TAX TIDBIT
Kustoff Joins Ways and Means. Rep. David Kustoff
(R-TN) has been selected to replace former Rep. Tom Reed (R-NY),
who resigned from Congress earlier this year, on the House Ways and
Means Committee. He will sit on the Worker and Family Support
Subcommittee, the Oversight Subcommittee and the Social Security
Subcommittee, where he will be the second-most senior Republican
behind Ranking Member David Schweikert (R-AZ).
In a press release on his new committee assignment,
Kustoff said, "As the only Republican from the mid-South on
this committee, West Tennessee and the Mid-South region will have a
seat at the table on issues such as taxes, trade, and
healthcare." He added that he looks "forward to working
to advance strong policies that will get our nation's economy
back on track and protect hardworking Americans and businesses
against the Biden Administration's reckless agenda."
Since joining Congress, Kustoff has introduced one tax bill, the
Small Business Taxpayer Bill of Rights Act (H.R.7033). The bill,
which was introduced in March 2022 and has no co-sponsors, would
modify tax enforcement procedures by:
- Awarding costs to small businesses for administrative and court proceedings;
- Terminating IRS employees for misconduct;
- Allowing tax deductions for a taxpayer's expenses for certain audits; and
- Establishing a 10-year term for the National Taxpayer Advocate.
Kustoff is serving his third term and previously served on the House Financial Services Committee.
LEGISLATIVE LOWDOWN
Build Back Better. Democratic leadership continues
to negotiate a deal with Sen. Joe Manchin (D-WV). In fact, Senate
Majority Leader Chuck Schumer (D-NY) and Manchin met last week to
discuss the package, but afterwards neither indicated an agreement
was imminent.
Inflation—a persistent concern for Manchin—will likely
influence the scope of the package. As inflation continues to
surge, the package is expected to only become smaller. Democrats
had originally passed a budget resolution for a $3.5 trillion
spending package, but it appears the package will be closer to $1
trillion, if a deal is ever reached.
Yellen Testifies on Budget Request. Treasury
Secretary Janet Yellen testified before the Senate Finance
Committee and the House Ways and Means Committee last week to
discuss the Biden administration's fiscal year 2023 budget
proposal for the Treasury Department.
She appeared first before the Senate Finance Committee, testifying
on Tuesday, June 7, at a hearing entitled "The President's Fiscal Year 2023
Budget." The discussion focused on risks posed by
inflation, controlling the rise in food and energy prices, a
potential international tax agreement and reforming tax legislation
to better support low- and middle-income families. Click here for a full readout of the Senate Finance
Committee hearing.
She appeared before the House Ways and Means Committee on
Wednesday, June 8, at a hearing entitled "Proposed Fiscal Year 2023 Budget with Treasury
Secretary Janet Yellen." During this hearing, the
discussion focused on the potential international tax agreement,
mitigating the impacts of rising food and energy prices,
controlling inflationary pressures and the tax reforms included in
the president's budget request. Click here for a full readout of the House Ways and
Means Committee hearing.
Republican Study Committee Budget Proposal. The
Republican Study Committee, a group of conservative Republicans who
discuss policy issues and craft legislative proposals, last week
released a budget proposal that would balance the federal budget
and reduce the tax burden on Americans. Overall, the "Blueprint to Save America" calls for $3.9
trillion in tax cuts over the next 10 years and contains the
following tax provisions:
- Make permanent the individual tax provisions in the Tax Cuts and Jobs Act (TCJA, P.L.115-97);
- Make permanent the TCJA provision allowing businesses to immediately expense investments in equipment;
- Accelerate the current 39-year depreciation schedule for nonresidential construction and 27.5-year depreciation schedule for residential construction to 20 years;
- Adjust the second long-term capital gains bracket to start at $75,000 for single filers;
- Index capital gains taxes to inflation;
- Eliminate the estate tax; and
- Fully repeal the state and local tax (SALT) deduction.
Rep. Kevin Hern (R-OK), who chairs the Budget and Spending Task
Force that compiled the report, is also a member of the House Ways
and Means Committee. As such, the budget proposal could provide a
roadmap of the tax policies House Republicans intend to pursue next
Congress if they regain control of the chamber, which is
expected.
Direct SALT Appeal. House Democrats from New York
and New Jersey sent a letterrecently to Treasury Secretary Janet
Yellen and Internal Revenue Service (IRS) Commissioner Charles
Rettig asking the Treasury Department and IRS to rescind guidance
that prevents states from implementing workarounds to the $10,000
SALT deduction cap.
The letter explained the adverse effects the regulations have on
charitable donations. For instance, it said the 2019 regulations,
entitled "Contributions in Exchange for State or Local Tax
Credits" (RIN: 1545-BO89), "had the perverse effect of
further limiting the incentive to make charitable donations."
The lawmakers argued that repealing the rule would align with
congressional intent, which did not seek to reduce charitable
giving.
VMT Resurgence. The Highway Trust Fund (HTF),
which provides a source of funding for federal government
infrastructure projects, is expected to be depleted in 2027. With
gas prices at record high levels, increasing the gas tax—the
primary means by which the HTF has been funded—is currently
politically untenable.
