Here’s a look at recent tax-related happenings on the Hill, including the diminishing chance of tax relief legislation passing in the Senate.
Lately on the Hill
As the April 15 tax filing deadline fades in the rearview mirror, taxpayers are left to wonder if the possibility of Senate action on the Tax Relief for American Families and Workers Act of 2024 (Act) also is fading. While action within the Senate appears stalled, many other voices are still pleading for the Act’s passage.
At a rally on Capitol Hill held by the National Parents Union to urge the Senate to pass the Act to expand the Child Tax Credit (CTC), Senate Finance Committee Chair Ron Wyden (D-OR) remarked, “We’re in this fight, we are not giving up,” reports Tax Notes. It is this very credit that is the cause for resistance among Senate Republicans who oppose the look-back provision, allowing taxpayers who may not have current-year income to calculate a credit based on the prior year’s income.
In an April 9 letter to senators, conservative tax policy groups united their voices in support of the Act, acknowledging the “valid concerns over the bill’s expansion of the CTC."1 The letter asks that senators put into perspective their concerns of the look-back provision, “the Congressional Budget Office estimates the temporary ‘one-year lookback’ would increase outlays by $739 million in 2025. These compromise provisions are part of a package that secures roughly $185 billion worth of tax relief from expired [Tax Cuts and Jobs Act (TCJA)] provisions over the next two years.” The letter concludes, “Passing this pro-growth tax relief package should be the top tax priority for this Congress. We encourage Senators to support this vital legislation which will increase American competitiveness, lead to more jobs, higher wages for workers, and encourage new investment and innovation for American businesses.”
Business coalitions also have formed, including the agriculture industry, consisting of the American Farm Bureau Federation and the National Cattleman’s Beef Association, among many other like organizations. In an April 8 letter, they urged Senate leaders to pass the Act, citing the critical importance the Act is to the American food and agriculture industry, which claims to support more than 15% of U.S. employment and 20% of the country’s output.2 The letter highlights the consequences of bonus depreciation, Section 179 expensing, research and development expensing, and interest deduction limitations on the industry. “These problems must be addressed this year. Producers and businesses throughout the food and agriculture industry are facing tax increases and cannot wait a year or more for relief,” the letter demanded.
Bloomberg Tax reports that corporate lobbyists are still pressing the Senate to pass the Act; however, their outlook has turned dim. “The further it gets away from Tax Day, the percentage likelihood of passage decreases,” stated Mark Williams, partner at Ferox Strategies. Russ Sullivan of Brownstein Hyatt Farber Schreck agreed, “every week that passes reduces the very small chance that this bill can be revived.” As more individuals and businesses continue to file their taxes, certain retroactive incentives contained in the Act become muted, such as 100% bonus depreciation on equipment purchases. Yet another reason Senate Republicans have floated the idea of waiting out significant tax reform until after the election, when they hope to control the Hill and the White House to craft tax legislation in conjunction with the looming sunsets of the TCJA provisions in 2025.
On April 11, the House Committee on Ways and Means held a hearing, kicking off what will be a long and arduous debate on the extension of the TCJA. Republicans touted the bill’s success “delivering relief to millions of families and small businesses and creating the best economy in our lifetime,” proclaimed by Chairman Jason Smith (R-MO) in his opening remarks. Ranking Member Richard Neal (D-MA) countered, “Six years since the GOP Tax Scam was signed into law, we’ve been proven right on every count. It didn’t pay for itself, it didn’t increase revenue, and it didn’t increase wages.”
The cessation of the temporary TCJA provisions will begin to garner much of Congress’ attention over the next 20 months, especially if the country continues with divided government beyond the 2024 elections. Consequential provisions set to expire at the end of 2025 include the doubling of the estate and gift tax exemption, §199A deductions for pass-through businesses, and the cap on deductions of state and local taxes (SALT). The hearing well defined each side’s positions on these issues, neither apparently ready to back down without a fight.
Noteworthy Decisions
The American Institute of CPAs and dozens of state CPA organizations issued a letter addressed to the Secretary of the Treasury and the director of the Financial Crimes Enforcement Network expressing their concerns regarding the Beneficial Ownership Information reporting requirements for small businesses.3 The letter references the recent Alabama District Court ruling that found the Corporate Transparency Act unconstitutional and “has only compounded confusion, with most entities believing they no longer have a filing requirement.” The letter requests that enforcement actions be suspended until one year after all court cases related to the ruling are settled. Within days after the ruling, the government filed an appeal. The court’s decision was relatively narrow in scope, only applying to the plaintiffs, but has left many business owners confused as to whether the law still applies to them.
The Tax Court sets precedent as it interprets for the first time §7508A(d), providing a mandatory 60-day extension of certain tax-related deadlines as a result of a federally declared disaster. Abdo v. Commissioner, T.C., No. 5514-20, April 2, 2024.
