Legislative Lowdown
Ways and Means Republicans Announce Formation of Committee Tax Teams in Preparation for 2025: On April 24, House Ways and Means Committee Chairman Jason Smith (R-MO) and Tax Subcommittee Chairman Mike Kelly (R-PA) announced the formation of 10 “Tax Teams,” intended to help educate Ways and Means Committee Republican members and the broader House Republican Conference about key tax provisions of the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97) set to expire in 2025, as well as other tax issues likely to be on the table.
House Republicans may also use this process to begin discussions on: (1) potential changes to various TCJA provisions; (2) which provisions are most important to the Republican conference; and (3) new proposals. Regardless of the outcome of the upcoming November elections, the Tax Teams will help Ways and Means Committee Republicans prepare for the significant negotiations expected in 2025.
The Tax Teams are organized in 10 broad tax-policy areas, with each team expected to review and assess how TCJA tax provisions affect specific sectors of the U.S. economy. The teams are as follows:
- American Manufacturing, led by Rep. Vern Buchanan (R-FL)
- Working Families, led by Rep. Brian Fitzpatrick (R-PA)
- American Workforce, led by Rep. Darin LaHood (R-IL)
- Main Street, led by Rep. Lloyd Smucker (R-PA)
- New Economy, led by Rep. David Schweikert (R-AZ)
- Rural America, led by Rep. Adrian Smith (R-NE)
- Community Development, led by Rep. Mike Kelly (R-PA)
- Supply Chains, led by Rep. Carol Miller (R-WV)
- U.S. Innovation, led by Rep. Ron Estes (R-KS)
- Global Competitiveness, led by Rep. Kevin Hern (R-OK)
The specific tax provisions that will be within the purview of each team have not been officially disclosed, and teams have been designed to overlap on many subjects to maximize educational opportunities. Chairman Smith said that the Tax Teams’ mission will be “to build on the success of the Trump tax cuts to provide a pro-America, pro-worker vision for the future,” and Chairman Kelly said the teams “will ensure that our tax code works for Americans—not the other way around.” Ways and Means Committee Republicans are expected to provide a centralized process for stakeholders to submit feedback, with additional details likely early in May.
While the teams announced last week were comprised only of Republicans, Democrats are expected to develop their own process to educate and prepare members ahead of the 2025 tax negotiations.
Tax Worldview
Ways and Means Committee Republicans Criticize USTR for Abandoning International Digital Trade Talks: On April 26, 10 Republican members of the House Ways and Means Committee, led by Rep. Randy Feenstra (R-IA), sent a letter to Treasury Secretary Janet Yellen, criticizing a decision made by U.S. Trade Representative (USTR) Katherine Tai to abandon the United States’ long-standing opposition to data-localization proposals in negotiations within the World Trade Organization, including foreign governments’ demands on U.S. corporations to relocate key aspects of their business operations to the foreign jurisdiction under such data-localization policies. The lawmakers echoed concerns raised by Reps. Darin LaHood (R-IL) and Suzan DelBene (D-WA) in a Nov. 16, 2023, letter which asserts that the decision was made without sufficient congressional input and would disadvantage U.S. workers and business and “ced[e] leverage over digital trade rules to foreign countries.”
Rep. Feenstra’s letter adds that USTR’s abandonment of the United States’ data-localization position also would have negative effects on U.S. tax policy, as such policies would cause U.S.-based companies to have a taxable presence in those countries. As a result, U.S. multinationals would be subject to local tax requirements and reduce corporate tax revenues in the United States. Rep. Feenstra notes that USTR’s decision may be at odds with ongoing negotiations between the Treasury Department and the Organisation for Economic Co-operation and Development (OECD) on the Pillar One global tax arrangement. Finally, the letter alleges that the proliferation of such policies without U.S. intervention would significantly burden digital companies in accessing foreign markets, hindering economic growth.
The letter requests that the Treasury Department review and respond to the “potential tax and economic implications” of USTR’s decision and suggests that lawmakers may raise these issues when Secretary Yellen testifies before the House Ways and Means Committee on April 30.
1111 Constitution Avenue
IRS Concludes Direct File Pilot Program, Claiming 140,000 Platform Users: On April 26, the Internal Revenue Service (IRS) formally announced the closure of the Direct File pilot program, which allowed 19 million taxpayers in 12 eligible states to file their federal taxes directly with the IRS through government-operated tax filing software. Taxpayers in 11 of the 12 states had until April 15 to finish and e-file their returns using the software, and taxpayers in Massachusetts had until April 17. If a taxpayer’s return was rejected, he or she had until April 20 to make corrections and resubmit the return without incurring a penalty.
In its announcement, the IRS noted that 140,803 taxpayers successfully e-filed their returns through Direct File, with a significant portion of returns being filed in the final weeks of the tax-filing season. Direct File users claimed more than $90 million in tax refunds and reported $35 million in balances due. The IRS claimed that usage of the program exceeded expectations for the pilot and that sufficient data was collected to be evaluated, with Commissioner Daniel Werfel saying that the pilot “saw a strong response” and the agency “will be reviewing the results of the pilot and gathering feedback to help us determine our future course involving Direct File.” Through the end of the pilot, the IRS also estimated the cost of the pilot to be $24.6 million, with operational costs comprising $2.4 million of that amount. Critics of Direct File assert that this cost estimate is inaccurate since the IRS is not including the costs associated with U.S. Digital Service workers who worked on the project. Further, the commercial tax-preparation industry contends that Direct File is costly, confusing and unnecessary, given the variety of existing free filing options.
