Taxation & Representation, November 30, 2021

Brownstein Hyatt Farber Schreck

Tax Tidbit

Year-End Legislative To-Dos. Washington has been consumed by President Joe Biden’s twin legislative vehicles: the Infrastructure Investment and Jobs Act and the Build Back Better Act—only one of which has been enacted, while the latter has only recently reached a halfway point with House passage 220-213 on Nov. 19.

While lawmakers have spent most of their time focused on these two measures, other high-priority and must-pass bills have fallen by the wayside, requiring Congress to act on them before rapidly approaching end-of-year deadlines.

Below is an overview of what else must pass in the weeks ahead, organized roughly by sense of urgency:

  • Funding the Government. Shortly before federal funding expired in late September, Congress passed a continuing resolution (CR) extending government funding to Dec. 3—this Friday. House Appropriations Committee Chair Rosa DeLauro (D-CT) is expected to soon introduce a CR that would extend current funding levels to either Jan. 21 or Jan. 28 to allow lawmakers additional time to reach an agreement on fiscal year 2022 funding levels. The duration of the next CR is still an open question, as it could see further extension into early February. Appropriators were previously considering a shorter-term extension through Dec. 17. Once a CR passes the House this week, which is expected, the Senate will consider it immediately. This could require a weekend session.
  • Debt Ceiling. Congress must also address the debt ceiling in the coming weeks. Treasury Secretary Janet Yellen, who is testifying this week before the House Financial Services Committee and the Senate Banking Committee, reiterated during her appearances that the government will no longer be able to meet its requirements after Dec. 15. Some outside observers have estimated Treasury could extend this date to mid-January, but lawmakers will likely be under pressure to act before Yellen’s so-called “X date.”

    Senate Minority Leader Mitch McConnell (R-KY)—who had previously informed President Biden that Republicans would not again vote to raise the debt ceiling—said in November he and Senate Majority Leader Chuck Schumer (D-NY) have “agreed to keep talking to get somewhere” with respect to the debt ceiling. McConnell later said Congress will “figure out how to avoid default. We always do.” It thus appears McConnell could be again softening his position on the debt ceiling.

  • National Defense Authorization Act. The Senate will resume consideration of the National Defense Authorization Act (NDAA) this week, continuing a process they began prior to Thanksgiving. On Monday, the NDAA failed to secure the 60 votes needed for cloture on a substitute amendment, failing 45-51. Sen. Susan Collins (R-ME) was the only Republican to vote for the measure. The NDAA has passed every year for six decades, but policy and amendment snags and a lack of Senate floor time have prevented it from passing so far this year. Nevertheless, lawmakers are expected to iron out their differences through a “ping-pong” process in which the two chambers trade amended drafts, rather than a formal conference process, due to time constraints.
  • U.S. Innovation and Competition Act. After Senate Majority Leader Chuck Schumer’s (D-NY) attempt to attach the U.S. Innovation and Competition Act (USICA) to the NDAA failed earlier this month, he and House Speaker Nancy Pelosi (D-CA) subsequently announced the House and Senate would commence a conference process around the USICA and the various House proposals designed to bolster U.S. competitiveness with respect to China. A timeline for the conference process is unclear, and conferees have not yet been publicly named. Since it’s not a “must-pass” bill but still a high priority for many lawmakers amidst the semiconductor shortfall, some form of the USICA is expected to pass, albeit most likely later than the other bills mentioned above.

With government funding, the debt ceiling and the NDAA being must-pass legislation, these bills are expected to take precedence over the Build Back Better Act. At the same time, because Democrats are facing what appears to be an increasingly difficult midterm election next year, they are aiming to pass the Build Back Better Act sooner rather than later, with Schumer pushing for passage before Christmas. Standing in their way, however, are major policy areas that must still be resolved before moderate senators, including Sens. Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV), will sign off on the bill.

With only two weeks left in the legislative year, the odds of passing all of these measures and the Build Back Better Act are becoming slimmer with each passing day.  