Mohamed Abdo and Fardowsa Farah (Abdo) of Ohio were issued a notice of deficiency, which specified March 2, 2020 as the deadline to petition the Tax Court. Abdo filed their petition a little more than two weeks after the stipulated date. Shortly thereafter, the president issued a major disaster declaration related to the Covid-19 pandemic that itself did not provide for an “incident date.” However, FEMA, acting under the direction of the president, identified the Ohio Disaster Declaration beginning as of January 20, 2020. The commissioner argues that the court should dismiss the petition as it was filed after the statutory time frame under §§6213(a) and 7502. Abdo argues that under §7508A(d), a mandatory 60-day extension applies by reason of a federally declared disaster.
The IRS issued final regulations on June 11, 2021 concerning §7508A(d), which would render Abdo’s petition as untimely. Abdo did not argue that their petition was untimely under the regulations but argues that the regulations §301.7508A-1(g)(1) and (2) are invalid as an improper construction of §7508A(d). The regulation limits the acts subject to the extension period and do not include a petition to the Tax Court.
Abdo contended Congress clearly intended the statute to operate in a “mandatory and automatic manner” and does not provide for the Treasury Secretary’s interpretation. In contrast, the commissioner argues that Congress did not specify which tax acts are postponed, nor did it address federally declared disasters without an incident date; therefore, the regulations were necessary to resolve the ambiguity.
The Court held for Abdo, ruling that §7508A(d) was unambiguous and self-executing and that the related regulations are invalid to the extent it limits certain time-sensitive acts. Further, that Congress has indeed “directly spoken” to the incident date of a federal disaster declaration.
Other Important Developments
IRS Technical Guidance
- Notice 2024-34 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.
Tax Cuts and Jobs Act of 2017
- California Senate Bill (SB) 1192, which passed the state’s Senate Revenue and Taxation Committee, would extend the elective tax for pass-through entities through 2027. The current expiration date of 2025 coincides with the federal sunset of the temporary $10,000 limit on SALT deductions introduced by the TCJA. The extended due date would not be triggered if Congress does not extend the SALT limit beyond 2025.
- California SB 1501, also passing in the Senate Revenue and Taxation Committee, would provide entities the ability to miss the June 15 payment deadline without disqualification from the elective tax for pass-through entities. Missing the deadline, however, would impose a 5% penalty of the amount of the elective tax paid for the year.
Miscellaneous
- The IRS completed its annual release of the “Dirty Dozen,” a listing of common scams taxpayers may encounter. For 2024, the list includes:
- IR-2024-105 rounds out the “Dirty Dozen” campaign with two warnings against bogus tax avoidance strategies and schemes with an international element. Taxpayers should be wary of syndicated conservation easements, micro-captive insurance arrangements, Maltese retirement arrangements, and promoters of “untraceable and undiscoverable” digital assets.
- IR-2024-104 warns wealthy taxpayers about three “traps” promoted by scheming practitioners, including inflated art deductions, aggressive charitable remainder annuity trusts, and monetized installment sales.
- IR-2024-100 advises tax professionals and other businesses to protect themselves against spearfishing attempts by malicious actors. Spearfishing occurs by email or text messages with embedded links or attachments designed to provide access to a recipient’s system. The IRS advises to never click on suspicious links or attachments from unknown senders, including potential new clients—a common avenue taken by fraudsters.
- 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 IRS.gov. 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, that request sensitive personal data from unsuspecting taxpayers.
Continued Coverage of the Inflation Reduction Act (IRA)
- Notice 2024-33 has been released by the IRS, providing a waiver to corporations from an addition to tax under §6655 for failure to pay first quarter estimated taxes due April 15, 2024 (or May 15 for taxable year corporations beginning February 2024) with respect to a corporate alternative minimum tax liability under §55 as promulgated under the IRA.
- Corrections have been made to Appendix A and Appendix B of Notice 2024-20 adding eligible census tracts for the qualified alternative fuel vehicle refueling property credit under §30C.
- Proposed Regulations REG-117631-23 invites comments on the U.S. Department of Energy’s emissions value request process and contains supplemental information in regard to the provisional emissions rate petition process with the Secretary of the Treasury under §45V Credit for Production for Clean Hydrogen and §48(a)(15) Election to Treat Clean Hydrogen Production Facilities as Energy Property.
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.
- 1www.atr.org/wp-content/uploads/2024/04/4-10-Final-TRAFWA-Coalition-Letter-1.pdf.
- 2 www.fb.org/files/Ag-Industry-Letter-of-Support-for-H.R.-7024-Tax-Relief-for-American-Families-and-Workers-Act-of-2024.pdf.
- 3 www.cpa.com/sites/cpa/files/2024-04/2024_FinCEN_BOI_Delay_Enforcement_AICPA_State_CPA_Societies.pdf.