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Manchin says he has reached deal with Schumer on economy, climate bill - Tony Romm, Jeff Stein, Rachel Roubein and Maxine Joselow, Washington Post ($):
Sen. Joe Manchin III (D-W.Va.) on Wednesday reached a deal with Democratic leaders on a spending package that aims to lower health-care costs, combat climate change and reduce the federal deficit, marking a massive potential breakthrough for President Biden’s long-stalled economic agenda.
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To pay for the package, Manchin and Schumer also settled on a series of changes to tax law that would raise $739 billion over the next decade — enough to offset the cost of the bill while securing more than $300 billion for cutting the deficit, a priority for Manchin. Democrats sourced the funds from proposals including a new minimum tax on corporations and fresh investments in the Internal Revenue Service that will help it pursue tax cheats.
The Schumer Manchin Summary is here; The actual text of the bill is here (both via Punchbowl News).
The portion of the bill covering IRS funding includes this provision: “Nothing in this subsection is intended to increase taxes on any taxpayer with a taxable income below $400,000.” Should this bill succeed, in a few years the Tax Court will find a way to reject a taxpayer arguments that their audit shouldn't count because Congress didn't want to affect people with incomes under $400,000.
What’s in Joe Manchin and Chuck Schumer’s Reconciliation Deal on Climate, Health and Tax Policy - Richard Rubin, Andrew Duehren, and Siobhan Hughes, Wall Street Journal ($):
The proposal would implement a 15% corporate minimum tax, aimed at large companies that report significant profits but pay little or nothing in income taxes, such as Amazon.com Inc. That is different from a separate proposed 15% global minimum tax, which isn’t included.
The plan would revive higher taxes on carried-interest income, the profit share of private-equity managers that is currently taxed at long-term capital-gains rates, not ordinary-income rates.
Senator Manchin was not the only obstacle to the original Build Back Better plan. Senator Sinema from Arizona, not Manchin, was the obstacle to tax increase. From Punchbowl News:
A big question here is whether Sen. Kyrsten Sinema (D-Ariz.) will support this package. She has been a hard no on raising taxes throughout the year-long talks. Manchin said this:
Sinema’s office officially said this: “We do not have comment as she will need to review the text.”
Manchin, Schumer reach deal on climate, health, tax measure - Lindsey McPherson, Roll Call.
It’s unclear whether Sen. Kyrsten Sinema, D-Ariz., will support this latest agreement. She has reportedly opposed changing the taxation of carried interest. A Sinema spokesman said she won’t have a comment until she reviews the text.
Also unclear is whether the measure will get support from a handful of New Jersey and New York lawmakers who threatened to oppose any bill that adjusts the tax code but doesn’t provide relief from a $10,000 cap on state and local tax deductions. Manchin in his statement reiterated that he opposes lifting the SALT cap, saying it would “favor red state or blue state elites.”
Here's what to know about the Manchin-Schumer tax deal - Brian Faler, Politico:
Gone are ambitious proposals to begin taxing the unrealized capital gains of the uber rich or at least hit them with new surtaxes. Also out is the Treasury Department’s top priority: Tax increases on big corporations needed to bring the U.S. into compliance with a global tax deal.
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Out of more than 40 tax increases Democrats had seriously considered, the plan includes just two, according to a summary provided by Manchin’s office — one imposing a new type of minimum tax on big companies, and a plan to squeeze the so-called carried interest loophole, something Democrats have been trying to eliminate for years.
Manchin, Schumer Deal Carries 15% Corp. Minimum Tax - David van den Berg and Stephen K. Cooper, Law360 Tax Authority ($).
The 15% corporate alternative minimum tax proposal would apply to adjusted financial statement income for corporations with profits in excess of $1 billion, effective after December 2022. Corporations would generally be eligible to claim net operating losses and tax credits against the AMT, and would be eligible to claim a tax credit against the regular corporate tax for AMT paid in prior years, to the extent the regular tax liability in any year exceeds 15% of the corporation's adjusted financial statement income.
A tax on financial statement income was included in the 1986 tax reforms, but was quietly abandoned soon after as unworkable. Whether an unworkable tax can survive by only applying it to big taxpayers remains to be seen.
Key Senators Reach Deal on Corporate Tax, Carried Interest - Benjamin Guggenheim and Doug Sword, Tax Notes ($):
The apparent lack of a provision to roll back the $10,000 state and local tax deduction cap could be a problem, [House Ways and Means Committee Chair Richard] Neal said. Manchin has been against a rollback, which would mainly favor wealthy taxpayers in high-tax, high-income blue states.
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Another potential problem is the inclusion of the carried interest proposal, which had been struck from the House bill in November 2021 because of opposition from another Senate centrist, Sen. Kyrsten Sinema, D-Ariz.
