Programming Note: Taxation and Representation will return on Dec. 4, following the one-week congressional recess.
Legislative Lowdown
Congressional Lawmakers Hold Leadership Elections: On Nov. 13, the Senate and House Republican conferences held their leadership elections. Sen. John Thune (R-SD), the current Republican whip, was elected as the Senate majority leader for the 119th Congress, defeating Sens. John Cornyn (R-TX) and Rick Scott (R-FL). Sen. John Barrasso (R-WY) ran unopposed for majority whip, and Sen. Tom Cotton (R-AR) defeated Sen. Joni Ernst (R-IA) to serve as chairman of the Senate Republican Conference.
In the House, Speaker Mike Johnson (R-LA) won the internal Republican nomination to serve as speaker for another term, receiving unanimous support by voice vote. The full House will choose a speaker on Jan. 3, where Speaker Johnson will need 218 votes to retake the gavel. Rep. Steve Scalise (R-LA) will remain the House majority leader, and Rep. Tom Emmer (R-MN) will remain the majority whip. Rep. Lisa McClain (R-MI) was elected as chairwoman of the House Republican Conference, replacing Rep. Elise Stefanik (R-NY), whom President-elect Donald Trump intends to nominate to serve as ambassador to the United Nations.
The House Democratic Caucus held its leadership election on Nov. 19, with all three top leaders—Minority Leader Hakeem Jeffries (D-NY), Minority Whip Katherine Clark (D-MA) and House Democratic Caucus Chairman Pete Aguilar (D-CA)—winning reelection. The Senate Democratic leadership election is expected to take place before the Thanksgiving recess.
Trump to Nominate Howard Lutnick as Secretary of Commerce: On Nov. 19, President-elect Trump announced his intention to nominate Howard Lutnick to lead the Department of Commerce, and will also have “additional direct responsibility for the Office of the United States Trade Representative (USTR),” according to a post by Trump on Truth Social. Lutnick currently serves as the chairman and CEO of Cantor Fitzgerald, a financial services firm, and will oversee Trump’s “tariff and trade agenda” as part of his roles at the Commerce Department and USTR. Lutnick’s nomination to the Commerce Department is significant, as he was considered a potential nominee to lead the Treasury Department.
Energy-Tax Mainlines
Trump Begins to Assemble Energy Policy Leaders with Cabinet Selections: As the incoming presidential administration begins to prepare to take office, President-elect Trump has announced his intentions for nominations to the Environmental Protection Agency (EPA), Department of Energy (DOE) and Department of the Interior (DOI), which collectively oversee U.S. energy policy.
On Nov. 11, Trump announced his intention to nominate former Rep. Lee Zeldin (R-NY) to lead the EPA. Zeldin represented New York’s first congressional district in the House between 2015 and 2023, where he also served on the Climate Solutions Caucus and the Conservative Climate Caucus. On Nov. 15, Trump announced his intention to nominate North Dakota Gov. Doug Burgum to lead DOI, which has jurisdiction of more than 500 million acres of U.S. public lands that could be used for energy development purposes. Burgum also will lead a newly created National Energy Council, which Trump said would “oversee the path to U.S. energy dominance by cutting red tape, enhancing private sector investments … [and] focusing on innovation over … unnecessary regulation,” according to a post on Truth Social. Finally, on Nov. 16, Trump announced that he would nominate Liberty Energy Chairman and CEO Chris Wright to lead DOE. Wright’s professional career has largely been in the oil and natural gas industry, and he would inherit many of the IRA energy-tax credits enacted during the Biden administration. Trump said Wright would also serve on the National Energy Council.
Republicans to Scrutinize Energy-Tax Credits with Trifecta: As Republicans head into January with control over the presidency and both chambers of Congress, discussion over what to include in a tax package will invariably delve into whether to repeal some of the energy-tax credits in the Inflation Reduction Act (IRA, Pub. L. 117-169) and CHIPS and Science Act (Pub. L. 117-167). Prior to the election, Republican leaders signaled that they would closely scrutinize these credits but would not rush to full repeal. For example, House Speaker Mike Johnson (R-LA) signaled disapproval of many of the IRA’s credits but left the door open to retaining some of them, preferring to use a ”scalpel and not a sledgehammer” in analyzing each credit.
Among the energy-tax credits that will receive the closest scrutiny by Republican lawmakers are the electric vehicles (EV) and EV infrastructure tax credits, including the IRA-enacted Section 25E, 30C and 30D tax credits. Republican lawmakers contend that the benefits of these credits disproportionately flow to wealthy purchasers of EVs while benefitting Chinese companies, which produce many of the minerals, batteries and other EV components that could make them eligible for the credit.
