Here’s a look at recent tax-related happenings on the Hill, which includes a new short-term funding deal, a Friday deadline on electric vehicle time-of-sale reports, and a reintroduced act that would require disclosure of the amounts and recipients of the disbursements for covered political activities.
BREAKING NEWS: The awaited tax framework proposal was announced this morning. Forvis Mazars will provide more information soon, but to access summaries of the framework, click here. The below article was drafted prior to this morning’s announcement. Please stay tuned for how any of the below may be affected by these recent developments.
Tax Package Debate Continues
On the heels of Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Mike Johnson’s (R-LA) top-line spending deal, Congress members from both sides of the aisle have voiced their opinions on the included funding appropriations. Given the deal—or a new adjusted deal—has not been approved into law, leaders agreed over the weekend to implement a new short-term funding deal that would serve as a solution to the otherwise impending shutdown. The deal will extend the current concurring resolution due dates from January 19 and February 2 to March 1 and March 8, respectively.
Leading up to this new short-term deal, the Senate Finance Committee Democrats and House Ways and Means Committee Republicans both met to discuss an estimated $50–$80 billion tax package agreement. As expected, the competing goals are to account for the “big three” tax changes: 1) 100% bonus depreciation, 2) research and development (R&D) cost deductibility, and 3) Section 163(j) interest calculation adjustment, while simultaneously expanding the child tax credit. Other issues also arose—like the $10,000 “SALT cap” and the low-income housing credit (LIHTC)—in discussions that may have been factors in the new delay to March.
In support of the implementation of these “big three” changes, a coalition issued a letter last week to Schumer, Johnson, Senate Minority Leader Mitch McConnell (R-KY), and House Minority Leader Hakeem Jeffries (D-NY) urging them to “reauthorize TCJA provisions to protect taxpayers and businesses.”1 On the other hand, Treasury Secretary Janet Yellen has opined on the effect of continuing the Tax Cuts and Jobs Act (TCJA) tax cuts on the federal deficit. She has stated that if Congress were to extend “all of the things in TCJA set to expire without finding new revenue sources to cover everything that’s left it would be a serious concern given the projections for the deficit.”2 For context, the Congressional Budget Office issued a report forecasting effects of potential changes, which includes some helpful charts as visuals. We have heard reports that Senate Finance Committee and Ways and Means members have considered shortening the Employee Retention Credit (ERC) claim submission period to help offset the cost of the “big three” and other initiatives targeted to benefit lower-income families.
Certain details of the impending tax deal remain uncertain, such as the extent of the child tax credit expansion (and whether it would be fully refundable) and what would be adjusted to offset this $50–80 billion price tag. What we do know is that lawmakers may now have an additional six weeks to iron out these issues. As reported in last week’s edition of From the Hill, an accelerated $20 billion reduction in funding for the IRS would be implemented if the omnibus appropriations package proposed by congressional leaders becomes law. In response to concerns of the impact of this change on the ability of the IRS to enforce tax law on bad actors, Schumer stated, “By keeping the cuts at $20 billion, I’m happy to say this agreement will not affect the IRS’s ability to keep holding the richest tax cheats accountable.” Along the same lines, Yellen stated that even given this change, “the IRS would be able to continue its important work in modernizing our tax system.”3 In IRS Commissioner Daniel Werfel’s update to the Senate Finance Committee last week, he reportedly emphasized the importance on the Inflation Reduction Act (IRA) funds for the IRS in processing and ensuring the integrity of ERC claims.
As a backdrop to all of these debates, a document entitled "Present Law and Background on the Income Taxation of High Income and High Wealth Taxpayers" is now available. The document was prepared by the Joint Committee on Taxation and provides some interesting insights into not only data on U.S. income and wealth (whether by percentile or source of income/composition), but also selected tax issues that may provide reasoning for upcoming tax proposals.
Tax Court Cases of Note
- Note Your Notices: Dodson v. Commissioner, while largely procedural, sets a precedent for a situation that could affect you. In this case, the taxpayer received a notice of deficiency from the IRS with a due date of December 5, 2022. However, this due date was a mistake by the IRS, which later mailed another notice with a January 6, 2022 due date for the taxpayer—a date the IRS was arguing should be the “effective” one. The takeaway to this case is two-fold: 1) the IRS cannot “unilaterally rescind” an issued notice, but instead the taxpayer must consent to the change, and 2) taxpayers should keep track of their notices and the due dates within.
- Importance of Record-Keeping: Alvarado v. Commissioner supports the argument for maintaining adequate records for your personal and business ventures. Considering Mr. Alvarado did not maintain sufficient records for his return related to his used-car business, the IRS is able to calculate income “by any reasonable method.” The court found that the IRS was too harshly conservative when it came to calculating cost of goods sold, resulting in around a 60% gross margin. While in this case the court largely sided with the taxpayer, it should serve as warning to those not willing to take the IRS to court for their assessments.
Clean Energy & the IRA
- For any time-of-sale report due between January 1, 2024 and January 16, 2024, sellers/dealers now have until this Friday, January 19, 2024, to submit the report.
- The IRS announced that sellers of qualifying clean vehicles now have until January 31, 2024 to provide time-of-sale reports for 2023 sales. These reports should be filed by emailing an encrypted Excel document or Forms 15400 (or something similar) to IRS.Clean.Vehicles.Seller.Reporting@IRS.gov. Then, the taxpayer should follow up immediately with a second email (with the same subject line) that includes the password to the encrypted document. For more details on the password requirements, subject line guidelines, and other instructions, see the IRS alert and our article here.
