LEGISLATIVE LOWDOWN
Build Back Better Reboot. Rep. Richard
Neal (D-MA), the House Ways and Means Committee chair, and Sen. Ron
Wyden (D-OR), chair of Senate Finance Committee, are cautiously
optimistic negotiations over the Build Back Better Act (BBBA) can
resume after Sen. Joe Manchin (D-WV) retracted statements earlier
in the week that the package was "dead."
Last week, hours after Manchin somewhat spontaneously told
reporters that BBBA was "dead," he clarified that he was
referring to the version of the package he dismissed in December
2021. Not to be confusing, Manchin later said he remained open to
alternative packages that may, for instance, be smaller or less
costly.
Manchin has maintained, as recently as last week, that one of his
top priorities is to "fix the tax code" and that he is
willing to accomplish this through budget reconciliation because
"it's the reason we have reconciliation."
Faithful Taxation & Representation readers
will remember that Manchin was and is still willing to accept the
following tax provisions:
- Increasing the corporate tax rate to 25%;
- Imposing a 15% corporate minimum tax;
- Establishing a 28% "all in" capital gains tax;
- Eliminating "tax loopholes such as carried interest"; and
- Raising rates on wealthy taxpayers.
Neal was encouraged that Manchin swiftly clarified his
statements regarding the status of the BBBA discussions. Because
Manchin "did it immediately; he didn't do it like two days
later," Neal has since pushed for a "reset" in
discussions.
In the Senate, Wyden has said of the issues Manchin has
prioritized, "virtually all of them go through the Finance
Committee." Like Manchin, Wyden has also remained open to
compromise, saying he is "trying to meet [Manchin] where he
is," adding that there are policies on which there could be
"common ground," such as tax permanence, revising the Tax
Cuts and Jobs Act (TCJA, P.L.115-97), prescription drugs and
climate change. In fact, it was reported last week that Democrats
have begun discussing alternative revenue raisers and spending
offsets in the bill that will more effectively address deficit
reduction, a perennial concern for Manchin.
While Neal and Wyden have acknowledged that lawmakers should try
and make enough headway on BBBA for President Biden to announce
progress during the State of the Union on March 1, both dismissed
the idea of setting another artificial deadline for action. Manchin
also has other short-term priorities that will delay movement on
BBBA, such as appropriations. Speaking on the Sunday news shows,
Manchin said that Congress must "get a budget bill first"
before moving onto BBBA.
CTC Extension Efforts Endure. With BBBA
discussions ebbing and flowing, members of Congress and their aides
are searching for a more reliable vehicle to extend the Advanced
Child Tax Credit (CTC) that expired at the end of last year.
Although the Advanced CTC has been included in some versions of the
BBBA, it has been specifically targeted by Sen. Joe Manchin (D-WV)
as a provision that might be too costly for the package. As a
result, lawmakers have been exploring other avenues to advance an
extension. (The White House and congressional Democrats renewed
their push for the CTC and the Earned Income Tax Credit in twin
press conferences today. However, as of this writing, those events
have not yet occurred.)
Even if the extension moves through another package—in fact,
especially if it does—Democrats will need to garner support
from Manchin and multiple Senate Republicans. Because of this,
Democratic aides from both the House and Senate told reporters last
week they are considering changes to the credit that might make it
more palatable to potential holdouts. Such changes could include
lowering the eligibility threshold, imposing a work requirement and
reducing the per-child value of the credit.
There is optimism among those on Capitol Hill pushing for the
extension since some Republicans have displayed a willingness to
partner with Democrats on the issue. Rep. Kevin Brady (R-TX), the
ranking member on the House Ways and Means Committee, said
Republicans could find "common ground" on a compromise
that includes permanency for the CTC changes made under the TCJA.
Likewise, Sen. Marco Rubio (R-FL) has long supported the credit and
thinks "this should be bipartisan."
White House Weighs COVID-19 Refill
Package. Funding for COVID-19 testing, therapeutics
and vaccines has been mostly exhausted, according to reports of
confidential White House documents shared with congressional
offices, causing the Biden administration to consider another
legislative proposal to provide additional pandemic funding.
The documents reportedly did not contain detailed accounts of each
spending category and a timeline for how long remaining funds will
last. It is also unclear which congressional offices received the
White House documents. Regardless, the White House could soon
approach Congress for additional funds. Jeff Zients, for instance,
who spearheads the White House COVID-19 response effort, recently
said the administration "will be working with Congress as
needed to make sure we have the funding to continue to fight this
virus."
