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Tax Policy Updates, Tax-Reform Proposal, Proposed Rules, and More - Pat Soldano

GOP Lawmakers Prepare Expansive Tax-Reform Proposal. House Republicans are expected to unveil an economic-growth package in the coming weeks that will encompass tax provisions relevant to a broad cross-section of the U.S. economy. Last month, House Ways and Means Committee Chairman Jason Smith (R-MO) announced his intention to finalize the bill by his birthday, June 16.

 

While a partisan bill is unlikely to receive consideration in the Democratic-controlled Senate, the proposals offered by Republicans will lay the groundwork for the development of future bipartisan tax legislation in the 118th Congress. Moreover, the effort will kickstart the debate over extensions of certain Tax Cuts and Jobs Act  (TCJA) provisions, which is expected to intensify in the lead-up to the expiration of the individual tax cuts in 2025.

 

GOP lawmakers have not provided explicit details of the proposals that will be included in the package. However, Chairman Smith has frequently noted that his “top priority is delivering for the working families, farmers and small businesses.” Accordingly, the bill is likely to contain substantial tax provisions focused on supporting these three categories of taxpayers, including:

“Working Families.” While expectations are high that the bill will focus significantly on business tax incentives, Republicans may also seek to build on their previous successes in expanding tax relief for low- and middle-income taxpayers.

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Treasury Department and IRS Solicit Feedback on Proposed Rules for Low-Income Communities Bonus Credit. The Treasury Department and Internal Revenue Service (IRS) issued proposed rules (REG-110412-23 ) on May 31 concerning the section 48(e) Low-Income Communities Bonus Energy Investment Credit Program established by the Inflation Reduction Act  (IRA). Unlike other energy-tax incentives included in the IRA, the section 48(e) bonus credit operates through a maximum credit allocation. Accordingly, to receive credits under this provision, taxpayers must submit project applications for consideration under a competitive-award process opening later this year.

The program was created within the existing section 48 Investment Tax Credit (ITC) and allows the Treasury Secretary (through the IRS) to designate specific solar and wind energy-generation projects to receive bonus-credit amounts above the base 30% ITC if they comply with certain environmental-justice initiatives. The rules also reiterate that qualified projects must be built in connection with low-income communities and have a maximum net output of less than 5 megawatts. Under the program, a project can receive an additional 10% or 20% ITC boost if it satisfies the relevant eligibility criteria.

The notice of proposed rulemaking requests comments from stakeholders on any aspects of the bonus credit that require clarification or modification. Comments must be submitted to the Treasury Department and IRS by June 30, 2023.

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Treasury Department and IRS Announce Updated Application Timeline for Advanced Energy Project Credit. The Treasury Department and IRS unveiled guidance (IRS Notice 2023-44 ) on May 31, setting out the application process and review criteria for the Advanced Energy Project Credit under section 48C.

The section 48C credit was refreshed by the Inflation Reduction Act  (IRA), allowing for an additional allocation of $10 billion in credits, with $4 billion of the allocation earmarked for projects in certain energy communities. The credit follows a two-tier structure based on the satisfaction of the prevailing wage and apprenticeship requirements. Projects are eligible for a base credit of 6% and a maximum credit of 30% if the conditions are met.

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Senate Committee (Re)approves Chile Tax Treaty. The Senate Foreign Relations Committee voted 20-1 on June 1 to approve a measure to ratify the tax treaty  between the United States and Chile. The treaty is expected to increase investment by U.S. and Chilean companies by reducing applicable taxpayers’ withholding tax rates on dividends, interest and royalties. The treaty also addresses concerns regarding multinational corporations’ ability to engage in certain tax-avoidance transactions. The treaty was negotiated and signed by the Obama administration in February 2010 but had been stalled pending Senate ratification for more than a decade.

Since 2010, the treaty has been advanced by the Foreign Relations Committee on four occasions, but it has never been considered by the full Senate. The ratification process was further complicated by international tax reform included in the 2017 Tax Cuts and Jobs Act , which was not reflected in the already-signed treaty. However, lawmakers addressed the potential issues last year through reservation language included in the ratification measure, clarifying that the treaty would not prevent the imposition of the U.S. Base Erosion and Anti-abuse Tax (BEAT), among other modifications.

Treasury Department to Focus on Universal CAMT Guidance. Speaking at the Federal Bar Association’s Insurance Tax Seminar last week, Treasury Department Office of Tax Policy Attorney-advisor Angela Walitt discussed the agency’s plans for promulgating future guidance concerning the Corporate Alternative Minimum Tax. Walitt said that while “some industry-specific things” would be addressed in upcoming releases, the Treasury Department will focus on “more general answers” intended to apply industrywide. Notwithstanding the emphasis on more inclusive guidance, the Treasury Department and Internal Revenue Service (IRS) issued Notice 2023-20  earlier this year to provide interim guidance specifically for certain contracts relevant to insurance companies.

Biden Expected to Fill Long-Vacant IRS Chief Counsel Position. President Joe Biden announced  his intention to nominate Marjorie Rollinson to serve as chief counsel for the Internal Revenue Service (IRS). Rollinson was previously IRS associate chief counsel (international) from 2016 to 2019, before exiting the government to take over as the deputy director of national tax at Ernst & Young. The chief counsel position is one of only two officials serving at the IRS that require Senate confirmation, and the role has remained vacant for the entirety of the Biden administration. If confirmed, Rollinson is expected to play a significant role in the ongoing implementation of the Inflation Reduction Act  tax provisions.

Republican Strategy for Further Pillar Two Response. Eric Oman, the deputy chief tax advisor for House Ways and Means Committee Republicans, spoke at the Federal Bar Association’s Insurance Tax Seminar last week on the next steps for the GOP response to ongoing global tax developments. Oman noted that committee Republicans were “frustrated” and “disappointed” by the Biden administration’s failure to consult Congress throughout negotiations over the Organisation for Economic Co-operation and Development (OECD) Pillar Two rules. Moreover, he highlighted legislation  proposed in response to the global minimum tax as a first step in the GOP response, noting that there are “other proposals that certainly could come down the pipeline” concerning U.S. counters to Pillar Two.

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