Here’s a look at recent tax-related happenings on the Hill, including a deal to avoid a government shutdown without passage of tax-relief legislation and legal action against the U.S. Department of the Treasury over the Corporate Transparency Act (CTA).
Lately on the Hill
Congress finally reached a deal to fund the government through September 30 after six months of negotiations and several stopgap measures. President Joe Biden signed the $1.2 trillion funding bill after lawmakers passed the bill around 2 a.m.—two hours after the government was to technically shut down. The passage ushers in Congress’ two-week recess, notably still without passage of the Tax Relief for American Families and Workers Act of 2024 (Act). The minibus bill was widely seen as one of the last vehicles to carry the Act to avoid consideration as a standalone tax bill subject to debate and amendments.
Notwithstanding, the Act did receive some life last week as Senate Majority Leader Chuck Schumer (D-NY) laid the groundwork for cloture vote allowing procedures to skirt committee action and debate with the agreement of 60 senators. With 48 Democrats and three independents, the measure would require nine Republicans to support it. The cloture vote may provide a “win-win” situation for Democrats, which could either advance the bill or its failure could be pinned on Republicans. Any such vote would most likely not occur until after the recess.
Senate Finance Committee Chair Ron Wyden (D-OR) did make an offer to Senate Republicans to adjust a major issue for them—the prior-year lookback for the Child Tax Credit. The offer would be to take out the provision and put the savings into a refundability policy not supported by Republicans. Bloomberg Tax reports that during a Senate Finance hearing, Sen. Mike Crapo (R-ID) said, “I want this done too. There are multiple issues. I’m not saying every issue has to get resolved, but at least we’ve got to get resolution on some.”
One of the primary drivers to pass the Act is to unloosen the restriction on research and development expensing under Section 174. Tax Notes reported that at the Tax Executives Institute conference on March 18, IRS Associate Chief Counsel Scott Vance confirmed that passage of the Act would provide that “the regulatory focus on the changes to section 174 would shift from proposed regs to procedural guidance.” The proposed regulations would still be expected by late second quarter, but the procedural guidance would be “more urgent.” Vance also noted that the plan for the proposed regulations do not include changes to related §41 research credits.
Noteworthy Decisions
In fallout from the U.S. District Court’s ruling in early March determining the CTA and its beneficial ownership reporting requirements as unconstitutional, a business owner in Maine is now also suing the U.S. Department of the Treasury. The complaint identifies the CTA as an “unconstitutional usurpation of the States’ power to regulate entity formation in excess of Congress’s constitutional powers.” The CTA requires, as of January 1, 2024, certain companies to report the identities and other information of their owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to combat illicit financial activities. The U.S. District Court’s ruling only applied to the plaintiffs but stands to influence other challenges to the law. The U.S. Justice Department has since appealed the ruling.
The Tax Court did not have jurisdiction to hear innocent spouse relief denial case due to taxpayer’s failure to file his petition with the IRS timely. Frutiger v. Commissioner, T.C., No. 31153-21.
Paul Frutiger filed a claim for innocent spouse relief, which the commissioner denied. Frutiger disputed the determination, filing his petition 92 days after the IRS issued the denying notice—missing the §6015 90-day deadline by only a couple of days.
The commissioner requested that the court dismiss the case on jurisdictional grounds since Frutiger did not comply with the statute. Frutiger argued that the deadline to file the petition is not jurisdictional, citing Boechler, P.C. v. Commissioner in which the U.S. Supreme Court held that a 30-day time limit to file a petition for review of a collection due process determination is nonjurisdictional. Taxpayer Rights also supported Frutiger’s argument by submitting a brief, as amicus curiae, also arguing that the deadline is not jurisdictional.
The court disagreed with Frutiger, emphasizing Congress’ clear intent that the §6015 deadline is jurisdictional by providing “[taxpayer] may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief … if such petition is filed … not later than the close of the 90th day after the date described in clause (i)(I).” The court pointed out that the Supreme Court’s ruling in Boechler focused on the ambiguity of the relevant statute and that Congress had not clearly stated that the filing deadline was jurisdictional, in contrast to the case at hand.
Other Important Developments
IRS Technical Guidance
- Proposed Regulations REG-108761-22 released by the IRS would classify certain charitable remainder annuity trust (CRAT) transactions and the like as listed transactions. As a listed transaction, disclosures must be filed with the IRS by material advisors and certain participants. A public hearing on the proposed regulations will be held on July 11, 2024. CRATs are irrevocable trusts that provide a vehicle to donate assets to charitable organizations and provide income to a beneficiary for a defined period. Specifically, the proposed regulations seek to address tax avoidance schemes including avoidance of income recognition by utilizing a single premium immediate annuity and the position taken by some trustees to step up the basis on the transfer of appreciated property.
- Proposed Regulations REG-117542-22 were provided by the IRS with respect to the taxpayer notices the IRS must provide before contacting third parties in the determination or collection of a taxpayer’s tax liability under the Taxpayer First Act of 2019.
- Notice 2024-31 provides adjustments based on geographic differences to the limitation on housing expenses under §911 related to the exclusion of foreign earned income and exclusion or deduction of housing costs of certain taxpayers.
- Notice 2024-29 has been released with guidance on the corporate bond monthly yield curve, spot segment rates, 24-month average segment rates, and the interest rate on 30-year Treasury securities.
- Revenue Procedure 2024-17 addresses time requirements under §911(d)(4) under the bona fide residence test and the physical presence test to exclude foreign earned income and provides a waiver for taxpayers who were required to leave a specified country due to war, civil unrest, or similar adverse conditions. Specified countries include Ukraine, Belarus, Sudan, Haiti, Niger, and Iraq.
- The IRS has launched an improved webpage for digital assets, which includes definitions, reporting requirements, FAQs, publications, and related guidance found in notices, revenue rulings, and the like.
- Revenue Ruling 2024-07 has been issued providing the April 2024 various rates for federal income tax purposes, including the applicable federal rates (AFR), adjusted AFR, adjusted federal long-term rate, and the long-term tax-exempt rate.
Miscellaneous
- The IRS is requesting comments concerning adjustments to basis of stock and indebtedness to S corporation shareholders and treatment of their distributions relating to final regulations T.D. 9300 and T.D. 9428.
- The IRS is requesting comments on Form 5309, Application for Determination of Employee Stock Ownership Plan (ESOP). The form is used to request an IRS determination letter on the qualification of a plan under §409 or §4975(e)(7).
Continued Coverage of the Inflation Reduction Act (IRA)
- Notice 2024-30 modifies prior notices by expanding the Nameplate Capacity Attribution Rule to include additional attribution property and adding two NAICS industry codes for purposes of determining the Fossil Fuel Employment rate. The notice also addresses the qualifying energy community bonus credit under §45, §45Y, §48, and §48E.
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.