Congress returns for lame duck session
The only certainty right now is that most things remain uncertain on the Hill. As of now, control of Congress remains to be determined. Republicans are predicted to take control of the House—albeit by a narrower margin than most expected—but we’re still waiting for approximately 20 more races to be called. As of now, it appears Democrats will retain the majority in the Senate (Arizona and Nevada finished counting their votes over the weekend, with both states going to Senate Democrats), but we’re also still waiting for the Georgia runoff election on December 6.
House Democrats are expected to hold leadership elections on November 30, even as the party waits for Speaker Nancy Pelosi to announce her future plans. Some Republicans in the meantime are pushing for a delay in their party’s leadership elections (which are expected this week) until a House majority is called. Republicans will also vote on their rules package this week (the process of how their party will pass bills and make leadership decisions).
Even though election results are up in the air, Congress returns to session this week before heading home for Thanksgiving break. After that, they’ll have a few more working weeks before the holidays and a new session beginning in January 2023.
Here is what Congress is expected to take up in this post-election lame duck session on the tax policy front:
- Government funding expires tomorrow, so Congress must take up a spending bill before this session closes. Tax extenders are likely to come up in these negotiations (the Congressional Research Service lists 28 tax provisions that have already expired or will expire in 2022). There are four other major tax policies on the table: rolling back the changes to Sec. 174 expensing rules, postponing bonus depreciation phaseouts that are scheduled to start in 2023, undoing changes to the Sec. 163(j) deduction, and renewing the expanded child tax credit.
- Retirement legislation is also looking more and more likely to happen in this session, as committee staff members are working to merge three different retirement bills into one package, “SECURE 2.0.” The House passed the Securing a Strong Retirement Act in March and Senate committees passed the Rise and Shine and EARN Acts in June. There is bipartisan support for retirement legislation, which is a promising sign that it may get passed in this session.
Why everyone’s talking about crypto
FTX and its 134 related entities filed for Chapter 11 bankruptcy on Friday.
Here’s what happened: FTX was a top five cryptocurrency exchange before the business unraveled last week. FTX sister company Alameda Research (an investment fund) found itself in a hole earlier this year, leading to speculations that FTX may have loaned customer deposits to Alameda to resolve Alameda’s insolvency. When a CoinDesk report hinted at FTX’s insolvency on November 2, Binance, the largest crypto exchange in the world, announced they would be selling $584 million in FTX’s token, FTT. This incited a “bank run” on FTX where customers rushed to remove their assets from the exchange. FTX didn’t have the liquidity to support all their customer withdrawals leading to the bankruptcy filing.
Why it’s important for tax policy: The founder of FTX, Sam Bankman-Fried, has been a major player in discussions on the Hill for proposed crypto legislation. However, the fall of his exchange means that the playing field for input on any potential digital asset legislation in the next session is now wide open. This is welcome news for policy experts and stakeholders in the crypto sector. Here is a list of crypto legislation introduced in Congress this year, which may serve as the foundation for any further legislation of digital assets.
Congress and regulatory bodies in the U.S. are expected to prioritize cryptocurrency regulation because of FTX’s demise. For example, Sen. Elizabeth Warren tweeted that the crypto industry needs “stronger rules and stronger enforcement to protect ordinary people.” The U.S. Department of Justice is looking into this turn of events. Bankman-Fried is also facing an SEC probe for potential violations of securities rules.
IN CASE YOU MISSED IT
- Republican Ways and Means Committee members are continuing their letter writing campaign, with the latest request centered on wanting an update from the IRS on its handling of millions of unprocessed returns and how the agency plans to manage any future backlogs.
- President Joe Biden has nominated Danny Werfel as the next IRS commissioner. Werfel is currently employed with the Boston Consulting Group and was acting administrator at the IRS in 2013. This appointment will need to be confirmed by Congress.
- The IRS announced new credit amounts for calendar year 2022 for the renewable electricity production credit under Sec. 45 in the case of any qualified facility placed in service after December 31, 2021.
- In Green Valley Investors LLC et al. v. Commissioner, the Tax Court invalidated the IRS' syndicated conservation easement listing notice, finding that the IRS was not exempt from following the notice and comment rules under the Administrative Procedure Act. As such, the agency’s imposition of penalties under Sec. 6662A was improper based on Notice 2017-10 and the guidance should be set aside as invalid.
- The IRS plans to hire more than 700 new employees across the country to help taxpayers in person.
- In draft Form 1120-S instructions, the IRS granted S corporations a new domestic filing exception for Schedules K-2 and K-3 on 2022 returns. A similar exception has been made available to partnerships.
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.