Here’s a look at recent tax-related happenings on the Hill, including a potential reduction in IRS funding and lawmakers eyeing the possible sunset of Tax Cuts and Jobs Act (TCJA) provisions.
Lately on the Hill
As we enter the summer months and election activity ramps up, Congress is continuing its focus on 2025. Between a markup of the proposed 2025 House Appropriations bill and House Speaker Mike Johnson’s publicized strategy of a reconciliation process for TCJA extenders, legislators have continued the narrative this week on what next year might hold.
2025 Appropriations
On Thursday, the House Appropriations Committee held a markup on the Financial Services and General Government Appropriations Act of 2025. Topics within the bill include:
- A reduction in funding for the IRS
- Blocking of the IRS Direct File program
- Stopping funds for FinCEN’s Beneficial Ownership Information reporting rules
- Focus on restrictions surrounding clean energy and climate-related policies, including the SEC’s climate disclosure rule
- Preventing the implementation of the crypto-asset rules within Staff Accounting Bulletin No. 121
“Finally, we’ve gotten the bill you’re all waiting for!” House Democrats facetiously opened commentary about lawmakers’ favorite topic—funding the IRS. They proceeded to outline why the IRS’ funding not only should not be cut, but also should be increased. The current bill proposes a $2.2 billion cut from fiscal year 2024 levels but is actually $50 million lower than even 2010 levels and 20% below President Joe Biden’s requested amount. U.S. Rep. Steny Hoyer’s (D-MD) fundamental argument against the budget slash was that the IRS “generates between $5 and $9 for every $1 it spends on enforcement.” Ultimately, the change was said to cost more than it would save. Further, the congressman outlined that with less funding, taxpayers will experience poorer service and scammers will get away with tax cheating.
Along these lines, the IRS Direct File program has been part of the IRS’ plan to digitize its offerings. Piloted this most recent tax season, the program has been touted to allow taxpayers to avoid paying for tax software or professional services for filing their returns. Further discussion on IRS digitization is included later in this edition of From the Hill.
The opposition to environmental proposals was made clear by Republican Congress members. In fact, one congressman stated that the dollars currently planned for climate-related initiatives would do “absolutely nothing to change the temperature.” The message against further clean energy spending remains consistent with many Republicans and will no doubt continue to be part of the discussion for 2025 funding negotiations. The Democratic response? Senate Majority Leader Chuck Schumer stated that his party would “go way beyond” current legislation. “You ain’t seen nothing yet,” he said.
TCJA Sunsets
A reconciliation process has been used historically by both parties to quickly pass key legislation such as the TCJA and the American Rescue Plan Act, to name a few. While the Byrd Rule limits items in a budget reconciliation to those related to government income and spending, the process also allows passage with a simple majority. Last week, Johnson made it known that following the election, he would be in favor of using this strategy to get his priorities into legislation. U.S. Sen. Thom Tillis (R-NC) stated, “What we’re talking about now is just getting everybody’s expectations right on what you can do with the reconciliation, what you can’t do.” Johnson will be coordinating on these priorities with Donald Trump, who made his way to Capitol Hill last week for the first time since his presidency, floating ideas like eliminating taxes on tips, lowering the corporate tax rate to 20%, raising tariffs, and even eliminating the income tax to help shore up support.
On the other side of the aisle, Senate Budget Committee Chair Sheldon Whitehouse discussed the Democratic priorities and emphasized the $4.6 trillion price tag on fully extending the TCJA. His priorities included reform to carried interest, caps on deductibility for top executives, implementing a strict corporate minimum tax, and further solidifying the excise tax on repurchase of corporate stock. This week, White House National Economic Council Director Lael Brainard spoke to the fact that an expansion of the $10,000 SALT cap is likely not a key priority for President Biden, regardless of the political favor this move might find him given the districts most affected by the cap. This comes concurrently with June 11 comment letters opposing the tax on buybacks as outlined in REG-115710-22. More information on this topic later.
Also included in the TCJA was the Section 199A deduction, the topic of last week’s Center on Budget and Policy Priorities report.1 The report highlights that the deduction has been more beneficial to wealthier taxpayers, given the increased likelihood of those individuals’ participation in pass-through entity ownership and the mechanics of the calculation itself. While current discussions have not yet included mention of §199A reform, time will tell whether this report introduces the topic into the fold.
Also on the Hill …
- Tax Court Nominations – The Senate Finance Committee held a markup last Thursday for U.S. Tax Court nominees Rose Jenkins, Adam Landy, and Kashi Way. U.S. Sens. Mike Crapo (R-ID) and Ron Wyden (D-OR) were both supportive of the nominees, and they passed through the committee easily.
- ENABLE Act Introduced – Introduced by U.S. Sen. Eric Schmitt (R-MO), the Ensuring Nationwide Access to a Better Life Experience (ENABLE) Act would permanently extend the additional benefits to those holding 529A ABLE accounts. These benefits include the increased contribution to ABLE accounts and the ability to roll over 529 programs into ABLE programs.
