Legislative Lowdown
Senate Finance Committee Republicans Form Working Groups in Preparation for 2025: Following the April 24 formation of Tax Teams by House Ways and Means Committee Republicans, Senate Finance Committee Republicans created their own working groups on May 23. The groups are intended to help Finance Committee Republican members prepare for the expiration of key tax provisions of the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97) in 2025, as well as other tax issues likely to be on the table.
The working groups are organized in six broad tax-policy areas, with each group expected to review and assess how TCJA tax provisions affect specific sectors of the U.S. economy. The groups, reportedly, are as follows:
- Individual Taxes
- Business Measures
- International Tax
- Retirement
- Community Development
- Energy
The specific tax provisions that will be within the purview of each team have not been officially disclosed, nor have the senators participating in each group. Senate Finance Committee Ranking Member Mike Crapo (R-ID) said the groups will seek to cover all aspects of expiring TCJA provisions, including possible options for improving the provisions.
Currently, these groups are comprised only of Republicans, but Ranking Member Crapo stated that the groups may become bipartisan in the future, noting that “it could evolve to the point where there are joint working groups, but right now we’re working with our own caucus.” Finance Committee Chairman Ron Wyden (D-OR) said that he is having individual meetings with Democratic senators now with the intention of providing them with a “menu” of options to approach the TCJA, similar to the approach employed in negotiations before the passage of the Inflation Reduction Act (Pub. L. 117-169).
Ways and Means Committee Republicans Launch Comment Portal for Tax Teams: On May 21, House Ways and Means Committee Republicans launched a comment portal to solicit stakeholder input on the effects of a potential expiration of Tax Cuts and Jobs Act provisions in 2025. Comments must indicate the relevant Tax Team(s) to which the comments are submitted for consideration.
Sen. Casey Writes Letter Urging Expansion of Hydrogen Tax Credit: On May 24, Sen. Bob Casey (D-PA) urged President Biden to expand the regulations governing the Section 45V Clean Hydrogen Production Tax Credit to allow more businesses to be able to claim the credit. The credit, expanded as part of the Inflation Reduction Act, is designed to incentivize the production of hydrogen fuel for use in manufacturing, transportation and other industries. Sen. Casey emphasized in the letter that the proposed regulations released by the Department of the Treasury and Internal Revenue Service (IRS) have “confused and dismayed the clean energy industry upon which the success of the U.S. hydrogen economy depends.” He called for several changes to the proposed rules, including the addition of a pathway for producers to use coal mine methane to qualify for the credit, allowing producers to use “foreground” data in the model to measure emissions accurately and reward cleaner hydrogen producers, and permitting relicensed nuclear power plants to qualify as “additional power,” ensuring that nuclear power is not penalized in the administration of the credit.
Tax Worldview
Yellen Signals Unwillingness to Greenlight Pillar One Tax Agreement: At a Group of Seven finance ministers’ meeting on May 22, Treasury Secretary Janet Yellen said the United States will not sign the current draft of the Organization for Economic Co-operation and Development (OECD) Pillar One global tax agreement. She cited outstanding issues related to rules governing transfer pricing regulations and the notion that India and China have not been sufficiently involved in the ongoing negotiations. Transfer pricing provisions are governed under Amount B of the agreement. Current disputes include whether the proposed simplified transfer pricing rules would be mandatory and other issues related to the scope of the agreement. Secretary Yellen noted that transfer pricing is “an area where there’s a lot of uncertainty for multinationals, and … an area where there’s tremendous tax disputes,” making consensus imperative. She added that India has refused to engage on the issue, and China has been “all but absent” in the current negotiations. Negotiators have until the end of June to finalize provisions and collect sufficient signatures for Pillar One to take effect. Failure to enact Pillar One may lead to the proliferation of digital services taxes (DSTs) in a number of countries, which will disproportionately increase tax burdens on U.S. multinational businesses and may lead to global tax instability.
1111 Constitution Avenue
IRS Direct File Program to Become ‘Permanent’ Option Starting in 2025: On May 30, the Internal Revenue Service (IRS) announced that the agency will make the Direct File “pilot” permanent, starting in the 2025 tax-filing season. The program was piloted this year and allowed 19 million eligible taxpayers in 12 states to file their federal tax returns without charge directly with the IRS through government-operated tax filing software. The agency also stated that it will seek to expand the program, expressing an interest in allowing more states to partner with the Direct File program. The IRS said it is also looking into ways to expand eligibility of the pilot program, with a focus on increasing the number of credits available to working families filing through the program. Additional details about the program’s expansion will be revealed in the coming months.
The IRS claims it was able to make this decision from an initial post-pilot analysis the agency conducted after the conclusion of the pilot and the feedback solicited from Direct File users, state officials, tax representatives and other stakeholders. These findings included the high satisfaction rate recorded by platform users, its perceived ease of use, and the role of the program in assisting with the IRS’s broader digital transformation efforts. It is notable, however, that the IRS only surveyed Direct File users whose returns were accepted by IRS, arguably leading to skewed survey results. Furthermore, only about 0.7% of taxpayers eligible for the Direct File pilot actually chose to use it. IRS Commissioner Daniel Werfel said that taxpayers made “clear” that they “want the IRS to provide more than one no-cost option for filing electronically,” and making Direct File permanent “fits squarely into our effort to make taxes as easy as possible for Americans, including saving time and money.”