An alternative to raising adequate revenue could be a vehicle miles
traveled (VMT) tax which faces opposition from Americans who drive
long distances on a daily basis in rural areas. Rather than tax
drivers on fuel consumption, a VMT would tax consumers on the
number of miles driven—a metric some say more accurately
reflects the damage each driver imposes on the road.
Rep. Peter DeFazio (D-OR), who chairs the House Transportation and
Infrastructure Committee and is retiring this year, supported a VMT
in remarks in recent weeks. He said Congress has to "look
beyond gas and diesel tax" and "move toward a sustainable
way to fund it and in my mind, it will be vehicle miles
traveled." DeFazio thinks there may be an opportunity to
partner with Republicans who take issue with electric vehicle
drivers who do not pay gas tax.
However, DeFazio said some issues must still be resolved, including
those related to privacy and equity. DeFazio discussed these
issues, saying last week that a VMT structure will "have to
have congestion pricing if you're going to have equity and
fairness."
1111 CONSTITUTION AVENUE
IRS Finishes "Dirty Dozen" Scam
Warnings. The IRS has finalized its "Dirty
Dozen" scams list for 2022, popular methods by which
defrauders attempt to mislead taxpayers. In last week's release, the IRS said warned of the following
scams:
- Concealing assets in offshore accounts and improper reporting of digital assets;
- High-income individuals who don't file tax returns;
- Abusive syndicated conservation easements; and
- Abusive micro-captive insurance arrangements.
Earlier in June, the IRS announced four heavily promoted abusive deals
that taxpayers should avoid:
- Use of charitable remainder annuity trust to eliminate taxable gain;
- Maltese (or other foreign) pension arrangements misusing tax treaties;
- Puerto Rican and other foreign captive insurance; and
- Monetized installment sales.
Finally, the IRS has highlighted a number of common scams that
often target average taxpayers, rather than high-income individuals
and businesses:
- Pandemic-related scams, including theft of benefits and bogus social media posts;
- Avoid anyone claiming they can settle tax debt for pennies on the dollar;
- Spear phishing attacks; and
- Other tricks to steal identity.
According to IRS Commissioner Charles Rettig, "these tax
avoidance strategies are promoted to unsuspecting folks with
too-good-to-be-true promises of reducing taxes or avoiding taxes
altogether."
Clausing Leaving, Leiserson Could Replace.
Kimberly Clausing, deputy assistant secretary for tax analysis at
the Treasury Department, recently left the Biden administration. In
that role, she advised other administration officials on profit
shifting by companies.
Clausing could be replaced by Greg Leiserson, who currently serves
as the senior economist on the Council of Economic Advisers, a role
he also held during the Obama administration.
In between the Obama and Biden administrations, Leiserson served as
director of tax policy at the Washington Center for Equitable
Growth, a left-of-center think tank. While there, he specialized in
the equitable taxation of wealth and income. He could use this
expertise in his new role to promote the Biden administration's
new minimum tax on high-income individuals known as the
"Billionaire Minimum Income Tax." This proposal, floated
under the administration's fiscal year 2023 budget request, is
expected to require the highest-income earners to pay at least 20%
on their annual income as well as unrealized gains.
Leiserson received a bachelor's degree from Swarthmore College
and a Ph.D. from the Massachusetts Institute of Technology.
GLOBAL GETDOWN
No FTC Delay Coming. The Biden Treasury Department
has no plans to delay the effective date of its foreign tax credit
(FTC) regulations despite calls from industry players and a
bipartisan group of House members to do just that. The IRS issued
final FTC regulations in January 2022 that businesses have since
said could cause serious problems, and congressional offices have
suggested in recent weeks a delay would be reasonable.
Recently, however, a top IRS official has said otherwise. Associate
International Chief Counsel Peter Blessing said the IRS "had
some experience with postponing things that then seem to get
postponed forever."
Blessing nevertheless acknowledged the need for the IRS to amend
the final regulations. For instance, he is reported to have said
the IRS recognizes "that the regulations need loosening and
some clarifications, and even some changes in some
respects."
AT A GLANCE
- Retirement Package Markup. The Senate Finance
Committee is tentatively planning a June 23 markup of the Securing
a Strong Retirement Act (H.R.2954), or "SECURE 2.0,"
which passed the House in March 2022. According to Sen. Ben Cardin
(D-MD), while this is "the target date," it could change
since "scheduling is always a challenge."
- CBO Estimates. The Congressional Budget Office estimated last week the federal budget deficit to be $423 billion in the first eight months of fiscal year 2022—about one-fifth of the $2.1 trillion shortfall recorded during the same period in 2021. Revenues, however, were $768 billion, or 29%, higher and outlays were $873 billion, or 19%, lower than during the same period a year ago.
BROWNSTEIN BOOKSHELF
- Venmo Tax. Bloomberg published an
article last week entitled "The IRS Is Coming for Your Venmo Income"
that explained why small business owners who use services like
Venmo, PayPal, EBay and Airbnb will soon receive more scrutiny from
the IRS.
- Spanberger Questions Backlog. Last week, Rep. Abigail Spanberger (D-VA) sent a letter to IRS Commissioner Rettig expressing her "deep concern about the backlog's impact on the Taxpayer Advocate Service's ability to accept inquiries from congressional caseworkers and the subsequent disproportionate impact on seniors, rural residents, small business owners, freelance workers, and lower-income filers."
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