Here’s a look at recent tax-related happenings on the Hill, including a potential tax platform from presumptive Democratic nominees Kamala Harris and Tim Walz and a lawsuit against the IRS over Employee Retention Credit (ERC) claims.
Lately on the Hill
A Look Into the Possible Harris/Walz Tax Platform
Next week, Democrats will gather in Chicago to formalize the nominations of Harris and Walz as their party’s candidates for president and vice president of the United States. While the presumptive nominees are not particularly known for having a focus on tax issues, a look into tax proposals they have made or supported in the past may shine a light on their potential tax platform.
Harris served as a senator from 2017 to 2021, representing California. She joined the rest of the Democratic Party in voting against the Republican landmark legislation, the Tax Cuts and Jobs Act of 2017 (TCJA), although she has indicated that she agrees with President Joe Biden’s budget proposal to extend TCJA provisions for those earning less than $400,000 per year.
Her signature tax proposal as a senator was the LIFT (Livable Incomes for Families Today) the Middle Class Act, introduced in 2019. The legislation would have provided a refundable tax credit that matched a taxpayer’s earnings of up to $3,000 per person ($6,000 per couple). The credit would have been available to taxpayers with adjusted gross income of up to $50,000 ($100,000 per couple) and had an estimated cost of $3 trillion over a decade.
In a similar vein to Biden’s recent proposal to limit tax incentives for corporate landlords that raise rents above 5% per year, Harris introduced the Rent Relief Act of 2019, benefiting taxpayers who pay rent and utilities on their principal residence in excess of 30% of their gross income and earn less than $100,000 per year.
As a presidential candidate in 2020, Harris supported a full repeal of the TCJA, including the reinstatement of the 35% corporate tax rate (as compared to Biden’s 28% proposal), raising capital gains tax rates to ordinary income tax rates, expanding the estate tax, and the implementation of a 4% income-based premium on those making more than $100,000 per year to fund her “Medicare for All” health plan.
While many of Harris’ proposals show similarities to Biden’s effort that the wealthy “pay their fair share” and provide lower-income taxpayers a financial lift, she seems to show a greater willingness to pursue these efforts with more aggressive tax increases, including for those who make less than Biden’s once firm $400,000 floor.
The Minnesota 2023 legislative session realized significant reforms to the state’s tax code. In that year, Democrats gained control of the legislature and effectuated Walz’s “One Minnesota” budget proposal to “support children and families, invest in the future of Minnesota’s economy, protect Minnesotans’ health and safety, and provide tax cuts for Minnesotans across the state.”
The centerpiece of the reforms was the enactment of a child tax credit of $1,750 per child for those with incomes up to $35,000 and married filing jointly, or $29,500 for other filers. “Minnesota is setting an example for the nation of how to lift families up, cut child poverty, and build a brighter future for Minnesotans,” said Walz of the credit.
Tax increases also were made, including a new net investment tax imposing a 1% tax on net investment income exceeding $1 million, a reduction in the corporate net operating loss limit from 80% to 70% of taxable net income, and a reduction in standard or itemized deductions for taxpayers with adjusted gross income of more than $220,650.
In January 2024, a study performed by the Institute on Taxation and Economic Policy identified Minnesota as the second most progressive tax system in the country, second only to Washington, D.C., and beating out progressive standard bearer states such as California, New York, and New Jersey.1
Considering their historical tax proposals, the Harris/Walz tax platform could be more progressive than the current administration, with a more aggressive effort to require businesses and wealthy individuals (more loosely defined) to pay more while also providing more benefits to low-income households.
The Judicial Report
An Arizona-based cabinet manufacturer filed suit in a district court, claiming that the IRS has not responded to its claims of the ERC filed in 2021 and 2023. Bass Cabinet Manufacturing, Inc. v. United States, No. 2:24-cv-01975, August 7, 2024.
Bass Cabinet Manufacturing, Inc. and sister company Cabinets & Related Products, Inc. are suing the government in an effort to collect $1.35 million they claim is due to them from the COVID era credit.
The suit provides that the companies suffered a “significant decline in gross receipts” during the claimed period in which “gross receipts were less than 80 percent of the same calendar quarter in 2019.”
The credit sought to buoy companies that were struggling during the pandemic and incentivize them to keep their workers employed.
According to the court filing, under 26 U.S.C. Sections 7422 and 6532, a refund suit may commence six months after a claim for refund has been filed and not after two years from the date the IRS disallows the claim. At the time the suit was filed, the plaintiff had not been notified of the status of their claims.
From the Treasury & IRS
More ERC Claims to Be Processed & Paid
The IRS announced (IR-2024-203) an additional 50,000 low-risk claims of the ERC will be paid out beginning in September, with another “large block” processed and paid later in the fall.
Over the last several weeks, the IRS issued 28,000 letters disallowing the claims due to a high risk that they were incorrect. The IRS admits there may have been errors in disallowing some claims but is of the opinion that “more than 90% of disallowance notices were validly issued.”
The IRS also announced that it would begin processing claims filed after the September 14, 2023 moratorium and before January 31, 2024. The recently failed Senate vote for the Tax Relief for American Families and Workers Act would have ended the program as of January 31 of this year, perhaps an indication that the IRS hopes that provision may ultimately pass.
Claimants of the credit also may start to see partial payments for some tax periods while the IRS continues to review other periods for eligibility. The IRS also reminded businesses that feel their claim was improperly denied that they can file an administrative appeal with the IRS Independent Office of Appeals.
FinCEN Initiates Education Campaign on BOI Requirements
The Treasury’s Financial Crimes Enforcement Network (FinCEN) announced a new campaign to educate small businesses subject to the new beneficial ownership information (BOI) reporting requirements. Such companies are now required to report certain information about the individuals who own them in an effort to “curb illicit finance” as directed by Congress under the Corporate Transparency Act.
The education initiative says that “to directly reach business owners, educate stakeholders about these reporting requirements, and encourage compliance, television and radio PSAs are now running nationwide in tandem with digital and print ads.”
Released Guidance
IR-2024-204 introduces an early draft of the updated Form 1099-DA, Digital Asset Proceeds From Broker Transactions. Brokers will be required to report information on digital asset sale and exchange transactions that occur beginning in calendar year 2025.
IR-2024-205 announces relief for individuals and businesses affected by Hurricane Debby in all counties of South Carolina and to certain counties of North Carolina, Florida, and Georgia. These taxpayers have until February 3, 2025 to file tax returns and make tax payments.
- 1“Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, Seventh Edition,” itep.org, January 2024.
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.