Legislative Lowdown
Supreme Court Overturns Chevron Doctrine, Making Sweeping Changes to Regulatory Landscape: On June 28, the Supreme Court issued its decision in Loper Bright Enterprises., Inc. v. Raimondo (“Loper Bright”) and Relentless, Inc. v. Department of Commerce, striking down the longstanding doctrine established in Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). Known as the Chevron doctrine, the now-defunct standard allowed courts to defer to agency interpretations of ambiguous statutes as long as the agency’s interpretation is found to be reasonable. The 6-3 majority opinion, written by Chief Justice John Roberts and joined by the court’s conservative bloc, held that the Chevron doctrine violated the Administrative Procedure Act (APA) by shifting the interpretation of the law away from the judiciary in favor of executive branch agencies. Justice Elena Kagan argued in a dissenting opinion, joined by the court’s liberal bloc, that Chevron deference has been integral to modern governance and that its overturning is at odds with stare decisis and would “cause a massive shock to the legal system.” Further, the court’s subsequent ruling in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, extending the statute of limitations for APA-based challenges to agency-promulgated regulations, will provide an even greater opportunity for the judiciary to consider agency interpretations of ambiguous statutes.
The ruling will undoubtedly affect the regulatory landscape, as agencies will have to develop regulations with an increased potential for legal challenges. The impact may be particularly pronounced in the tax space, as the Department of the Treasury and Internal Revenue Service (IRS) are frequently tasked with promulgating regulations to implement increasingly complex and ambiguous statutes passed by Congress. Similarly, the ruling likely will compel Congress to take a more careful approach in drafting legislation to avoid ambiguities so that agencies like the Treasury Department and IRS can issue guidance reflecting the “single, best meaning” of the particular provision of the tax code and minimize the potential for judicial challenges.
Brownstein published an alert with a high-level overview of Loper Bright and its general consequences on the regulatory landscape, along with several related cases. The Brownstein National Tax Policy Group is continuing to assess the tax implications of this landmark ruling, while monitoring responses by the Treasury Department, IRS, and industry stakeholders. We expect to have additional analyses of the case, in particular with regard to its tax implications, in the near future. For any questions on the case, please contact a member of the team.
Tax Worldview
Canada Officially Enacts DST, Bucking OECD and U.S. Companies: On June 28, Canada officially implemented its 3% digital services tax (DST), which will affect technology companies with an annual revenue over €750 million ($812 million), and be applied retroactively to Jan. 1, 2022. The tax will disproportionately affect U.S. business and undermine international cooperation on the Pillar One global tax framework currently being negotiated by the Organisation for Economic Co-operation and Development (OECD). Though U.S. lawmakers have repeatedly expressed concerns with the unilateral implementation of a DST and have urged the Biden administration to retaliate, Canadian Finance Minister Chrystia Freeland recently said she is “not worried” about the prospect of retaliation and that Canada would not have enacted a DST if the OECD had been successful in enacting the Pillar One agreement. Some Canadian lawmakers and businesses also have criticized the imposition of the DST, asserting that it would raise costs for Canadian families and negatively affect the country’s economic relationship with the United States.
OECD Misses Deadline on Pillar One Text Amid Disagreement on Provisions: The Organisation for Economic Co-operation and Development (OECD) missed its June 30 extended deadline to reach an agreement on the final text for a multilateral agreement to implement its Pillar One global tax agreement. Controversial aspects of Amount A, a critical component of the profits-allocation regime in Pillar One, continue to hold up the agreement. Pillar One would affect companies with revenues above €20 billion (approximately $21.6 billion) and profit margins in excess of 10%, with some exceptions. June 30 also marked the last day of a moratorium on digital services taxes that many countries had accepted, freeing countries such as Canada (discussed above) to enact digital services taxes (DST), which disproportionally harm U.S. businesses and potentially create further global instability. The missed deadline comes as a result of continued disagreement on the implementation of several aspects of the agreement. In addition to issues relating to Amount A, a crucial rift centers on the U.S. government’s insistence that Amount B of the agreement be mandatory. Scott Levine, acting deputy assistant secretary of international tax affairs at the Treasury Department and top U.S. negotiator at the OECD, stated that the interlinkage between Amount A and Amount B is “one of the most important red lines” and indicated that the United States would not sign the deal if adherence to Amount B were optional. In contrast, China and India have called for Amount B to be optional.
Republican Ways and Means Committee Member Criticizes OECD Agreement, Tees Up Field Hearing: At a conference hosted by the U.S. Council for International Business on June 25, Rep. Kevin Hern (R-OK) criticized the Organisation for Economic Co-operation and Development (OECD) two-pillar global tax agreement, contending that its enactment would disadvantage the United States. He also criticized the Biden administration’s lack of consultation with Congress in negotiating the agreement with the OECD, saying that all parties “must understand the importance of comprehending the U.S. government’s role in tax policy and the potential consequences of international tax agreements negotiated outside the purview of Congress.”