However, stronger-than-expected economic numbers on Friday could
provide fodder for those opposed to enacting more COVID-19 response
legislation. Republicans are generally reluctant to embrace
additional spending, arguing that previously allocated COVID-19
spending has not yet been fully expended or obligated. For example,
Senate Minority Leader Mitch McConnell (R-KY) has said lawmakers
should "start the discussion by talking about repurposing the
hundreds of billions already sitting in the pipeline."
Other Republicans are more prepared to accept another COVID-19
response package. For instance, Sen. Roy Blunt (R-MO), the ranking
member on the Senate Appropriations Subcommittee on Labor, Health
and Human Services, Education, and Related Agencies, recently said
such a package will be necessary. At the same time, though, he said
the White House has not yet sent Congress a request or explained
why such a package is necessary. Speaking with reporters last week,
Blunt said the administration is "going to have to explain why
they need it," adding that he would "be more enthused
about a supplemental if it was part of an overall package that gets
our work done."
Other lawmakers are already working on a package to provide
COVID-19 relief for small businesses and nonprofits. Sen. Ben
Cardin (D-MD), the Senate Small Business Committee chair, said
there is a group of senators, including Finance Committee Chair Ron
Wyden (D-OR), interested in reinstating the Employee Retention Tax
Credit (ERTC), a COVID-19-era break that was ended in September
2021. Cardin explained that the ERTC is "on the table
depending on how we proceed on COVID relief, and it's also on
the table in terms of tax issues." Wyden said he is
considering such legislation, saying "it makes sense and I
want to talk to my colleagues about what we can do."
Wyden's Republican counterpart on the Senate Finance Committee,
Ranking Member Mike Crapo (R-ID), has not been involved in
discussions, but he is open to the proposal. Saying as much, Crapo
recently said, "I'm certainly not opposed," before
adding that "the employee retention program was a good
program. The question I have is whether we need additional COVID
packages right now while we're still rolling out the previous
packages."
IRS Drops Facial Recognition After Congressional
Scrutiny. Both Republican and Democratic senators
raised issues with Internal Revenue Service (IRS) use of ID.me, a
software company that provides identity proofing, authentication
and group affiliation verification for government and private
entities. After an onslaught of congressional activity in response
to the IRS plans, including both legislation and letters, the
agency announced on Monday it would transition
away from facial recognition. According to the IRS, "the
transition will occur over the coming weeks in order to prevent
larger disruptions to taxpayers during filing season."
That may not put an end to the congressional inquiry, however,
given the overwhelming interest from lawmakers. For example, two
bills were introduced—one by Rep. Bill Huizenga (R-MI), who
sits on the House Financial Services Committee, and another by Rep.
Jackie Walorski (R-IN), a member of the House Ways and Means
Committee. Both would prevent the IRS from requiring the use of
facial recognition technology to access online accounts or
services.
In addition to the legislative response, lawmakers probed the IRS
for additional information. Last week, for instance, Senate Finance
Committee Republicans, led by Ranking Member Mike Crapo (R-ID),
sent a letter to IRS Commissioner Charles Rettig
expressing their "serious concerns about how ID.me may affect
confidential taxpayer information and fundamental civil
liberties." After listing the types of consumer data collected
by ID.me—including passport, birth certificate, Form W-2,
Social Security Numbers and "selfies"—the lawmakers
noted that "government and private companies have an
unfortunate history of data breaches." The lawmakers asked the
IRS to provide additional information about the IRS relationship
with ID.me by Feb. 27 and for a subsequent briefing.
In a separate letter, Sens. Jeff Merkley (D-OR) and Roy
Blunt (R-MO) expressed concern "about the IRS outsourcing
biometric verification to third party vendor ID.me." As a
result, they specifically asked the IRS to "immediately
discontinue any programs that collect, process, and store facial
recognition or other types of biometric data of American
taxpayers" and "implement a comprehensive ban on the use
of such biometric data collection at the agency." Similar to
the Senate Finance Committee Republicans, Merkley and Blunt asked
for the IRS to respond by Feb. 28.
As the top Republican on a committee with jurisdiction over data
privacy matters, Sen. Roger Wicker (R-MS), ranking member on the
Senate Commerce Committee, also initiated an inquiry into ID.me. He
sent a letter to the IRS commissioner last week
with several questions and, after noting his longstanding interest
in data privacy, said, "The IRS must treat its responsibility
to protect the privacy and security of American taxpayers' data
with the utmost seriousness." He gave the IRS the least amount
of time to respond, asking for additional information by Feb.
17.
