Tax Tidbit

Build Back Better Timeline. Senate Majority Leader Chuck Schumer (D-NY) has consistently said for months that he wants the Senate to approve the Build Back Better Act before Christmas. He now faces multiple competing legislative priorities and ongoing discussions over policy. Nevertheless, on Monday, Schumer doubled down on this timeline in a Dear Colleague letter, saying he wants “to pass the legislation before Christmas and get it to the president’s desk.” He then outlined the steps that must be taken to achieve this.

Schumer said Senate committees are making changes to the House-passed version of the bill so it adheres to requirements under the Byrd Rule. According to Schumer, committees have already begun meeting with the Senate Parliamentarian (known as a “Byrd bath”) to confirm their changes will not violate the Byrd Rule. He explained that, beginning Friday and over the weekend, Democrats on eight of the 12 committee submitted their final text to the parliamentarian, the Congressional Budget Office and Senate Republicans. Democrats on the Senate Finance Committee and the Senate Health, Education, Labor and Pensions Committee—which are responsible for the two largest pieces of the bill—met with the parliamentarian yesterday and today and are expected to hold “formal bipartisan Byrd bath meetings” in the coming days. During these meetings, both Democratic and Republican staff will argue the merits of provisions to be included in the bill. While Schumer did not specify a timeline for these bipartisan meetings, Schumer wants “to finalize the remaining committees over the course of this week and next.”

To accomplish this, Schumer warned what many Senate staffers and members have feared: that “there are more long days and nights, and potentially weekends, that the Senate will be in session this month.”

In acknowledging other legislative priorities, Schumer said “of course, there are other priorities we plan to address before the end of the year as well, including voting rights, debt limit, NDAA, among others.” He explicitly said the Senate would be focused this week on confirming nominees, a final conference amendment for the National Defense Authorization Act (NDAA) and a service for the late WWII hero and Senate Majority Leader, Robert Dole (R-KS), who passed away over the weekend at the age of 98.

Despite Schumer’s best efforts, the Senate is unlikely to consider the Build Back Better Act before the new year, and lawmakers have seemingly begun accepting this. Sens. Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV), for instance, have both indicated they are happy to wait until the new year to move forward on the package.

Congressional tax writers have echoed these sentiments, including House Ways and Means Committee Chair Richard Neal (D-MA); Rep. Don Beyer (D-VA), who said passing the Build Back Better Act through the Senate before Christmas “sounds like a really tall order;” and Rep. Ron Kind (D-WI), who said the “window is closing” for the Senate to pass the bill this year. In the upper chamber, Sen. Ben Cardin (D-MD), a member of the Senate Finance Committee, seemingly also urged caution, saying “there’s no sense getting ahead of ourselves.”

Legislative Lowdown

Yellen and Powell Testimony Takeaways. Last week, Treasury Secretary Janet Yellen and Chair of the Board of Governors of the Federal Reserve System Jerome Powell testified before the House Financial Services Committee and the Senate Banking Committee. While both hearings were ostensibly focused on congressional oversight following enactment of the CARES Act, lawmakers explored issues related to tax policy as well. These discussions are briefly summarized below:

  • Tax Gap. Rep. Lance Gooden (R-TX) asked Yellen if the Build Back Better Act would increase audit rates on those earning below $400,000. Yellen said that “many fewer Americans with incomes below $400,000 will be audited” and that the IRS would have the resources necessary to direct audits more effectively. If the IRS is provided the resources, Yellen said “auditing will be focused in those areas” as they “are what account for a $7 trillion tax gap over the next decade.”
  • Bank Reporting. In response to Rep. Madeleine Dean’s (D-PA) question about the effects of additional bank reporting requirements, Yellen said for some types of income, including complex partnerships and companies, “the sources of income and amounts are opaque.” She reiterated her support for the Biden administration’s bank reporting proposal, saying it would “improve honesty in reporting in the first place, when the odds of being audited rise.”
  • Global Minimum Tax. Sen. Chris Van Hollen (D-MD) asked Yellen to describe her efforts to establish a 15% global minimum tax rate. Yellen said there is a pattern across the globe of corporate tax rates trending downward, which she said allows corporations to pay less tax in the U.S. and abroad. She said the 15% global minimum tax will narrow the differential between what multinational corporations are able to pay in tax and what those in the U.S. must pay.
  • SAFE Banking Act. Rep. Perlmutter (D-CO) asked Yellen if passage of the SAFE Banking Act would “make the IRS’s job easier.” Yellen said, “yes, of course, it would.”

