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Building Stronger IRS Should Be Bipartisan: White House Official – Genevieve Douglas, Bloomberg ($). “The Biden administration’s plan to increase compliance with the IRS should be an area of bipartisan agreement as negotiations between the administration and lawmakers continue, a White House official said.”
‘I don’t see how anyone can be against that one. We’re talking about decades of disinvestment, this time in a key government agency,’ White House Council of Economic Advisers member Jared Bernstein said at a Bloomberg Tax event Thursday. Specifically, closing the multinational tax loopholes and addressing past defunding of the IRS are an ‘important part of this puzzle.’
Senate Judiciary Republicans Seek Info on IRS Data Leak Probe – Sony Kassam, Bloomberg ($). “A group of Senate Judiciary Committee Republicans wants information from the Justice Department and FBI investigations into the anonymous leak of taxpayer data that led to a ProPublica report on the tax information of America’s billionaires. Sen. Chuck Grassley (R-Iowa), committee ranking member, led the group in asking about the scope of the investigations, such as whether a possible breach originated at the IRS and whether it was the result of a data hack and stolen from the agency.”
IRS Issues Guidance for Calculating Rental Property Depreciation – Sam McQuillan, Bloomberg ($). “The IRS released two pieces of guidance related to changes Congress made in December 2020 to calculating depreciation of certain rental properties.”
Rev. Proc. 2021-28, issued Thursday, details how a taxpayer must change the method of computing depreciation to provide a 30-year recovery period under the alternative depreciation system for some properties controlled by a business that started renting before 2018.
Rev. Proc. 2021-29, issued simultaneously, will permit some rental partnerships to file amended forms for reporting each partners’ income as an alternative option to filing an administrative adjustment request.
Supreme Court rejects Texas ACA challenge – Joe Kristan, Eide Bailly. “The U.S. Supreme Court this morning rejected the Texas lawsuit to overturn the Affordable Care Act. Texas had argued that the imposition of a zero penalty rate for the individual mandate under the act undermined its constitutionality. The court ruled that Texas, and the states joining it in the suit, lacked standing for their constitutional claims.”
Some taxpayers have filed protective refund claims for Net Investment Income Tax and additional Medicare taxes imposed by the ACA, in hopes that the Court would retroactively invalidate the taxes via the Texas case. Those hopes are now dashed.
Sweeping Obamacare Challenges Are Over After High Court Rebuke – Lydia Wheeler, Bloomberg ($). “The road to a broad-stroke constitutional challenge to Obamacare is more or less closed, but smaller pokes at the law are still expected after the Supreme Court’s 7-2 ruling Thursday to uphold it.”
‘There will not be a big omnibus challenge to the entire statute, but there will continue to be ongoing litigation about the administration and enforcement of the law, and that will go on for some time,’ said Jonathan Adler, a law professor at Case Western Reserve University School of Law.
THE TOP – John Bresnahan, Anna Palmer and Jake Sherman, Punchbowl News ($). “Sen. Rob Portman (Ohio), the chief Republican infrastructure negotiator, warned that the bipartisan discussions among senators are going to take awhile to complete -- maybe weeks.”
‘We’re working overtime to get the language, to get things in a position to get the right result. We don’t want to rush it and get things wrong. We’re going to take our time and do it right,’ Portman said in an interview on Thursday. ‘I heard someone say this week,quoting [White House Counselor Steve] Ricchetti, ‘You have to do it in seven to 10 days.’ I was like, ‘Huh, no we don’t,’’ Portman added. ‘We’re not going to. We shouldn’t. That would be bad.’
White House tries to privately calm Democratic fears on infrastructure deal – Laura Barron-Lopez, Politico. “After being pummeled by progressives for continuing to pursue infrastructure talks with Republicans, the White House is now being offered what’s likely the best bipartisan deal it’s going to get. On Wednesday, a group of 10 Senate Democrats and Republicans announced that it had agreed on a framework of a compromise… [N]egotiators described it as a “historic” investment in infrastructure without raising taxes.”