Perhaps most importantly, though, Senate Finance Committee Chair
Ron Wyden (D-OR) sent a letter on Monday to Rettig asking the
agency to drop ID.me. In the letter, Wyden said, "While the
IRS had the best of intentions—to prevent criminals from
accessing Americans' tax records, using them to commit identity
theft, and make off with other people's tax refunds—it is
simply unacceptable to force Americans to submit to scans using
facial recognition technology as a condition of interacting with
the government online."
1111 CONSTITUTION AVENUE
Issue-Piling Filing Season. The 2022
filing season continues apace, and the issues keep coming. Many are
long-term issues the IRS has faced for years: a lack of adequate
funding, too few personnel, outdated technology and an
ever-increasing backlog of tax returns and correspondence.
In the face of these difficulties, the IRS said it is willing to
deploy all options. Last week, for instance, Paul Butler, deputy
division counsel of the Small Business/Self-Employed Division, said
"nothing is really off the table" when it comes to
addressing tax filing season woes. To underscore his point, he
later added that the agency "is considering lots of measures
that probably have never been considered before." Looking
ahead, Butler said the IRS could alleviate personnel shortages by
shifting workers from customer service centers to hand submission
processing and accounts management.
In fact, the IRS took exactly this step late last week. IRS
Commissioner Charles Rettig first explained that the agency is
facing "unprecedented inventory levels," which are
contributing to "higher call volumes and related
inquiries"—issues for which "current internal
resources are not sufficient to overcome." In response, he
said there is an agency-wide initiative "to quickly establish
an Inventory Surge Team that will help [the IRS] address the
inventory." This includes reassigning about 1,200 employees
with prior accounts management experience to serve as customer
service representatives and tax examiners. In these roles, the
employees will be dedicated to reducing the backlog that has
accrued.
The IRS took additional action on Friday, when the agency announced
that Taxpayer Assistance Centers (TACs)—which were closed
during the onset of the COVID-19 pandemic, an action considered to
be a significant contributor to the current backlog—will be
open on "special Saturdays for face-to-face help." The
IRS said certain TACs across the country will be open from 9 a.m.
to 4 p.m. on Feb. 12, March 12, April 9 and May 14. Normally, these
centers would be closed on Saturdays.
In addition to shifting resources and asking employees to work
overtime, the IRS took additional steps on Monday to assist
taxpayers this filing season. In a letter to House Speaker Nancy
Pelosi (D-CA), Rettig said the agency is "suspending automated
collection notices normally issued when a taxpayer owes additional
tax or has no record of filing a tax return."
GLOBAL GETDOWN
U.S. and European Industry
Engagement. Multinational companies based in the
United States and Europe are warning their respective governments
of potential consequences that will likely result from the
Organization for Economic Cooperation and Development (OECD)
Inclusive Framework, based on the additional detail released by the
OECD with respect to the global minimum tax under Pillar Two of the
October 2021 OECD agreement.
In the United States, companies are warning that Pillar Two would
reduce the value of domestic tax incentives, specifically noting
the potential negative ramifications on research, exports and
low-income housing and infrastructure investments, as well as
pending tax incentives for green energy investment. In a letter last week to Treasury Secretary
Janet Yellen, the Alliance for Competitive Taxation (ACT)—a
group representing the largest of U.S. companies, such as Bank of
America, Coca-Cola, Google and Disney, among many
others—expressed "serious concerns regarding the
recently released OECD Pillar Two Model Rules on Minimum
Taxation," issued in December 2021. The group specifically
highlighted that the incongruity between the model rules and the
existing U.S. tax code would "threaten the competitiveness of
globally engaged U.S. companies" and "undermine
long-standing tax incentives designed by Congress."
ACT recommended the following to the Treasury Department, and
indirectly to congressional Democrats, who are considering
modifications to the U.S. international tax rules as part of the
reconciliation legislation currently stalled in Congress:
- The United States should not make any changes to its Global Intangible Low-Taxed Income (GILTI) regime until all G7 countries, India and China have implemented taxes that align with Pillar Two and the model rules.
- Changes to GILTI should not make the U.S. tax rules more stringent than the model rules.
- Model rules should be changed to prevent them from undermining U.S. tax incentives that strengthen the domestic economy and achieve social, economic and environmental objectives.
- Pillar Two should be simplified through safe harbors, per se lists and other approaches "to address the vast majority of fact patterns in which tax is not distorting the economic decisions of companies."
The Treasury Department is reportedly exploring whether and how
to address the ACT concerns.
