Welcome back to Infrastructure Week! This weekly newsletter outlines the latest developments in Washington, including major tax, small business and financial services developments in the negotiations on Phase Four legislation and regulatory guidance from various federal agencies.
Moving Forward with Infrastructure Week
It is Infrastructure Week AGAIN in Washington! On Monday, House Democrats unveiled the Moving Forward Act (H.R.2), a 2,309-page, $1.5 trillion package that takes a broad view on what should be included in an infrastructure bill. In addition to traditional priorities—roads, bridges and tunnels—it also includes green energy, low-income housing, broadband access, and child care infrastructure proposals.
The Brownstein National Tax Policy Group will release a comprehensive analysis of the legislation in the coming days. For now, below is a snapshot of select provisions within the bill:
- New Markets Tax Credit. The bill would expand and make the credit permanent.
- Rehabilitation Tax Credit. The bill would increase the credit from 20% to 30% for 2020 through 2024 before phasing down to 20% in 2027.
- Low-Income Housing Tax Credit. The bill would increase federal investment in low-income housing by expanding the LIHTC, specifically with respect to rural and tribal communities.
- Highway Trust Fund and Related Taxes. The bill would extend for five years Highway Trust Fund taxes currently set to expire on Sept. 30, 2022. These taxes relate to gasoline, diesel, kerosene and alternative fuels. In addition, current taxes on heavy trucks, certain highway tires and the use of certain highway vehicles would also be extended for an additional five years.
The provision notably includes an infrastructure financing title, something over which lawmakers have long disagreed. Funding mechanisms include advance refunding bonds, private activity bonds, qualified zone academy bonds, and qualified school infrastructure bonds.
The Moving Forward Act is the House Democrats’ most expansive infrastructure proposal of the current Congress. However, given the inclusion of several partisan priorities, the bill is unlikely to gain any traction in the Republican-controlled Senate. In fact, given that Congress is likely to negotiate another COVID-19 economic stimulus package, a comprehensive infrastructure bill will likely be tabled until next year. However, lawmakers will still need to reauthorize the Fixing America’s Surface Transportation (FAST) Act (P.L.114-94), which includes funding for the soon-to-be-insolvent Highway Trust Fund, before it expires on Sept. 30, 2020.
Phase Four Proposals
The introduction of new proposals has slowed since the height of the pandemic. Some of the most recent proposals are outlined below.
Bipartisan Proposals
- Remote and Mobile Worker Relief Act. Sens. John Thune (R-SD) and Sherrod Brown (D-OH) introduced the Remote and Mobile Worker Relief Act (S.3995) last week. The legislation would lend assistance to medical professionals and some remote workers in areas heavily affected by the COVID-19 pandemic by protecting them from unexpected state income tax bills.
- Hit the Gym. Reps. John Curtis (R-UT) and Kendra Horn (D-OK) introduced H.R.7242 last week that would permit expenditures from health savings accounts for gym memberships and costs of home gym equipment.
Republican Proposals
- Work Safe Act. Sen. Ted Cruz (R-TX) introduced the Work Safe Act, legislation that would provide tax credits for businesses that test employees for COVID-19 on a weekly basis. The credit would initially be worth $300 per employee for the month in which the bill is enacted. It would then decrease by $50 every month until it bottoms out at $150 per employee. The credit, which would sunset after 2020, would apply to businesses located in areas with a COVID-19 infection rate higher than the national average.
The Week in Rewind
Below are last week’s biggest stories from Capitol Hill and the administration.
Congress
Lighthizer’s Day on the Hill
U.S. Trade Representative Robert Lighthizer had a marathon day on Capitol Hill on June 17, testifying before both the House Ways and Means Committee and the Senate Finance Committee. He updated lawmakers on the administration’s trade agenda and discussed implementation of the US-Mexico-Canada Agreement and trade relations with the United Kingdom, China and Kenya.
Outside of trade issues, the biggest tax news emerging from the hearings was the announcement that the United States has notified European negotiators that it is temporarily suspending its participation in negotiations related to reaching a consensus around an international digital services tax regime. Lighthizer told lawmakers that Treasury Secretary Steven Mnuchin, who runs point on the issue for the administration, sent a letter to his counterparts in the United Kingdom, France, Italy and Spain informing them that the United States would be stepping away from the talks, which he said have reached an “impasse.” Instead, Mnuchin suggested the countries focus on recovering from the COVID-19 pandemic.
