2022 has been the year that things seemed to return to a bit of normalcy in the tax world, as many of the COVID-19 legislative tax provisions and relief programs expired in 2021. However, this year was still full of changes. Let’s take a quick look back at the legislative and regulatory developments over the last year, and what we’re still waiting on from the Hill.
Legislative Developments in 2022
Most of the year was spent in anticipation of Democrats passing the Build Back Better Act, which was passed by the House at the end of 2021 but stalled in the Senate until August 2022. Ultimately, Democrats were able to rally together and pass a slimmed-down version of the Build Back Better agenda in the Inflation Reduction Act of 2022 (IRA) via the reconciliation process. The bill includes several of the Democrats’ social, tax, and climate policy goals. Here is a webinar series on the tax provisions in the IRA.
In July 2022, Congress also passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022 to promote domestic manufacturing of semiconductor chips. The bill includes an investment tax credit to help build semiconductor manufacturing facilities and appropriates billions of dollars to invest in developing domestic manufacturing capabilities, research and development (R&D), and workforce development programs. The U.S. Department of Commerce is expected to release applications for CHIPS Act funding in February 2023.
Regulatory Guidance Issued in 2022
On the regulatory front, some of the guidance we’ve seen so far in 2022 includes:
- Final regulations on amending how to make elections to adjust the basis of partnership properties upon a distribution of property by the partnership or a transfer of a partnership interest.
- Final regulations on the treatment of domestic partnerships when determining amounts included in the gross income of their partners regarding foreign corporations.
- Two sets of technical corrections to the foreign tax credit regulations released last December.
- Proposed regulations that say foreign-currency options shouldn’t be considered foreign-currency contracts for tax purposes.
- Proposed regulations on the treatment of domestic partnerships and S corporations that own passive foreign investment companies (PFICs) and their domestic partners and shareholders, as well as on other PFIC and controlled foreign corporation-related issues.
- Final regulations with guidance to states regarding the process by which to obtain or inspect certain returns and return information (including information about final and proposed denials and revocations of tax-exempt status) for the purpose of administering state laws governing certain tax-exempt organizations and their activities.
- Notice 2022-39 with instructions on how taxpayers can claim a one-time alternative fuel credit for the first three quarters of 2022. The IRA extended this tax credit through 2024 (it expired at the end of 2021).
- Proposed regulations implementing the Appeals process changes under the Taxpayer First Act of 2019 and providing guidance to taxpayers who received a deficiency notice and want to be referred to Appeals.
- The IRS announced an increase in the standard mileage rates for the final six months of 2022. In general, these amounts are updated annually, but due to rising gas prices and inflation, the standard mileage rate for business travel will be 62.5 cents per mile and 22 cents per mile for deductible medical/moving expenses, effective July 1. The mileage rate for charitable activity remains at 14 cents per mile as this rate is set by statute.
- The IRS announced special per diem rates effective October 1, 2022 to substantiate expenses for lodging, meals, and incidental expenses when traveling away from home for business.
- FAQs on the reinstated Superfund chemical excise tax and the tax rates that apply to each of the taxable substances. The IRS also updated Form 6627 and the related instructions for this purpose. Note that Notice 2022-15 provides relief for the third and fourth calendar quarters of 2022 and the first calendar quarter of 2023 regarding the failure to deposit penalties imposed by Section 6656 as those penalties relate to the Superfund chemical taxes.
- Proposed regulations amending parts of §2053 on the amounts that can be deducted for estate funeral expenses, administration expenses, and other claims against an estate.
- Revenue Procedure 2022-32 with a new, simplified method for obtaining an extension of time to make a “portability” election, which allows a surviving spouse to apply a deceased spouse’s unused exclusion amount to their own transfers during life or at death. To the extent a taxpayer meets the relief criteria in the guidance, a private letter ruling request—and payment of the applicable user fee—will not be necessary.
- Proposed rules setting limits on the exemption of gifts from future estate taxes made between December 31, 2017 and January 1, 2026.
