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From the Hill: May 14, 2024

The odds of passage look less likely for the Tax Relief for American Families and Workers Act.
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Lately on the Hill

Here’s a look at recent tax-related happenings on the Hill, including passage looking less likely for the Tax Relief for American Families and Workers Act, and a Congressional Budget Office report estimating that extending Tax Cuts and Jobs Act provisions could add $4.6 trillion to the deficit.

Tax Relief for American Families and Workers Act

The days appear to be numbered for the Tax Relief for American Families and Workers Act (Act) as the Senate passed the Federal Aviation Administration (FAA) Reauthorization Act last week without the Act’s inclusion as an amendment to it. The FAA legislation has still not been voted on by the House, which passed a one-week extension to May 17, giving it time to pass the bill as it returns from break this week.

Senate Finance Committee Chair Ron Wyden (D-OR) included the Act as an amendment to the FAA legislation. However, the bill moved quickly and without the amendment as 89 senators voted for cloture, limiting its debate given the tight deadline of the FAA reauthorization.

The Act provides several significant provisions that the business community has urged Congress to pass, including full expensing of business assets, immediate deduction for research expenses, and increased deductions for business interests. The Act also includes an expanded child tax credit and is considered fully funded, as claims for the controversial Employee Retention Credit would be prematurely cut off, saving the government billions of dollars.

Tax Notes reports House Ways and Means Committee Chair Jason Smith (R-MO) remains optimistic that the Act can still pass as a standalone bill. In a recent conversation with Senate Majority Leader Chuck Schumer (D-NY), Smith reportedly urged him to “just hold the vote. I believe the votes are there.” Smith later added, “Unfortunately, I think it’s for political reasons. It’s beyond the policy. A tax bill passing with 84 percent of the vote should be just across the finish line, but … it’s a new day, it’s an absolutely new day in how you navigate the waters.”

Senate Finance Committee Member John Thune (R-SD) also was quoted by Tax Notes as saying, “My assumption is at some point Schumer triggers that vote and puts it on the floor and sees where it goes. But I can’t at this point say that there would be an outcome associated with that.”

Tax Cuts and Jobs Act (TCJA)

Last week, the Congressional Budget Office (CBO) released a report estimating that a 10-year extension of the TCJA’s provisions would add $4.6 trillion to the deficit.

The majority of the estimated amount—$3.7 trillion—is related to individual income tax provisions, such as the statutory rates and brackets, allowable deductions, the size and refundability of the child tax credit, the 20% deduction for certain business income under Section 199A, and the income threshold of the alternative minimum tax.

The CBO report also estimates the extension of other TCJA provisions and related interest outlays, including the increased estate and gift tax exemption ($188 billion), expanded bonus depreciation ($461 billion), and deductions for certain types of foreign income and rates for the base erosion minimum tax ($197 billion).

The estimate places a daunting price tag on what is quickly becoming a priority issue in Congress as most of the significant TCJA provisions are set to expire at the end of 2025.

In a press release issued by the Democratic members of the U.S. Senate Committee on the Budget concerning the CBO estimate, Wyden said, “The Republican tax plan is to double down on Trump’s handouts to corporations and the wealthy, run the deficit into the stratosphere, and make it impossible to save Medicare and Social Security or help families with the cost of living in America.” Budget Chair Sheldon Whitehouse (D-RI) added, “Now [Republicans are] set on extending those tax cuts, even though it would blow up the deficit. The Trump tax cuts were a gift to the ultrarich and a rotten deal for American families and small businesses.”

House Budget Committee Republicans issued a statement of their own. “While the [CBO] provides a valuable service to Congress, its track record in predicting the economic and fiscal outcome of the 2017 Trump tax cuts is poor to say the least … The truth is, the Trump tax cuts resulted in economic growth that was a full percentage point above the CBO’s forecast, and federal revenues far outpaced the agency’s predictions. In fact, under Trump tax policies in 2022, tax revenues reached a record high of nearly $5 trillion, and revenues averaged $205 billion above CBO predictions for the four years following implementation of the law.”

Noteworthy Decisions

The U.S. Tax Court allows the IRS to amend its argument in a syndicated conservation easement case to invoke §1221 requirements that would tax the plaintiff’s gain as ordinary income. Marlin Woods Capital, LLC v. Commissioner, Nos. 30894-21, 30896-21.

Marlin Woods Capital, LLC (Marlin) acquired interests in several limited liability companies (LLCs), each owning land in Florida. The land interests were further separated into parcels, each owned by an LLC. The ownership interests in the LLCs were sold to other entities, which subsequently claimed charitable contribution deductions for the donation of conservation easements on the land. Marlin reported most of the gain from the sales of LLC interests as long-term capital gains.

