Here’s a look at recent tax-related happenings on the Hill, including the U.S. Chamber of Commerce calling for “pro-growth tax policies” during the next U.S. president’s term.
Lately on the Hill
Business Group Calls for “Pro-Growth Tax Policies” From the Next Congress & Administration
In an open memo, the U.S. Chamber of Commerce calls on the next Congress and presidential administration to “support pro-growth tax policies that will help achieve the goal of at least 3% economic growth annually, growing the economic pie for workers and helping to make the American Dream a reality for all.”1
The business group targets taxes on capital investment that “have some of the most negative impacts on economic growth.” Such tax policies identified include the relatively recent inability to immediately expense research and development (R&D) expenditures, a shrinking deduction for bonus depreciation, and the taxation on capital gains.
While R&D expenditures and bonus depreciation deductions have received a lot of interest in Washington lately as part of the defeated Tax Relief for American Families and Workers Act, the taxation of capital gains has received less attention.
President Joe Biden’s budget proposal, which Democratic presidential nominee Kamala Harris has not fully adopted as her own but has tacitly supported, calls for long-term capital gains to be taxed at ordinary rates (the highest rate set to increase to 39.6% after 2025) for taxpayers with taxable income of more than $1 million. After factoring in the 3.8% net investment income tax to high-income earners, capital gains could be subject to rates upward of 43.4% as compared to the 23.8% top rate currently in place. In addition, the proposal would impose a minimum 25% tax inclusive of unrealized capital gains for taxpayers with wealth (defined as assets minus liabilities) greater than $100 million.
The chamber advises against such proposals: “The funds individuals use to invest in a business are the same funds the business uses to buy new equipment or conduct R&D. Individuals invest with the expectation that their investments will earn them money (capital gains), otherwise they would be better off just spending the money or leaving it in a bank account where there is no risk of loss.”
The memo also addresses corporate tax rates, citing a recent study done by the National Bureau of Economic Research finding that the bulk of corporate income taxes are borne by consumers (52%) through higher prices, followed by workers (28%) through lower wages, and finally the shareholders (20%) through lower returns on investment.2
The Tax Cuts and Jobs Act of 2017 permanently reduced the corporate tax rate from 35% to 21%. Republican presidential nominee Donald Trump has floated the idea of further reducing the rate to 15% if re-elected. Meanwhile, Harris has recently proposed increasing the rate to 28% as “a fiscally responsible way to put money back in the pockets of working people and ensure billionaires and big corporations pay their fair share,” according to campaign spokesperson James Singer.
The nonpartisan Tax Foundation modeled Trump’s proposal, concluding that “while a 15 percent corporate rate would boost growth, it would reduce federal tax revenue when debt and deficits are already unsustainably high.”3 The tax policy group places more emphasis on reinstating the immediate cost recovery of R&D expenses and bonus depreciation, stating, “These investment penalties will blunt any positive effects of a corporate rate reduction, repeating a mistake of past tax reforms.”
“The next Congress and administration,” the memo concludes, “must pursue comprehensive, industry-neutral solutions for a pro-growth and globally competitive U.S. business tax system. Thoughtful tax policy can drive economic growth while improving fiscal responsibility.”
The Judicial Report
YA Global Denied Reconsideration in Light of Loper Bright. YA Global Investments v. Commissioner, T.C., No. 14546-15.
A motion filed by YA Global Investments, L.P. for the U.S. Tax Court to reconsider its decision in light of the recent U.S. Supreme Court decision overturning Chevron was denied. The ruling provides an early look into how businesses may try to use the Supreme Court ruling to overturn contrary Tax Court rulings and how the court may handle such efforts.
In YA Global v. Commissioner, the court held that a foreign investment fund was engaged in a U.S. trade or business by attribution of a hired U.S. agency that managed its assets. The company was therefore liable for Section 1446 withholding tax in excess of $44 million on its foreign partners’ allocated taxable income effectively connected to that trade or business.
YA Global contended that the Supreme Court’s decision to abandon the Chevron doctrine “constitutes an intervening change in controlling law that warrants…reconsideration of [the] conclusions in [the Tax Court’s] opinion to the extent inconsistent with Loper Bright.”
In Loper Bright Enterprises v. Raimondo, 144 S. C. 2244, the court ended a decades-long precedence known as the “Chevron doctrine” giving deference to regulating agencies to interpret gaps and ambiguities in laws written by Congress.
YA Global claimed that the Tax Court ruling “relied solely on” relevant Treasury Regulations and that requirements found in the regulations are “nowhere found in the statute” and “no longer a requirement carrying the force of law post Loper Bright.”
