Lately on the Hill
Congress is on Easter and Passover recess, so it’s been a quiet week on the Hill.
- The IRS released its Inflation Reduction Act (IRA) Strategic Operating Plan outlining how the agency is going to use its $80 billion in IRA funding, which includes $45.6 billion appropriated for enforcement activities and $25.3 billion for operations support. The plan notes that the IRA funding will not be used to raise audit rates on small businesses and households making less than $400,000 per year, relative to historic levels. The plan has five primary objectives:
- Improve services to help taxpayers meet their obligations and receive tax incentives for which they are eligible by expanding digital services and digitalization.
- Quickly resolve taxpayer issues when they arise by offering electronic filing and communication options, developing taxpayer-centric notices, and expanding tax certainty and issue resolution programs.
- Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap by employing centralized, analytics-driven, and risk-based methods to aid in the selection of compliance cases, and expanding enforcement for large corporations, large partnerships, and high-income and high-wealth individuals. This objective also includes increasing enforcement pertaining to digital assets.
- Deliver cutting-edge technology, data, and analytics to operate more effectively through initiatives that include transforming core account data and processing, accelerating technology delivery, and applying enhanced analytics capabilities to improve tax administration.
- Attract and retain a highly skilled, diverse, and data-savvy workforce.
- Taiwan is in town. House Speaker Kevin McCarthy met with the president of Taiwan, Tsai Ing-wen, in California. This is major news because this makes McCarthy the highest-ranking U.S. elected official to meet with a Taiwanese president on American soil. Last week, Minority Leader Hakeem Jeffries also met with the Taiwanese president in New York.
- McCarthy was joined by a group of bipartisan lawmakers, indicating that China is truly one of the few issues that Congress may unite on in this session. Earlier this year, a resolution was introduced in the House to recognize Taiwan as an independent nation and urging the Biden administration to resume formal diplomatic relations with Taiwan. And in March, a bipartisan group of senators introduced a resolution encouraging the Biden administration to begin negotiating a tax agreement with Taiwan.
- So why all this focus on Taiwan? Well, China claims Taiwan is part of China, but Taiwan disagrees (Taiwan has been a self-governing nation since 1949). The U.S. sees Taiwan as an important U.S. partner in the Indo-Pacific, particularly in the areas of trade, semiconductor manufacturing, and other critical supply chains. The current Congress has a particularly vested interest in threats to the U.S. from China, as we’ve seen by the establishment of the House Select Committee on the Strategic Competition Between the U.S. and the Chinese Communist Party (CCP). In the words of Rep. Seth Moulton (D-MA): “There’s three parties here: the CCP, Taiwan, and the United States. Two of those parties don’t want war. One has said that it wants to start a war. So, our shared goal here between Taiwan and the United States is deterrence.”1
- New bills introduced. Here are the latest bills introduced in the House and Senate:
- A bipartisan group of senators introduced the Failed Bank Executives Clawback Act, which would require that, in the event of a bank failure, federal regulators claw back all or part of the compensation received by bank executives in the five-year period preceding the bank’s failure.
- Sens. Tim Scott (R-SC) and Marco Rubio (R-FL) reintroduced the Health Savings Act, which proposes to simplify and expand health savings accounts and flexible spending accounts by allowing both spouses to make catch-up contributions to the same account and allowing workout equipment and nutritional supplements to be treated as medical care.
- Rep. Zachary Nunn (R-IA) introduced the Fight for Families Act, which would amend the current Federal Adoption Tax Credit to make the existing $14,890 tax credit refundable and permanent for families who are adopting a child who is a citizen or resident of the U.S. or its possessions when the adoption effort began; child who the state determines can’t or shouldn’t be returned to their parent’s home; and a child who the state determines probably won’t be adoptable without assistance provided to the adoptive family.
- Reps. Dan Meuser (R-PA) and John Moolenaar (R-MI) reintroduced the USA Batteries Act to repeal the recently enacted Superfund chemical tax on lead oxide, antimony, and sulfuric acid, which are the primary inputs used in lead batteries.