The IRS announcement notes that the agency will analyze collected data in the coming weeks and will need to decide whether Direct File will be renewed for the 2025 tax-filing season later this year. However, given continued criticism of the program by congressional Republicans and industry, including concerns that the program lacks statutory authority, securing funding to run Direct File next filing season will likely also depend on the political makeup of the White House and the subsequent 119th Congress.
IRS Releases Agency’s Annual Data Book: On April 18, the Internal Revenue Services (IRS) issued its 2023 Data Book, which includes data on returns filed and taxes collected, among other IRS activities, conducted during fiscal year (FY) 2023 (from Oct. 1, 2022, to Sept. 30, 2023).
The agency noted that it had processed more than 271.4 million tax returns and collected approximately $4.7 trillion in tax revenue. The IRS also issued $659 million in refunds and closed almost 600,000 audits in FY 2023. Data was also published on taxpayer assistance and service, with the IRS noting that employees had answered 25% more phone calls compared to FY 2022, reopened more than 50 taxpayer assistance centers that were closed during the COVID-19 pandemic, and experienced more than 880 million visits to the IRS.gov website. IRS Commissioner Daniel Werfel attributed the agency’s positive progress to funding provided in the Inflation Reduction Act (IRA, Pub. L. 117-169), noting in the introduction of the Data Book that IRA funding to transform the agency “is critical to the future of the IRS and our nation and will benefit IRS employees, individual taxpayers, businesses, the tax community, tax-exempt organizations and many others in the years to come.”
Treasury Department, IRS Release Final Rules on Transfer of IRA Energy-Tax Credits: On April 25, the Treasury Department and Internal Revenue Service (IRS) released final regulations on the transferability of certain energy-tax credits, pursuant to Section 6418 of the tax code enacted as part of the Inflation Reduction Act (IRA). Section 6418 allows entities qualifying for certain IRA credits to transfer part or all of the credits to a third party in exchange for cash. These rules follow up on proposed regulations that were released on June 14, 2023, and they complement the final regulations on direct payment of qualifying credits, which were released in March.
The regulations describe rules and definitions for the election to transfer eligible credits in a taxable year, including specific rules applied to partnerships and S corporations. Special rules also apply with regard to excessive credit transfers and recapture events. The final rules update the temporary regulations concerning the IRS pre-filing registration process required to make an election to transfer the credits.
DOE Announces Recipients of Section 48C(e) Tax Credit Allocation, and IRS Announces Second Round: On April 19, the Department of Energy (DOE) announced 35 recipients that received roughly $2 billion in allocations of energy-tax credits under the Section 48C(e) Advanced Energy Project Credit Allocation Program, enacted as part of the Inflation Reduction Act. The program is aimed at owners of clean energy manufacturing, recycling, greenhouse gas emission reduction, and critical material projects. Recipients of the credits included battery makers and recyclers, rare earth mineral producers and other energy-manufacturing companies. As part of the announcement, Treasury Secretary Janet Yellen said the credit will help ensure “all communities benefit from the growth of the clean energy economy by driving innovation and investment in areas of the country that have long been at the forefront of fossil fuel production.” As of March 29, the Treasury Department and the Internal Revenue Service (IRS) had allocated approximately $4 billion of the Section 48C(e) credits, of which approximately $1.5 billion was allocated to projects located in qualifying energy communities, determined by designated census tracts.
On April 29, the Treasury Department and IRS issued Notice 2024-36, providing additional guidance to clarify procedures for the allocation of credits under the program, while announcing a second round of allocations. For this round, the Treasury Department and the IRS intend to allocate the remaining $6 billion in Section 48C credits, of which approximately $2.5 billion will be allocated to projects in qualifying energy communities. The notice also updates the appendices regarding eligibility, the DOE application process and the Energy Community Census Tracts. The DOE’s Section 48C portal is set to open by May 28, allowing taxpayers to submit concept papers and initiate the process of seeking a Section 48C credit allocation. If the Treasury Department and IRS do not allocate all $6 billion of the credit this round, the notice provides that an additional allocation round may be held at a later date.
At a Glance
FAA Reauthorization Bill Preparing for Takeoff, Likely Leaving Wyden-Smith Tax Bill Behind: Just after midnight on April 29, Senate and House negotiators released the bill text for the Federal Aviation Administration (FAA) reauthorization legislation ahead of the May 10 expiration date. Major FAA excise tax provisions will be extended with no major substantive changes from current law. The advancement of the FAA reauthorization package likely signals the demise of the Tax Relief for American Families and Workers Act (H.R. 7024), which has been stalled in the Senate. The FAA reauthorization is expected to be the last piece of legislation containing major tax provisions to pass before the end of the 118th Congress.
IRS Releases Draft Cryptocurrency Reporting Form: On April 19, the Internal Revenue Service (IRS) released a draft of the 2025 1099-DA cryptocurrency transaction reporting form. The draft form was created as part of a series of steps to implement stricter cryptocurrency reporting guidelines, as was outlined in an August 29, 2023, notice of proposed rulemaking and mandated by the passage of the Infrastructure Investment and Jobs Act (Pub. L. 117-58).
IRS Issues Final Rules Defining Domestic Control of REITs: On April 24, the Treasury Department and Internal Revenue Service (IRS) issued final rules setting out criteria for determining whether U.S. real estate investment trusts (REITs) and other Qualified Investment Entities (QIEs) are “domestically controlled.” In general, the rules provide that QIEs are considered to be domestically controlled if foreign entities own less than 50% of the QIE, either directly or indirectly.
Hearings and Events
House Ways and Means Committee
On April 30, the House Ways and Means Committee held a hearing titled “Hearing with Treasury Secretary Janet Yellen.”
Senate Finance Committee
The Senate Finance Committee has no tax hearings scheduled for this week.