Here’s a look at recent tax-related happenings on the Hill, including Republicans starting to fill leadership positions following a GOP sweep of the White House and majorities in the House and Senate.
Lately on the Hill
Leadership Positions for the 119th Congress Are Being Filled
Congress returned to the Hill last week, kicking off the “lame-duck” session on the heels of a Republican party sweep. Republicans quickly began filling their leadership positions for the new Congress beginning next year. Democrats will do so this week.
House Speaker Mike Johnson (R-LA) will retain the top position in the lower chamber, along with fellow Louisianian Majority Leader Steve Scalise (R-LA) and Majority Whip Tom Emmer (R-MN). The trio has a monumental task ahead of them, which is to build a cohesive GOP conference to pass legislation with only a few votes to spare. At the moment, Republicans hold a minimum majority of 218 seats and lead in three of the remaining five districts to be called. Jason Smith (R-MO) continues as chair of the House Committee on Ways and Means.
Members of House Freedom Caucus and Main Street Caucus have met with Johnson to iron out some of the rules the House will operate by in the new Congress, including raising the number of members needed for a motion to vacate the speaker’s position from one to nine. The agreement is seen to bring some stability to the House and show unity within the party.
In the Senate, Republicans elected John Thune (R-SD) as the majority leader. Thune has an extensive background in tax matters as he has been serving on the Senate Finance Committee and as ranking member of the Tax and IRS Oversight subcommittee. Mike Crapo (R-ID) will take the helm at the Senate Finance Committee.
Crapo and Thune share the opinion that revenue-generating tax policy and extensions of current tax policy do not need to be paid for—pointing to the 2013 extension of the Bush-era tax cuts. Both perspectives signal a potential approach to be taken on the expiring Tax Cuts and Jobs Act of 2017 (TCJA) in 2025.
How Much & For How Long?
Republicans will rely on the budget reconciliation process to pass tax legislation in the coming year—a maneuver that inoculates the legislation from a 60-vote threshold for passage. The first step will be to determine a “top-line” number, which is a budget amount that Congress is willing to fund. From there, Republicans will back into the tax provisions that fit within the parameters. Tax-related campaign promises were vast and expensive. To accomplish these proposals, Republicans may opt for a shorter-term extension of the TCJA or temporary tax relief for things such as no tax on tips. When the TCJA passed in 2017, it carried an eight-year life—a time frame that may be too long for its extension and to fulfill other campaign pledges within the agreed-upon budget.
The resulting tax legislation will at least extend beyond the mid-term elections, when the Republicans are defending more seats than the Democrats. In two years, Republicans will need to defend 20 seats while Democrats will need to defend only 13. The GOP will want to cement their new tax law at least until the end of President-elect Donald Trump’s second term but may be budgetarily constrained beyond that.
The Judicial Report
Bulk ERC Denials Violate the Administrative Procedure Act According to Lawsuit: ERC Today, LLC v. McInelly, No. 2:24-cv-03178, November 13, 2024.
ERC Today, LLC and Stenson Tamaddon, LLC filed suit in the U.S. District Court of Arizona seeking injunctive relief against the IRS and its Commissioner Danny Werfel to compel “the IRS to perform its irreducible obligation to individually review [Employee Retention Credit (ERC)] claims” and strike down “boilerplate disallowances issued through unlawful processing rules.”
The ERC was introduced as an economic stimulant, incentivizing businesses to retain employees during the COVID-19 pandemic as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
In August, the IRS announced it would be accelerating payments of the credit and begin processing claims filed after the September 14, 2023 moratorium while simultaneously denying tens of thousands of claims it determined to be “high risk.”
Senate Confirms Tax Court Judge
Rounding out the 19-seat panel for the first time since 1998, the Senate has confirmed Cathy Fung to the U.S. Tax Court for a 15-year term. Fung has been with the IRS Office of Chief Counsel since 2009.
From the Treasury & IRS
IRS Officials Comment on Forthcoming Foreign Income & Basis-Shifting Regulations
At the Pennsylvania Institute of CPAs’ Philadelphia Tax Summit, Paul McLaughlin of the IRS Office of Associate Chief Counsel (International) expressed confidence that the long-awaited proposed regulations on previously taxed earnings and profits (PTEP) would be released by the end of 2024.
Also on the 2024 docket, according to McLaughlin, are final regulations on foreign currency gain or loss under Section 987 but will be more limited in scope than the proposed regulations, holding back on some partnership particulars.1
McLaughlin also unveiled that technical corrections are coming by year’s end for the corporate alternative minimum tax proposed regulations released in September. The corrections will address “minor technical errors.”2
At the same conference held on November 13, Clifford Warren of the IRS Office of Associate Chief Counsel (Passthrough and Special Industries) told attendees that Trump’s re-election would not affect the IRS’ work on regulations concerning related-party partnership basis shifting.3
Mediation May Be Available to Accelerate ERC Resolution
Michael Baillif, senior advisor in the Independent Office of Appeals and director of the Alternative Dispute Resolution (ADR) Program Management Office, said his office would accommodate ADR mediation requests related to ERC claims. Baillif instructed taxpayers to request the program during the examination. If the examiner does not consent to using the program, if or when a taxpayer appeals the exam, an appeals agent may offer expedited mediation. The comments were provided during a November 13 Fall Tax Division Meeting of the American Institute of CPAs.4
IRS Concludes FDIC Special Assessment Is Deductible by Banks
In an Office of Chief Counsel IRS memorandum, the agency concluded that a special assessment in connection with the 2023 closures of Silicon Valley Bank and Signature Bank is not subject to deductibility limitations under §162(r). Furthermore, the special assessment does not require capitalization under §263(a).
The assessment on the banking industry’s estimated uninsured deposits was imposed to replenish the Deposit Insurance Fund after the FDIC protected uninsured deposits held by the aforementioned failed banks.
Released Guidance
Revenue Ruling 2024-26 provides the December 2024 various rates for federal income tax purposes, including the applicable federal rates (AFR), adjusted AFR, adjusted federal long-term rate, the long-term tax-exempt rate, percentages for determining the low-income housing credit, and the AFR for determining the present value of an annuity.
Notice 2024-81 provides guidance on the corporate bond monthly yield curve, spot segment rates, 24-month average segment rates, and the interest rate on 30-year Treasury securities.
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 “IRS ‘Very Confident’ PTEP Regs Will Be Released This Year,” taxnotes.com, November 14, 2024.
- 2“IRS Vows to Issue Rules on Previously Taxed Income by Year’s End,” bloomberglaw.com, November 13, 2024.
- 3“Guidance Efforts on Basis Shifting Continue Postelection,” taxnotes.com, November 14, 2024.
- 4“Appeals Open to Using Mediation for ERC Cases,” taxnotes.com, November 18, 2024.