- Reps. Rashida Tlaib (D-MI), Ilhan Omar (D-MN), and Jesús “Chuy” García (D-IL) reintroduced the End Child Poverty Act, which proposes to replace the Child Tax Credit and the child provisions in the Earned Income Tax Credit with a universal child benefit that would provide a payment of $393 per child per month to eligible families.
- A bipartisan coalition introduced the New Markets Tax Credit (NMTC) Extension Act of 2023 to permanently extend the NMTC at $5 billion in annual credit authority, adjust this amount annually for inflation, and provide an exception from the Alternative Minimum Tax for New Markets investments. Companion legislation was introduced in the Senate in February. View this video to learn more about how the NMTC program works.
IN CASE YOU MISSED IT
- Rep. David Schweikert (R-AZ) sent a letter to the IRS requesting an update on the agency’s IT modernization efforts.
- The House Ways & Means Committee is asking the U.S. Government Accountability Office (GAO) to provide information on how effective the IRS is on processing information returns and the potential challenges facing taxpayers and the IRS in regards to the new Form 1099-K reporting requirements.
- The Financial Crimes Enforcement Network (FinCEN) published its first set of guidance materials, including FAQs, on beneficial ownership information (BOI) reporting requirements taking effect on January 1, 2024.
- In a response to Sen. John Cornyn’s inquiry on behalf of a constituent in the context of the Employee Retention Credit (ERC), the IRS said that the professional employer organization (PEO) under contract to satisfy a company’s tax and filing obligations is considered the taxpayer. This letter is a good road map on how the ERC is handled with a PEO.
- The IRS issued proposed regulations that identify certain micro-captive transactions as reportable transactions.
- The IRS issued proposed regulations regarding supervisory approval of certain penalties assessed by the IRS.
- The IRS issued Notice 2023-30, providing safe harbor deed language for extinguishment and boundary line adjustment clauses as required by the SECURE 2.0 Act of 2022. This is relevant to conservation easement donors.
- The IRS revised Form 3115, Application for Change in Accounting Method, and its instructions to replace the December 2018 version. The IRS encourages all taxpayers to use the December 2022 Form 3115; however, the IRS will accept either the December 2022 Form 3115 or the December 2018 Form 3115 if filed by a taxpayer on or before April 18, 2023, unless the use of the December 2022 Form 3115 is specifically required by guidance published in the Internal Revenue Bulletin. Taxpayers filing Forms 3115 after April 18, 2023 must use the December 2022 Form 3115.
- The IRS revised Form 8940, Request for Miscellaneous Determination, and the form instructions, to require electronic filing. Beginning April 3, 2023, the IRS will make available the electronic version of the Form 8940 that exempt organizations use to make miscellaneous determination requests online at Pay.gov.
- The IRS says that individuals who received payments from the U.S. Department of Defense related to the Red Hill fuel spill in O’ahu, Hawaii, do not have to include the payments in gross income for federal income tax purposes.
- Tennessee storm victims now have until July 31, 2023 to file various federal individual and business tax returns and make tax payments.
- Kentucky passed legislation allowing a pass-through entity to elect to pay its tax liability at the entity level on behalf of its individual partners, members, or shareholders for taxable years beginning on or after January 1, 2022.
- On the international front, Treasury and IRS intend to extend the transition period for the single-country exception’s documentation requirements from May 17, 2023 to 180 days after the final regulations under Section 903 adopting the single-country exception are filed with the Federal Register.
- In Farhy v. Commissioner, 160 T.C. 6 (Docket Number 10647-21L), the Tax Court held that the IRS did not have statutory authority to assess penalties under Section 6038(b)(1) and (2) against a taxpayer that failed to file Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Furthermore, the IRS could not proceed with its proposed levy to collect the unpaid penalties.
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“McCarthy’s Bipartisan Push on Taiwan,” punchbowl.news, April 6, 2023