Here’s a look at recent tax-related happenings on the Hill, which includes the House adjourning without tax legislation, but passing the Protect Small Business and Prevent Illicit Financial Activity Act.
Lately on the Hill
The House of Representatives adjourned last week without prioritizing passage of tax legislation, including the bipartisan supported extensions for Section 174 deductibility of research and experimental expenditures, §163(j) addback for depreciation and amortization, and §168(k) 100% bonus depreciation. Possible vehicles to attach such legislation have narrowed to appropriations legislation due January 19 and February 2, the United States-Taiwan Expedited Double-Tax Relief Act, or the FAA Reauthorization Act. With election season coming into full swing early next year, it is possible no significant tax legislation will be passed before the November elections if not included in one of these early 2024 legislative vehicles. Furthermore, with the passing of the 2023 tax year, the appetite for retroactive applicability of these tax provisions could dwindle, especially for bonus depreciation, which loses its heightened capital investment incentive after December 31, 2023.
The House did pass the Protect Small Business and Prevent Illicit Financial Activity Act right before leaving for the holidays. The bill would adjust the new requirements for small companies to report beneficial ownership information, taking effect January 1, 2024. The legislation extends the deadline one year for existing companies to file from January 1, 2025 to January 1, 2026; new companies formed after January 1, 2024, including those formed beyond 2024, would have 90 days to file required reports (an increase from 30 days, although the Financial Crimes Enforcement Network (FinCEN) has already issued an amendment to 90 days); and changes in ownership could be reported in 90 days (increase from 30 days). Furthermore, the bill disallows FinCEN from issuing guidance or establishing rules allowing companies to not file a report due to the inability to obtain the required information. The Senate has not yet taken up the measure.
The House Oversight Subcommittee held a hearing concerning the tax-exempt sector and its effect on American politics. In his opening statement, Chairman David Schweikert (R-AZ) asserted “large sums of money, to the tune of millions of dollars, [are] flowing from foreign nationals into U.S.-based 501(c)(3)s and 501(c)(4)s, which then have directed these funds into influencing American politics. While U.S. law makes it illegal for foreign nationals to donate directly to U.S. candidates for office, it seems that these actors have found a loophole. This should raise eyebrows for all Americans.” Witnesses testified that the Form 990 does not require public identification of foreign donors by tax-exempt organizations engaged in political activity and may use the anonymity to influence advocacy campaigns without the public’s knowledge.
In a press release1 from the Affordable Housing Tax Credit Coalition, the group claims a bipartisan makeup of 200 representatives and 30 senators have pledged their support for the Affordable Housing Credit Improvement Act of 2023, which is quickly gaining momentum among legislators. The Act seeks to “expand and strengthen the Low-Income Housing Tax Credit, the nation’s primary tool for financing the development and preservation of affordable rental housing.”
- In a summary opinion, the Tax Court held that a wrongful termination settlement claim should have been included in gross income because it did not apply to personal physical injury or illness under §104(a)(2). The court contemplated that even if the payment was compensation for medical expenses, the petitioner did not establish that they incurred such expenses in excess of already claimed medical deductions from which they already received a tax benefit. (Quevy v. Commissioner)
- The Tax Court upheld the IRS’ notice of deficiency issued to petitioner for improper reporting of income. The petitioner received a lawsuit settlement related to their common stock interest that had been canceled under a “squeeze-out” merger occurring three years prior. The parties agreed that the proceeds related to the sale of stock; however, they disagreed with the IRS’ determination that $31 million of interest should have been imputed under §483(b) since the sale occurred several years earlier. The petitioner had originally reported the full amount of $191 million as long-term capital gains. (Berwind, et al. v. Commissioner)
- The Ninth Circuit Court of Appeals upheld the Tax Court’s decision in Rogerson v. Commissioner, finding that the court did not err in its application of material participation requirements under §469. The Tax Court had reasoned that the petitioner’s “ability to respond to detailed inquiries so quickly shows his detailed knowledge of every aspect of the business. Indeed, many of [petitioner’s] communications reflect first-hand experience with [company’s] employees, customers, and products that extends far beyond what could have been acquired by a passive investor.” The petitioner’s rebuttal to the Tax Court’s ruling was that his participation in the company “did not require much of [petitioner’s] time.” The Circuit Court pointed out that the applicable code section “does not impose a minimal-hours requirement to find that a taxpayer’s participation is material, only that the participation be regular, continuous, and substantial.” (Michael Rogerson v. CIR, No. 22-70209)
Other Important Developments
- As a reminder, the IRS’ e-file system shutdown will begin December 26, 2023 for business returns, including administrative adjustment requests (AARs) and amended returns.
