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Paths Narrowing for This Year’s Tax Legislation Finale – Doug Sword, Tax Notes ($). “When lawmakers return the week of April 25 there will be two bills in play as the endgame nears on the avalanche of tax provisions considered during the 117th Congress that need a vehicle.”
In the near term, the most alluring tax vehicle is the bill to revitalize the U.S. semiconductor industry, but a renewed push to advance the stalled Build Back Better Act (H.R. 5376) with its more than 100 provisions is another possibility.
Otherwise, a post-election lame-duck package or an omnibus spending bill could provide year-end opportunities. Meanwhile, the Securing a Strong Retirement Act of 2022 (H.R. 2954) retirement package is another option, although Congress watchers expect that it will be folded into one of the other tax measures.
Heads up on retirement legislation:
The Senate Finance Committee is expected to take up the retirement bill, which passed the House in March, in the coming weeks.
Prior coverage on retirement legislation is here.
Senate Returns With Big Agenda, Little Time as Midterms Loom – Nancy Ognanovich and Zach Cohen, Bloomberg ($). “Congress comes back Monday for a five-week stretch, with Democratic leaders under heavy pressure to deliver on key priorities before the midterm elections.”
Those include additional supplemental spending plans to address pandemic relief and Russia’s war on Ukraine, legislation to enhance U.S. competition with China and support domestic chip manufacturing, and confirming President Joe Biden’s picks for federal agencies and courts.
Democrats plan to make an all-out push to get these and other must-dos finished before lawmakers head for the campaign trail this summer.
The 'U.S. competition with China' bill is the only one on the reported agenda that could include tax provisions, but it is unclear what that legislation will include.
Long story short: The 'U.S. competition with China' bill stems from the House-passed “America COMPETES Act” and the Senate-passed “United States Innovation and Competition Act.” The House bill contains a tax measure (health care related) that would allow other tax provisions to be added to the bill. However, Punchbowl News reports that the final piece of legislation will likely be similar to the Senate-passed bill, which does not include tax provisions. If the reporting is accurate, then the final bill will not be a vehicle for tax provisions.
Overall, a final billwill likely be far closer to the Senate product than the House product. Remember — the Senate passed USICA on a big bipartisan vote last year. The House passed their version, the America COMPETES Act, in February with Rep. Adam Kinzinger (Ill.) as the sole Republican supporter.
Labor’s Kennedy Townsend Puts Retirement on Social-Change Agenda - Austin R. Ramsey, Bloomberg ($). “U.S. Labor Department officials want to make retirement security a component of the social justice movement, tapping a distinguished policy advocate to deliver that message across the country.”
Former Maryland Lt. Gov. Kathleen Kennedy Townsend will launch a speaking tour next week targeting advocacy groups and think tanks that can ensure affordable retirement policy solutions are included on their social-change agenda.
Millions of U.S. workers aren’t saving at all or aren’t saving enough for retirement, setting the stage for a generation of financially insecure retirees who could threaten to undermine future state and federal social safety nets. Those favoring a broad, federal approach to that problem were disheartened when a mandatory savings proposal died with President Joe Biden‘s Build Back Better agenda last year.
Watchdog Urges IRS to Beef Up Reviews of Micro-Captive Audits – Michael Rapoport, Bloomberg ($). “The IRS could improve how it reviews its audits and investigations of small offshore insurance companies that the government believes can be used to evade taxes, the Government Accountability Office said Friday."
The IRS pushed back on the GAO’s contentions, saying its procedures in the area are sufficient and that it shouldn’t divert its limited resources to try to do more.
Billboard Tax Cases Teed Up After High Court Free Speech Ruling – Perry Cooper, Bloomberg ($). “A recent First Amendment ruling from the U.S. Supreme Court paves the way for the court to rule on two petitions about the constitutionality of billboard taxes in Baltimore and Cincinnati."
The court held off on deciding whether to take the cases—Clear Channel v. Raymond, filed in August, and Cincinnati v. Lamar Advantage, filed in December—while it considered Austin v. Reagan National.
Thursday the court issued its opinion in that case, upholding an Austin, Texas, ordinance banning businesses from advertising on digital billboards or signs off their property. The 5-4 court found the ban doesn’t impermissibly restrict speech because it is location-based and content-neutral.
Fuel Credit Reduces Excise Tax Burden, Sixth Circuit Rules - Jeffery Leon, Bloomberg ($). “An energy company that presented a ‘novel theory’ that the fuel tax credit it received didn’t reduce its tax liability was rebuffed by the Sixth Circuit Court of Appeals, which found that the plain reading of the law around the fuel mixture credit said otherwise.”