The Tax Court countered, “We did not rely on any interpretation of section 1464 adopted by the Treasury…Instead, we rejected petitioners’ argument because it was circular. We do not need help for the Treasury Department to judge tautological arguments as unavailing.”
The court provided its views of some of the Supreme Court’s directives when reviewing agency rulings. Quoting the Supreme Court, “[c]areful attention to the judgement of the Executive Branch may help inform [a reviewing court’s] inquiry.” In cases where Congress had authorized agency discretion, “the role of the reviewing court under the APA [Administrative Procedure Act] is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits.” It is the prerogative of the court to “ensur[e] the agency has engaged in ‘reasoned decisionmaking’ within th[e] boundaries of its delegated authority,” adding that the court cannot simply defer to an agency’s ruling simple because the law is not clear.
From the Treasury & IRS
Comments on Proposed “Basis-Shifting” Regulations Suggest IRS Lacks Authority
The Taxpayers Protection Alliance provided comments on proposed “basis-shifting” regulations (REG-124593-23) expressing concerns for the “complex new measures.”4
In June, the IRS released an array of guidance targeting certain basis-shifting transactions utilized by partnerships owned by related parties. The IRS asserts that these transactions inflate the basis of assets, and in turn increase cost recovery deductions or reduce gains on the sale of assets, without the presence of any material economic substance other than avoiding federal income tax.
The comments suggest the proposed rules are “unclear and burdensome,” which may force many partnerships, especially small partnerships, to “restructure or shut down.” Particularly, the rules refer to “substantially similar” transactions to those targeted, “add[ing] a layer of difficulty…as there is no clear definition for what these transactions specifically entail.”
The comments also assert that the IRS “likely lack[s] the authority” to make such rules, citing Loper Bright, which “challenges against regulatory overreach by federal agencies.” They also reference the Supreme Court ruling in Corner Post Inc. v. Board of Governors of the Federal Reserve System holding that the six-year statute of limitations does not begin accruing under the APA until “the plaintiff is injured by final agency action.” The ruling potentially allows taxpayers to challenge tax regulations formulated by the IRS under the APA they may have previously thought unchallengeable due to the statute of limitations.
“Targeting business with ill-conceived and unclear rules,” the Alliance warns, “would be a misguided overreach that would harm economic growth for years to come.”
Released Guidance
Final Regulations (RIN 1506-AB54) have been issued by the Financial Crimes Enforcement Network (FinCEN) to require certain persons involved in real estate closings and settlements to submit reports and keep records on certain non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. This rule describes the circumstances in which a report must be filed, who must file a report, what information must be provided, and when a report is due. The rule is effective December 1, 2025.
Final Regulations (RIN 1506-AB58) have been issued by FinCEN to include certain investment advisers in the definition of “financial institution” under the Bank Secrecy Act (BSA), prescribe minimum standards for anti-money laundering/countering the financing of terrorism programs to be established by certain investment advisers, require certain investment advisers to report suspicious activity to FinCEN pursuant to the BSA, and make several other related changes to FinCEN regulations. The rule is effective January 1, 2026.
Proposed Regulations (REG-108920-24) concern the program to allocate clean electricity low-income communities bonus credit amounts established pursuant to the Inflation Reduction Act of 2022 for calendar years 2025 and succeeding years. A public hearing on the proposed regulations will be held October 17, 2024.
Revenue Procedure 2024-34 modifies previously released guidance for obtaining automatic consent to change methods of accounting for expenditures paid or incurred in taxable years beginning after December 31, 2021 to comply with §174 or to rely on interim guidance previously provided.
IR-2024-226 announces relief for individuals and businesses affected by Tropical Storm Ernesto throughout the U.S. Virgin Islands. These taxpayers have until February 3, 2025 to file tax returns and make tax payments.
IR-2024-228 announces that applications for the next stage of evaluation relating to the §48C Qualifying Advanced Energy Project Tax Credit are now open. According to the announcement, more than 800 project proposals were submitted seeking nearly $40 billion in tax credits. Applicants who submitted a proposal may now submit a full application on the portal, due by October 18, which will be used to determine the final allotment of $6 billion in credits.
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.
- 1“The Growth and Opportunity Imperative—Tax Policy,” uschamber.com, August 26, 2024.
- 2“Corporate Taxes and Retail Prices,” nber.org, Revised March 2023.
- 3 “A Lower Corporate Tax Rate Can Be Part of Broader Tax Reform,” taxfoundation.org, July 17, 2024.
- 4 https://www.protectingtaxpayers.org/wp-content/uploads/FINAL-TPA-IRS-Comment-Submission.pdf.