White House officials are aware of the mounting frustration from progressives over Biden’s decision to continue bipartisan talks on a narrow infrastructure proposal — including threats from several Democratic Senators to oppose legislation if robust investments in combating climate change aren’t passed in one of the bills. A source familiar with White House's thinking also said they don't view attacks on centrist Democrats like Sens. Joe Manchin (D-W. Va.) and Kyrsten Sinema (D-Ariz.) — two of the main lawmakers pushing for those negotiations — as ‘helpful or appropriate.’
Senate Democrats discussing roughly $6 trillion budget plan – Paul Krazak, Niels Lesniewski and Jessica Wehrman, Roll Call. “A massive filibuster-proof budget reconciliation package worth as much as $6 trillion over a decade — of which half could be deficit-financed — is taking shape within the Senate Democratic caucus, according to a source familiar with the discussions. Nearly half of the tentative outline, first reported by Politico, would run through the Finance Committee, which has jurisdiction over the tax code and federal health care entitlements, among other things.”
Senate Budget Committee Democrats are aiming to reach a preliminary agreement by June 28 on contours of the fiscal 2022 budget blueprint that will enable the use of reconciliation.
Schumer’s Two-Track Plan for Biden Agenda Hits Party Hurdles – Steven Dennis and Erik Wasson, Bloomberg ($). “Senate Majority Leader Chuck Schumer’s plan to advance President Joe Biden’s economic agenda on two tracks hit stumbling blocks Thursday as moderate Democrats said they’re still working on the details of a bipartisan infrastructure plan and balked at a separate proposal for a $6 trillion follow-up as too costly. Some of the Democrats involved in negotiating a bipartisan framework for a $579 billion infrastructure package said the details haven’t been settled, including how to pay for it.”
Pelosi rejects gas tax to cover infrastructure costs – Mike Lillis, The Hill. “Speaker Nancy Pelosi (D-Calif.) said Thursday that she opposes an increase in the gas tax as a way to pay for new infrastructure projects, joining other liberals in her caucus in rejecting a potential provision of a nascent public works package being negotiated in the Senate. ‘I'm not even sure if it's in, but one thing they were going to do was expand the gas tax. I would not be for that,’ Pelosi told reporters in the Capitol.”
Treasury Secretary takes heat in hearing for President’s budget not addressing SALT cap – Jay Heflin, Eide Bailly. “Treasury Secretary Janet Yellen on Thursday took heat from Democrats on the tax-writing House Ways and Means Committee for President Joe Biden’s budget request failing to address the $10,000 cap on the State and Local Tax Deduction.”
‘The Administration’s silence on this makes my constituents worry,’ said Rep. Bill Pascrell (D-NJ), a senior member on the Committee who is known for being verbose during hearings.
‘It is the oldest deduction on the books. They knew what they were doing in the Civil War to help out the states,’ he told Yellen, adding, ‘we made the case for full repeal of this cap. You noted this cap has a disparate effect on taxpayers – you said it. But when the Administration’s tax proposals came out there’s not a single mention of SALT relief.’
Brady Sees SALT Cap Derailing Democrats’ Tax Plans – Doug Sword, Tax Notes ($). “The state and local tax deduction cap’s potential to be a wedge issue threatening the near unanimity that Democrats need to move a multitrillion-dollar tax package had Treasury Secretary Janet Yellen walking a policymaking tightrope before the House Ways and Means Committee. ‘We certainly want to work with you and other members of Congress to figure out what is the best way to go about doing that,’ Yellen said at a June 17 committee hearing, after being asked by Rep. Bill Pascrell Jr., D-N.J., to commit to lifting the $10,000 SALT deduction cap.”
After the hearing, [ranking member Kevin] Brady [R-Texas] said he recognized that the issue threatens to upset Biden’s tax packages. ‘It is a major wedge issue,’ Brady told Tax Notes, adding that the SALT cap is the ‘reason why I’m convinced we’re going to defeat these tax increases in the House.’
Yellen Declines to Offer Position on State-Tax Deduction Cap – Richard Rubin and Kate Davidson, Wall Street Journal. “Treasury Secretary Janet Yellen repeatedly declined to offer a clear administration position on the deduction for state and local taxes during a House hearing, leaving vagueness on an issue that will be the subject of tense negotiations among Democrats considering President Biden’s fiscal agenda. Under pressure from House Democrats and Republicans on Thursday to take a position, Ms. Yellen wouldn’t say whether the Biden administration favors repealing the $10,000 cap on the deduction.”
