Here’s a look at recent tax-related happenings on the Hill, including an upcoming Senate vote on the Tax Relief for American Families and Workers Act, a delayed vote on IRS funding, and congressional action in response to the U.S. Supreme Court’s decision to end the Chevron doctrine.
Lately on the Hill
Cloture Motion Prompts Senate Vote on Bill
Senate Majority Leader Chuck Schumer (D-NY) has filed a cloture motion, prompting a Senate vote on the advancement of the Tax Relief for American Families and Workers Act to a floor vote. The maneuver is widely viewed as political, as Republican leadership has already vowed it will not vote for the bill, leaving it short of the required 60 votes.
In late January, the House passed the business and family tax legislation in overwhelming bipartisan fashion, but the bill stalled in the Senate. The highly anticipated bill provides immediate deduction for research expenses, full expensing of business assets, increased deductions of business interest, and an expansion of the child tax credit.
The vote is scheduled to take place on August 1, shortly before the Senate adjourns for a five-week recess.
House Breaks for the Summer, Delaying a Vote on IRS Funding
Republican House leaders reversed course last week, deciding not to hold a vote on the Financial Services and General Government (FSGG) appropriations bill. The House Appropriations Committee had passed the legislation last month, teeing it up for a floor vote that was canceled over concerns it would not pass.
The FSGG appropriations bill has always been a lightning rod for controversy as it provides funding for the U.S. Department of the Treasury and the IRS, the federal judiciary, the president’s office, Washington, D.C., and dozens of agencies such as the Federal Trade Commission and the SEC. Historically, the bill is extended with stopgap measures and eventually passes within a brokered omnibus bill. Apparently, this year will not be an exception.
The Republican-crafted legislation provides $23.6 billion in total discretionary funding during fiscal year 2025, a decrease of $2.4 billion from the prior fiscal year, and nearly 20% less than the White House’s request. It also keeps true to the Republican policy to reduce funding to the IRS.
In his remarks during the House Appropriations Committee markup, Chair Tom Cole (R-OK) said, “Today’s bill protects taxpayers while supporting critical functions. It’s a reflection of accomplishing more with less by ensuring agencies are focused on their core missions. We also constrain bureaucratic overreach and provide critical oversight over the Executive Branch.”
In a statement issued by the Biden administration, President Joe Biden vehemently opposes the bill and promises to veto it. “The Administration strongly opposes the level provided by the bill for IRS discretionary funding, a $2.2 billion reduction below the FY 2024 enacted level and the FY 2025 Budget request level. This would be the lowest nominal discretionary funding level for the IRS in 20 years. The House Republican approach to IRS funding would make it easier for wealthy tax cheats to avoid the taxes they owe and increase both the tax gap and deficit.”
The House began a lengthy summer-ending recess, not returning until the week of September 9. With current funding expiring on September 30, legislators will rely on stopgap measures to extend funding into the post-election lame duck session. Meanwhile, the Senate’s Appropriations Committee is scheduled to meet August 1 to mark up its own version of the FSGG appropriations bill. Eventually, each chamber’s bills will have to be reconciled.
The Judicial Report
Supreme Court Ruling on Chevron Doctrine Fuels Action in Congress
In the wake of the U.S. Supreme Court’s June 28 decision extinguishing the Chevron doctrine, members of Congress contemplated the consequences of the ruling and began acting.
The decision in Loper Bright v. Raimondo overturned a four-decade-old precedent providing that federal courts give deference to reasonable federal agency interpretations of ambiguous laws. Consequently, the legislative branch will need to write more robust legislation while the courts retain a greater responsibility in interpreting these laws.
The court’s opinion, delivered by Chief Justice John Roberts, wrote, “Chevron was a judicial invention that required the judges to disregard their statutory duties. And the only way to ensure that the law will not merely change erratically, but will develop in a principled and intelligible fashion, is for us to leave Chevron behind.”
Last week, the House Administration Committee held a hearing titled, “Congress in a Post-Chevron World.”
