Here’s a look at recent tax-related happenings on the Hill, including a tax discussion in the presidential debate and a look at IRS funding and tax priorities.
Lately on the Hill
The Presidential Debate
The presidential debate last week quickly kicked off with an economic discourse, including the topics of tax cuts and tariffs. The moderators introduced the discussion of taxes by emphasizing the roughly $4 trillion variance in projected debt inherent to the candidates’ tax proposals. Former President Donald Trump defended the Tax Cuts and Jobs Act (TCJA) by saying that it was the spur to a successful economy under his administration. Coupled with his support of a future 10% tariff, he stated that trillions of dollars were returned to the country during his presidency.
As a rebuttal, President Joe Biden stated that if 1,000 American billionaires were to pay a 25% rate rather than the current effective rate of 8.2%, the country could raise $500 billion in a 10-year period. Asserting that the TCJA benefited mainly corporations and high-net-worth individuals, he suggested that the additional funds could be used for initiatives he has historically supported—child care, elder care, and healthcare. Later, he stated that the extension of the TCJA would cost the American public $2,500 more on average yearly, while his proposal would not increase tax on those with income under $400,000.
IRS Funding
What was absent from the debate, but prevalent in headlines last week, was the question of the IRS’ funding. Discussions about funding for the IRS often include questions about the funding’s purpose, and whether it will be used to audit corporations or high-net-worth individuals. Despite these arguments, a recently issued TIGTA report announced that a campaign targeted at examining at least 8% of those individuals with more than $10 million of income is being suspended. This decision was made given the level of "no-change" rates resulting from the exams.
Also last week, the IRS Whistleblower Office’s annual report was released, disclosing a nearly $50 million increase in whistleblower awards. This prompted a request from the National Whistleblower Center Chair Stephen Kohn to exempt whistleblower awards from any upcoming budget cuts.
Other Political Priorities
Other than the debate’s discussion on the TCJA, Treasury Secretary Janet Yellen opined on what will likely continue to be tax priorities for the Democrats. She discussed what she saw as the two key initiatives for the future of affordable housing—a subsidy for first-time homebuyers and the low-income housing tax credit (LIHTC). The LIHTC expansion is already a part of the stalled tax package being held up by Senate politics, and the subsidy is included in Biden’s 2025 proposed budget. Even so, the National Council of State Housing Agencies issued a letter last week stating that the proposed changes to accounting methods within Revenue Procedure 2024-21 would be harmful to home ownership rates. Whether via legislation or tax guidance, affordable housing is sure to remain top of mind in the near future.
Meanwhile, the Republicans are continuing their strategy of using “tax teams” to explore the various topics relevant to 2025. In fact, the House Ways and Means Committee is gearing up for the international tax team’s meeting in early August. Providing further insight into the party’s priorities, House Speaker Mike Johnson (R-LA) also spoke last week in support of what he expects to be part of Trump’s tax plan—exempting tipped wages from income tax.
The Judicial Report
- Loper Bright Enterprises v. Raimondo: In 1984, Chevron v. Natural Resources Defense Council resulted in a decision that affected the authority of regulators, forming the so-called “Chevron doctrine.” In the wake of the Chevron decision, courts have sometimes been required to defer to an agency’s interpretation of a statute even when the reviewing court read the statute differently. This deference effectively allowed administrating agencies, like the IRS, a broad authority to effectively interpret the law. However, last week the U.S. Supreme Court ruling in Loper Bright Enterprises v. Raimondo overturned the Chevron doctrine. As a result, while agency interpretations will still be given great weight by the courts, they will not automatically be accorded deference. This leaves the court to evaluate the guidance, consider facts and circumstances, and interpret the statute.
- DAB Constructors Inc. v. United States: In the wake of the IRS’ halt to process Employee Retention Credit (ERC) claims last year, DAB Constructors Inc. is still looking for its refund despite its bankruptcy declaration. Holding firm that its claim is correct, this suit comes at an interesting time given the recent IRS announcement that “tens of thousands” of ERC claims will be denied if they are viewed as erroneous.
- Liberty Global Inc. v. United States: This case brings economic substance into the forefront once again. The government’s case relies on the argument that Liberty Global only structured its transaction for tax avoidance, but commenters are concerned that the results may have a broader impact on what is allowed as tax planning in general. There is more to come on this case as the government’s appellate brief was filed last week.
- United States v. Miller: The U.S. Supreme Court is set to review the case, which focuses on whether IRS payments made prior to bankruptcy could be included in the bankruptcy estate. To this point, there have been mixed results in appeals courts, making the impending Supreme Court decision all the more anticipated.
- Corner Post Inc. v. Federal Reserve: While not a tax case, the Supreme Court’s decision in Corner Post Inc. could affect the timing of when a tax regulation can be challenged. These “facial challenges” have a six-year window available for challenge, but when that window begins is the matter at hand.
Bill Proposals
- Bitcoin and Tax Liabilities: U.S. Rep. Matt Gaetz (R-FL) introduced a bill last week that would allow individuals owing income tax to pay their liability with bitcoin.
- Healthcare Sharing Ministries: Rather than treating healthcare sharing ministries as a health plan or insurance, H.R. 8776 proposes they be treated as a medical expense instead.
