Lately on the Hill
Senate Hearing on Tax Policy Set Course for 2025 Debates
The Senate Finance Committee held a tax policy hearing on September 12 providing a glimpse into a wider debate that will take place next year. Republicans continued their focus on extending the provisions of the Tax Cuts and Jobs Act (TCJA), while Democrats continued to assert the act’s favorability towards the wealthy.
“When it comes to the 2025 tax policy debate,” said ranking member Mike Crapo (R-ID), “those proposing all these tax increases continue to avoid a fundamental question: will they allow the [TCJA] to expire and inflict multi-trillion-dollar tax hikes on the American people?”
Republicans spotlighted the 20% deduction for pass-through businesses, which business owners have called for making permanent. Without Congressional action, this deduction will expire at the end of 2025, while corporations will continue to enjoy a historically low tax rate. The corporate tax rate was permanently lowered by TCJA and is not subject to change unless there is Congressional action to change it moving forward.
Speaking about the pass-through deduction, committee chair Ron Wyden (D-OR) said it “made the biggest winners out of high-income individuals like real estate moguls and oil and gas tycoons. Those high-earners don’t need a break, but Democrats are going to stand by the pledge to protect those with incomes under $400,000, including small business owners.”
The pass-through deduction is available to non-corporate taxpayers of any income level, with certain hurdles introduced at higher income amounts to incentivize businesses to pay sufficient wages and make capital asset investments.
The parties also debated a recent report by the Joint Committee on Taxation, which calculated an average rate of 34% paid by the top 0.01% of taxpayers in 2019. Wyden claims the figures should be around 8% when factoring in certain strategies pursued by these taxpayers. Wyden described such strategies, “An ultra-wealthy investor uses his riches to acquire valuable assets. He watches them appreciate, and he borrows against that value to generate cash. Then he sits on those assets, enjoys all the cash he’s pocketed, and when he dies, any tax owed on that increase in value disappears into the ledgers of history.”
Other topics were discussed as well, some of which—like the child tax credit, R&D immediate expensing, and TCJA extenders more broadly—have been part of the rhetoric in the 2024 presidential election.
Trump Introduces New Tax Policy on Overtime Wages
Presidential candidate Donald Trump made another wage-related tax policy proposal at a campaign rally last week. In addition to ending taxes on tips and Social Security wages, Trump is also proposing to end taxes on overtime wages.
“The people who work overtime are among the hardest-working citizens in our country,” Trump said. “It’s time for the working man and woman to finally catch a break.”
The Judicial Report
Loper Bright Directives Remain Supreme in Tax Court Summary Judgment Following Varian Ruling. Sysco Corp. v. Commissioner, No. 5728-23.
In fallout from the Tax Court’s August 26 ruling in Varian Medical Systems, Inc. v. Commissioner, 163 T.C. No. 4, the court has granted summary judgment in favor of the plaintiff in Sysco Corp. v. Commissioner, “[in] a case involving the same principal issues.”
Sysco and the Commissioner agreed that the court’s opinion in Varian resolved the dispute over a Section 245A dividends received deduction for §78 dividends while also maintaining their respective rights to appeal.
In Varian, the court held that IRS regulations relating to §78 deemed dividends “[fell] outside the boundaries of any authority that Congress may have delegated,” citing last summer’s landmark Supreme Court decision in Loper Bright. The court decision stated, “A ‘permissible’ interpretation of a statute no longer prevails simply because an agency offers it to resolve a perceived ambiguity.”
In June, Loper Bright Enterprises v. Raimondo, resulted in a Supreme Court decision to end a decades-long precedence known as the “Chevron doctrine,” giving deference to regulating agencies to interpret gaps and ambiguities in laws written by Congress.
The Varian ruling was the first time the Tax Court applied Supreme Court directives from Loper Bright to strike down an IRS regulation.
High-Tax States Cite Loper Bright in Appeal of Lower Court Ruling Impairing SALT Deduction Schemes. New Jersey v. Yellen, 2d Cir., No. 24-1499 and Village of Scarsdale, N.Y. v. IRS, 2d Cir., No. 24-1503.
Three states’ attorneys general have filed appeals, challenging a U.S. District Court’s ruling last spring that upheld IRS regulations requiring the reduction of federal charitable deductions for state charitable tax credits. The ruling blunts the effects of state “workarounds” of the $10,000 limitation on the federal deduction for state and local taxes (SALT).