Wyden, Crapo, Cornyn, Warner, Daines, Stabenow Introduce Bill to Boost Domestic Manufacturing of Semiconductors – Senate Finance Committee. “Senate Finance Committee Chair Ron Wyden, D-Ore., and Ranking Member Mike Crapo, R-Idaho, today introduced legislation to strengthen U.S. semiconductor supply chains by incentivizing domestic manufacturing of this critical technology. The Facilitating American-Built Semiconductors (FABS) Act is cosponsored by Senators John Cornyn, R-Texas, Mark Warner, D-Va., Steve Daines, R-Mont., and Debbie Stabenow, D-Mich.”
The legislation proposes a 25 percent investment tax credit for investments in semiconductor manufacturing, both for manufacturing equipment as well as the construction of semiconductor manufacturing facilities.
Technical Explanation Of The "Clean Energy For America Act," As Voted On By The Senate Committee On Finance On May 26, 2021 – Joint Committee on Taxation. On May 26, 2021, the Senate Committee on Finance marked up the “Clean Energy for America Act.” This document,1 prepared by the staff of the Joint Committee on Taxation, provides a description of that bill, as voted on by the Committee.”
Exempt Organizations Should File Forms 990-EZ and 8868 Electronically Due to Processing Delays for Paper Filings – Ed Zollars, Current Federal Tax Developments. “The IRS is warning exempt organizations that file Form 990-EZ or Form 8868 on paper risk running into issues, either getting premature notices regarding a failure to file the Form 990-EZ or long delays in getting an acknowledgment of the approval of their extension request.”
New Markets Tax Credit Report Details Job Creation Amid Pandemic – Isabelle Sarraf, Bloomberg ($). “The New Markets Tax Credit supported 272 projects with nearly $3 billion in funds last year, according to a new report from a coalition advocating for the credit’s expansion and permanence.”
House passes ESG, climate disclosure rules for public companies – Laura Weiss, Roll Call. “The House passed legislation Wednesday that would require public companies to report environmental, social and governance metrics, betting that shareholders will use the information to pressure corporations on climate risk and other issues important to Democrats. The measure’s passage, on a 215-214 vote, marked the first time the chamber has passed sweeping legislation for transparency on sustainability issues. The package of bills would require disclosure of ESG metrics broadly and dictate specific reporting expectations on climate risks, political spending, CEO pay and taxation rates.”
Trickle-Down Effects of Minimum Book Tax Alarm Mortgage Industry – Emily Foster, Tax Notes ($). “The White House’s proposals to increase taxes on the largest corporations and high-income earners could have far-reaching effects, including in the mortgage finance industry by hindering small lenders and first-time homebuyers. The proposals in Treasury’s fiscal 2022 green book released May 28 — such as the minimum tax on book earnings for some corporations, the cap on like-kind exchanges, and an increase in the capital gains rate — affect ‘the entire mortgage finance ecosystem,’ Fran Mordi of the Mortgage Bankers Association said June 17.”
Tax Data Show Evidence of Strong Income Gains for Higher-Income Families and Only Muted Decreases for Lower- and Moderate-Income Families in 2020 – Mitchell Barnes, Mark Booth, Wendy Edelberg, and Sara Estep, The Hamilton Project:
Tax data through June 7, 2021 give yet one more indication that this has been a recession like no other. In a typical recession, declines in income across the income distribution lead to increases in income tax refunds and decreases in annual tax payments during the subsequent tax filing season. Those annual tax payments, along with quarterly payments made during the year that generally reflect non-wage income, are called nonwithheld payments to distinguish from the tax payments that most people have withheld from their paychecks throughout the year. Compared to recent recessions, the recent tax data showed relatively strong nonwithheld payments and a more modest increase in refunds. That is perhaps not surprising because we already know, thanks to data releases from the Bureau of Economic Analysis, that aggregate income held up well.
