Tax Tidbit

Budget Reconciliation: By the Numbers. Since 1980, Congress has passed 26 budget reconciliation bills, 22 of which have become law. During 11 of those 41 years, Congress did not pass any budget reconciliation at all.

Below is a breakdown of the budget reconciliation bills that have passed Congress during this timeframe. Cells highlighted in red indicate Republican control, blue indicates Democratic control and gray reflects divided control of Congress. The four bills in italics are those that were vetoed.

If the Build Back Better Act is not resuscitated, it would be one of the only reconciliation bills in recent history to not even receive a vote.

Legislative Lowdown

Build Back Never? Negotiations on the Build Back Better Act (BBBA) have stalled in recent weeks, and with lawmakers turning their attention elsewhere, the outlook for the package is unclear.

One of the last substantive developments occurred in late December when Sen. Joe Manchin (D-WV) sent the White House a $1.8 trillion outline that contained climate, healthcare and education provisions offset in part by tax hikes with which Sen. Kyrsten Sinema (D-AZ) had already taken issue. While this could have provided the basis for continued negotiations, Manchin has since rescinded that offer and said he is no longer in discussions with the White House, leaving the package without any momentum. Manchin has more recently told colleagues they should fundamentally rethink their approach to the package, bringing things to a standstill.

Despite the BBBA being a top Democratic legislative priority for the past year, Senate Majority Leader Chuck Schumer (D-NY) has instead moved on to voting rights legislation. Lawmakers will also be under pressure to move federal appropriations legislation and potentially another COVID-19 relief package (discussed below) ahead of the BBBA. This will further delay any floor movement on the BBBA until at least late January at the earliest.

The State of the Union Address, which will coincide this year with the first midterm primary election on March 1, could be a consequential date for the BBBA. If no substantial progress is made by then, President Biden could use the occasion to prompt reengagement or seek an off-ramp.

While the outlook for BBBA looks grim, Speaker Nancy Pelosi (D-CA) remained optimistic over the weekend, saying she does “think there's an agreement to be reached.”

Lawmakers Weigh Omicron Relief Package. The resurgence of the COVID-19 pandemic through the omicron variant has led a bipartisan group of senators to explore the prospects of another pandemic relief package. The effort, which began in mid-December, is led by Sens. Ben Cardin (D-MD) and Roger Wicker (R-MS) and includes Sens. Maria Cantwell (D-WA), Mark Warner (D-VA) and Susan Collins (R-ME).

Talks are in early stages, but the package appears focused on aiding restaurants, performance venues, gyms and potentially minor league sports teams that may continue to struggle under the latest surge. The lawmakers are targeting a price tag between $50 billion and $70 billion, most of which will be dedicated to restaurant assistance. The package will at least be partially offset by previously approved COVID-19 relief funding and unused state and local funds.

Pelosi (D-CA) said over the weekend Congress could attach this additional COVID-19 relief to forthcoming appropriations legislation, which must pass before Feb. 18 to avoid a government shutdown. In a Sunday interview, Pelosi said she thinks “the appropriators can get the job done,” adding that “something like additional funding can be in there, can be fenced off for emergency, as would be COVID.”

This approach is reportedly being explored by the House and Senate Appropriations Committees. The House Appropriations Committee is holding multiple hearings this week on the effects of another continuing resolution, during which additional COVID-19 relief could receive some discussion.

1111 Constitution Avenue

2022 Tax Filing Season Scheduled. On Monday, the Internal Revenue Service (IRS) announced key dates for the 2022 tax filing season, which will open on Monday, Jan. 24 and end on April 18 (rather than April 15 because of Emancipation Day).

Below is an overview of other key dates during the 2022 tax filing season:

• Friday, Jan. 14: IRS Free File opens for taxpayers who made less than $73,000 in 2021.
• Tuesday, Jan. 18: Due date for tax year 2021 fourth quarter estimated tax payment.
• Monday, Jan. 24: IRS begins 2022 tax season.
• Monday, April 18: Due date to file 2021 tax return or request extension and pay tax owed.
• Tuesday, April 19: Due date to file 2021 tax return or request extension and pay tax owed for those who live in Massachusetts or Maine due to Patriots’ Day holiday.
• Monday, Oct. 17: Due date to file for those requesting an extension on their 2021 tax returns.

Treasury Department officials have recently said there are currently no discussions about delaying the filing deadline, as has occurred in recent years due to the COVID-19 pandemic. It is unclear whether those discussions might start to occur, however, since the IRS continues to face headwinds stemming from the pandemic. One of the biggest issues is the backlog of unprocessed returns and mail, which stood at 6 million unopened pieces of mail as of Dec. 23, as opposed to the more typical 1 million.