Please contact a member of the Brownstein Tax Policy Team for a readout of either hearing.

NTU Provides Extenders Recommendations. Last week, the National Taxpayers Union (NTU) made some non-Build Back Better Act news. It published a report entitled “Not All Tax Extenders Are Created Equal, 2021 Edition,” in which it took a position on all tax provisions expiring at the end of this year.

NTU discussed 30 tax provisions—25 traditional extenders acknowledged by the Joint Committee on Taxation and five other provisions enacted under the Tax Cuts and Jobs Act (TCJA, P.L.115-97), the Coronavirus Aid, Relief and Economic Security (CARES) Act (P.L.116-136) and the American Rescue Plan Act (ARPA, P.L.117-2) not traditionally considered tax extenders.

In addition to the treatment of premiums for qualified mortgage insurance as qualified residence interest, NTU recommended Congress extend the following provisions with modifications:

  • Earned Income Tax Credit: NTU recommended Congress address the complexity and marriage penalty associated with the EITC.
  • Child Tax Credit: While NTU recommended Congress find ways to better target the CTC and make it deficit-neutral, it suggested Congress retain the full refundability and regular payments enacted under ARPA.

NTU suggested Congress permanently extend the following provisions without modification:

  • Allowing businesses to fully expense research and development (R&D) expenditures;
  • Allowing businesses to factor in depreciation and amortization costs when calculating their annual limit on interest deductions;
  • roviding a safe harbor for HSA beneficiaries who receive telehealth services before their deductible; and
  • Increasing the contribution limits on employer-provided dependent care assistance programs.

NTU also recommended that Congress allow half of these provisions to permanently expire. While there is not enough space here to explore each of these, some of the provisions include expansions to the Child and Dependent Care Tax Credit, the qualified fuel cell motor vehicle credit and the nonbusiness energy property credit.

NTU did not take a position on the remaining eight provisions.

Given other year-end priorities, it appears unlikely Congress will enact tax extenders before 2022. However, Congress could still make the decision to retroactively extend, or allow to expire, these provisions next year.

Senate Finance Republicans Probe IRS Data Leak. Senate Finance Committee Ranking Member Mike Crapo (R-ID) and 13 other members of the committee sent a letter last week to Internal Revenue Service (IRS) Commissioner Charles Rettig asking about the agency’s progress in identifying the source of a taxpayer information leak earlier this year.

Beginning in June, ProPublica published a series of articles revealing what the letter characterized as “confidential taxpayer information that is protected by law.” Months later, however, the IRS still has not determined whether there has been a data breach.

In last week’s letter, the senators expressed concern that the IRS has yet to identify the source of the information leak. After outlining the security risks associated with the IT systems at the IRS and potential vulnerabilities in the relationship between contractors and the IRS, the letter asked Rettig to respond to a series of questions by mid-December, including:

  • An update on the progress of identifying whether there has been a data breach;
  • The number of employees asked to determine whether the IRS data and systems have been compromised; and
  • The number of active contracts the IRS has that involve the sharing of protected taxpayer information.

Read the FULL “Tax & Financial Services Week Ahead” update
from Brownstein Hyatt Farber Schreck.

Family Enterprise USA advocates for American Family business. We help family businesses communicate their challenges and contributions to American economic freedom to Legislators. We represent all American family businesses; not just specific industries and provide research to enhance the opportunity for success. We help family businesses continue to establish their unique business legacy. Family Enterprise USA is a 501(c)(3) non-profit organization.. Family foundations can donate.

@FamilyEnterpriseUSA @PolicyAndTaxationGroup @DitchTheEstateTax #FamilyBusiness #Business #SmallBiz #EstateTax #Deathtax #CapitalGainsTax #StepUpInBasis #Taxes #gifttax #Generationskippingtax #InheritanceTax #repealestatetax #promotefamilybusinesses #taxLegislation #AdvocatingForFamilyBusinesses #incometax #Generationallyowned #Multigenerationalbusiness