At the conference, Rep. Hern, who leads the Ways and Means Committee’s Global Competitiveness Tax Team, said that the team would hold its first field event in Atlanta on Aug. 8 to provide stakeholders with an opportunity to discuss U.S. global tax policy initiatives. Hern emphasized that additional input on how the United States should navigate negotiations with the OECD should be submitted via the Tax Team’s comment portal on the Ways and Means Committee majority’s website.
Brazil Unveils Global Minimum Tax Proposal: On June 25, the Brazilian government released a blueprint proposing to levy a global minimum tax for high-net-worth individuals. The blueprint, commissioned by Brazilian President Luiz Inácio Lula da Silva and written by French economist Gabriel Zucman, proposes a “presumptive income tax” that would be valued at the equivalent of 2% of an individual’s net worth and would only apply to individuals with a net worth of more than $1 billion in U.S. dollars. Zucman estimated that this tax would increase global revenues by roughly the equivalent of $200–$250 billion in U.S. dollars annually. Brazil, which will preside over the Group of 20 (G20) meeting in November, has been a leading proponent of a tax on ultra-high-wealth individuals as a revenue raiser and has gained support from a few countries. Treasury Secretary Janet Yellen, however, has publicly opposed such proposals, arguing that the proposed method of redistribution of revenue toward overarching goals of stemming climate change and combating global poverty has not been adequately evaluated.
1111 Constitution Avenue
Treasury Department, IRS Issue Final Rules on Cryptocurrency Reporting: On June 28, the Treasury Department and Internal Revenue Service (IRS) released final regulations on the reporting of sales and exchanges of digital assets, such as cryptocurrency. In its press release, the IRS notes that the agency had received more than 44,000 public comments on the proposed crypto reporting regulations, and that the final regulations seek to “strik[e] a balance between industry implementation challenges and closing the tax gap related to digital assets,” according to IRS Commissioner Daniel Werfel. The rules require cryptocurrency exchanges to report information concerning users’ identifying information and transactions, with centralized exchanges being required to begin reporting 2025 sales in 2026. Reporting rules for decentralized exchanges have not yet been finalized, with Treasury Department officials noting that decentralized exchange reporting rules will be released later in the year.
Treasury Department, IRS Issue Final Procedural Rules on Stock Buyback Excise Tax: On June 28, the Treasury Department and Internal Revenue Service (IRS) issued final rules on procedures to pay the 1% excise tax on corporate stock repurchases, enacted as part of the Inflation Reduction Act (IRA, Pub. L. 117-169). The regulations finalize the first of two sets of proposed regulations on the stock buyback excise tax released in April and provide guidance on how to report and pay the tax on purchases made after Dec. 31, 2022. The regulations provide that the tax should be reported on IRS Form 720, Quarterly Federal Excise Tax Return, accompanied by IRS Form 7208, Excise Tax on Repurchase of Corporate Stock, for each stock repurchase. The forms are due the first full calendar quarter after the end of the corporation’s taxable year. For taxable years ending after Dec. 31, 2022, and on or before June 30, 2024, the first forms will be due by Oct. 31, 2024.
IRS Issues Final Rules on Charitable Contributions for Conservation Easements: On June 24, the Internal Revenue Service (IRS) issued final rules on the ability for partnerships and S corporations to make certain qualified conversation-easement contributions. The rules would disallow partnership charitable contributions to qualify as a “qualified conservation contribution” if the contribution exceeds 2.5 times the sum of each partner’s or S corporation shareholder’s relevant basis.
At a Glance
House Speaker Expresses Support for Trump Policy on Tip Taxation: House Speaker Mike Johnson (R-LA) stated that he supports President Trump’s proposed policy of exempting tip income from federal taxation, adding that while he does not expect proposed legislation to pass this year due to a Democratic-controlled Senate, he would seek to pass legislation early in 2025, especially if there is a Republican sweep in the November elections. This policy has also garnered support from House Ways and Means Committee Chairman Jason Smith (R-MO) and several other Republican lawmakers, though some have maintained reservations about its effect on the federal deficit.
Treasury Department, IRS Release Proposed Regulations Allowing Card Payments of Tax: On July 1, the Treasury Department and Internal Revenue Service (IRS) released proposed regulations that would allow the IRS to accept payments of tax by credit or debit card. The regulations would implement a provision enacted by the Taxpayer First Act, allowing for the IRS to enter into contracts with card transaction processors to accept direct card payments as long as card transaction fees would not be paid for by the government. Comments and public hearing requests must be received by Sept. 3.
Yellen Considers TCJA as Cause of Rising Deficit: In an interview on June 25, Treasury Secretary Janet Yellen claimed that the tax rate reductions in the Tax Cuts and Jobs Act (TCJA) were a main driver for the “fiscal trajectory” and the ballooning federal deficit. This claim is backed up by accounts of the national debt during the Trump administration and a report from the Congressional Budget Office finding that extending the TCJA would add $4.6 trillion to the deficit over the next 10 years. However, Yellen’s claim is countered by TCJA’s proponents who claim that its policies broadened the tax base and incentivized investment in U.S. companies.