- Final regulations (TD 9984) have been issued implementing safe harbor rules providing exceptions from penalties for certain de minimis errors on information returns or payee statements.
- The IRS has released the January applicable federal rates per Revenue Ruling 2024-02.
- December updates for the 24-month average corporate bond segment rates, 30-year Treasury securities interest rates, and the monthly yield curve have been released by the IRS in Notice 2024-4.
- Standard mileage rates for 2024 have been introduced in the IRS’ Notice 2024-08. The rates are for taxpayer calculations for deductible automobile costs when used in a business, or for charitable, medical, or moving expenses purposes, and other related calculations.
- FinCEN has expanded its FAQs providing 19 additional questions and answers regarding the new Beneficial Ownership Information Reporting Rules effective January 1, 2024.
- The IRS is requesting comments concerning Forms 15293 Consent for Disclosure of Non-Tax IRS Records and 15603 IRS Request for Individual Access to Non-Tax Records under the Privacy Act. The forms may be used for a parent or legal guardian to authorize disclosure or request access to the records for minors or incompetent individuals.
- The IRS has issued Notice 2023-79 establishing the 2023 Required Amendments List applicable to qualified individually designed plans under §401(a) and §403(b). December 31, 2025 is generally the last day of the remedial amendment period and the plan amendment deadline for a disqualifying provision resulting from a change in qualification requirements and a form defect resulting from a change in §403(b) requirements as contained on the list.
- Internal Revenue Bulletin 2023-50 has been published containing the following:
- Proposed amendments updating regulations under §§267 and 707 concerning special rules for transactions between partnerships and related persons. These code sections contain related party loss disallowance rules, gain recharacterization rules, and matching rules. The changes seek to conform to congressional intention that partnerships be viewed as an entity, rather than as an aggregate of its individual partners, when applying these rules. (REG-131756-11)
- Proposed regulations under §987 that provide 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.
Continued Coverage of the Inflation Reduction Act (IRA)
- Interim guidance has been provided by the IRS in Notice 2024-10 with respect to the new corporate alternative minimum tax (CAMT) enacted by the IRA. The notice set forth guidance in the application of the CAMT to covered controlled foreign corporation distributions and addresses the application of CAMT to tax consolidated groups.
- Notice 2024-6 provides additional guidance for sustainable aviation fuel credits under §§40B and 6426(k). Among several other provisions, the notice sets forth acceptable methods used to determine qualifying fuel mixtures.
- The IRS issued proposed regulations (REG-107423-23) implementing the §45X Advanced Manufacturing Production Credit. The credit seeks to incentivize domestic production of certain components used in the production of clean energy, including solar and wind components, inverters, qualifying batteries components, and applicable critical minerals. The proposed regulations stipulate that qualifying components must be produced and sold in a trade or business during the taxable year to an unrelated person for consideration of the credit. In addition, the term “produced by the taxpayer” is defined for primary (using non-recycled materials) and secondary (using recycled materials) production, rules are proposed governing sales to unrelated persons, and definitions introduced for what constitutes eligible components.
- In a December 12 letter to Treasury Secretary Janet Yellen, more than a dozen senators urged guidance regarding the IRA’s incentives for geothermal heat pumps (GHPs). In particular, the senators would like the secretary to clarify that GHP systems can be exempt from the “limited use property” doctrine since the property is typically transferred to the consumer for substantially all of the property’s useful life.
Happy holidays! From the Hill will be paused for the next few weeks and will be back with the latest updates in tax legislation on Tuesday, January 9.
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“Affordable Housing Credit Improvement Act Reaches Milestone of 200 House Co-Sponsors,” taxcreditcoalition.org, December 13, 2023.