Tax Bill Preview; Business Tax Updates; and "Skeptical" Auditors

What Might Show Up in a Tax Bill This Year?

Just as they did when they last controlled the House from 2016-2018, Republicans are expected to draft a tax bill sometime during the current session of Congress. There is considerable speculation in Washington about what could be in a new tax bill that might emerge in the House. Here is a brief rundown of what we might see:

• Restoration of expensing of R&D costs under Section 174 of the IRC retroactive to 2022. As reported previously in The Cloakroom, there is strong bipartisan support in both the House and Senate to restore this long-time deduction that was eliminated by the Tax Cuts and Jobs Act (TCJA) for tax year 2022.
• Restoration of the deduction for business interest under Section 163(j) of the tax code retroactive to 2022. Like the R&D deduction, this provision was also eliminated by the TCJA and had strong bipartisan, bicameral support.
• Reverse the phase-out of bonus depreciation as mandated by the TCJA.
• Make the Section 199A deduction permanent. The TCJA created a 20% deduction for some pass-through business income that expires in 2025. There is strong pressure from the pass-through community to make the provision permanent.
• Add Language Addressing the Corporate Minimum Tax. The Inflation Reduction Act (IRA) enacted last year includes a 15% Corporate Minimum Tax to bring the US in line with the OECD Pillar II requirements.? As House Republicans strongly oppose the tax, there is expected to be an attempt to include language in the tax legislation to address the issue.? It remains unclear what that language might be, and it would be premature to speculate on it now.

If a significant tax bill emerged from the House and made its way to the Senate, it would likely die, given that Democrats control the chamber. Some observers see Republicans taking a different tax policy approach than they have traditionally taken, but it remains to be seen if they will take that approach in this Congress.

AI as a Tool for Stealing Tax and Personal Financial Info

We hear a lot these days about how college students could cut corners on writing and research assignments by using artificial intelligence programs like Chat GPT. Still, it appears that students are not the only cheaters using the AI tool.

Scammers are using the popular program to impersonate the IRS to obtain personal financial information from unsuspecting taxpayers. Senate Finance Committee members recently asked the IRS how they will address the situation.

State Tax News

Minnesota, California, and Wisconsin Address Business Taxation

As we have reported in recent editions of The Cloakroom, many states have enacted measures to reduce corporate tax rates. Two states are taking a different approach to business taxation to raise revenue from businesses in their states.?

• Minnesota’s House and Senate are considering “worldwide reporting” legislation that would tax multinational businesses on revenue earned outside of the U.S.? The provision, included in bills being considered in both the state house and senate, has created doubts over its viability.
• ?In California, Democrats in the state Senate have proposed raising the state’s business tax rates. This proposal would create a two-tiered corporate tax system for businesses in California. Companies would pay 6.63% on the first $1.5 million they make, and any income earned above that would be taxed at 10.99%. (The current business tax rate in the state is 8.84%.) Governor Gavin Newsom opposes the measure, which raises doubts that it will be enacted.?
• Meanwhile, other states like Wisconsin are looking at a flat tax.

Global Taxation News

Aussies Get Shout-Out From FACT

The Financial Accountability and Corporate Transparency (FACT) Coalition has submitted comments on Australia’s proposed regulations to implement Public Country-by-Country reporting. Specifically, the coalition addressed issues including how reporting entities are defined, the scope and nature of public information required to be reported, and the circumstances under which entities may be exempted from the reporting.

FACT applauded Australia for the regulations and welcomed the application of solid reporting requirements to improve tax transparency.

NFTC Expresses Concerns About OECD Guidance

The National Foreign Trade Council (NFTC) submitted comments on the OECD’s Pillar Two administrative guidance. The trade group said the proposed rules were too broad and expressed concerns about various aspects of the direction, including rule order, tax credits, and QDMTT Safe Harbor.

Accounting Policy and News

PCAOB to Auditors: "Be More Skeptical"

The Public Company Accounting Oversight Board (PCAOB),? the federal body that oversees the auditing of public companies in the U.S., has issued a report asking auditors to be more critical and skeptical in their assessments of companies they are auditing. The suggestions come in response to recent bank failures and high-profile bankruptcies of public companies.

The audit watchdog added a new auditor independence section added a new section on auditor independence to its inspection reports.

SEC Auditing and Enforcement On the Rise

A report from economics and financial consulting firm Cornerstone Research found that the Securities and Exchange Commission (SEC) significantly increased its oversight of accounting fraud and audit failures in fiscal year 2022. Cornerstone cited a 55%?increase in SEC actions over the previous year.

Got a Complaint about Accounting Standards Setters?

The Financial Accounting Foundation (FAF), the body that oversees accounting standard setters, the Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB), is giving interested parties the ability to raise concerns about the processes the two bodies use when they set new accounting standards.

The FAF recently created a place for people to raise concerns about whether due process was followed in a standard-setting process. Complaints will be reviewed by FAF’s Standard Setting Process Oversight Committee.

Notable Fact of the Week

In yet another incentive to ensure that you're up to o date on your taxes, the IRS is hiring gun-toting special agents trained to use deadly force. This news reminds us of last summer when Senate Finance Committee member Chuck Grassley (R-IA) warned Iowans that armed federal agents would?“shoot some small businessperson” in the state.