Senate Approves Semiconductor Investment Tax Credit, Next Stop the House - Jay Heflin, Eide Bailly:
Early on, the legislation was expected to include a host of tax provisions. That list included allowing R&D costs to be expensed instead of amortized and removing the limits on the deduction for business interest expense. These provisions were cut from the bill because some lawmakers did not want to provide businesses with additional tax relief without providing aid to families and individuals.
These tax provisions are now expected to be a part of a year-end tax bill that will likely include a host of other tax measures. Lawmakers are expected take up this bill after the upcoming elections in November. The current thinking is that with the election over lawmakers will be able to put aside their partisan differences on tax measures and pass the bill. The bill is expected to only contain tax relief and not tax increases.
Semiconductor, science bill passes Senate, heads to House - Laura Weiss and Lindsey McPherson, Roll Call. "The Senate-passed bill includes $54 billion in five-year grants for manufacturing and design of semiconductors and 5G wireless deployment, $24 billion to create a 25 percent tax credit for new semiconductor manufacturing facilities through 2026 and funding authorizations to bolster U.S. scientific research."
While the bill passed the Senate with Republican votes, the revival of tax increases in the Schumer-Manchin deal may turn House Republicans against this bill.
Knowing how the IRS contacts taxpayers can help protect people from scammers - IRS. "The IRS doesn't send text messages or contact people through social media."
Congressional Report Highlights Looming Tax Increase for Individuals, not Corporations - Jay Heflin, Eide Bailly. "CBO's 10-year budget projection from May shows that total revenue from individual income taxes jump over $200 billion between 2025 (the year the tax cuts expire) and 2026 (the first year after expiration). By 2032, over a trillion dollars in additional tax revenue is collected from individual income taxes when compared to 2025."
Chips Are Down in Semiconductor Tax World - Scott Hodge, Tax Foundation. "On Wednesday, the Senate passed the so-called Chips bill (The CHIPS and Science Act of 2022), which would provide $52 billion in grants and $24 billion in tax credits to supposedly strengthen the production of semiconductors in the U.S. If this measure passes the House, U.S. semiconductors will join wool, mohair, helium, soybeans, ethanol, steel, credit unions, and Amtrak as industries thought to be so important as to warrant taxpayer subsidies—forever."
Tax Traps for the Generous but Unwary Foreigner with a Child (or other Relative) in the USA - Virginia La Torre Jeker, Virginia - US Tax Talk. "While such qualified transfers are exempt from gift tax, it does not mean that the US recipient will not have a filing duty to report the foreign gift. The US recipient may be required to disclose the foreign gift on IRS Form 3520. Details at my blog post here. In other cases when gifts are paid to a foreign financial account, if required, the US recipient should report the foreign financial account on Form 114, (the famous “FBAR”) and on IRS Form 8938. Full details about FBAR at my blog posts here and everything you need to know about Form 8938 here."
How Much Do Tax-Exempt Organizations Benefit from Tax Exemption on Their Income? Nathan Born and Adam Looney, TaxVox. "The vast majority of tax-exempt organizations and charities would be unaffected by repeal of the income tax exemption because they don’t have any profits. And those that do have earnings could easily avoid the tax by increasing their spending on charitable purposes or reducing their fees for services. That sounds like what they’re supposed to do anyway."
FEMA wants to end flood insurance for repeatedly doused areas - Kay Bell, don't Mess With Taxes. "NFIP has accumulated about $20.5 billion in debt because it has had to borrow money from the U.S. Treasury 11 out of the last 22 years to make up for shortfalls, according to a story about the coverage change proposal in Route Fifty, the state and local government component of GovExec.com."
Preacher and his wife robbed of $1 million in jewelry during sermon - Julian Mark, Washington Post ($). "All told, the intruders made off with more than $1 million in jewelry belonging to [the preacher] and his 38-year-old wife, the New York City Police Department said in a statement to The Washington Post, adding that an investigation is ongoing and no arrests were made by late Monday."
Religious callings aren't generally considered a calling for jewelry afficianadoes, but beloved spiritual guides sometimes are supported generously. Is such support taxable? Maybe.
A 2019 Tax Adviser article explains how congregational favor can cross the line from non-taxable gifts to taxable compensation:
1. Were the payments an exchange for services? For example, did they compensate for a lower salary, or were they offered in an effort to retain the clergy's services?
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2. Were the payments requested by the clergy or other officials of the religious group?.
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3. Were the payments part of a routine, structured program?
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4. How did the amount of salary compare to the amount of the unreported payments?
If the coverage of the televised robbery attracts IRS attention, more than jewelry could be at stake.
When a plain frank just isn't enough. Today is National Chili Dog Day! For dessert, it's National Milk Chocolate Day.