In the release, the agency insisted that the Direct File program will remain one of many options that taxpayers can choose to file their annual returns and reaffirmed a commitment to its partnership with Free File Inc., another no-fee filing option for eligible taxpayers. Critics of the Direct File program, including many of the tax software providers who participate in the Free File program, have argued that Direct File is not necessary given the wide range of free-filing options available today, and the fact that commercial preparers provided 23.8 million federal returns at no cost this tax-filing season, in addition to another 2.9 million returns through the IRS Free File Program. They also argue that the time and resources spent on Direct File should be devoted to taxpayer service. They also argue that the IRS may not have the statutory authority to administer a government-run tax filing platform. Responding to the IRS’s announcement, Senate Finance Committee Chairman Ron Wyden (D-OR) praised the Direct File program and the decision to make it permanent.
IRS Free File Program Extended to 2029: On May 22, the Internal Revenue Service (IRS) announced that the agency will extend the Free File program through 2029, following an agreement between the agency and the private companies partnering with the IRS that provide their online tax-preparation platforms for free to taxpayers meeting certain eligibility criteria. The Free File program experienced an increase in returns filed this tax season compared to 2023, reaching 2.9 million Free File returns compared to 2.7 million the year prior. Commenting on the extension, IRS Commissioner Daniel Werfel stated that Free File is an “important part of the IRS portfolio to help taxpayers file their taxes for free,” and that he “look[s] forward to continuing this important collaboration with the tax software industry.”
Treasury Department, IRS Issue Regulations on Tech-Neutral Clean Energy Tax Credits: On May 29, the Treasury Department and Internal Revenue Service (IRS) issued proposed regulations on the tech-neutral production tax credit (PTC) under section 45Y of the tax code and the tech-neutral investment tax credit (ITC) under section 48E. These credits, included in the Inflation Reduction Act, will replace the current section 45 PTC and section 48 ITC, respectively, for energy facilities that begin construction after 2024. Under both sections 45Y and 48E, energy facilities must have zero or fewer greenhouse gas (GHG) emissions to qualify for the tax credit. However, the proposed regulations differentiate between two types of qualifying energy facilities: (1) combustion and gasification facilities (C&G facilities); and (2) all other qualifying facilities (non-C&G facilities). The methodology that must be used to determine facility emissions differs between the two categories.
For C&G facilities, the property must have anticipated net lifecycle GHG emissions that are not greater than zero to qualify for the credits. The proposed regulations utilize a comprehensive definition of lifecycle GHG emissions from the Clean Air Act, which requires the taxpayer to account for the emissions related to the full scope of fuel and feedstock production (e.g., extraction and refinement), distribution, and end consumption. Moreover, the taxpayer must also account for myriad “significant indirect emissions,” including land-use change and other induced emissions associated with the increased use of the feedstock for electricity production.
For non-C&G facilities, property GHG emissions will be determined on a much narrower scope, only encompassing facility emissions that “arise directly from the transformation of the input energy source into electricity.” Thus, a non-C&G facility with either direct or indirect emissions may still qualify for the credit if such emissions are not directly related to its primary method of electricity production.
Responding to the guidance, Senate Finance Committee Chairman Ron Wyden (D-OR) said that the tech-neutral credits were the “centerpiece of the largest climate action in our history … [and] represents a huge step forward in the effort to reduce carbon emissions.” Public comments on any of the topics discussed in the proposed regulations are due by Aug. 2. Public hearings on the proposed regulations will be held on Aug. 12 and 13.
2024 Application Portal Opens for Low-Income Communities Bonus Credit Program: On May 28, the Treasury Department, Internal Revenue Service (IRS) and Department of Energy announced the opening of the application portal for the 2024 Low-Income Communities Bonus Credit Program. This program, established under Section 48(e), which was adopted as part of the Inflation Reduction Act, allows for clean-energy infrastructure projects built in low-income and tribal communities to qualify for a credit allocation, which are determined on a competitive basis. The initial application window, in which all applications submitted will be considered, will close on June 27. Thereafter, applications will be accepted and submitted on a rolling basis.
At a Glance
Hassan, Budd Introduce Bill to Expand Retirement Tax Incentives: On May 24, Sens. Maggie Hassan (D-NH) and Ted Budd (R-NC) introduced the Retirement Investment in Small Employers (RISE) Act (S. 4398), which would lower the tax rates of businesses with fewer than 10 employees that create retirement accounts for their workforce, raising the minimum Section 45E retirement-plan start-up credit from $250 to $2,500 per employee. Sen. Hassan said that the legislation would “help more small businesses and their employees thrive,” and Sen. Budd said the bill would “empower individuals to take control of their financial future.” Companion legislation (H.R. 6007) was introduced in the House by Reps. Claudia Tenney (R-NY) and Dan Kildee (D-MI) on Oct. 19, 2023.
Brownstein Bookshelf
JCT Releases Overview of Federal Tax System for 2024: On May 23, the Joint Committee on Taxation (JCT) released a report summarizing the federal tax system in effect for 2024. The report includes discussions of the present-law federal tax system as it applies to the individual income tax; corporate income tax; estate, gift and generation-skipping transfer taxes; social insurance taxes; and major excise taxes.
Hearings and Events
House Ways and Means Committee
On June 4, the House Ways and Means Subcommittee on Social Security held a hearing titled “The Social Security Trust Funds in 2024 and Beyond.”
On June 4, the House Ways and Means Subcommittee on Work and Welfare held a hearing titled “Reforming Unemployment Insurance to Support American Workers and Businesses.”
Senate Finance Committee
On June 4, the Senate Finance Committee held a hearing considering several nominations, including that of James R. Ives to be inspector general of the Department of the Treasury and of several appointees to the U.S. Tax Court.
Other
On June 4, the Senate Appropriations Subcommittee on Financial Services and General Government held a hearing titled “A Review of the President’s Fiscal Year 2025 Budget Request for the U.S. Department of the Treasury.”
On June 5, the House Appropriations Subcommittee on Financial Services and General Government will hold a markup of the Fiscal Year 2025 Financial Services and General Government bill, which includes funding for the Department of the Treasury and Internal Revenue Service.