- The IRS has issued PLR-107822-23, which holds that real estate investment trusts should include as qualifying income carbon offsets from carbon sequestration projects. The income should be included at the earlier of “the Offsets are earned, the Offsets are received, or the Offsets are due.”
- The IRS has issued a correction to REG-132569-17 related to the §48 Investment Tax Credit.
In Case You Missed It
- The Openness in Political Expenditures Now (OPEN) Act was reintroduced, and would “require corporations to disclose to their shareholders the amounts disbursed for certain political activity, and for other purposes.” This Act includes a requirement for disclosure of the amounts and recipients of the disbursements for covered political activities and provides a limit on 501(c)(4) entity spending.
- Currently, the 45S Employer Credit for Paid Family and Medical Leave is available to employers providing Family and Medical Leave Act benefits. While Democrats have proposed creating a new federal paid leave program altogether, a team of House members has issued a framework for a proposal to expand and make permanent the currently implemented credit. Also targeted in the framework are “states with existing programs who need to navigate providing a variety of benefits, [and] multi-state employers and employees who provide and utilize benefits.”
- Werfel met with senators last week about the ERC. The IRS reported that “Werfel provided the committee with a roadmap for how the IRS plans to resume processing of its current ERC inventory with strong, new fraud detection measures in place.” For more on the ERC, see our articles on the IRS’ voluntary disclosure program, and 2023 processing moratorium, as well as IRS guidance on the withdrawal process implemented last year.
- An extension for the comment period related to Reg-142338-07 (Taxes on Taxable Distributions from Donor Advised Funds under Section 4966) was issued. The new deadline for comments is February 15, 2024.
- The Treasury Inspector General for Tax Administration (TIGTA) released a report on the “digital asset monitoring and compliance strategy” that the IRS has and continues to develop. The results of its review include three main topics: 1) “a service-wide approach is needed to address the impact of digital assets on tax administration,” 2) the digital asset initiative project office is working toward addressing challenges, and 3) “notices of proposed rulemaking are delaying and impacting the IRS’s implementation of new digital asset reporting and monitoring requirements.”
- The D.C. Bar Tax Conference occurred last week, shedding light on predictions for the coming year and reflections on the status of key tax topics. Takeaways included:
- Cryptocurrency comprehensive reforms are unlikely until 2025, according to Jeffrey Arbeit.
- The ERC voluntary disclosure program has seen around $130 million in withdrawn claims.
- Taxpayers could expect further corporate alternative minimum tax guidance in 2024.
- According to Scott Vance, the goal for issuing a notice of proposed rulemaking about the amortization of capitalized R&D costs is spring 2024.
- Final Regulations were issued Thursday related to defined benefit plans and the methodology for constructing the corporate bond yield curve (among other topics).
- Penalty relief related to Form 8308 now applies with the issuance of Notice 2024-19. However, this relief only applies in a narrow sense—to taxpayers with unrealized receivables or inventory items that fail to file Part IV of the form. The normal January 31 due date still applies for the Form 8308’s Parts I, II, and III for 2023 transactions.
- Last week, President Joe Biden announced his intent for James R. Ives—the current principal deputy director of the Defense Criminal Investigative Service—to be his nominee for Inspector General of the U.S. Department of the Treasury.
- The Tax Relief for Victims of Crimes, Scams, and Disasters Act is a proposal that was reintroduced last week by Reps. Jamie Raskin (D-MD) and Jim McGovern (D-MA). The proposal would allow for taxpayers to receive a deduction for personal casualty losses once again, and would include a retroactive benefit to those previously unable to claim this deduction following the TCJA.
- Updated FAQs related to the new beneficial ownership information reporting are now included on the Financial Crimes Enforcement Network’s (FinCEN) website. For more on these requirements, see our article, “What You Need to Know About the Corporate Transparency Act.”
IRS Intel
- The “Where’s My Refund?” IRS tool has been updated this filing season to make it more helpful and user friendly. Updates include an expansion of available refund status information, mobile compatibility, and whether a letter response is required.
- The IRS will begin processing 2023 Forms 1040 on Monday, January 29, marking the “official” start of the filing season. However, returns can be submitted (but will not be processed) prior to this date if tax software allows. For more about the 2023 tax return season, visit the IRS website. Key dates to be aware of this individual tax season:
- January 12: IRS Free File opens.
- TODAY! January 16: Due date for 2023 fourth quarter estimated tax payments.
- January 29: Filing season start date for individual tax returns
- April 15: Due date of filing a tax return or to request an extension for most of the nation
- April 17: Due date for Maine and Massachusetts
- October 15: Due date for extension filers
- The IRS issued a reminder that the deadline to file wage statements and independent contractor forms is January 31. These forms include the Form W-2, W-3, 1099-MISC, and 1099-NEC. As a reminder, beginning in 2024, Forms W-2 and certain information must be filed electronically if the company files 10 or more forms.
- National Taxpayer Advocate Erin Collins included improvements, but also underscored concerns with the performance of the IRS in her annual report. Issues with call responses and the tradeoff with processing time (especially with paper processing) efficiency are among the topics discussed in the report. At the D.C. Bar Tax Conference, Collins stated there is “a lot of appetite” for expanding the U.S. Tax Court, allowing certain taxpayers to avoid the current process of filing a lawsuit through a U.S. district court for their refund.
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.
- 1“Coalition: Reauthorize TCJA Provisions to Protect Taxpayers and Businesses,” ntu.org, January 8, 2024.
- 2“Yellen Says Extending Trump Tax Cuts Would Worsen Deficit,” Bloomberg, January 8, 2024.
- 3“Yellen Says Top-Line Federal Spending Deal Consistent With Debt Ceiling Pact,” reuters.com, January 8, 2024.