Here’s a look at recent tax-related happenings on the Hill, including the possibility that Congress may select from Congressional Budget Office (CBO) report options to reduce federal spending over the next decade. The next publication of From the Hill will resume in January after we break for the holiday season.
Lately on the Hill
From the CBO
The CBO periodically assesses the impact to federal revenue of various policy options. The most recent report provides a list of 76 options to reduce federal spending over the 10-year period of 2025 to 2034. It is expected that Congress may select from these options as it considers offsets for spending on tax plans and border security.
Included among the options are:
- Eliminating or limiting the itemized tax deduction
- Establishing a cap on federal spending for Medicaid
- Limiting the deduction for charitable giving
- Imposing a new payroll tax
- Establishing a new 5% value-added tax
- Imposing a tax on greenhouse gas emissions
- Reducing defense spending
- Contemplating an increase to ordinary income tax rates for individuals
- Increasing earnings that are subject to Social Security payroll taxes
Whether Congress decides to enact any of these measures in a new tax bill will largely depend on the positions of the incoming administration. With a Republican majority House and Senate, the Trump administration would like a tax bill passed within the first 100 days of taking office through the reconciliation process.
Addressing the Double Taxation Issue Between the U.S. & Taiwan
In lieu of a formal tax treaty between Taiwan and the U.S., Congress is pursuing a treaty-like agreement with Taiwan to end double taxation on investments between the two countries, with the hope to have the bill to the president by the end of the year.
The bill is expected to extend treaty-like benefits to residents of Taiwan, providing a reciprocal set of benefits given to U.S. citizens with respect to income subject to tax in Taiwan.
The Judicial Report
Latest Developments on Controversy Surrounding ERC
Two return preparation businesses filed a motion for a preliminary injunction in U.S. District Court, arguing that the IRS’ approach to disallow Employee Retention Credit (ERC) claims en masse through the use of an automated process violates the Fifth Amendment.1
With the moratorium on claims filed after September 14, 2023 lifted, the IRS has been working through a backlog of 1.4 million claims. IRS Commissioner Daniel Werfel has asserted that the IRS is on track to approve $10 billion in claims by the end of the year, with another 500,000 to 600,000 claims to be processed in 2025.2
From the Treasury & IRS
Released Guidance
Final Regulations (T.D. 10016) detail how qualified business units (QBUs) calculate taxable income or loss and foreign currency gains and losses under Section 987. The Final Regulations enact provisions of the deferred December 2016 final regulations and the November 2023 proposed regulations such as the application of the foreign exchange exposure pool (FEEP) method, an annual rate and a current rate election, and the option to characterize the §987 gain or loss using the asset method under the §861 regulations. Read our latest FORsights™ article, “Final Regs on Foreign Currency Gains and Losses of QBUs” to learn more.
In addition, the IRS released Proposed Regulations (REG-117213-24) to assist taxpayers in calculating taxable income and the foreign currency gain or loss of a QBU, specifically as it relates to the treatment of disregarded transactions.
Revenue Procedure 2025-8 modifies procedures for obtaining automatic consent to change accounting methods for research and experimental expenditures under §174. The modification applies to Section 7 of Rev. Proc. 2024-23 relating to procedures under §446 and §1.446-1(e) and is applicable to tax years beginning after December 31, 2021. The revenue procedure is effective for Forms 3115 filed on or after December 17, 2024.
Final Regulations (T.D. 10015) under §48 clarify questions arising from the Proposed Regulations around ownership and definitions of clean energy property, such as biogas property and energy storage. Any company that begins construction for qualifying projects before the end of 2024 may claim the clean energy investment tax credit under §48, but if construction begins in 2025, the project would need to qualify under the new §48E clean electricity investment credit introduced by the Inflation Reduction Act, which requires energy projects to be “tech-neutral.” Review our FORsights article, “Final Regulations Issued on Clean Energy Investment Tax Credit” for further information.
Final Regulations (T.D. 10019) adopt, without change, proposed regulations issued in September amending the definition of “coverage month” and other rules regarding the computation of an individual taxpayer’s premium tax credit. The final regulations are applicable for tax years beginning on or after January 1, 2025.
The IRS determined that an operator of an offset project must include the value of carbon credits awarded from a state government in gross income when granted in a Memorandum (AM 2024-004), citing multiple cases like Baboquivari Cattle Co. v. Commissioner, 135 F. 2d 114, and Ginsburg v. United States, 922 F. 3d 1320, in which the courts found government program tax credits to be federally taxable income.
The IRS announced that its Energy Credits Online (ECO) Tool was open to accept time-of-sale reports for any transaction of a new or previously owned clean vehicle not previously submitted. Taxpayers are recommended to act now to avoid IRS processing delays. Dealers and sellers of new or used vehicles eligible for the Clean Vehicle Tax Credit (under §30D and §25E) are encouraged to read more in this FORsights article, “Update: IRS Provides Relief for Clean Auto Dealer Reports.”
The IRS announced (Announcement 2024-42) that it has entered into a competent authority arrangement with Norway under which both contracting states have agreed that a regulated investment company (RIC) is not eligible to apply the capital gain exemption provisions under Article 20 of the United States-Norway Income and Property Tax Convention.
The IRS has announced updates to the corporate bond monthly year curve, the 24-month average segment rates, and the 30-year Treasury rates in Notice 2025-1 that is expected to be published January 13, 2025.
In Notice 2025-2, the IRS has provided relief for partnerships that fail to furnish correct payee statements to partners under §6722 to partners. The relief will only apply if the partnership with §751(a) property furnishes to the transferor and transferee a correct copy of Form 8308, Report of a Sale or Exchange of Certain Partnership Interests. Parts I, II, and III of Form 8308 must be filed by the later of January 31, 2025 or 30 days after the partnership is notified of the §751(a) exchange. Form 8308, including Part IV, is required to be furnished by the later of the due date of the partnership’s Form 1065 or 30 days after the partnership is notified of the §751(a) exchange.
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.