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From the Hill: April 10, 2024

Congress faces a busy legislative agenda after returning from its two-week recess.
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Lately on the Hill

Congress is back from its two-week recess with a chock-full legislative agenda and approximately 15 legislative weeks to go before the November elections. Priorities include Foreign Intelligence Surveillance Act reauthorization, foreign aid packages to Israel and Ukraine, judicial confirmations, and Federal Aviation Administration reauthorization, as well as fiscal year 2025 appropriations.

Where the priority is set for the Tax Relief for American Families and Workers Act of 2024 (Act) is still unknown. Tax Notes reports on the frustration expressed by House Republicans for their Senate counterpart’s “politics and gridlock” stymieing progress on the Act after receiving convincing bipartisan support in the House. House Ways and Means Committee member Kevin Hern (R-OK) commented, “Senate Republicans haven’t been very clear. They’ve been all over the board what they want. We vote on our bill; they need to take action to get the bill passed.”

Ranking member of the Senate Finance Committee Mike Crapo (R-ID) has been public about his dissatisfaction with the Act, from not being included in writing the legislation to the lack of support by a majority of Senate Republicans. Many Republicans are uncomfortable with the expansion of the Child Tax Credit and the Act’s asserted funding source—the early termination of the Employee Retention Credit.

Tax Notes further reports on the speculation that Senate Republicans want to delay tax legislation until after the election, assuming they control the Senate after the November elections. To this, Ways and Means Committee member Darin LaHood (R-IL) said, “It makes no sense. Crapo’s going to have plenty of time if he’s chairman to be involved with the Super Bowl of tax next year in 2025,” referring the plethora of significant sunsets of the Tax Cuts and Jobs Act. LaHood continued, “[Ways and Means Committee Chair Jason Smith (R-MO)] did a tremendous job in building support and laying out a very good tax bill. It’s unfortunate that the Senate … again, this is about politics, not policy.”

Noteworthy Decisions

A U.S. District Court upholds federal regulations barring federal charitable contribution deductions when state or local tax credits in consideration of such payments are received. State of New Jersey v. Mnuchin, S.D.N.Y., No. 1:19-cv-6642, March 30, 2024 and Village of Scarsdale, N.Y. v. IRS, S.D.N.Y., No. 1:19-cv-6654, March 30, 2024.

The states of New Jersey, New York, and Connecticut and the Village of Scarsdale, New York, filed lawsuits in 2019 opposing the IRS’ regulations requiring the reduction of federal charitable deductions for state charitable tax credits. The challenge stems from the 2017 Tax Cuts and Jobs Act limitation on the deduction of state and local taxes to $10,000.

Several states, including those involved in the lawsuits, attempted a “workaround” to the limitation by providing taxpayers a state or local charitable tax credit for contributions to their respective state or municipality charitable funds. The charitable contributions also could be deducted against their federal income under Section 170(a).

In 2019, the IRS promulgated regulations in §1.170A-1(h)(3)(i) reducing federal charitable contribution deductions by the amount of a state or local tax credit received in consideration of such payment. The plaintiffs filed suit contending that the regulations violated the Regulatory Flexibility Act (RFA) due to a failure “to assess the fiscal impact on small governmental jurisdictions” and exceeded the IRS’ statutory authority and “arbitrary and capricious” under the Administrative Procedures Act.

New Jersey’s and Connecticut’s claims were dismissed due to a lack of economic injury since their tax credits were never established. New York and Scarsdale were able to demonstrate injury; however, the court disagreed that the IRS violated the RFA because the rules do “not regulate local governments and their charity funds, but instead address individual taxpayers who contribute to local government charity funds.” Furthermore, the court found that the IRS did not exceed its statutory authority under the two-step analysis set forth in Chevron, by providing adequate explanation, and was neither arbitrary nor capricious as the regulations reasonably interpreted the law.

