Here’s a look at recent tax-related happenings on the Hill, which includes efforts to prevent a potential government shutdown and U.S. Tax Court rulings regarding foreign-sourced income and a partnership’s charitable contributions deduction.
Lately on the Hill
Newly elected Speaker Mike Johnson (R-LA) is navigating his first significant test as he and House Republicans prepare measures for the looming November 17 government shutdown. Currently at issue is a second continuing resolution, Further Continuing Appropriations and Other Extensions Act, 2024, that implements a two-step approach to funding the government. The bill extends appropriations for several agencies until January 19, 2024, with the remaining funded until February 2, 2024.
After last week’s debates and shortly before taking a final vote, House Republicans set aside the 2024 Financial Services and General Government appropriations bill (H.R. 4664) as contrary views within the party prevailed. Passage of the bill, well known for its rescission of billions of dollars in IRS funding, reportedly hit a snag on issues including abortion-related provisions and FBI funding contained therein. In addition to funding the IRS, the appropriations bill also supports several other government agencies such as the Executive Office of the President and the Federal Judiciary.
Meanwhile, the Senate Committee on the Budget and the Committee on Finance held their own hearings both centered on high-income earners. Sen. Ron Wyden (D-OR), Finance Committee chair, commented on the strategy described as “Buy, Borrow, Die” in which a taxpayer purchases an investment, borrows against the investment at a low interest rate to fund their “extravagant lifestyle,” and then passes the asset to their heirs tax free.1 Wyden’s proposal would tax unrealized capital gains in an effort to curb such strategies. Sen. Mike Crapo (R-ID), ranking member of the Finance Committee, said “Rather than focusing on rhetoric, we should examine the data and how the Code affects behaviors” and noted that “the top 5 percent of taxpayers … pay 65.3 percent of all federal income taxes while making only 34 percent of all income.”
Noteworthy Decisions
- Gains derived from a stock sale in a foreign company in excess of a U.S. company’s overall foreign loss were determined to be U.S.-sourced income by the U.S. Tax Court in Liberty Global, Inc. v. Commissioner.2 The petitioner had treated the excess gains as foreign-sourced income and overstated its foreign tax credit.
- In Carter v. Commissioner, T.C. Memo. 2023-133, the U.S. Tax Court held that a partnership’s $14.175 million charitable contributions deduction for the gift of a conservation easement was overvalued by approximately $13 million.3 The petitioners are subject to a 40% gross valuation misstatement penalty on the resulting underpayment liability.
Other Important Developments
- Newly issued proposed regulations (REG-142338-07) have been released by the IRS applying to Internal Revenue Code (IRC) Section 4966 excise taxes on taxable distributions from donor-advised funds payable by the sponsoring organizations and fund managers.
- As a reminder, the renewal period has commenced for preparer tax identification numbers (PTINs) expiring on December 31, 2023. Renewal instructions and additional information can be found in IR-2023-197.
- The IRS has issued Revenue Procedure 2023-34 containing annual inflation adjustments for the 2024 tax year. Notable adjustments include brackets for marginal income tax rates, the standard deduction, and the annual exclusion for gifts.
- Proposed regulations (REG-132422-17) under IRC §987 have been issued by the IRS. This section provides rules for taxpayers owning a qualified business unit (QBU) that utilizes a currency other than the U.S. dollar. Rules direct how to calculate taxable income or loss in currency translation and gain or loss for transfers of property between QBUs that use different currencies. The proposed regulations seek to implement simplifications and new elections while maintaining the general approach of existing final regulations.
- Also related to IRC §987, the IRS announced the comment period is reopening for REG-128276-12, originally proposed in 2016, concerning recognition and deferral of gain or loss with respect to a QBU.
- Sellers and dealers of vehicles eligible for the clean vehicle credits under IRC §30D and §25E are urged (IR-2023-206) to register on the Energy Credits Online tool by December 1, 2023. Eligible vehicle sales occurring on or after January 1, 2024 must be reported on the online tool to be eligible for the credits and for licensed dealers to receive advanced payments.
- In what may be a helpful resource to taxpayers and tax preparers, the Joint Committee on Taxation prepared a document (JCX-47-23) presenting tax benefits related to expenses for primary and secondary education, as well as tax benefits for educational organizations and donors.
- The Financial Crimes Enforcement Network (FinCEN) issued final rule RIN 1506-AB49 detailing the use of unique identifiers by reporting companies required to provide beneficial ownership information of certain related entities to FinCEN effective January 1, 2024.
- The IRS has requested comments on regulations for several provisions under the Affordable Care Act, including pre-existing condition exclusions, rescissions, coverage of dependent children, etc.
- Internal Revenue Bulletin 2023-45 has been published containing the following:
- November applicable federal rates (Rev. Rul. 2023-20)
- Final regulations concerning user fees for enrolled actuaries (T.D. 9982)
- The adjusted applicable dollar amount to calculate insured and self-insured health plan fees under §4375 and §4376 (Notice 2023-70)
- Yield curve and segment rates, 24-month average corporate bond segment rates, 30-year treasury securities interest rates, and minimum present value segment rates (Notice 2023-72)
- Mortality table to determine minimum present value (Notice 2023-73)
- Revocation of IRC §501(c)(3) and §170(c)(2) determinations for certain organizations (Announcement 2023-30)
Continued Coverage of the Inflation Reduction Act (IRA) and CHIPS Act
- The IRA reinstated the IRC §4611 Hazardous Substance Superfund financing rate for calendar years beginning on or after January 1, 2023. The tax is imposed on crude oil and petroleum products entering the U.S. for consumption, use, or warehousing. The rate is $0.254 cents per barrel as recently announced in Rev. Proc. 2023-34.
- In regard to the CHIPS Act, nine Democratic members of Congress from Michigan made their case to allow hyper-pure polysilicon production eligible for the 48D advanced manufacturing investment credit in a letter to Treasury Secretary Janet Yellen. The letter asserts that only six companies in the world produce the high-quality material, only one of which is headquartered in the United States.
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.