On Nov. 14, reports attributed to the transition team of President-elect Trump indicated that the new administration is planning to eliminate the $7,500 consumer tax credit for purchasing a qualifying electric vehicle (EV) under the Section 30D Clean Vehicle Tax Credit. This decision is reportedly backed by representatives from Tesla, the largest EV manufacturer in the United States, which may stand to benefit by being able to retain U.S. market share in a rapidly accelerating EV industry.
The decision has drawn criticism by other participants in the industry, who argued that ending the subsidy would harm a nascent industry and make the United States less competitive with China in the EV and other clean-energy markets. The Alliance for Automotive Innovation previously weighed in on this issue with an Oct. 15 letter asserting that keeping the EV credit would be “critical to cementing the U.S. as a global leader in the future of automotive technology and manufacturing.” Energy Secretary Jennifer Granholm agreed, telling reporters that repealing EV credits would be “counterproductive” and would “ced[e] … territory to other countries, particularly China.”
Other credits that Republicans will scrutinize include the tech-neutral section 45Y and 48E credits, the section 45V clean hydrogen production credit, the section 45X advanced manufacturing credit, the section 45Q carbon oxide sequestration credits, and the IRA elective pay and transferability provisions.
Biofuel Producers Write to Congress Urging Extension of the Section 40A Tax Credit: On Nov. 14, associations representing farmers, feedstock suppliers and fuel producers sent a letter to House and Senate leadership requesting Congress to extend the Section 40A Biodiesel and Renewable Diesel Blenders Credit by one year. Starting Jan. 1, 2025, the Internal Revenue Code will shift from technology-specific tax incentives, such as Section 40A, to the technology-neutral Section 45Z Clean Fuel Production Credit. The letter expresses concern that the Treasury Department has not issued sufficient guidance on the Section 45Z credit with fewer than 60 days until this changeover occurs, creating uncertainty among the farming and biofuels community. The letter urges Congress to delay the changeover from Section 40A to Section 45Z by one year to ensure that fuel producers have “the requisite time to receive and fully understand the final rule implementing the section 45Z credit” after the Treasury Department issues final guidance.
Republican lawmakers in a Nov. 18 letter to stakeholders have requested additional input from the biofuels industry on the transition from Section 40A to Section 45Z and its implications, as well as the creation of the Section 40B Sustainable Aviation Fuel (SAF) Credit. The letter cites perceived concerns that “certain features of the credits’ design fail to consider American agricultural producers” and that “implementation of these credits … has moved very slowly, creating uncertainty for producers, blenders, retailers, and consumers ahead of the January 1, 2025, start date for the 45Z credit.” The letter requests stakeholders to address questions concerning the rollout of the Section 45Z credit, eligibility criteria and SAF standards.
IRS Provides Filing Extension for Certain Direct Pay Users: On Oct. 8, the Internal Revenue Service (IRS) issued Rev. Proc. 2024-39, which provides an extension for tax-exempt organizations seeking to use elective pay, also known as direct pay, for certain energy-tax credits. The guidance gives an automatic six-month extension to file Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), to make elective payment elections.
Tax Worldview
Trump’s Win Puts Increased Scrutiny Over OECD Two-Pillar Deal: When President-elect Trump takes office in January, his administration will face a decision over whether to continue the Biden administration’s ongoing negotiations within the Organisation for Economic Co-operation and Development (OECD) over its proposed two-pillar international tax framework. Tax-policy experts have indicated that Pillar Two, which includes an undertaxed profits rule (UTPR) to tax international corporate revenue at a minimum rate of 15%, is “in peril” due to the potential for a Trump administration to retaliate against countries with steep tariffs on imports should they impose a UTPR on U.S. companies. However, other experts contend that, while the Trump administration is expected to take a “more aggressive posture” towards protecting the U.S. tax base, renegotiation may be the preferred route due to concerns among members of Congress.
Doubts also have arisen regarding Pillar One, which allows countries to tax income from companies with online sales in their country, but without a physical location, an arrangement that would disproportionately affect U.S.-based tech companies. If the Trump administration rejects this deal, however, countries may resort to unilateral implementation of digital services taxes (DSTs), which also may lead to U.S. retaliation.
Biden Administration Temporarily Backs Off from Challenging Canada’s DST: On Nov. 14, a spokesperson for the United States Trade Representative (USTR) indicated that the Biden administration was not planning to challenge Canada’s digital services tax (DST) under the terms of the United States-Mexico-Canada Agreement (USMCA), after initially seeking consultation with Canada over the issue on Aug. 30. That consultation request included a 75-day period for the Biden administration to consider requesting a dispute panel should consultations fail. The spokesperson said that consultations with Canada continue and that the USTR “reserve [its] rights to further proceedings, including under the USMCA, should those concerns not be resolved.”