Treasury Department officials have already acknowledged the difficulty the backlog will pose, saying that staffing and other logistical challenges are expected to make for another difficult tax filing year. Officials have also noted the additional strain imposed by congressionally mandated requirements, such as Economic Impact Payments and the expanded Child Tax Credit last year. Because of these and other demands placed on the IRS, officials have again called on Congress to provide the agency with additional resources, such as the $80 billion in funding under consideration in the Build Back Better Act or an increased budget number through the annual appropriations process.

To reduce the potential for disruptions this year, IRS Commissioner Charles Rettig said in the announcement "the pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don’t face processing delays. Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year. And we urge extra attention to those who received an Economic Impact Payment or an advance Child Tax Credit last year.” According to Treasury Department experts, taxpayers are expected to receive their refunds about three weeks after they are submitted to the IRS, which is standard for the IRS, but only if the returns are error-free.

IRS Releases FY 2021 Progress Update. On Friday, the IRS released its fiscal year (FY) 2021 progress update, entitled “Putting Taxpayers First.” Much of the report reviewed the difficulties associated with the COVID-19 pandemic, including the implementation of new congressional legislation requiring new Economic Impact Payments and Child Tax Credit changes. In addition to its work related to the implementation of the Taxpayer First Act (P.L.116-25), the report also reviewed its progress on the following six goals:

• Enabling all taxpayers to meet their tax obligations;
• Encouraging compliance through administering and enforcing the tax code;
• Collaborating with external partners proactively to improve tax administration;
• Cultivating a well-equipped, diverse, flexible and engaged workforce;
• Advancing data access, usability and analytics to inform decision-making and improve operational outcomes; and
• Driving increased agility, efficiency, effectiveness and security in IRS operations.

Looking ahead to FY 2022, the IRS said it will continue its focus on system modernization. This will include continued implementation of the Integrated Business Modernization Plan with the goal of delivering to taxpayers “the same kind of cutting-edge services they are used to receiving from their financial institution or online retailer.”

Part of this effort will also include IRS NEXT, which the IRS said will “provide across-the-board service improvements in a cost-effective manner, for taxpayers and tax professionals alike.” Once fully implemented, the agency said IRS NEXT will make “it quicker and easier for taxpayers to file a return, answer a notice from us or pay a tax bill improves tax administration and makes the tax system run more efficiently.”

Finally, the IRS said it will unveil during FY 2022 a new strategic plan for years 2022 through 2026. It said this plan will provide a roadmap to help guide the agency’s programs and operations and lay out a vision to help improve the tax system.

Biden Administration Under Pressure to Provide LIFO Tax Relief. Ongoing global supply chain disruptions will likely have tax implications for inventory-heavy businesses—such as car dealers, grocers and equipment rental companies—that use last-in, first-out (LIFO) accounting methods. That is because reductions in inventory value can trigger a recapture tax if they do not maintain a minimum level of inventory at year-end. Thus, because global supply chain disruptions have resulted in much lower levels of inventory for these businesses, they will consequently be subject to the recapture tax.

Faced with this, dozens of lawmakers have urged the Treasury Department to protect businesses that use LIFO accounting. In a letter last year to Treasury Secretary Janet Yellen, 92 Republicans and Democrats recommended the Treasury Department unilaterally grant temporary relief for the affected businesses. They argue that under I.R.C. Section 473, the Treasury secretary can provide such relief from the recapture tax if “any embargo, international boycott, or other major foreign trade interruption, has made difficult or impossible” to replace inventory for “any class of goods for any class of taxpayers.” The letter requests such a safe harbor that would allow affected businesses three years to recover their inventories. However, the Treasury Department reportedly thinks its authority to offer such a safe harbor is unclear.

In addition to congressional efforts, industry has sought to pressure the Biden administration to act. For instance, late last year, the National Association of Minority Automobile Dealers (NAMAD), which represents dealerships owned by ethnic minorities, asked the Biden administration to provide LIFO tax relief amid supply chain disruptions. In a letter to the administration, NAMAD President Damon Lester said that “providing temporary LIFO relief would allow minority auto dealers to continue contributing to the communities that we help sustain.

At a Glance

• Recent Inflation Numbers. Last week, the Bureau of Labor Statistics (BLS) reported that the U.S. economy added just 199,000 jobs in December, falling short of the 422,000 expected. This will be complemented by further economic statistics on Wednesday when BLS will release additional inflation numbers.
• March 1 SOTU. Last week, Speaker Nancy Pelosi (D-CA) officially invited President Biden to deliver the State of the Union Address on Tuesday, March 1. The White House subsequently accepted the invitation.

Brownstein Bookshelf

• BBBA Status. The Washington Post provides more details about BBBA discussions, or lack thereof, between Manchin ), congressional Democrats and the White House.
• SALT Talks. The Hill gives a state of play on congressional discussions related to the $10,000 state and local tax deduction.
• Tax Filing Issues. The Washington Post explains how the ongoing COVID-19 pandemic might affect the upcoming tax filing year, including potential delayed refunds.