- The Financial Crimes Enforcement Network (FinCEN) issued final regulations requiring certain companies to disclose beneficial ownership information for those who own at least 25% of a company. These regulations are in response to the passage of the Corporate Transparency Act of 2020 and will be effective January 1, 2024.
- Updated guidance on when distributions from a qualified retirement plan, IRA, or a nonqualified annuity contract are “substantially equal periodic payments” for purposes of avoiding the 10% additional tax on early distribution.
- In Notice 2022-43, the IRS extended the replacement period for farmers and ranchers forced to sell livestock because of drought conditions, providing one more year to replace livestock and defer tax on any gains from the forced sales.
- Rev. Proc. 2022-19, which provides guidance on how taxpayers can resolve certain issues involving S corps and their shareholders without requesting a private letter ruling.
- Final regulations fixing the “family glitch” in the Affordable Care Act, providing that affordability of employer-sponsored minimum essential coverage for family members of an employee should be determined based on the employee’s share of the cost of covering the employee and those family members, not the cost of covering only the employee.
Finally, a Few Year-End Reminders from the IRS:
- A warning to employers to beware of third parties promoting improper Employee Retention Credit claims. Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit and often charging large upfront fees or a fee that is contingent on the amount of refund calculated by the third party.
- Taxpayers earning income from selling goods and/or providing services may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year. Prior to 2022, this threshold was $20,000.
- Multiple groups of victims of natural disasters have been granted tax filing relief. You can find a complete list of impacted taxpayers here.
What We’re Still Waiting On
Retirement reform was a policy that received bipartisan support this year but hasn’t become law yet. The Enhancing American Retirement Now (EARN) Act passed out of Senate committee unanimously and is ready for a floor vote in the Senate. The House passed similar retirement legislation last spring (the Securing a Strong Retirement Act of 2022). Due to the bipartisan support on this front, expect congressional action on these bills in the coming year.
Cryptocurrency also made legislative headlines with multiple bills introduced in Congress on this front, including:
- The Digital Commodities Consumer Protection Act of 2022, which proposes to give the Commodity Futures Trading Commission (CFTC) new tools and authorities to regulate digital commodities.
- Legislation to clarify the digital assets reporting requirements signed into law as part of the Infrastructure Investment and Jobs Act.
- The Virtual Currency Tax Fairness Act, which proposes to exempt crypto owners from reporting personal transactions under $50 or when there is less than $50 in gain.
- The Responsible Financial Innovation Act, which would create clear definitions of digital assets, assign regulatory authority over digital asset sport markets to the CFTC, and create a structure for taxation of digital assets.
- Legislation to prohibit the U.S. Labor Department from limiting investment options for workplace retirement savers.
Although none of these bills have become law yet, there is a strong chance this issue will be taken up in a future session of Congress, so it is important for taxpayers to be aware of the policy proposals in the pipeline for future negotiations.
At the time of publication, Congress also has not yet provided a legislative fix to the changes in R&D expensing. Due to a provision included in the Tax Cuts and Jobs Act, beginning in 2022, taxpayers must now capitalize and amortize U.S.-based R&D expenses over a period of five years and non-U.S. R&D expenses over 15 years. Taxpayers and tax professionals have been expecting Congress to retroactively extend the option for taxpayers to elect to deduct R&D expenses under §174. An outstanding potential legislative vehicle for this policy is the tax extenders package that Congress traditionally takes up at the end of each calendar year.
On the regulatory front, the IRS is working on issuing IRA regulations. In October, the IRS asked the public to provide comments on various provisions in the IRA by November 4, 2022, since Treasury is prioritizing portions of the IRA that Congress set deadlines on, beginning with 2023. The agency also is focusing on guidance related to the wage and apprenticeship requirements associated with several of the IRA provisions. These requirements will go into effect 60 days after initial guidance is published.
With the passage of the IRA, midterm elections changing the makeup of Congress, high inflation, and an upcoming presidential election in 2024, next year promises to be a busy one for tax policy. Make sure to subscribe to our weekly newsletter, From the Hill, to stay up to date on tax legislation and regulatory developments.
If you have questions or need assistance, please reach out to a professional at FORVIS or submit the Contact Us form below.
See more 2022 Year-End Tax Planning articles.