Legislative Lowdown

CBO Scores Build Back Better Act. On Friday, Nov. 19, the House approved the $1.75 trillion Build Back Better (BBB) Act (H.R. 5376) on a 220-213 vote. Rep. Jared Golden (D-ME) was the only Democrat to vote against the bill, which received no Republican support. Democrats had hoped to pass the bill on Thursday night, but those plans were derailed after House Minority Leader Kevin McCarthy (R-CA) delivered a floor speech opposing the bill that lasted over eight hours, ultimately concluding at 5:10 a.m. on Friday morning.

Ahead of the vote, the Congressional Budget Office (CBO) released its analysis of the bill on Thursday, Nov. 18. According to CBO, over the next 10 years BBB would:

  • increase direct spending by $1.678 trillion.
  • increase revenue by $1.269 trillion.
  • increase the federal deficit by $367 billion.

CBO also estimated the costs of the various spending programs authorized by the bill, including the following:

Children, Education and Families
Child Care Entitlement Program $273 billion
Paid Leave Program $205 billion
Universal Preschool $109 billion
Pell Grant Funding $11 billion
Higher Education Grants for HBCUs, MSIs and Tribal Institutions $10 billion
Summer and School Meals $10 billion
Tax Credits
Child Tax Credit $185 billion
Renewable Electricity Tax Credits $144 billion
Clean Electricity and Transportation Credits $54 billion
Green Manufacturing and Workforce Credits $26 billion
Vehicle Credits (Electric and Otherwise) $22 billion
Renewable Fuels Tax Credits $15 billion
Earned Income Tax Credit $14 billion
Low Income Housing Tax Credit $12 billion
Higher Education Tax Credits $11 billion
Environmental Justice Program Credit $8 billion
Home Rehabilitation Credit $6 billion
Clean Air, Water and Energy Funds $81 billion
Forest Restoration $26 billion
Public Housing Programs $63 billion
Rental Assistance Program $25 billion
Affordable Housing Program $24 billion
Additional Housing Support Programs $24 billion
Health Care
Home Health Care Medicaid Expansion $150 billion
Enhanced Insurance Premium Subsidies $74 billion
Medicaid Coverage Gap Expansion $57 billion
Medicaid Hearing Coverage Expansion $37 billion
Public Health Improvement Programs $26 billion
Additional Medicaid Program Expansions $15 billion
FMAP Increases $10 billion
Workforce Development Grants $24 billion
Trade Adjustment Assistance for Workers Impacted by International Competition $6 billion
Small Business Programs $5 billion
Manufacturing Supply Chain Support $5 billion
Deportation Protection and Work Permits $124 billion
Immigration Status Adjustments and Expansion of Unused Visas Availability $9 billion
Transportation and Infrastructure Programs $36 billion
Electrification of the Federal Vehicle Fleet $9 billion

CBO estimated that the following proposals would generate revenue:

Business Taxes
Corporate Alternative Minimum Book Tax $319 billion
Additional Changes to Corporate and International Taxes $199 billion
Changes to Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) $144 billion
Excise Tax on Stock Buybacks $124 billion
Limits on Interest Expense Deduction $28 billion
Individual Taxes
Net Investment Income Tax Expansion $242 billion
Surtax on High-Income Individuals, Estates and Trusts $228 billion
Business Loss Deduction Limits $160 billion
State and Local Tax Deduction (SALT) Cap Increase $15 billion
Changes to Health Care Programs
Cancellation of Prescription Drug Rebate Rule $143 billion
Prescription Drug Inflation Rebates $84 billion
Medicare Prescription Drug Pricing Negotiations $76 billion
Uncompensated Care Pool Adjustments $35 billion
Medicare Part D Out-of-Pocket Spending Cap $2 billion
Permanent Children's Health Insurance Program (CHIP) $1 billion
Other Revenue Raisers
IRS Enforcement and Compliance $127 billion
Superfund Tax $25 billion
Supplemental Visa Fees $22 billion
Changes to Retirement Plan Rules $10 billion
Methane Emissions Charges $7 billion
Various Civil Penalty Increases $3 billion

CBO’s estimate that the Internal Revenue Service (IRS) enforcement funding would generate $127 billion in revenue is significantly smaller than the White House’s $400 billion prediction. Democratic officials caution that CBO’s estimate may be too conservative, which would also skew the bill’s projected impact on the federal deficit.

