Here’s a look at recent tax-related happenings on the Hill, including Vice President Kamala Harris selecting Minnesota Gov. Tim Walz as her running mate and a failed vote on the Tax Relief for American Families and Workers Act.
Lately on the Hill
Minnesota Gov. Tim Walz Selected as Kamala Harris’ Running Mate
Prior to being elected governor in 2018, Walz served six terms in the House of Representatives representing Minnesota’s First Congressional District beginning in 2007.
Throughout his tenure in Congress, Walz sponsored or cosponsored nearly 200 tax-related bills, of which five became law, including a repeal of the 3% withholding requirement on payments due to vendors providing goods and services to governmental entities, adjustments to the firearms excise tax, and tax benefits and incentives to military personnel.
Recently as governor, he has touted the “state’s nation-leading Child Tax Credit” that has benefited more than 215,000 families with an average credit paid out of more than $1,200 per child. In 2023, Democrats in the state gained full control of the state legislature and passed a $3 billion tax bill that included the child credit, eliminated Social Security income tax for more than 75% of residents, and provided tax rebate checks citing the state’s $17.5 billion surplus. The bill also raised sales taxes for affordable housing and to prevent homelessness.
“Critical Flaw” Dooms the Tax Relief for American Families and Workers Act
The procedural vote on the Tax Relief for American Families and Workers Act fell short of the 60 required votes for its advancement. The vote, taken as the Senate was leaving for its five-week summer recess, was not expected to pass the legislation, but viewed as a messaging tool.
After the failed 48-44 vote, Senate Finance Committee Chair Ron Wyden (D-OR) stated, “Clearly Senate Republicans are in it for another round of multi-trillion dollar Trump handouts to the ultra-wealthy. Democrats, on the other hand, are going to fight for the kids and families and small businesses that Republicans turned their backs on today.”
In addition to the business-friendly provisions of the bill, such as full research and development expensing, 100% bonus depreciation, and increased business interest expensing, the bill also raises the cap on the child tax credit from $1,700 to $2,000 and eliminates the limitation for families with multiple children.
Republicans had balked at the bill’s provision allowing a taxpayer's prior year income to be used to calculate eligibility for the child credit, potentially allowing currently unemployed persons to claim the credit.
Senate Finance Committee Ranking Member Mike Crapo (R-ID) stated, “With election politics front of mind, doomed-to-fail ‘show votes’ have become an all too frequent occurrence in this chamber.” Of the child tax credit, he went on to state, “the critical flaw with the bill is that it fails to provide meaningful tax relief to working families, and instead goes too far toward Democrats’ goal of turning the child tax credit into a subsidy untethered to work, which is fundamentally contrary to what the credit was created to do.”
As senators return home to hit the campaign trail, they will have the opportunity to get a feel for how their constituents view their vote. Three Republican senators cast supporting votes: Rick Scott (FL), Josh Hawley (MO), and Markwayne Mullin (OK). Sens. Bernie Sanders (I-VT) and Joe Manchin (I-WV) voted against the measure, as well as Chuck Schumer (D-NY), who changed his vote to “no” to preserve his ability to hold another vote on the bill later. Three Democrats and five Republicans did not vote, including the Republican vice-presidential nominee J.D. Vance (R-OH).
Ways & Means “Tax Teams” Prepare for 2025 Expirations
In April, Ways and Means Committee Chair Jason Smith (R-MO) announced the formation of 10 tax teams to prepare for the 2025 expiration of many tax provisions included in the Tax Cuts and Jobs Act of 2017 (TCJA).
Last week, the committee provided an update on several of the teams’ efforts.
The American Manufacturing Tax Team participated in a roundtable held by the National Association of Manufacturers (NAM). “Congress must act before the end of 2025 to prevent devastating tax increases,” said NAM Vice President of Domestic Policy Charles Crain. “Manufacturers are working closely with lawmakers, on the Manufacturing Tax Team and throughout Congress, to prevent these devastating tax increases, bolster manufacturing across the country and support the economic stability and growth of local communities.”1
The Main Street Tax Team hosted a discussion with the Main Street Employers Coalition, focusing on the expiring pass-through business deduction. “My discussion with business leaders demonstrated how successful the Trump tax cuts have been for American business owners and how important Section 199A is to their daily operations. As Vice Chair of the Ways and Means Main Street Tax Team, I’m taking their feedback to DC in our fight to preserve the Trump tax cuts,” said Rep. Greg Steube (R-FL).