IRS Issues Final Regulations on Repatriation of Intangible Property: On Oct. 9, the Internal Revenue Service (IRS) issued final regulations on the transfer of intangible property, such as patents and trademarks, from foreign corporations to U.S.-based persons. The regulations provide guidance on the repatriation process, including when the U.S.-based person would recognize gain of the intangible property and when annual income inclusions for the useful life of the intangible property, governed under Section 367(d) of the tax code, should terminate. The regulations make minor refinements to proposed regulations issued in May 2023.
1111 Constitution Avenue
Treasury Department, IRS Issue Proposed Regulations on Tribal Entities: On Oct. 7, the Treasury Department and Internal Revenue Service (IRS) issued proposed regulations on the tax classification of corporations, including limited liability corporations, owned by and formed under tribal governments. The proposed guidance states that tribal entities, entirely owned by a tribe and organized or incorporated exclusively under the laws of that tribe, would not be recognized as separate entities and would not be subject to the federal income tax. The regulations also provide that tribal entities may be eligible for certain Inflation Reduction Act energy-tax credits. A public hearing has been scheduled for Jan. 17, 2025, and comments can be submitted to the Federal Register until Jan. 7.
Treasury Department, IRS Issue Guidance on Section 3405 Retirement Distributions: On Oct. 18, the Treasury Department and Internal Revenue Service (IRS) issued final regulations concerning income tax withholding from distributions made under Section 3405 of the Internal Revenue Code. Section 3405 covers periodic payments and nonperiodic distributions from employer deferred compensation plans, individual retirement plans, and select annuities, including distributions made to plan participants outside the United States. The regulations require that income tax be withheld from distributions made to taxpayers outside the United States, regardless of whether the payee provided a U.S. address. No changes were made between the final regulations and proposed regulations issued December 2019, except for the applicability date.
IRS Announces Inflation Adjustments for Tax Year 2025: On Oct. 22, the Internal Revenue Service (IRS) issued Rev. Proc. 2024-40, which provides information on annual inflation adjustments for tax year 2025. The most notable changes include an increase in the standard deduction to $15,000 for single taxpayers and $30,000 for joint taxpayers. For heads of household, the standard deduction will be $22,500. The IRS also adjusted marginal tax brackets to account for inflation, with the top marginal tax rate of 37% applying to single taxpayers with incomes over $626,350 and joint taxpayers with incomes over $751,600. Changes were also made to the alternative minimum tax exemption amount, maximum earned income tax credit amount, HSAs, MSAs and other tax benefits. Unchanged provisions include the personal exemption and limitation on itemized deductions, which were both temporarily eliminated by the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97).
Finance Committee Holds Hearing for TIGTA Nominee: On Nov. 14, the Senate Finance Committee held a hearing to consider the nomination for David Samuel Johnson to lead the Treasury Inspector General for Tax Administration (TIGTA), the oversight office for the Internal Revenue Service (IRS). The hearing focused on IRS modernization and taxpayer service initiatives, protecting taxpayers from unlawful disclosures and undue audits, improving operational efficiency, and keeping the office nonpartisan. The Finance Committee will formally vote on Johnson’s nomination in the coming weeks.
At a Glance
IRS to Release Additional Guidance on ERTC: On Sept. 25, John McInelly, the executive lead of the Employee Retention Tax Credit at the Internal Revenue Service (IRS), said that the IRS is looking to release additional guidance on the Employee Retention Tax Credit (ERTC) with respect to timing concerns on income tax returns. McInelly elaborated that this guidance is intended to prevent a “lengthy correspondence back-and-forth” when companies dispute ERTC claim denials.
IRS Issues Final Regulations Concerning Easement Transactions: On Oct. 7, the Treasury Department and Internal Revenue Service (IRS) Issued final regulations classifying certain conservation easement deals as listed transactions, in line with a provision from the SECURE 2.0 Act of 2022 prohibiting large syndicated easement donations from tax benefits. The regulations make minor refinements to proposed regulations issued December 2022.
IRS Provides Guidance on Retirement Plan Benefit Overpayments: On Oct. 15, the Internal Revenue Service (IRS) released Notice 2024-77, which provides updated guidance on inadvertent benefit overpayment provisions included in the SECURE 2.0 Act of 2022. The guidance clarifies the definition of an inadvertent benefit overpayment and advises on options available for taxpayers who receive them.
Hearings and Events
House Ways and Means Committee
The House Ways and Means Committee has no tax hearings scheduled for this week.
Senate Finance Committee
The Senate Finance Committee has no tax hearings scheduled for this week.
Other
On Nov. 19, the Joint Economic Committee held a hearing titled “Building on the Success of TCJA: The 2025 Tax Policy Debate.”
On Nov. 20, the Senate Banking, Housing, and Urban Affairs Committee will hold a hearing titled “Tax Policy in 2025: Implications for the American Economy."