The bill will next be taken up by the Senate, where Democrats are expected to cut additional programs from the once $3 trillion proposal to secure the votes of moderate members. As the bill is being considered through the reconciliation process, only a simple majority is needed to consider and approve the measure.

Ways and Means to Lose Suozzi. Rep. Tom Suozzi (D-NY) announced on Monday he will be running for governor of New York. As a result, he will be unable to run for Congress next term. Suozzi currently holds multiple influential roles in the House, including serving as a member of the House Ways and Means Committee and as vice chair of the Problem Solvers Caucus.

On Ways and Means, Suozzi sits on the Select Revenue Measures Subcommittee and the Oversight Subcommittee, where he is the second-most senior Democrat behind Chair Bill Pascrell (D-NJ). During his time on the tax writing committee, he has prioritized tax policies, including several bills he has authored:

  • the ABLE Employment Flexibility Act, which would allow employers to contribute to ABLE accounts in lieu of retirement plan contributions;
  • the Incentivizing Solar Deployment Act, which would extend the production tax credit for electricity produced from solar energy; and
  • the GET Parity Act, which would provide tax credit parity for geothermal heat pump property.

Above all, though, Suozzi has championed the repeal of the $10,000 cap on the state and local tax (SALT) deduction that has impacted wealthy taxpayers in his state. He has leveraged his position on Ways and Means and his role atop the Problem Solvers Caucus to prompt Democratic leadership to amend the SALT cap through the Build Back Better Act by threatening to withhold his vote unless the SALT cap was amended.

1111 Constitution Avenue

ERTC Guidance Expected Soon.The IRS is expected to soon publish guidance related to the retroactive repeal of the Employee Retention Tax Credit (ERTC) in the Infrastructure Investment and Jobs Act (IIJA, P.L.117-58). Prior to passage of the IIJA, the ERTC allowed employers to claim a 70% credit for qualified wages up to $10,000 per quarter per employee through the end of 2021.
However, the IIJA, which President Biden signed into law on Nov. 15, retroactively repealed the ERTC so it would sunset on Sept. 30, 2021.

The change has caused concerns from some businesses that had planned on receiving the credit this quarter. In response, IRS Associate Chief Counsel Rachel Leiser Levy said earlier this month that the IRS is “aware of this problem.” She said “what I can assure everybody … is that we do anticipate providing further information and guidance addressing these changes as soon as possible,” adding that “it is a very, very high-priority item for us.”

IRS Expands Temporary Use of E-Signatures. Earlier this month, the IRS issued a memorandum expanding the types of forms for which taxpayers and representatives can use electronic or digital signatures. The memo updates a previous one (NHQ-10-1220-000) released in December 2020. In the new memo, the IRS cites the ongoing COVID-19 pandemic as justification for the expansion, saying “taxpayer representatives have expressed concerns with securing handwritten signatures during these times for forms that are required to be filed or maintained on paper.” The change applies to certain forms signed and postmarked on or after Aug. 28, 2020. The forms to which the change applies include, among others:

  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

  • Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons;

  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit; and

  • Form 1120-L, U.S. Life Insurance Company Income Tax Return

Brownstein Bookshelf

  • NSA Calls for IRS Improvements. The National Society of Accountants (NSA) sent a letterlast week to House Ways and Means Committee Chair Richard Neal (D-MA), Senate Finance Committee Chair Ron Wyden (D-OR) and IRS Commissioner Charles Rettig underscoring the need for the IRS to improve its communication with taxpayers and practitioners and for lawmakers to boost funding for the agency.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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