Other Important Developments

  • IR-2024-94 announces relief for individuals and businesses affected by severe storms and flooding in certain areas of Rhode Island currently including Kent, Providence, and Washington counties. These taxpayers have until July 15, 2024 to file tax returns and make tax payments. The relief also applies to extensions, although any extension filed between April 15 and July 15 will have to be paper filed.
  • IR-2024-93 announces relief for individuals and businesses affected by severe storms and flooding in certain areas of Maine currently including Cumberland, Hancock, Knox, Lincoln, Sagadahoc, Waldo, Washington, and York counties. These taxpayers have until July 15, 2024 to file tax returns and make tax payments. The relief also applies to extensions, although any extension filed between April 15 and July 15 will have to be paper filed.
  • IR-2024-90 reminds individuals and businesses affected by the war in Israel that they have until October 7, 2024 to file tax returns and make tax payments. The postponement affects filings and payments due between October 7, 2023 and October 7, 2024.
  • The IRS, Employee Benefits Security Administration, and Pension Benefit Guaranty Corporation have extended the comment period on the “SECURE 2.0 Section 319 – Effectiveness of Reporting and Disclosure Requirements” to May 22, 2024. This section specifically contains directives to the agencies to review existing reporting and disclosure requirements under the Internal Revenue Code and the Employee Retirement Income Security Act.
  • IR-2024-79 reminds U.S. citizen and resident alien taxpayers living and working abroad that the deadline for filing their 2023 federal income tax returns is June 17, 2024. These taxpayers can request an extension to October 15, 2024.
  • The IRS continued its annual release of the “Dirty Dozen,” a listing of common scams taxpayers may encounter. So far, the list includes:
    • IR-2024-98 dissuades taxpayers from following inaccurate tax information on social media. Specifically, the IRS warns of a fraudulent scheme circulating on social media involving the filing of a false form W-2 with inflated wages and withholdings in an effort to receive a substantial refund.
    • IR-2024-96 urges taxpayers to be on guard for “ghost preparers” who pressure taxpayers to file returns claiming illegitimate credits and benefits for a hefty fee or steal their refunds. Once funds are received, they vanish, leaving the taxpayer to clean up the mess. The IRS encourages the use of reputable and trusted tax practitioners.
    • IR-2024-92 warns against fake charitable organizations, especially in time of disasters, that prey on taxpayers’ good intentions to help those in need. Taxpayers can utilize the Tax-Exempt Organization Search to help verify the legitimacy of a charitable organization.
    • IR-2024-91 provides information about the IRS program Offer in Compromise (OIC) for taxpayers who are unable to pay their tax liabilities. It also warns against OIC “mills” that aggressively market their services promising unrealistic settlements on debts to the IRS and may charge excessive fees.
    • IR-2024-89 advises taxpayers to watch out for promoters offering assistance in claiming improper Fuel Tax Credits. The credit is not widely available to most taxpayers and is only available for off-highway business and farming purposes.
    • IR-2024-87 warns taxpayers against scammers offering assistance setting up an Online Account on Taxpayers should set up their own accounts and be wary of any “helpful” third parties requesting personal information to set up the account.
    • IR-2024-85 alerts taxpayers of aggressive promoters of the Employee Retention Credit who assist in filing illegitimate claims. The IRS provides seven warning signs to watch out for, as well as the withdrawal process if taxpayers filed a questionable claim.
    • IR-2024-84 concerns phishing and smishing scams designed to steal taxpayer information. The IRS warns against email and text campaigns that pose as legitimate organizations, including the IRS, and request sensitive personal data from unsuspecting taxpayers.

Continued Coverage of the Inflation Reduction Act (IRA)

  • The U.S. Department of the Treasury issued proposed regulations that provide guidance on the application of the excise tax on repurchases of corporate stock made after December 31, 2022, as well as guidance on the reporting and payment of the excise tax.
  • Announcement 2024-19 addresses the federal income tax treatment of two U.S. Department of Energy rebate programs under the IRA for “whole-house energy saving retrofits” and “high-efficiency home electrification projects.” Rebates paid to or on behalf of a taxpayer for purposes of the energy rebate programs are not included in the taxpayer’s gross income; rather, they are treated as a purchase price adjustment. In contrast, rebates paid to a business are not excluded from gross income and should be included in computing its taxable income. The announcement also details the rules in coordination with §25C tax credits for energy-efficient improvements.

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. 

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