New Jersey, New York, and Connecticut initially filed suit contending that the regulations violated the Regulatory Flexibility Act (RFA) due to a failure “to assess the fiscal impact on small governmental jurisdictions,” exceeded the IRS’ statutory authority, and were “arbitrary and capricious” under the Administrative Procedure Act (APA).
The court disagreed that the IRS violated the RFA because the rules do “not regulate local governments and their charity funds, but instead address individual taxpayers who contribute to local government charity funds.” Furthermore, the court found that the IRS did not exceed its statutory authority under the now-defunct Chevron doctrine.
“In sum, ‘traditional tools of statutory construction’ resolve this case,” the appeal asserts quoting from the Loper Bright decision. “As text, structure, precedent, practice, and the 2017 law all show, contributions that satisfy the definition set out by Section 170(c) are fully deductible even if those contributions entail tax benefits, including state tax credits.”
From the Treasury & IRS
Released Guidance
Proposed regulations (REG-112129-23) provides proposed regulations that would address the application of the corporate alternative minimum tax, which is imposed on the adjusted financial statement income of certain corporations based on their applicable financial statements for applicable taxable years beginning after 2022. The proposed regulations would affect taxpayers who are applicable corporations, certain taxpayers who own interests in applicable corporations, and certain entities in which applicable corporations hold interests. Comments must be received by December 12, 2024, and a public hearing will be held on January 16, 2025.
Notice 2024-66 provides relief from the addition to tax under § 6655 of the Internal Revenue Code for underpayment of estimated income tax by a corporation to the extent the amount of any underpayment is attributable to the corporation’s corporate alternative minimum tax liability.
Final regulations (T.D. 9991) provide guidance on the statutory requirement that a recipient’s basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for federal estate tax purposes. In addition, the final regulations provide guidance on the statutory requirements that executors and other persons provide basis information to the IRS and the recipients of certain property.
Proposed regulations (REG-116787-23) amend the definition of “coverage month” and amend certain other rules in existing income tax regulations regarding the computation of an individual taxpayer’s premium tax credit (PTC). The proposed coverage month amendment generally would provide that, in computing a PTC, a month may be a coverage month for an individual if the amount of the premium paid, including by advance payments of the PTC (APTC), for the month for the individual’s coverage is sufficient to avoid termination of the individual’s coverage for that month. The proposal also would amend the existing regulations relating to the amount of enrollment premiums used in computing the taxpayer’s monthly PTC if a portion of the monthly enrollment premium for a coverage month is unpaid. Finally, the proposed regulations would clarify when an individual is considered to be ineligible for coverage under a State’s Basic Health Program (BHP).
Proposed regulations (REG-106851-21) regard the exclusion from gross income of certain Tribal general welfare benefits. The proposed regulations address the requirements that would apply to determine whether the benefits that an Indian Tribal government program provides qualify as Tribal general welfare benefits. These proposed regulations would affect Indian Tribal governments, agencies or instrumentalities of such governments, federally-recognized Tribes, members of such Tribes, such members’ spouses and dependents, and other Tribal program participants. A public hearing will be held on January 13, 2025.
IR-2024-234 announces relief for individuals and businesses affected by severe storms and flooding in designated counties of Connecticut and New York. These taxpayers have until February 3, 2025 to file tax returns and make tax payments.
IR-2024-236 announces relief for individuals and businesses affected by Tropical Storm
Francine throughout Louisiana. These taxpayers have until February 3, 2025, to file tax returns and make tax payments.
The Financial Crimes Enforcement Network (FinCEN) has updated its frequently asked questions concerning the new beneficial ownership information (BOI) disclosure requirements. The requirements, which took effect January 1, 2024, subject companies to disclose identifying information about their owners in an effort to uncover illicit financial activities. Four new questions and answers address companies created and closed within the same year and before initial BOI reports are due, foreign company reporting requirements, and requirements for historical beneficial owners.
Upcoming Webinar
Between the election and the 2025 legislative sunsets, there is much to consider in the tax world. Join Forvis Mazars for a complimentary webinar as we provide an overview and planning considerations with these upcoming events in mind. Head into the year-end with information you and your business need to know. To register, click here.
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.