Here’s a look at recent tax-related happenings on the Hill, including a possible extension of significant Tax Cuts and Jobs Act (TCJA) provisions if Republicans take the U.S. House.
Lately on the Hill
Tight Margins & Competing Priorities Make Tax Legislation Timing Uncertain
As the elections have been called for the White House and the U.S. Senate, all eyes are on the race for the U.S. House of Representatives. If Republicans can hold their lead and obtain the trifecta, the extension of significant provisions of the Tax Cuts and Jobs Act (TCJA) may be imminent. However, it may not be as easy as it would seem.
In addition to President-elect Donald Trump’s promise to extend or make permanent provisions of the TCJA, he promised a slew of other tax cuts, including changing the limit on deducting state and local taxes and the exemption of tips, Social Security, and overtime wages from taxation. The proposals, if all enacted, are projected to add trillions to the deficit.1
If Republicans retain a House majority, which they are projected to do, it would be slim at best. Such margins can give power to a relatively few lawmakers more concerned with debt and deficit mitigation over tax relief. Prior to the distribution of this article, 214 seats have been called for Republicans and 205 for Democrats.2 To have a majority, 218 is needed. Also affecting Republican majorities are potential Trump cabinet picks from its ranks.
In the Senate, margins also will be tight, potentially providing a few Republicans significant sway in passing tax legislation. Republicans have claimed 53 seats, while 47 seats have gone to Democrats.
The legislative calendar, which begins today as legislators return from the election break, is chock-full with immediate legislative needs, potentially placing significant tax legislation on the back burner. Tax relief for those affected by natural disasters and addressing double taxation with Taiwan may receive consideration, but focus on the National Defense Authorization Act, extension of the Farm Bill, fiscal year 2025 appropriations, and last-minute judicial confirmations in the last days of a Democratically controlled Senate may push other important tax matters such as research and development expensing and bonus depreciation into the new year.
The Republican leadership process will begin on November 13, 2024, which also will influence tax legislation in the coming Congress. It is anticipated that if Republicans hold on to the House, Mike Johnson (R-LA) will keep the speakership and Jason Smith (R-MO) will retain his seat as chair of the House Committee on Ways and Means. Vying for Senate majority leader are John Thune (R-SD), John Cornyn (R-TX), and Rick Scott (R-FL), while Mike Crapo (R-ID) will take the chair of the Senate Finance Committee after having served as the ranking member.
In early 2025, negotiations on the debt limit, appropriations (if not passed in December), and presidential cabinet and judicial nominees will take a majority of Congress’ time. Given what is expected to be a rigorous debate and the expansiveness of the tax platform, many around the Hill are anticipating that a significant tax bill will not come until the third or fourth quarter of 2025, possibly spilling into 2026 before 2025 tax returns become due.
The Judicial Report
Reconsideration Granted by Tax Court in Light of Loper Bright: Schwarz v. Commissioner, T.C., No. 12347-20, November 5, 2024.
The U.S. Tax Court has granted a petitioner’s request to reconsider its opinion under the auspices of the Loper Bright Enterprises v. Raimondo decision. The U.S. Supreme Court’s ruling in June ended a decades-long precedent of giving IRS regulations deference when implementing tax laws.
In May, the Tax Court ruled in favor of the IRS, deciding that Gary and Marlee Schwarz’s ranching activities did not carry a profit motive under the Section 183 hobby loss regulations and denied their deductions against their other real estate activities.
The court makes mention of a similar petition for reconsideration in YA Global v. Commissioner, which was denied. The court distinguished its decisions by explaining in YA Global that it did not rely on Treasury interpretations of the relevant code section, whereas in Schwarz “we extensively relied on Treasury [r]egulations.”
From the Treasury & IRS
Section 174 Proposed Regulations Coming First Quarter of 2025
According to Scott Vance, IRS associate chief counsel, proposed regulations on §174 research and experimental expenditures are anticipated to be released sometime during the first few months of 2025. The information was provided by Vance at a Tax Executives Institute and San Jose State University conference on November 4.3
Congressional Members Ask for Delay in Beneficial Ownership Reports
In a November 5 letter addressed to Treasury Secretary Janet Yellen, 44 members of Congress expressed concern over the Financial Crimes Enforcement Network’s (FinCEN) beneficial ownership information reporting requirements and called for delayed implementation.
According to the letter, FinCEN has reported that it has only received “10 percent of required submissions,” which the group attributes to a “general lack of awareness among the small business community.”
The legislators also referenced the legislative intent which they claim provided up to two years to implement the rules and was “designed to give affected entities sufficient time to learn of, understand and comply with the new reporting regime.” FinCEN gave a one-year deadline, which was “an unrealistically short window,” according to the lawmakers.
The reporting rules came into effect January 1, 2024 and require entities to disclose information on their owners to assist FinCEN and other permitted agencies to protect U.S. financial interests from illicit activity hidden behind shell companies or other complex ownership structures.
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.