Chair of the Community Development Tax Team Mike Kelly (R-PA) made a visit to The Bridge District in Washington, D.C., a community revitalization project that received funding through the opportunity zone provisions of the TCJA. He said, “Renewing and expanding [opportunity zone] legislation is critical to developing communities across the country. These tax teams will ensure that our tax code works for Americans – not the other way around.”
The Judicial Report
Court Refuses to Compel IRS Continuance of ERC Claim Processing
An Arizona district court has denied Stenson Tamaddon, LLC’s request for injunction relief, which would have required the IRS to resume processing claims for the Employee Retention Credit (ERC).
The tax advisory firm had targeted IRS Notice 2021-20, issued in March 2021, arguing that it violated the Administrative Procedure Act. “Instead of issuing regulations, the IRS legislated improperly through guidance documents, thereby bypassing the mandatory notice-and-comment rulemaking process and eliminating the transparency and deliberation it offers,” the initial complaint stated.
Stenson asserted that the guidance improperly narrowed the legislation, “depriving” small businesses the tax credits they should be entitled to, and that the IRS’ reliance on the guidance as “infallible law” prevented thousands of taxpayers from receiving relief.
In addition, Stenson designated the September 2023 moratorium of processing new ERC claims indefinitely as “improper” and “unlawful.” Since the moratorium, the IRS has continued to process claims filed before the September cutoff but “at a greatly reduced speed.” According to Stenson, “The ERC program is effectively suspended in its entirety.”
On June 20, 2024, the IRS did announce a “new round of processing lower-risk claims”; however, it also specifically excluded “claims submitted during the moratorium period.”
The court did offer that the “IRS does not have the discretion to permanently ignore some ERC claims” and that the “Plaintiff raised some very serious separation of powers concerns regarding the Commissioner’s implementation of the moratorium.” While the concerns were unsettling, the court did not feel it was enough to prompt injunction relief.
From the Treasury & IRS
Senators Aim to Protect Domestically Sourced Clean Fuel
A bipartisan group of senators are calling on Treasury Secretary Janet Yellen to issue guidance on the §45Z Clean Fuel Production Credit to “articulate clear, workable pathways for domestically-produced renewable fuels derived from domestically-produced feedstocks, to lead the way in lowering the carbon intensity of American transportation fuels.”
The letter highlights the “dramatic increase” of used cooking oil imported from China to produce renewable diesel and Brazilian ethanol for sustainable aviation fuel, as potential failures that should be avoided while crafting the forthcoming regulations.
“If more is not done to support the production and utilization of domestic feedstocks, the U.S. will see its renewable fuels industry shift focus from domestically oriented feedstocks towards imports. Allowing U.S. tax credits to fund the importation and use of foreign feedstocks to produce biofuels would put U.S. agriculture at the back of the line, while foreign agricultural producers are subsidized by U.S. taxpayers.”
The credit becomes available as of January 1, 2025.
Released Guidance
Final Regulations (T.D. 10005) update the requirements that a plan sponsor of a single-employer defined benefit plan must meet to obtain IRS approval to use mortality tables specific to the plan in calculating present value for minimum funding purposes (as a substitute for the generally applicable mortality tables). The regulations apply for plan years beginning on or after January 1, 2025.
Revenue Procedure 2024-32 sets forth the procedure by which the sponsor of a defined benefit plan that is subject to the funding requirements of §430 may request approval from the IRS for the use of plan-specific substitute mortality tables.
Proposed Regulations (REG-105128-23) address certain issues arising under the dual consolidated loss rules, including the effect of intercompany transactions and items arising from stock ownership in calculating a dual consolidated loss. The proposed regulations also address the application of the dual consolidated loss rules to certain foreign taxes that are intended to ensure that multinational enterprises pay a minimum level of tax, including exceptions to the application of the dual consolidated loss rules with respect to such foreign taxes. Finally, the proposed regulations include rules regarding certain disregarded payments that give rise to losses for foreign tax purposes.
- 1“NAM Hosts Congressional Leaders in Tax Fight Kickoff,” nam.org, June 28, 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.