Lately on the Hill
Congress remains billions of dollars off from coming to an agreement on a top-line spending budget for FY 2023, so without an agreement on this front, there is no real progress on including any tax provisions in any year-end legislation. Current thinking is that Congress will extend the continuing resolution that expires this Friday through either December 23 or January 3 (but could also go out as far as March 2023). Earlier today, the House Rules Committee released a draft short term continuing resolution proposing to fund the government through December 23 (the current continuing resolution expires December 16). If this passes, it will give Congress an additional week to negotiate an omnibus spending package.
Democrats are reportedly working on their own version of an omnibus package with numbers they think Republicans should support. But the hold-up continues to be around non-defense spending: Democrats want to include things like bringing back the expanded child tax credit, while Republicans are focused on getting in the business-focused tax provisions, like changes to Section 174 R&D expensing, bonus depreciation, and interest expensing under Section 163(j).
According to the Urban-Brookings Tax Policy Center, if this bill includes a fully refundable child tax credit, an expanded earned income tax credit, and the expiring business tax provisions (like §174 expensing), this will result in approximately $700 billion in lost revenue over 10 years. There’s only so much money to go around, so we shall see what prevails.
Senate and House Democrats were expected to each release their own version of a spending bill this week, but decided to hold back, as Senate Majority Leader Chuck Schumer would like to finish a full funding bill before the holidays.
In other news on the Hill:
- Sen. Kyrsten Sinema announced she is leaving the Democratic Party and registering as a political independent. This makes the Democrat majority in the Senate in the next session much narrower than expected and could again potentially keep giving Sen. Joe Manchin influence to hold up legislation that Democrats try to pass.
- A group of 58 organizations sent a letter to Congress opposing the inclusion of corporate tax breaks in any year-end tax legislation.
- Reps. Mike Kelly and Jimmy Panetta introduced the Broadband Grant Treatment Act, which proposes to amend the Internal Revenue Code to ensure that funding directed for the implementation of broadband from the Infrastructure Investment and Jobs Act and the American Rescue Plan will not be considered taxable income. Companion legislation has also been introduced in the Senate.
- Sens. Sherrod Brown and Pat Toomey are requesting Sam Bankman-Fried testify this week before the Senate Committee on Banking, Housing, and Urban Affairs about the misconduct at FTX. In response, Bankman-Fried tweeted that he would appear but was unsure how completely he could answer questions because he does not have access to any of his files. Bankman-Fried was arrested on Monday in the Bahamas after U.S. prosecutors filed criminal charges against him; he is expected to be extradited to the U.S.
- Sen. Ron Wyden is asking Amgen Inc., a pharmaceutical company, to again provide information related to the company’s pre-tax earnings, profit margins, and tax paid in the United States. The Committee previously requested this information in August but was not satisfied with the response from Amgen.
- A group of senators are seeking information from Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, about the bank’s role in the loss of billions of customer dollars.
- Sen. Bob Menendez is taking on big oil with two newly introduced bills that seek to repeal tax subsidies and other incentives available to oil corporations, e.g., drilling cost deductions, deep water royalty relief, and access to carbon capture credits, and penalize oil companies who fail to develop federal leases. This type of legislation is not new—it’s been introduced in Congress on and off since 2010, with limited success.
IN CASE YOU MISSED IT
- The IRS released Rev. Proc. 2023-8 with guidance on how companies should implement the new accounting method for research and development costs under Sec. 174. This guidance has been long-awaited, but we are also still waiting to see if Congress addresses R&D expensing in any year-end legislation.
- The IRS issued Rev. Proc. 2022-42, which provides guidance for manufacturers and sellers of clean vehicles who want to take advantage of tax credits under the Inflation Reduction Act. This guidance includes details on how to enter into a written agreement with the IRS and how to provide periodic written reports containing specified information related to each clean vehicle manufactured. For sellers, the guidance includes procedures on how to report specified information to the IRS for a vehicle to be eligible for the credit for new or previously owned clean vehicles.
- The IRS issued final regulations exempting some partnership-related items from the centralized partnership audit regime. This exception will be governed by alternative rules during an IRS examination.
- The IRS revised the draft instructions for Schedules K-2 and K-3 for partners and partnerships. This change relates to the domestic filling exception, including changing the timing of when a partnership must issue the notice to partners that the partnership will not be providing Form K-3 to its partners.
- The IRS released proposed regulations identifying certain syndicated conservation easement transactions as listed transactions (a type of reportable transaction). This is important because material advisors and participants in listed transactions are required to file disclosures with the IRS; noncompliance can result in penalties for failure to disclose.
- The IRS also released proposed regulations that treat members of a consolidated group as a single U.S. shareholder in certain cases for purposes of §951(a)(2)(B). This affects consolidated groups that own stock of foreign corporations.
- The IRS published an IRS Employee Training Guide for 2020 and 2021 on the Employee Retention Credit.
- The U.S. Supreme Court agreed to hear a case, Hanna Karcho Polselli v. Internal Revenue Service, on whether the IRS must notify bank account holders when it summons their records to collect on a different taxpayer’s liabilities.
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.