Delek US Holdings, a fuel producer, claimed over $64 million in alternative fuel mixture tax credits under tax code Section 6426, and in its 2010 and 2011 tax returns, subtracted the mixture credit from their cost of goods sold, increasing its gross income and income tax burden. In 2015, Delek filed a refund claim for over $16 million, claiming that the mixture credits were payments that satisfied but didn’t reduce their excise tax, which fuel producers must pay on refined fuel.
The IRS denied this claim, arguing that the company wanted to claim the credit which reduces its excise tax liability while also including its full excise tax in its cost of goods sold, meaning that it would have a lower gross income and a lower income tax liability. A Tennessee district court sided with the IRS, which Delek appealed.
Calif. Tribes Back Non-Native Lessees' Bid To Nix Land Taxes – Caleb Symons, Law360 ($). “A group of California tribes urged the U.S. Supreme Court on Thursday to prohibit states and municipalities from imposing property taxes on non-Native lessees of Native American land, saying those policies violate their sovereignty and undermine their prospects for economic growth.”
In an amicus brief, the four tribes and a tribal trade consortium said a certiorari request last month from non-Native lessees ‘presents an ideal opportunity’ to clarify whether federal rules preempt state and local taxes on such properties and whether that prohibition extends to tribal trust land not acquired under the 1934 Indian Reorganization Act.
Feds Argue ARPA Decisions Should Be Reversed – Andrea Muse and Amy Hodges, Tax Notes ($). “The U.S. Treasury has urged two federal appellate courts to reverse lower federal court decisions that blocked enforcement of an American Rescue Plan Act provision restricting states from using the act’s aid to offset reductions in net tax revenue.”
Attorneys at the Department of Justice filed an April 21 brief in the Sixth Circuit in Kentucky v. Yellen and an April 15 brief in the Eleventh Circuit in West Virginia v. U.S. Department of the Treasury, in support of Treasury’s appeals in each case. Treasury has asked both courts to reverse the permanent injunctions granted to the plaintiff states that sued to prevent the provision’s enforcement.
Arizona Supreme Court reinstates massive income tax cuts – Bob Christie, Associated Press. “The Arizona Supreme Court on Thursday ruled that the state’s voters do not have the right to reject a massive income tax cut approved by the Republican-controlled Legislature and Gov. Doug Ducey last year.”
The decision means a tax cut is in effect that will hit nearly $2 billion when it is fully in place and mainly benefits the wealthy.
Flat-Tax Measure Stricken From Ballot by Arizona High Court – Perry Cooper, Bloomberg ($). “Voters in Arizona will no longer have a chance to prevent their state from adopting a flat income tax system after the state Supreme Court found the issue can’t be placed on November’s ballot.”
A lower court held that a measure (S.B. 1828) to shift the state to a flat income tax rate of 2.5% could be submitted to voters in the 2022 general election. The bill didn’t appropriate state funds or generate necessary revenue, so it doesn’t fall within the 'support and maintenance' exception in the state constitution, the trial court said in December.
Vermont Joins Multistate Tax Commission – Michael Bologna, Bloomberg ($). “Vermont is joining the Multistate Tax Commission, the MTC announced Friday.”
The state will formally join as a ‘sovereignty member’ beginning July 1, executive director Greg Matson said. With the addition of Vermont, the commission will have 15 states and the District of Columbia as full members of the Multistate Compact, an advisory pact forged in 1967 to establish uniform tax policies across the states, and 10 sovereignty members.
‘It’s great to have Vermont joining as a sovereignty member,’ Matson said in an interview after the commission’s spring meeting in Albuquerque, N.M. ‘Given the change in how much sovereignty states can participate, it makes financial sense to be a sovereignty member, so I hope we can add some more.’
Multistate Group Wades Through Complex Digital Tax Policies – Laura Mahoney and Michael Bologna, Bloomberg ($). “The Multistate Tax Commission tiptoed into a sea of confusion over the tax treatment of digital goods and services this week, but any hope for clarity, certainty and consistency is still far away."
The Uniformity Committee of the intergovernmental tax agency presented a status report Wednesday on its project seeking greater harmony across the states in the tax treatment of digital products. The update was made at the commission’s spring meeting in Albuquerque, N.M.
The initial research over the last nine months has been impressive. The committee has interviewed 11 state revenue agencies, nine tax policy organizations, seven accounting and law firms, three academics, two tax software companies, and seven tech titans including Amazon, Apple, Facebook, and Microsoft, said commission general counsel Nancy Prosser.
