The state of play on an end-of-year tax bill

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Sep 18, 2023 View in browser   By Benjamin Guggenheim Driving the day THE PATH TO A TAX PACKAGE: The end of the year is closer than you think, and with that comes the possibility of an end-of year tax bill that could slide into the omnibus. Lawmakers are already gearing up to push for their favorite tax policies with that prospect in mind. But in Congress, there's no guarantee of anything. And when you boil it down, a lot of political gridlock needs to be resolved for any tax vehicle to come together. Last we looked before August recess, we saw the GOP tax package — which includes an array of business tax breaks and a popular proposal to relax IRS reporting requirements for gig workers, among other things — stalled by a stalwart group of Republican members of the SALT caucus. And when we caught up with SALT caucus member Marc Molinaro (R-N.Y.) last week, he told us he thinks there’s basically been no progress on talks between the Republicans demanding some form of state and local tax relief and the House Ways and Means Committee, chaired by Rep. Jason Smith (R-Mo.). There are problems on the Senate side, too. Democrats made it clear last week that implementing an expanded Child Tax Credit is a tippity top priority, asserting that its expiration led to a more than doubling of the child poverty rate from 5.2 percent to 12.4 percent in 2022. Finance Committee Chair Ron Wyden (R-Ore.) even went so far as to say that any end-of-year tax bill needed to include an expansion to the current CTC, despite widespread Republican opposition to the pandemic-era version of the credit. BACK IN A MOMENT: Seriously, now that we’re back in session, this is where the fun part starts. Your dedicated tax team will be roaming the halls of the Senate and the House being pesky thorns in the side of tax writers and working on getting those scoops. Help us out a little bit. Email: bfaler@politico.com, bguggenheim@politico.com and teckert@politico.com. Or Twitter: @tobyeckert, @brian_faler, @ben_guggenheim, @POLITICOPro and @Morning_Tax.   JOIN 9/19 FOR A TALK ON BUILDING THE NEW AMERICAN ECONOMY: The United States is undergoing a generational economic transformation, with a renewed bipartisan emphasis on manufacturing. Join POLITICO on Sept. 19th for high-level conversations that examine the progress and chart the next steps in preserving America’s economic preeminence, driving innovation and protecting jobs. REGISTER HERE.     Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. REASONS FOR HOPE: If you were following along around this time last year, Democrats were running into a lot of obstacles in their efforts to preserve the expanded CTC (which was implemented by the American Rescue Plan of 2021). To get leverage with Republicans, Democrats said they wouldn't help restore a policy that allows companies to immediately deduct 100 percent of their research and development costs (and which has historically had strong bipartisan support) without the enhanced CTC as well. But Republicans have a lot of concerns about whether the Democrats' expanded credit may disincentivize work and pose administrability challenges for the IRS. To boot, the family relief is much more expensive than the R&D provision: the expanded CTC weighs in at more than $1.2 trillion, while R&D costs around $153 billion over ten years. There are signs of movement, though. Lawmakers hailing from across the country are hearing from small and big businesses alike about how painful the more restrictive R&D allowance is, with many reporting having to lay off employees and take out big loans this year in light of their tax bills. And on the Hill, we reported last week that Sen. Maggie Hassan (D-N.H.) has expressed interest in helping to broker a deal involving some tailored version of the expanded CTC and R&D. Hassan is a potentially critical player here because she’s a Democrat and has also taken the legislative lead on restoring full R&D deductions in the Senate, along with Sen. Todd Young (R-Ind.). IN QUEUE: Then, depending on all that stuff getting resolved, there’s a long, long line of lawmakers, business associations and other advocacy groups that would like to see other tax proposals shoed into any package. We’ve got proposals that would allow more taxpayers to take deductions for donations to charity, in addition to items included in the GOP tax package like those that would allow businesses bonus depreciation and more deductions for interest on the debt they’ve taken out. A Sept. 14 panel for reporters and congressional staffers hosted by RSM, the Tax Foundation, National Association of Manufacturers and National Restaurant Association (NRA) featured Sens. Kyrsten Sinema (I-Ariz.) and Shelley Moore Capito (R-W.Va.) touting the importance of expanded interest deductions. There's also a two-year increase of the standard deduction proposed by tax writers Michelle Steel (R-Calif.) and Nicole Malliotakis (R-N.Y.), which may be critical to getting SALT lawmakers on board with any final plan. EASY ON THE EASEMENTS: We wrote in June about a case in which the IRS was accused of covering up the backdating of a document that it needed to impose millions of dollars of penalties on a partnership claiming large deductions for land donations. And we should note that, after some back and forth, the agency admitted that the incident in LakePoint Land II LLC v. Commissioner fell short of the IRS’s standards, though denied that the behavior rose to the level of fraud or bad faith. Well, in a joint motion filed with petitioner LakePoint, the IRS is now saying it will no longer be seeking penalties against the partnership. The agency added that it “has also undertaken an ongoing review of syndicated conservation easement cases to ensure that the evidentiary record about supervisory approval is properly presented and that the agency pursues or continues to pursue penalties only where appropriate.” The admission by the agency and its promise to review whether it properly followed procedures in similar cases is rather... extraordinary — not only in light of the amount of money at stake, but also in the context of the IRS's history of aggressively pursuing such conservation easement deals. The agency and a bipartisan range of lawmakers alike have said these easements are susceptible to enormous amounts of fraud. The agency has been accused of backdating in three other easement cases, and Rod J. Rosenstein — a former deputy attorney general in the Trump administration who filed an FOIA complaint for LakePoint on the matter—recently filed a similar FOIA suit on behalf of the three other partnerships seeking documents related to the penalties they are facing. The IRS said in the motion that it “is committed to fairness, candor, and transparency in its interactions with taxpayers and the courts. Holding itself to the highest standards of integrity is critical to maintaining confidence in the agency’s work and enabling it to carry out its mission on the taxpayers’ behalf.”   JOIN US ON 9/20 FOR A TALK ON TRANSFORMING HEALTHCARE BILLING: Bipartisan legislation in the House and Senate would align costs for services across hospitals and doctors’ offices and reduce out-of-pocket spending that could potentially save the federal government billions of dollars. Can this legislation survive a polarized Congress? Join POLITICO on Sept. 20 to explore this and whether site-neutral payments and billing transparency policies could help ease health care costs. REGISTER HERE.     Around the World NYT: “Wildenstein Art Dynasty Faces a Tax Trial in France — Again” Tax Notes: “Multinationals Report Large Tax Benefits From Transfers of IP to Switzerland” The Telegraph: “‘Flat tax’ was considered for Liz Truss’s ill-fated mini-budget” Around the Nation LA Times: “California Democrats pass measure to thwart business effort to block tax increases” Chicago Tribune: “Mayor Brandon Johnson-backed plan to fight Chicago homelessness by hiking taxes on high-end property sales takes a step forward” The Washington Post: “A who’s who — and who says what — of the IRS-Hunter Biden dispute” Also Worth Your Time Reuters: “Berlusconi's daughter criticises Meloni over bank windfall tax” Bloomberg: “UK ‘Tourist Tax’ Creates Gap With Europe, Says Burberry CEO” AccountingToday: “IRS previews changes in R&D tax credit form” Did you know? The author and novelist Hunter S. Thompson wanted his ashes to be shot out of a cannon at his funeral. The ex-managers for Johnny Depp say the actor spent $3 million to make that happen.   Follow us on Twitter Toby Eckert @tobyeckert Bernie Becker @berniebecker3 Brian Faler @brian_faler Benjamin Guggenheim @ben_guggenheim   Follow us

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