The IRS initially asserted that the gains, under §751, should have resulted in ordinary income and issued final partnership administrative adjustments to Marlin. Marlin filed its intent to file a motion for summary judgment.

A few months after, the commissioner filed a motion to amend its position to add “an alternative ground for the adjustments.” The commissioner added, “Section 1221 requires Marlin Woods to characterize the gain on the sales of LLC interests as ordinary income because it held the LLC interest primarily for sale to customers in the ordinary course of a trade or business.”

The D.C. Circuit Court reverses a U.S. Tax Court decision, allowing the IRS to assess penalties under Internal Revenue Code §6038 for failure to disclose interest in foreign corporations. Farhy v. Commissioner, D.C. Cir., No. 23-1179, May 3, 2024.

The Tax Court had ruled in Alon Farhy’s favor that the IRS lacked authority to assess and collect penalties under §6038(b) related to the reporting of ownership interests in foreign corporations and partnerships.

Farhy argued that a penalty must be explicitly characterized as a “tax” or designated as “assessable,” which is not explicit in §6038, to provide the IRS authority to assess penalties as provided under §6201. Since the code section lacks the specific language, Farhy argued that the government would have to sue him in federal district court to collect the amount owed.

The Circuit Court disagreed with Farhy’s argument and the Tax Court’s ruling. “We conclude, based on the statute’s text, structure, and function, that penalties imposed under section 6038(b) … are assessable.” The Circuit Court cited “forty years of congressional acquiescence” to the IRS’ assessment of the penalties, noting that Congress has amended §6038 seven times since 1982, without addressing the “IRS’s practice of assessing and administratively collecting penalties imposed under section 6038(b).”

The Circuit Court invoked Commodity Futures Trading Comm’n v. Shor, stating, “It is well established that when Congress revisits a statute giving rise to a longstanding administrative interpretation without pertinent change, the ‘congressional failure to revise or repeal the agency’s interpretation is persuasive evidence that the interpretation is the one intended by Congress.’”

Other Important Developments

IRS Technical Guidance

  • Revenue Ruling 2024-11 announces interest rates for overpayments and underpayments of tax for the third quarter beginning July 1, 2024. The rates will remain unchanged at 8% for overpayments (7% for corporations), 8% for underpayments, 10% for large corporate underpayments, and the rate of interest paid on corporate overpayments exceeding $10,000 will be 5.5%.
  • Revenue Procedure 2024-25 provides the 2025 inflation-adjusted amounts for health savings accounts, raising the deductible limit amount to $4,300 for self-only coverage and $8,550 for family coverage under high-deductible health plans. In addition, the procedure provides the 2025 maximum amount that may be made newly available for an excepted benefit health reimbursement arrangement is $2,150.
  • Proposed Regulations (REG-124850-08) have been released providing guidance on reporting certain transactions involving foreign trusts, receipt of large foreign gifts, and loans from, and uses of property of, foreign trusts.


  • The IRS has issued supplemental letters to original Letters 6613 it sent out last month regarding former IRS contractor Charles Littlejohn’s unauthorized disclosure of taxpayer information to two news outlets. The 7431 Notifications informed affected taxpayers that their information was leaked, including the information of former President Donald Trump. Littlejohn was charged and pleaded guilty, receiving a five-year prison sentence earlier this year. The letter acknowledges that a taxpayer’s information has been unlawfully disclosed; however, the IRS does not know what specific information was disclosed. The letter reassures the taxpayers that it has not seen any indication that the information was used for identity theft or fraud, and that it implemented enhanced data security measures.
  • During public hearings on Proposed Regulations (REG-142338-07) concerning donor-advised funds (DAFs), several organizations urged the IRS to withdraw the controversial proposed rules.

    DAFs allows charitable donors an immediate tax deduction by placing assets in these funds, which often do not pay out to specific charities until after significant time has passed.

    One of the more controversial rules would classify personal investment advisers who help manage DAF assets as “donor-advisers” potentially subject to excise taxes. The classification could disincentivize these advisers from managing these assets and steering their clients to these tax-advantaged charitable funds. Kevin Carroll, deputy general counsel at the Securities Industry and Financial Markets Association (SIFMA), commented on the uncertainty the proposed rules have brought upon the charitable sector, “SIFMA urges [the IRS] to immediately withdraw the proposal so it does not have a chilling effect on the activities of DAFs or personal investment advisers with the overhang of a tax rule proposal that leaves them in limbo.”

    Many other representatives of interested organizations also expressed their desire that the rules be withdrawn and reworked considering the enormous backlash the IRS has received and the negative impact they are allegedly having on public charities. Withdrawal and re-proposal may be preferred by the IRS, as legal challenges under the Administrative Procedure Act are likely to happen once the rules are finalized as opponents claim they are overly broad and would cause undue disruption to charities.

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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