Arizona Governor Issues Information on Income, Property Tax Reform Plan – Bloomberg ($). “The Arizona Governor June 16 issued information on the tax reform plan for individual income, corporate income, and property tax purposes. The governor says the plan will: 1) place a maximum tax rate of 4.5 percent and reduce commercial property taxes; 2) improve Arizona’s economic outlook ranking; 3) eliminate all income taxes on veterans’ military pensions; 4) save money for taxpayers while allowing for investments in areas important to Arizonans; and 5) use a projected $4 billion surplus to deliver tax cuts, build on investments, and draw even more investment into the state. [Ariz. Governor’s Office, 5 Things To Know About Arizona’s Tax Plan, 06/16/21]”
Texas Governor Signs Law Exempting Gas Utility’s Winter Storm-Related Costs From Excise, Sales, Franchise Taxation – Bloomberg ($):
The Texas Governor June 16 signed a law exempting gas utility’s certain extraordinary costs relating to Winter Storm Uri from sales and use, excise, and corporate income taxation.
Iowa DOR Adopts Regulations on Property, Sales, Excise Tax Payment Requirements – Bloomberg ($). “The Iowa Department of Revenue (DOR) June 16 adopted regulations relating to sales and use, property, and excise taxes payable to the DOR. The regulations include measures: 1) stating that fees, taxes, interest, and penalties formerly payable to the State Treasurer are now payable to the DOR; 2) implementing statutory changes on payment and deposit methods for fees, taxes, interest, and penalties; and 3) requiring electronic payments for semimonthly and quarterly deposits and payments, as specified by the DOR. The regulations take effect July 21. [Iowa Dep’t of Revenue, Regs. Sections 701-12.2(422,423) et al., 06/16/21 Iowa Admin. Bull.]”
Louisiana Governor Signs Law Conforming State Partnership Reporting Adjustments to Federal Taxable Income – Bloomberg ($):
The Louisiana Governor June 14 signed a law concerning partnerships for corporate income and individual income tax purposes.
Iowa Governor Signs Income, Property Tax Law Concerning State Revenue by Modifying Future Tax Contingencies – Bloomberg ($). “The Iowa Governor June 16 signed a law concerning state and local revenue by modifying future tax contingencies for individual income, corporate income, trust income, sales and use, property, excise, and inheritance tax purposes.”
Race for Global Tax Revolution Faces Hurdles in Last Stretch – Isabel Gottlieb and William Horobin, Bloomberg ($). “The world’s richest nations have set the stage for a revolution in corporate taxation, but they still have their work cut out to actually achieve that overhaul. Talks in coming weeks between more than 100 governments before a Group of 20 meeting in July will build on the outlines of a deal earlier this month by Group of Seven finance ministers. Despite their breakthroughs on a minimum global corporate tax rate and a shift in philosophy allowing one country to apply levies to profits of another’s national champions, multiple technical details remain unresolved.”
A Global Minimum Tax and Cross-Border Investment: Risks & Solutions – Daniel Bunn, Tax Foundation:
Key Findings:
- The political effort to address profit shifting and limit the benefits of using low-tax jurisdictions to facilitate cross-border investment has focused on adopting a global minimum tax applicable to large multinational corporations.
- While a global minimum tax could act as a backstop to current corporate tax rules, it would also increase the tax burden on business investment across the world.
- The experience of U.S. companies following the elimination of a tax benefit connected to Puerto Rico shows that policies that increase the taxes owed on offshore operations can have negative blowback effects on domestic markets.
- Because foreign direct investment (FDI) is sensitive to tax rates, a global minimum tax would directly impact investment decisions of multinational companies.
- To mitigate the negative economic effects of a global minimum tax, policymakers should ensure that both the minimum rate and the tax base to which it applies are designed in a way that does not distort investment decisions but still acts as a backstop to current corporate tax rules.
Happy Juneteenth! It’s actually tomorrow but being celebrated today! President Joe Biden made it a federal holiday on Thursday and – no joke – roughly ten minutes later the SEC announced it would be closed today. Shortly thereafter other agencies followed suit. So, if you’re reading this, you’re likely not a federal worker and at work. Bummer. At least it’s Friday!