 OECD countries that provide super deductions, e.g., doubling the incentive, for research and development expenditures, inhibiting America’s status as a leader in global innovation. The letter concludes “we strongly advocate for the deferment of the Internal Revenue Code section 174’s amortization requirement concerning R&E expenditures. With negotiations to close out the FY2024 appropriations process with an omnibus bill about to begin in earnest, your swift intervention will make all the difference.”

A bicameral group of tax-writing lawmakers have released a draft of the SECURE 2.0 Technical Corrections Act of 2023, addressing errors found in SECURE 2.0 provisions of the Consolidated Appropriations Act, 2023. Among other things, the draft provides technical and clerical corrections related to age requirements for required minimum distributions and beneficial catch-up contribution provisions for 401(k) plans and individual retirement accounts.

The Supreme Court began hearing arguments last week in the consequential case of Moore v. United States. The line of questioning from the justices seems to indicate a reluctance to strike down the 2017 legislation, levying a one-time mandatory repatriation tax (MRT) on past foreign earnings, while simultaneously expressing uneasiness to a broad ruling allowing unfettered taxation on unrealized income. In his opening statement, Andrew M. Grossman, representing the petitioners, argued “‘Income’ was understood at the time of the Sixteenth Amendment’s adoption to refer to gains coming into the taxpayer, like wages, rents, and dividends. Appreciation in the value of a home, a stock investment, or other property is not and never has been taxed as income. The reason is that a gain is not income unless and until it has been realized by the taxpayer.” In contrast, Solicitor Gen. Elizabeth B. Prelogar, representing the respondent, stated, “The Court doesn’t actually need to resolve any fundamental questions in this case about whether the Sixteenth Amendment requires realization. The MRT taxes income that was actually realized by the foreign corporations, and Congress permissibly attributed the tax on that realized income to U.S. shareholders just as it has done in any number of pass-through taxes throughout our nation’s history.”

Other Important Developments

  • Notice 2023-80 announces the IRS’ intent to issue proposed regulations to address the relationship between the foreign tax credit and dual consolidated loss rules to the pending Global Anti-Base Erosion (GloBE) Model Rules, also known as Pillar Two. In addition, the notice provides an extension, until further notice, of the relief provided by Notice 2023-55 for determining foreign tax credits under §901 and §903.
  • Revenue Procedure (Rev. Proc.) 2024-8 has been issued containing a list of qualified census tracts for issuers of qualified mortgage bonds under §143(a) and mortgage credit certificates under §25(c).
  • Discount factors for the 2023 accident year have been released under Rev. Proc. 2023-41. The procedures are intended for insurance companies required to discount unpaid losses pursuant to §846 and estimated salvage recoverable under §832.
  • The IRS announced (IR-2023-230) that 20,000 letters are being mailed to claimants of the Employee Retention Credit (ERC) who fall into two categories identified as being disallowed. Entities claiming the credit that were not in existence or did not pay wages during the eligibility period will receive notices in the IRS’ continued effort to dissuade fraudulent claims. Taxpayers disagreeing with the ineligibility determination can provide additional information to support their claim or amount or file an administrative appeal. The IRS also reminds taxpayers of the voluntary withdrawal process for those who feel they may have filed an ineligible claim.
  • The IRS has issued corrections and reopened the comment period until February 5, 2024 on proposed regulations (REG-134420-10). The proposed regulations make updates to clarify and update regulations applicable to affiliated and controlled groups of corporations primarily under §1502. Corrections were necessary to make language consistent in other related regulations.
  • The IRS has made corrections to the preamble to the proposed regulations (REG-132422-17) under Internal Revenue Code (IRC) §987 originally published on November 14, 2023 relating to reliance on the proposed regulations. This section provides rules for taxpayers owning a qualified business unit (QBU) that utilizes a currency other than the U.S. dollar. Rules direct how to calculate taxable income or loss in currency translation and gain or loss for transfers of property between QBUs that use different currencies. The proposed regulations seek to implement simplifications and new elections while maintaining the general approach of existing final regulations.
  • Internal Revenue Bulletin 2023-49 has been published containing the following:
    • Overpayment and underpayment interest rates for the quarter beginning January 1, 2024. (Revenue Ruling 2023-22)
    • November updates for the 24-month average corporate bond segment rates, 30-year treasury securities interest rates, and the monthly yield curve. (Notice 2023-76)
    • Proposed regulations applying to IRC §4966 excise taxes on taxable distributions from donor-advised funds (DAFs) payable by the sponsoring organizations and fund managers. (REG-142338-07)
    • Revocation of IRC §501(c)(3) and §170(c)(2) determinations for certain organizations. (Announcement 2023-34)
    • Proposed regulations 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 corporation after December 29, 2022, 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. (REG-112916-23)

Continued Coverage of the Inflation Reduction Act (IRA)

  • The U.S. Department of the Treasury, IRS, and U.S. Department of Energy issued a joint press release touting the initial success of the Low-Income Communities Bonus Credit Program. The program has generated more than 46,000 applications, far exceeding the initiative’s capacity for new projects. Additional capacity will be available in 2024.

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.

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