Goldman Ruling Fuels Feud Over Pass-Through Gain Sourcing – Paul Williams, Law360 ($). “A New York court's finding that a London-based Goldman Sachs unit owed New York City tax on its sale of interest in a city-based partnership spotlights a growing debate over how to source capital gains from selling pass-through entity interests.”
The April 12 decision from the New York Supreme Court, an intermediate appeals court, rejected arguments from Goldman Sachs Petershill Fund Offshore Holdings Corp. that it was unconstitutional for New York City to tax gain based on the location of the company it sold, Claren Road Asset Management LLC. The court's application of a so-called investee allocation method has raised concerns among some tax professionals who believe that analysis leaves other questions unanswered, such as whether a unitary relationship exists between the entities and how the activities of an investor should be considered when taxing gain.
Disney’s $578 Million Tax Break Left Untouched in DeSantis Feud - Christopher Palmeri, Bloomberg ($). “Florida Governor Ron DeSantis may have put a bull’s-eye on special perks that Walt Disney Co. has enjoyed in his state for more than 50 years, but he’s keeping his hands off hundreds of millions of dollars in tax breaks recently lavished on the entertainment giant.”
On Friday, DeSantis signed legislation to end a special municipal district Disney has operated in the state since the late 1960s. It’s part of a drive to punish the company for speaking out against a law, championed by the governor, that bans discussion of sexual orientation or gender identity in kindergarten to third-grade classrooms.
But for now, at least, DeSantis is leaving alone another valuable perk: $578 million in credits Disney can use to reduce its state income taxes through 2040. Christina Pushaw, a spokesperson for the governor, said DeSantis hasn’t asked the legislature to repeal the tax credits because ‘it’s not a carve-out for a specific corporation.’ Any company can apply for the incentives, she said, and ‘the bigger investments will qualify for the bigger tax credits.’
Deconstructing Disney – Bernie Becker, Politico. “The showdown between Gov. Ron DeSantis and Disney in Florida has gotten lots of attention, and for a variety of reasons.”
From a tax perspective, that’s because the Republicans’ decision to pave the way for tossing out a special tax district created for Disney has sparked a lot of interest in how that might cause residents living near Disney World to pony up more in taxes, and also shined a light on the various other tax benefits that the company currently receives in Florida.
Brazil Transfer Pricing Overhaul Poised to Ease U.S. Tax Worry - Isabel Gottlieb, Bloomberg ($). “Brazil’s move to overhaul its transfer pricing system to align with global standards could also help address an issue that’s been worrying multinationals: whether final U.S. rules will allow foreign tax credits for taxes paid in Brazil.”
The possibility of losing many of their foreign tax credits is ‘a major, major concern’ for companies after Treasury issued final rules late last year with stricter standards for which foreign taxes qualify for a U.S. credit, said Brian Jenn, a partner at McDermott Will & Emery LLP in Chicago. ‘That’s not a small concern, this is a concern on a magnitude of tens of millions of dollars or more of foreign tax credits that they’ll lose as a result of the final regulations.’
Insurers Balk at Proposed Rules for Related-Party Income – Chandra Wallace, Tax Notes ($). “Insurance industry groups object to proposed rules that expand related person insurance income (RPII) under subpart F, making rules they say were intended only for captive insurers applicable to commercial insurers and reinsurers more broadly.”
In an April 20 comment letter submitted to Treasury and the IRS, three associations representing ‘the great majority of insurance companies issuing property and casualty (non-life) insurance throughout the United States’ weighed in on proposed regulations (REG-118250-20) issued January 24 affecting what income will be treated as RPII and imputed to U.S. shareholders.
The new proposed rule ‘significantly expands the definition of RPII and causes routine, non-tax motivated, ordinary insurance transactions to be treated as RPII,’ the American Property Casualty Insurance Association, National Association of Mutual Insurance Companies, and Reinsurance Association of America wrote.
Former Utah Sen. Orrin G. Hatch, who helped shape health and tax policy, dead at 88 – Humberto Sanchez, Roll Call. “Former Sen. Orrin G. Hatch, R-Utah, who served in the Senate from 1977 through 2019 and who retired as president pro tempore as the most senior member of his party, died Saturday at age 88.”
Hatch was among the most accomplished legislators of his generation, with his last legacy item an overhaul of the tax system when he was chairman of the Senate Finance Committee.
Hatch announced he would not seek reelection on Jan. 2, 2018, less than two weeks after then-President Donald Trump signed the tax bill that Hatch helped spearhead.
It’s National Telephone Day! Quiz your kids! What does a busy signal sound like? (Also, what is a busy signal?) When I say “rotary” what should you reply? When someone on I Love Lucy said "Murray Hill 5-9975,” what were they referring to? The responses will likely be eye-rolls as they gaze into their phones.