Lately on the Hill
Here’s a look at the latest tax-related happenings on the Hill, including the Corporate Transparency Act, which affects most corporations starting next year.
- Corporate Transparency Act (CTA)
- The CTA requires almost all new and existing corporations and LLCs to disclose ownership information directly to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), starting in January 2024.
- The goal is to strengthen national security by requiring certain entities to report “beneficial ownership” information, i.e., the identity of the individual(s) who own or “benefit.”
- Some exemptions exist, which provide for large operating companies, tax-exempt entities, publicly traded companies, and others to avoid this disclosure.
- Failure to timely disclose carries hefty monetary consequences and potential criminal penalties.
- Disclosure is now required upon entity formation and on an annual basis.
- Existing companies have a one-year window to provide ownership information to the federal government.
- More on the CTA will be provided in a forthcoming FORsights™ article.
- New bills and proposals introduced. Here is a roundup of some of the latest tax-related bills and proposals introduced in Congress:
- The Equal Access to Reproductive Care Act would make assisted reproductive expenses tax-deductible. Reps. Adam B. Schiff (D-CA) and Julia Brownley (D-CA) and House Ways and Means Committee member Judy Chu (D-CA) commented about the Act in a June 27 release.
- The Refund Equality Act of 2023, introduced by Senate Finance Committee member Elizabeth Warren (D-MA), would allow married same-sex couples to amend their filing status outside the statute of limitations, i.e., for the years they were legally prohibited to file jointly.
- The Shelter Act, introduced by Senate Finance Committee member Michael F. Bennet, (D-CO), would provide a credit of up to $2,500 to taxpayers for qualified disaster mitigation expenditures.
IN CASE YOU MISSED IT
- IRS warnings and alerts:
- The IRS warned taxpayers to be on the lookout for a new scam mailing that tries to mislead people into believing they are owed a refund.
- The IRS renewed an alert for businesses and tax-exempt groups to watch out for warning signs of aggressive Employee Retention Credit marketing from third parties.
- The Subcommittee on Taxation and IRS Oversight will hold a hearing titled “Assessing 25 Years of the Child Tax Credit (1997-2022)” on Thursday, July 13, 2023. The hearing will begin at 10 a.m. ET and will be located at 215 Dirksen Senate Office Building.
- The IRS issued a final reminder to nearly 1.5 million taxpayers to claim their refunds for tax year 2019 by filing before the July 17, 2023 deadline.
- The IRS has issued proposed regulations (REG-120730-21) that would amend the definition of short-term, limited-duration insurance and clarify the tax treatment of certain benefit payments in fixed amounts received under employer-provided accident and health plans.
- The 2023 draft Form 1065 and accompanying Schedule K-1 were released. Notably, Schedule K-1 includes a checkbox to indicate if a partner’s recourse liabilities are “subject to guarantees or other payment obligations by the partner.” The goal would be, for example, to distinguish partnership debt guarantees from partner loans—which in turn allow for more visibility into debt-financed distributions. In another notable addition, Form 1065 now has added a digital asset question.
- Question 30 in Schedule B now asks: At any time during this tax year, did the partnership (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or financial interest in a digital asset)? Earlier this year, the IRS released guidance on how to answer the digital asset question for Form 1040. Further instructions to these and Schedules K-2 and K-3 are forthcoming.
- Treasury and the IRS proposed amending existing regulations on the treatment of certain fixed payments from accident and health insurance plans as part of gross income.
Related to the Inflation Reduction Act (IRA) & CHIPS Act
- The Electronic Tax Administration Advisory Committee said in its annual report to Congress (released June 28) that the IRS must be held responsible for appropriately using funds provided in the IRA. The committee’s message comes right on the heels of a significant $22 billion reduction of funds following the Fiscal Responsibility Act of 2023 and a related side agreement.
- The Real Estate Roundtable1 has recommended that proposed regulations (REG-110412-23) on the low-income communities' energy investment credit (Section 48(e)) be amended to define the term "single project" more precisely and to address what constitutes a financial benefit to low-income housing renters.
- The IRS has released a draft of Form 3468, the purpose of which is to claim the investment tax credit, determined under §48.
- Both the House and Senate tax panels and the Senate Foreign Relations Committee have made moves to strengthen ties between the U.S., China, and Taiwan2. U.S. Treasury Secretary Janet Yellen traveled to China amid tensions over several issues, including new Chinese trade export control of chip-making materials, Taiwan, and Chinese criticism of the U.S. tax system.
- To determine what portion of interest expense for the year is allocable to effectively connected income to a U.S. trade or business, taxpayers currently use interbank offer rates. These rates also are used to determine the amount of interest expense attributable to their excess U.S. connected liabilities. The IRS has issued final regulations (T.D. 9976) providing a replacement to these rates—a secured overnight financing rate (SOFR) of the same tenor, plus a fixed spread adjustment.
- The Congressional Research Service said in a July 6 report that the proposed global minimum tax (Pillar Two) could raise taxes on multinationals’ operations in the U.S., even if the country fails to act on the proposal. The report also warned that the proposed tax could reduce the benefit of credits or other domestic tax incentives.
- Moore v. United States is headed to the Supreme Court. Moore examines the constitutionality of the transition tax imposed on U.S. multinational enterprises by the Tax Cuts and Jobs Act on the $3 trillion income accumulated offshore between 2005 and 2017 (the Mandatory Repatriation Tax, or MRT). The core of this case is defining what “income” is available to be taxed by Congress. Moore’s argument is that in order to be taxed, income requires “realization,” which means that it has been earned and received. Congress, however, argues that whether income is realized is not determinative. The Supreme Court granted certiorari to answer this constitutional challenge and establish its authority under the 16th Amendment.
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.