The four European countries sent Mnuchin a letter on June 18 in which the group reaffirmed their commitment to reaching an international agreement on the “fair taxation of digital giants.”
Discussing the topic on French radio, French Finance Minister Bruno Le Maire separately called the United States’ decision a “provocation.” Undeterred, Le Marie vowed to impose digital services taxes before the end of the year despite U.S. threats of retaliation. Lighthizer left open the door to trade actions in response to any forthcoming digital services taxes against the United States.
On June 19, a Treasury Department spokesperson announced the United States would be reengaging in discussions in early July at the Organization for Economic Cooperation and Development, the organization through which over 130 countries have sought international consensus.
Ways and Means Considers More Tax Relief
On June 18, the House Ways and Means Subcommittee on Select Revenue Measures held a hearing on tax provisions that could be included in the next COVID-19 response package that would provide relief and support for workers and families. In addition to touting some of the tax provisions included in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R.6800), such as additional economic impact payments and enhancements to refundable tax credits like the Earned Income Tax Credit, the Child and Dependent Care Tax Credit, and the Child Tax Credit, Subcommittee Chair Mike Thompson (D-CA) discussed the Access Technology Affordability Act (H.R.2086). This bill would create a refundable tax credit to cover technology expenses for work-from-home equipment for the blind. Subcommittee Ranking Member Adrian Smith (R-NE), discussed the importance of including a back-to-work bonus proposal that would provide financial incentives for employees to return to work in the next stimulus package. During the remainder of the hearing, Democrats focused on refundable tax credit proposals to help working-class families cope with the impact of the pandemic, while Republicans focused on whether a reopening of the economy is currently feasible and policies that might help businesses reopen.
Prior to the hearing, the Joint Committee on Taxation released a publication describing the present law and background of individual refundable income tax credits. It also provided a description of the modifications to refundable tax credits proposed by the HEROES Act.
Lowey Releases Appropriations Markup Schedule
As Congress slowly returns to non-COVID-19 business, funding for the federal government is one of the must-pass measures. Last week, House Appropriations Committee Chair Nita Lowey (D-NY) released the committee’s schedule for consideration of fiscal year 2021 spending bills.
The process will begin with the following subcommittee markups:
- July 6
- 4:00 p.m. — State-Foreign Operations
- 6:00 p.m. — Agriculture-FDA
- 8:00 p.m. — Military Construction-VA
- July 7
- 9:00 a.m. — Homeland Security
- 11:00 a.m. — Interior-Environment
- 1:00 p.m. — Legislative Branch
- 3:00 p.m. — Energy-Water
- 5:00 p.m. — Labor-HHS-Education
- July 8
- 9:00 a.m. — Commerce-Justice-Science
- 11:00 a.m. — Transportation-HUD
- 1:00 p.m. — Financial Services
- 3:00 p.m. — Defense
These subcommittee markups will be followed by the full committee markup process, which is scheduled to begin with consideration of “302(b) allocations, State and Foreign Operations, Agriculture, and Military Construction and Veterans Affairs bills” on July 9, according to Lowey. Lowey is aiming to report the Energy and Water and Interior and Environment bills on July 10, and wants to complete the committee markup process by July 16.
If all proceeds according to plan, the appropriations bills will be on the House floor in late July.
Internal Revenue Service
IRS: Back to the Old Grind
Internal Revenue Service (IRS) employees around the country are being asked to return to the office to address the mountain of paperwork that has amassed since the onset of the pandemic. The latest estimates reveal the paperwork backlog awaiting IRS employees has risen to 11 million pieces of unopened mail and is growing by one million pieces each week, according to Sunita Lough, IRS deputy commissioner for Services and Enforcement. Lough also said IRS employees are opening mail at a rate of about five million pieces a week.