In testimony provided by Josh Chafetz, a professor of law and politics at Georgetown University Law Center who does not support the court’s ruling, he suggested potential congressional responses. Chafetz reasoned that the decision in Loper Bright is a “statutory holding” based on an interpretation of the Administrative Procedure Act and explains that a later statute can supplant an earlier one. Therefore, “statutory drafters can emphasize in clear statutory text when they want courts to defer to agencies’ interpretations of the statute.” Chafetz suggests this may be done by adding language to a statute instructing a court that an agency’s reasonable interpretation of any ambiguities should be affirmed or by passing a law providing agency deference.
Chafetz also spoke to Congress’ “institutional capacity.” He said, “If Congress is truly going to give less discretion to the agencies, it will need to not only markedly increase both member and committee staff numbers and compensation. It will need scientists, social scientists, and others with graduate training to understand the complexities of the areas it intends to regulate.”
At the time of the hearing, Democratic senators were already working on a bill and introduced it the day after. The Stop Corporate Capture Act, which would in effect codify the Chevron doctrine and reform the regulatory process, was introduced by Sen. Elizabeth Warren (D-MA).
From the Treasury & IRS
ERC Denial Letters Are Arriving & Causing Confusion
Bloomberg Tax is reporting businesses are beginning to receive letters denying Employee Retention Credit (ERC) claims as foretold in a June 20 IRS announcement. According to the announcement, 10 to 20% of claims will be denied due to “warning signals that clearly fall outside the guidelines established by Congress.”
The credit was designed to buoy faltering businesses as they struggled to retain employees during the COVID-19 pandemic but was hijacked by unscrupulous promoters promising businesses—that were often not meeting the requirements of the credit—substantial benefits in exchange for high fees to file claims.
Many recipients are certain their claims are correct and have seen variations among the letters concerning how to dispute the denials. Bloomberg reports on the confusion the letters have caused as some provide an option to dispute the denial with the Independent Office of Appeals, while other letters indicate that the taxpayer must litigate. The IRS stated, “We understand that some of the recent early mailings have inadvertently omitted a paragraph highlighting the process for filing an appeal to the IRS or District Court, and the agency is taking steps to ensure this language is mailed to all relevant taxpayers. Regardless of the language in the notice, the IRS emphasizes taxpayers have administrative appeals rights available to them.”
Guidance
Proposed Regulations (REG-124593-23) identifying certain partnership related-party basis adjustment transactions as a transaction of interest have received corrections by the IRS. The initial proposed rule was issued June 18, 2024.
Proposed Regulations (REG-133850-13) to remove the associated property rule from the interest capitalization requirements for improvements that constitute the production of property under Section 263A(f) has received a correction by the IRS. The initial proposed rule was issued on May 15, 2024.
Notice 2024-60 has been issued describing the information that must be provided in a written report to the IRS and the U.S. Department of Energy before any credit for carbon oxide sequestration is determined under §45Q. The notice also provides the IRS’ intent to issue proposed regulations to update existing regulations under this section for amendments made by the Inflation Reduction Act of 2022 and guidance contained in this notice.
IR-2024-198 provided by the IRS shares five new warning signs for incorrect claims of the ERC. The signs include not having a decline in gross receipts, support lacking on suspended business operations, reporting family members’ wages as qualified wages, wages already used for Paycheck Protection Program loan forgiveness, and large employers claiming wages for employees who provided services.
IR-2024-191 announces relief for individuals and businesses affected by Hurricane Beryl in 67 Texas counties. These taxpayers have until February 3, 2025 to file tax returns and make tax payments.
FS-2024-26 has been released providing updates to frequently asked questions related to New, Previously Owned, and Qualified Commercial Clean Vehicle Credits. The updates relate to questions surrounding eligibility rules, income and price limitations, and more.
The IRS announced that certain amended employment tax returns can now be filed electronically, including amended Forms 940, 941-X, 943-X, and 945-X. For the time being, Forms 944-X and CT-1 X cannot be filed electronically.
The Financial Crimes Enforcement Network (FinCEN) issued a Notice to Customers containing a reference guide on beneficial ownership information (BOI) reporting. According to the guide, it answers key questions about reporting BOI to FinCEN and providing BOI to financial institutions in connection with federal customer due diligence requirements.
FinCEN has updated its frequently asked questions on BOI to include responses to questions concerning issues with tax identification numbers.
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.