This Week at the IRS & Treasury
- IRS Partnership Campaign Expansion Announced – Yesterday, IRS commissioner Danny Werfel discussed a new expansion to the current campaign to keep complex partnerships in line, with hopes of raising more than $50 billion. Coupled with a notice of intent (Notice 2024-54) for two proposed regulations on the topic, new working groups and an associate office are being formed to focus on partnership basis shifting transactions. This all comes in tandem with the release of the related transaction of interest proposed regulation (REG-124593-23) and revenue ruling (Rev. Rul. 2024-14). Keep an eye out for a FORsights™ article on this topic very soon!
- Stock Buybacks – As mentioned previously, Treasury has been hit with a multitude of comment letters opposing Reg-115710-22’s proposed rules surrounding the 1% excise tax on foreign stock buybacks. Heavy hitters submitted comments, including the U.S. Chamber of Commerce, Tax Executives Institute, the Global Business Alliance, the American Bar Association, and the National Association of Manufacturers, to name a few.
- Underpayment Waiver: Corporate Alternative Minimum Tax (CAMT) – Notice 2024-47 has been issued to provide a waiver for additional amounts due to the extent an underpayment of estimated tax is due to CAMT. This waiver extends to estimates due on or before August 15, 2024.
- IRS Digital Transformation – Although currently under question, the IRS was given additional funding with the Inflation Reduction Act, some of which is being used for modernizing and digitizing the IRS. The 2024 Update of the IRS IRA Strategic Operating Plan addresses expanding online services, utilizing new voicebots, and incorporating the aforementioned Direct File program. While a TIGTA report was issued last week concerning the use of paper source documents, the House Appropriations Committee focused its praise on the IRS’ use of third-party consultants for technology improvements. Further, the Taxpayer Advocacy Panel’s Tax Forms and Publications Project Committee is planning for a teleconference about strategies to improve customer service on July 16. That being said, Werfel said that given upcoming exam campaigns, the IRS will be focusing on hiring subject matter experts and those equipped for exams in the coming year.
- Disaster Relief – Disaster relief is now available to those in Kentucky, West Virginia, and Texas following storms in the respective states. Certain deadlines have now been pushed to November 1 as a result.
- BBA Rules & SECA – For BBA partnerships filing an administrative adjustment request to amend their returns, an official from the Treasury Office of Tax Policy recommended including SECA at the partnership level on Form 8082 as the “safest route” given unresolved questions with Soroban Capital Partners LP v. Commisioner.
Case Review
- 501(c)(3) Grants for Black Women Barred – In American Alliance for Equal Rights v. Fearless Fund, 2024 WL 2812981 (11th Cir., June 3, 2024), the court decided that nonprofits should not be allowed to earmark grant awards based on race. The Fearless Foundation’s contest provides grants and other awards to Black female business owners, a practice challenged by the American Alliance for Equal Rights. The group argued that considering non-black individuals were not eligible for the award, it violated §1981 of the 1866 Civil Rights Act.
- New Versus Used Property– Fitzgerald Truck Parts & Sales LLC v. United States, 6th Cir., No. 24-5078, appellant brief, June 10, 2024, analyzes what would comprise a new versus used vehicle, where certain used parts are incorporated into a different vehicle. The court upheld that Fitzgerald did not create a “new” truck by installing the engine of a used truck into a new vehicle under the §4015(a) safe harbor.
- Solar Conservation Easement – Movie Ranch Alvaton LLC v Commissioner resulted in favor of the IRS and against the conservation easement donation of a solar power development based on its highest and best use valuation.
The IRA & Clean Energy
- Upcoming Deadlines – Concept papers for the §48C credit are due June 21. Applications for the low-income bonus credit for certain clean energy projects are due June 27.
- Qualified Electric Vehicle (EV) Manufacturer Procedures Updated – Revenue Procedure 2024-26 is updating previously issued procedures to support the §30D(d) and (e) credits. Manufacturers and sellers now have further options for how to submit documentation and attestations and a review process for new clean vehicles, among other things.
- $1 Billion Savings From EV Credits – Treasury is touting savings to taxpayers of $1 billion due to EV tax credit §30D and §25E. Debate among lawmakers about the continuation or alteration of these credits continues.
- Energy Community Listing Updated – Notice 2024-48 updated the listing of eligible statistical areas and census tracts of energy communities within Appendices 1 and 2. The IRS also updated the related FAQs.
- Hydrogen Summit – The Hydrogen Americas 2024 Summit and Exhibition was held with discussion on the current market for hydrogen and the §45V tax credit. While the U.S. Department of Energy remains optimistic, participants highlighted the frustration surrounding the limbo of missing final regulations and uncertainty with the technology itself.
- Section 45Q Inflation Factor – The Carbon Oxide Sequestration credit’s inflation factor is 1.3877, meaning the highest benefit of the credit would be $27.75 per metric ton of carbon oxide.
- Final regulations were issued today for those claiming the five times bonus credit using the prevailing wage and apprenticeship requirements. Treasury Secretary Janet Yellen emphasized the record-keeping guidance included within the document, and the IRS has stated that an additional memorandum of understanding on the topic is forthcoming.
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 The Pass-Through Deduction Is Skewed to the Rich, Costly, and Failed to Deliver on Its Promises,”cbpp.org, June 6, 2024.