Since April, the IRS has gradually been recalling some workers around the country while asking others able to work remotely to stay home. Next, the IRS is scheduled to bring back employees to its California, Indiana, Ohio, Oregon and Puerto Rico branches at the end of the month. According to an email sent to IRS employees last week from Commissioner Charles Rettig, all employees who are unable to work from home will be asked to return to the office on July 13. Although IRS employees are being asked to return to the office to handle the paperwork, in-person Taxpayer Advocate Service offices remain closed.
In light of the backlog, there have been calls for the IRS to again delay the tax filing deadline beyond the extended July 15 deadline. Tony Reardon, who heads the National Treasury Employees Union, urged the agency to delay the tax filing deadline to Oct. 15. Outside organizations have also joined the effort and are going even further than Reardon. In a letter to Treasury Secretary Steven Mnuchin, more than 20 organizations—including Americans for Tax Reform, the American Legislative Exchange Council and the National Taxpayers Union Foundation—asked for an extension of the tax payment deadline into next year.
Opposing another extension are tax preparers. Ed Karl of the American Institute of CPAs explained why his organization was opposed to such a move. Karl said because states may not align their filing dates with the federal government, relief will be limited. He also said it will be easier for accountants to couple federal tax return work with Paycheck Protection Program work. At the same time, Karl said the organization could change its position.
Under Fire, IRS Takes Closer Look at Wealthy
In response to a recent Treasury Inspector General for Tax Administration (TIGTA) report revealing that the IRS has failed to audit nearly 900,000 high-income taxpayers in recent years, Senate Finance Committee Democrats sent a letter to IRS Commissioner Rettig last Wednesday expressing their frustration. In the letter, the lawmakers claimed the IRS’s failure to audit wealthy individuals during the second term of the Obama administration was a result of “nearly a decade of budget cuts by Congressional Republicans.” The lawmakers asked Rettig to respond to a number of questions within 30 days, including why the IRS did not fully audit the individuals in question, what additional resources the IRS may need to correct enforcement issues and what changes the IRS has made to increase the audit rates of high-income taxpayers.
Responding the following day, Douglas O’Donnell, who heads the IRS Large Business and international Division, said the agency will increase its scrutiny of wealthy taxpayers. Speaking at an event hosted by New York University, O’Donnell said the IRS plans to examine “several hundred” partnerships and S-corporations to better understand how tax planning has changed following enactment of the Tax Cuts and Jobs Act (TCJA) (P.L.115-97). O’Donnell explained the “campaign is very different from campaigns in the past where we’ve focused on a specific transaction.” He added that the campaign “is looking at the entirety of a return, giving examiners the authority to look beyond any specific issue.” The effort, according to O’Donnell, will begin after the July 15 filing deadline.
Free File Shake Up
H&R Block announced last week it will no longer participate in the IRS Free File program after the current tax season ends in October. H&R Block CEO Jeffrey Jones made the announcement last week during a quarterly earnings call, saying it was “in the best interest of the company to move forward in a different direction.”
The exit of H&R Block leaves nine other companies in the Free File Alliance, and according to Tim Hugo, the executive director of the group, no other companies have discussed following suit. In fact, both TaxAct Holdings and Intuit have committed to remaining in the program.
Implementation
After lawmakers rushed to enact legislation, agencies are now attempting to keep up by quickly releasing regulations and other guidance. A look at select COVID-19-related implementation guidance and non-COVID-19 related guidance released during the previous week is below.
- June Interest Rate. On June 15, the IRS published Notice 2020-45, which sets out the corporate bond monthly yield curve, spot segments under section 417(e)(3), and the 24-month average segment rates under section 430(h)(2).
- More on Interest Rates. The IRS released Revenue Ruling 2020-14, which provides rates for federal income tax purposes including: the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.
- Retirement Distribution Guidance. On June 19, the IRS released Notice 2020-50, laying out new guidance for qualified individuals who receive favorable tax treatment for distributions from retirement plans that are coronavirus-related.
- Fringe Expenses. The IRS has released proposed regulations on the qualified transportation fringe and commuting expenses under section 274. The regulations target the elimination of the deduction that was a part of TCJA.
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The information in this article is accurate as of the publication date. Because this law in this area is changing rapidly, and articles are not automatically updated, continued accuracy cannot be guaranteed.