Lately on the Hill
Government Funding Is Extended, Providing an Opportunity for Other Tax Legislation
A stopgap measure has been passed, averting an October 1 government shutdown. The continuing resolution extends 2024 fiscal year spending levels until December 20, 2024. The date will put Congress in an interesting position as it must still pass appropriations or another continuing resolution during a lame-duck session.
The timing also presents an opportunity to attach other tax legislation to the forthcoming budgetary measure. What happens during the lame duck will largely depend on the election’s outcome, and perhaps there will be a sense of urgency to resolve bipartisan measures before the new government becomes engulfed in the formidable tax agenda of 2025.
Such potential bipartisan riders may include recently introduced legislation to suspend processing Employee Retention Tax Credits filed post-January 31, 2024 or the Tax Relief for American Families and Workers Act, restoring immediate deductions for Section 174 research expenditures and expanding the child tax credit, among other significant provisions.
Presidential Candidates Campaign on the Economy
Former President Donald Trump and Vice President Kamala Harris both held campaign events last week on their respective plans for the economy and tax policy.
In Savannah, Georgia, Trump reiterated his desire for businesses to make their products in the U.S., promising lower taxes and no tariffs for those that do so. The candidate has already proposed a 20% baseline tariff on all imports and a 60% tariff on imports from China. “If you don’t make your product here,” he stipulated, “then you will have to pay a tariff, a very substantial tariff when you send your product into the United States.”
As the “centerpiece” of his economic plan, Trump says he will reduce the current 21% corporate tax rate to a “15% made in America tax rate” for companies that manufacture domestically. He also promised manufacturers immediate full expensing on their equipment purchases.
The next day, Harris spoke in Pittsburgh, Pennsylvania, continuing her “opportunity economy” agenda. Harris repeated her plan to help new parents with a $6,000 tax break “during the first year of their child’s life to help families cover everything from car seats to cribs” and first-time homeowners with “$25,000 down payment assistance.”
For businesses, Harris is planning to increase the allowable deduction for startups from $5,000 to $50,000 and provide small business loans with little to no interest in an effort to reach her “ambitious goal of 25 million new small business applications by the end of my first term.” She also introduced a new tax credit “for expanding good union jobs in steel and iron and manufacturing communities.”
After Harris’ speech, the campaign released an 82-page document laying out the candidate’s economic platform that by and large reiterates the tax proposals she has already provided.1 The campaign also released a notice fleshing out the details of her newly proposed tax credit dubbed “America Forward Tax Credits,” which it estimates will cost $100 billion. The credits “will be linked to the treatment of workers, ensuring the right to organize, and supporting investments in longstanding manufacturing, energy, and agricultural communities.”2
The Judicial Report
CTA Injunction Relief Denied
A U.S. District Court has denied a motion from business owners for a preliminary injunction against the Corporate Transparency Act (CTA). Injunction relief must meet a high standard, which the court found was not met as the “Plaintiffs have not shown a likelihood of success on the merits, a likelihood of irreparable injury, or that the balance of hardships tips sharply in favor of Plaintiffs.”
The CTA requires certain companies to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) to aid efforts to combat illicit financial schemes, which are often done under anonymous and multilayered shell companies.
In early March, a district court in Alabama ruled the act unconstitutional in a lawsuit by the National Small Business Association and, therefore, unenforceable against the plaintiffs. Reporting companies not party to the judgment are still required to comply with the law.
“Congress concluded that collecting beneficial ownership information is necessary to protect national security and promote U.S. interests abroad,” the court stated. “Congress’ determination is entitled to substantial deference from this Court.” This decision is currently being appealed by the government.
More Tax Court Judges Confirmed
Last week, the Senate confirmed three more judges to the U.S. Tax Court: Rose Jenkins, Jeffrey S. Arbeit, and Benjamin A. Guider III. President Joe Biden’s sixth and final nominee to fill the 19-seat court, Cathy Fung, is set for a November vote.
From the Treasury & IRS
Proposed Regulations on Research Amortization Planned for the Winter
Proposed regulations addressing the treatment of §174 research and experimental expenditures are expected to be released this winter, according to IRS associate chief counsel Scott Vance. His remarks came during the American Bar Association Fall Tax Meeting, where he also referenced additional forthcoming guidance in conjunction with the proposed regulations.
Prior to the passage of the Tax Cuts and Jobs Act (TCJA), expenditures under §174 could be immediately deducted. The TCJA changed the statute, requiring research costs to be amortized over a five-year or 15-year period to reduce the cost of the bill. The change has been a huge cost to companies involved in research and development.
The Tax Relief for American Families and Workers Act contained a retroactive provision to repeal the TCJA amendments to §174 for domestically sourced expenditures, while foreign expenditures would have remained subject to amortization. The bill easily passed out of the House but did not muster enough votes in the Senate.
Restoring immediate deductibility of research expenses does have widespread bipartisan support and may be considered again during the lame-duck session. It is unclear whether any new consideration would include retroactive application or how it would affect the impending guidance.
At the same meeting, Treasury officials also said that proposed regulations regarding tax-free spinoff transactions, crypto broker reporting requirements, and the annual deduction limitation on certain executive compensation would all be released by the end of the year.
Released Guidance
Revenue Procedure 2024-38 “provides guidance regarding the income requirements for qualified residential rental projects financed with exempt facility bonds under § 142(d) of the Internal Revenue Code of 1986, as amended (Code) and for qualified low-income housing projects under § 42, certain income requirement provisions of which cross-reference to § 142(d).”
IR-2024-246 announces the opening of a supplemental claim process allowing third-party payers to withdraw ineligible claims for the Employee Retention Credit. The process allows for an adjusted employment tax return to correct claims that have not been processed by the IRS and were filed before January 31, 2024.
A press release from the U.S. Department of the Treasury, the IRS, and the U.S. Department of Energy announces they “have received over 50,000 applications requesting over 6 gigawatts of capacity for clean energy projects across the country so far in the 2024 Program Year of the Inflation Reduction Act’s Low-Income Communities Bonus Credit Program under Section 48(e).” The announcement reminds taxpayers that applications for the credit are due by October 10, 2024 and for projects on Indian Lands until November 12, 2024.
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.