On the other side of the Atlantic, European companies are urging
their own governments to take a similar wait-and-see approach, at
least until other countries adopt tax regimes that align with the
inclusive framework. In a position paper sent last week to EU Tax
Commissioner Paolo Gentiloni, BusinessEurope—a Brussels-based
group claiming to "speak for all-sized enterprises in 35
European countries"—stressed that "the OECD
agreement must not end up as an 'EU only' agreement, with
the United States not implementing either (or both) Pillar One or
Pillar Two a particular risk."
In terms of timing, BusinessEurope said it is "not confident
that a successful implementation can be achieved by January
2023," as contemplated in the October agreement since the
"proposed timetable risks rolling out a minimum tax regime
which neither businesses nor tax authorities may be fully prepared
for."
OECD Seeks Pillar One Feedback. The OECD
released a public consultation document on Friday, Feb. 4 entitled
"Pillar One – Amount A: Draft Model Rules for
Nexus and Revenue Sourcing." As the name implies, the
document offers a framework for the nexus and revenue sourcing
components of Pillar One, which proposes to reallocate the profits
of large multinational enterprises among countries based on the
location of their customers.
In short, the rules aim to clarify how affected multinational
enterprises (MNEs) can identify market jurisdictions, how they
should navigate difficult transactional information, and how
potential compliance burdens might be addressed.
To allow MNEs "to identify the relevant market jurisdictions
from which revenue is derived, and to apply the revenue-based
allocation key," for instance, the document details revenue
sourcing rules to classify specific transaction categories.
The OECD also explained in the accompanying statement that the proposed
rules seek to "identify the market jurisdiction and the
associated revenue, while limiting and simplifying compliance
burdens as much as possible." Stakeholders were asked to
provide input on the effectiveness of the rules in achieving these
dual goals, with the OECD noting that "stakeholder input will
be especially valuable in identifying cases where this balance
could be better achieved." The OECD set a deadline of Feb. 18,
2022, for interested parties to submit feedback.
AT A GLANCE
- Cryptocurrency Tax Bill. A bipartisan
group of lawmakers introduced legislation last week to establish a
structure for taxing virtual currency transactions. The Virtual
Currency Tax Fairness Act, introduced by Reps. Suzan DelBene (D-WA)
and David Schweikert (R-AZ), both of whom sit on the House Ways and
Means Committee, would exempt personal transactions made with
virtual currencies when gains are $200 or below.
- Lawmakers Propose CTC and EITC
Replacement. Reps. Rashida Tlaib (D-MI) and Mondaire
Jones (D-NY) introduced legislation last week that would eliminate
the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC)
and replace them with an alternative system. The End Child Poverty
Act would instead provide (1) a universal monthly child allowance
equal to the difference between the one-person poverty line and the
two-person poverty line, (2) an annual $600 fully refundable credit
for adult dependents and (3) an annual $600 fully refundable credit
for single tax filers ($1,200 for married filers).
- SAFE Banking Passes House—Again. The Secure and Fair Enforcement (SAFE) Banking Act, legislation that would allow cannabis businesses to have more access to banking services, was attached to the America COMPETES Act, a comprehensive innovation and competitiveness package that passed the House on Friday. Passage of SAFE Banking through this vehicle marks the sixth time the language has passed the House. The language has yet to pass the Senate, and the provision could come under fire during the cross-chamber conference process. Speaker Nancy Pelosi (D-CA) has assured Rep. Ed Perlmutter (D-CO), the author of SAFE Banking, she will advocate for the retention of SAFE Banking during negotiations with the Senate.
BROWNSTEIN BOOKSHELF
- Former NTA Proposes Tax Season
Solutions. Former National Taxpayer Advocate Nina
Olson authored a Washington Post article last week in which she made
several recommendations on how the IRS could improve the current
tax filing season. She suggested, for example, naming IRS employees
as "essential," asking retirees to return to work,
capitalizing on technology to reduce manual return reviews and a
four-month pause on audit and collection notices.
- Senators Push for Wayfair Hearing. A
bipartisan duo on the Senate Finance Committee, Sens. Maggie Hassan
(D-NH) and Steve Daines (R-MT), sent a letter last week to committee leadership
asking for a committee hearing to examine "the impact on small
businesses of the U.S. Supreme Court's 2018 decision
in South Dakota v. Wayfair, Inc." The senators
say the ruling has forced many small online businesses to collect
and remit sales tax on behalf of states in which they have no
physical presence.
- Autos Seek LIFO Line. The Alliance for Automotive Innovation sent a letter last week to Treasury Secretary Janet Yellen lending their support to a broader industry effort seeking tax relief "for new automobile and truck dealers who inventory their vehicles on a last-in/first-out (LIFO) basis and who are experiencing a significant decrease in inventories caused by the foreign trade interruption resulting from actions related to the COVID pandemic."
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