Ways and Means Republican Introduces Tax Filing Simplification Bill: On June 28, Rep. Darin LaHood (R-IL) introduced the Tax Administration Simplification Act (H.R. 8864), which aims to simplify the tax payment process by applying the “mailbox rule” to electronically submitted tax-filing documents, which considers payments to be made on the date they are submitted rather than the date received or reviewed. The bill would also allow newly formed small businesses to elect being treated as an S corporation for their first filing. Additionally, tax payment deadlines would be moved to a consistent quarterly system. The bill is co-sponsored by Reps. Randy Feenstra (R-IA), Brian Fitzpatrick (R-PA), Debbie Lesko (R-AZ), Suzan DelBene (D-WA), Jimmy Panetta (D-CA) and Brad Schneider (D-IL).
Treasury Department, IRS Issue Final Regulations on Drug Excise Tax: On July 5, the Internal Revenue Service (IRS) issued final regulations on how certain sales of designated drugs with no substantial changes are subject to the drug excise tax, enacted under the Inflation Reduction Act. The rules largely adopt proposed regulations issued in October 2023 and provide that the excise tax under Section 5000D is imposed on only “the sale of” designated drugs, and outlines reporting standards to be made on Form 720, Quarterly Federal Excise Tax Return. Though the Treasury Department received several comments on the proposed regulations concerning the rule’s timing, applicability dates and other issues, the Treasury Department largely did not incorporate comments made into the final rules, citing scope concerns.
Democratic Senators Urge Yellen to Fully Implement CAMT: On July 2, Sens. Elizabeth Warren (D-MA), Angus King (I-ME) and Michael Bennet (D-CO), and Rep. Don Beyer (D-VA) wrote a letter to Treasury Secretary Janet Yellen calling on the Treasury Department to finalize the implementation of the 15% Corporate Alternative Minimum Tax (CAMT) rate, included as part of the Inflation Reduction Act. Similar to the letter the lawmakers sent last year, the letter notes that the CAMT has been estimated to raise $222 billion in government revenue and promote tax equity. The lawmakers also point out that President Biden has proposed to increase the CAMT rate to 21%, which would raise an additional $137 billion. The letter urges the Treasury Department and the IRS to issue proposed regulations as soon as possible.
IRS Publishes Proposed Regulations on Erroneous COVID-19 Employment Tax Credit Refunds: On July 1, the Treasury Department and Internal Revenue Service (IRS) released proposed regulations concerning the recapture of interest on erroneous refunds issued under the Families First Act, CARES Act and American Rescue Plan Act. The proposed regulations provide that interest awarded on erroneous refunds will be treated as an underpayment of tax and will take effect for interest received after July 2, 2024. Comments and public hearing requests must be received by Aug. 16.
Brownstein Bookshelf
NTA Fiscal Year 2025 Objectives Report to Congress: On June 26, the National Taxpayer Advocate (NTA) released its Fiscal Year 2025 Objectives Report to Congress. The report says that the 2024 tax-filing season ran smoothly but had numerous issues that reduced the effectiveness of its taxpayer service objectives. More specifically, the Taxpayer Advocate Service (TAS) found that the IRS’s processing of identity theft cases has become even more delayed than when the TAS identified the issue to the IRS in its 2023 annual report. They found that in 2023, the IRS was taking about 19 months to identify legitimate taxpayers when receiving two returns with the same personal identifying information, but the same task took more than 22 months as of April 2024, leading to an unresolved caseload of about 500,000. The TAS also stated that the Level of Service (LOS) measure used to calculate the efficacy of taxpayer correspondence with the IRS was misleading, saying that while the IRS did improve its telephone service over the past year, the LOS was determined to be 88% even though IRS employees had only answered 31% of taxpayer calls. National Taxpayer Advocate Erin Collins said that the discrepancy in results indicates that “the measure is causing the IRS to prioritize the wrong work, and it needs to be replaced.” The report also highlighted continued burdens with the Employee Retention Tax Credit, with the TAS saying that the IRS needs to “move forward addressing these ERC claims to ensure it protects the taxpayer’s right to finality and right to challenge the IRS’s position and be heard."
Hearings and Events
House Ways and Means Committee
On July 9, the House Ways and Means Committee held a markup of four bills and favorably reported them along party lines:
- H.R. 8914, the “University Accountability Act,” which would impose a financial penalty in the form of an excise tax on schools that reach a settlement with a student concerning the violation of that student’s civil rights under Title VI;
- H.R. 8913, the “Protecting American Students Act,” which would amend the endowment tax to exclude in its calculation students who are not eligible for financial assistance under the Higher Education Act;
- H.R. 8915, the “Education and Workforce Freedom Act,” which would expand expenses covered under 529 accounts, including homeschool expenses, and allow for 529 accounts to pay for institutional credentialing and licensing expenses; and
- H.J. Res. 148, a Congressional Review Act joint resolution that would disapprove of the Department of the Treasury’s rule concerning foreign entity of concern requirements as it applies to the Sections 25E and 30D Clean Vehicle Credits.
Senate Finance Committee
On July 10, the Senate Finance Committee held a hearing considering the nominations of several appointees to the U.S. Tax Court.