- Other Proposals in This Edition: A whole slew of bills were introduced last week, including: the Paid Family and Medical Leave Tax Credit Extension and Enhancement Act, the Overseas Americans Financial Access Act, the Storing All Firearms Effectively and Safely Act, and the Manufactured Housing Community and Sustainability Act.
From the Treasury & IRS
- Overpayment Interest on Erroneous Employment Tax Credits: Proposed Regulations issued by the IRS will consider as an underpayment of tax the overpayment interest paid to a taxpayer on an erroneous refund of the paid sick leave credit, the paid family leave credit, and the ERC.
- Tax Payments: The IRS is proposing amendments to regulations to adopt law changes under the Taxpayer First Act allowing the IRS to accept payments of tax by credit or debit card, without having to connect taxpayers to third-party payment processors.
- Corporate Stock Repurchases: Final Regulations have been announced with guidance on reporting and paying the 1% excise tax on stock repurchases. The tax is to be reported on Form 720, Quarterly Federal Excise Tax Return, with Form 7208, Excise Tax on Repurchase of Corporate Stock, attached. These forms are due by October 31, 2024 for taxable years ending after December 31, 2022 and on or before June 30, 2024. If more than one taxable year occurs during this time frame, the corporation should file a single Form 720 with separate Forms 7208 for each taxable year.
Digital Asset Reporting Requirements: The IRS released Final Regulations on the information reporting rules for brokers involved in digital asset transactions. Brokers will be required to report gross proceeds and adjusted basis on dispositions of digital assets. The rules will take effect beginning in 2026 for digital asset sales occurring in 2025.
Notably, the proposed broker rules that sought to include certain non-custodial middlemen are absent from these final regulations. The IRS says, “the proposed new digital asset middleman rules that apply to non-custodial industry participants are not being finalized with these final regulations. The Treasury Department and the IRS continue to study this area and, after full consideration of all comments received, intend to expeditiously issue separate final regulations describing information reporting rules for non-custodial industry participants.
Notice 2024-56 provides transitional relief from penalties for brokers who fail to report sales of digital assets in 2026 for sales effected in 2025. Brokers must make a good faith effort to file the appropriate information returns and furnish payee statements accurately.
Notice 2024-57 provides certain transactions involving digital assets that brokers will not be required to file information returns and furnish payee statements. Penalties will not be asserted with respect to these transactions.
Revenue Procedure 2024-28 provides a safe harbor which taxpayers may employ to allocate unused basis of digital assets held within each wallet or account of the taxpayer as of January 1, 2025.
Conservation Easements: Final Regulations were issued last week about conservation easements, expanding on the proposed regulations from last year and rejecting concerns of the rules’ complexity. The guidance focused on the “statutory disallowance rule.” For flow-throughs that make a qualified conservation contribution, these entities could have their related tax deduction disallowed “if the amount of the contribution exceeds 2.5 times the sum of each partner’s or S corporation shareholder’s relevant basis.” The final regulations also include some exceptions to the rule and practical guidelines for relevant calculations and definitions.
Also last week, the IRS stated that come July, it will be sending those involved in audited syndicated conservation easements time-limited settlement offers. However, these offers will still include penalties and other concessions.
- IRS Apology & Promise Issued: As previously published in From the Hill, an IRS contractor was able to access and leak information about a multitude of high-profile taxpayers. Ken Griffin, a hedge fund manager and one of the individuals affected by the breach, sued the IRS on the grounds of its failure to safeguard his information. This week, the IRS issued an apology to Griffin along with a promise for a “stronger and more trustworthy process for safeguarding the personal information of all taxpayers.”
- TIGTA Report—IRA Funding Uses: One of the most debated items going into 2025 is the Inflation Reduction Act and the nearly $60 billion in funding made available to the IRS with the legislation. TIGTA released its quarterly report, which demonstrates the breakdown of where the IRS has spent these funds to date, so far using about 10% of what is available.
- ABA Comments on SREs: The American Bar Association (ABA) has opined on various topics related to specified research or experimental expenditures (SREs) with their comments submitted last week1. Section 174 continues to be a hot topic, especially with currently proposed legislation and discussions about tax changes in 2025.
- Mid-Year Review: With the year halfway behind us, National Taxpayer Advocate Erin Collins presented her mid-year review about the IRS’ performance to Congress. With ERC processing claims being one of the challenges addressed, Collins also wrote, “When I look back eight years from now on how the IRS spent its Inflation Reduction Act funding, the changes I consider ‘transformational’ will primarily involve the deployment of new technology and innovative thinking.”
- Mississippi Extension: Due to the April storms affecting Mississippi, the IRS has announced relief until November 1 for certain filings for both individuals and businesses.
Inflation Reduction Act (IRA)
- Registration Relief: For certain credits and property types, taxpayers currently registering their clean energy projects through the IRS online portal for transfer or direct pay must report each facility on a separate Form 3468. This could mean thousands of forms in certain situations. However, an IRS official stated that they plan to release a new rule allowing those taxpayers registering more than 200 facilities to use one Form 3468 with a supporting PDF instead.
- Clean Hydrogen Inflation Adjustment Factors: The §45V Clean Hydrogen Credit includes the ability to adjust the eligible credit for inflation. IRB 2024-26 includes the factors that apply for 2023 and 2024, giving taxpayers a better understanding of the true benefit they may receive if they qualify for the credit.
- 1https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/2024/062124comments.pdf.
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.