This week in the Cloakroom, we discuss what the end of the year on the Hill means for tax legislation and a leadership reorganization at the IRS.

Wait until next year for a tax bill

The House and Senate have adjourned for the year,?ending speculation that they will take up a tax bill this year. Consideration of the GOP’s tax package will now likely take place early in 2024. In a recent appearance at the PwC Tax Symposium, Former House Ways & Means Committee Chair Dave Camp recounted a conversation with current Chair Jason Smith (R-MO) on the outlook for tax legislation next year.?

The lack of a year-end tax bill is undoubtedly a disappointment to many in the DC tax world, as many stakeholders were hoping for action on their pet issues. before Congress went home for the year. The U.S. Chamber of Commerce weighed in on some of the TCJA’s expiring tax issues they would like Congress to address. The Chamber maintains that failure to address these tax provisions, including? Bonus Depreciation, R&D expensing, the expiring Section 199A deduction for pass-through business income, and the limitation on business interest deduction under Section 163 (j), will have a significant negative economic impact on U.S. businesses. The Chamber calls on Congress to restore these provisions retroactively.

As for the prospects for action on a tax bill in the new year, Axios reports that Chairman Smith and Senate Finance Committee Chair Ron Wyden (D-OR) have discussed what a tax bill should address. The issues include restoring the R&D expense deduction phased out by the TCJA and the Child Tax Credit. If you are a regular reader of The Cloakroom, you know that the deductibility of research and development expenses is a huge issue for the business community and many members of the House and Senate. The R&D deduction appears to be one issue the often-divided House GOP caucus can agree on .

It may be early for New Year’s resolutions, but I will make one here. I resolve to diligently track and report on any action on significant tax legislation when Congress returns after the holiday break.

The Cloakroom Says:

How likely is it that Congress brings a tax bill to the House floor early in 2024? The prospects for successful consideration of a tax bill are murky because the House will have a lot on its plate in the coming year. For example, you may remember that not one but two government funding deadlines are looming. The House has to consider how it will address the two deadlines set by Speaker Mike Johnson’s “laddered” approach to kick the can down the road adopted as? Congress faced the last shutdown deadline. As we've seen in previous shutdown dramas, these situations tend to suck all the air out of Congress, making consideration of other significant legislation nearly impossible. With deadlines of January 19th and February 2nd? looming, I doubt the House will have the bandwidth to consider a tax bill.

Besides the need to address the two appropriations deadlines, the House will, at some point, have to focus on other significant legislation, such as the foreign aid package for Israel and Ukraine, which may include highly contentious border security provisions. Consideration of the foreign aid package will take time and energy in the House as its version of the legislation will likely differ from the Senate bill.? Another factor that could deter the House from considering a tax bill is the recently authorized impeachment investigation into President Biden. House Republicans have not announced a timeline for impeachment, and it seems unlikely that impeachment hearings could begin before the investigation ends. My take is that The House will be unable to find the time to move a tax package in the first quarter of the new year. If I am proved wrong on that take, I urge my faithful readers to call me out. We will closely watch the House when it reconvenes after the holidays.

Global Taxation

IRS Issues Global Minimum Tax Guidance

? In a notice issued on December 11th ,? The IRS and Treasury Department extended relief previously announced under the foreign tax credit rules, which allows taxpayers to continue to treat foreign taxes that were creditable under prior regs through the end of 2023. The notice also addresses how the foreign tax credit rules will interact with the Globe rules under the OECD’s Pillar II plan.

The deadline for comments is February 9, 2024.

Chamber of Commerce Comments on OECD Multilateral Convention

The U.S. Chamber of Commerce recently submitted a comment letter to the Treasury Department to express concerns about various aspects of the OECD’s draft Inclusive Framework Multilateral Convention to Implement Amount A of Pillar One. The Chamber maintained that the convention should be addressed in three areas:

• Under the Marketing and Distribution Profits Safe Harbor (MDSH), profits reallocated under Amount A of Pillar One would be adjusted downwards to prevent double taxation in cases where a market jurisdiction could otherwise tax a multinational enterprise’s profit twice.

• The convention’s proposed MDSH adjustment contains a de Minimis threshold that would prevent its application with respect to jurisdictions in which a multinational Enterprise group has a taxable profit of less than €50 million, which would significantly limit the number of instances in which the MDSH adjustment would apply.

• The proposed MDSH adjustment includes a jurisdictional offset percentage that adds undue complexity.
• The Chamber also expressed concern about the treatment of withholding taxes under Amount A.?

Other Global Taxation News

Amazon Wins $270 Million Tax Case

What Should CFOs Take Away From Amazon's $270million Tax Win?

Bermuda House Passes Corporate Income Tax Act

Five? European Countries Invoke Temporary Exemption From Corporate Minimum Tax? as They Host Too Few Multinational Firms?

Tax Administration & Accounting Policy

FASB Issues Final Income Tax Disclosure Accounting Standard Update

The Financial Accounting Standards Board (FASB) has issued a final Accounting Standard Update that sets new rules for how companies should disclose the income taxes they have paid.

The new rules will require greater transparency about income taxes U.S. companies pay domestically and in foreign countries.

For public companies, the new rules are effective for annual periods beginning after December 15, 2024.

IRS Issues Interim CAMT Guidance

On December 12, the IRS issued interim guidance to clarify rules for the Corporate Minimum Tax (CAMT).

The 15% tax was created by last year’s Inflation Reduction Act (IRA) and applies to corporations with average annual financial statement income over $1 billion.? The guidance clarifies how companies should calculate the tax.

Other Tax Administration and Accounting Policy News

Will a Wealth Tax Fix the Federal Deficit?

The Peter G. Petersen Foundation recently took a look at the impact taxing the rich would have on the U.S. Federal budget deficit

The foundation concluded that even though it could raise trillions of dollars, imposing a wealth tax on rich Americans will not alleviate the massive deficit

IRS Announces New Leadership Plan and Structure

IRS Commissioner Danny Werfel announced that the IRS will reorganize its senior leadership structure. ? The new structure will consist of a single Deputy IRS Commissioner (there are currently two Deputy Commissioners) And four Chief Executive positions that will focus on taxpayer service, compliance, IT, and Operations.?

According to Werfel, the changes will streamline operational efficiencies and align with changes underway at the Service as the agency fulfills its mandate to improve operational capabilities as required by the Inflation Reduction Act (IRA). The Changes are expected to be implemented in 2024.

Do You have any comments or questions? I’d love to hear from you. Please message me here on LinkedIn.

Editor’s note: This is the last edition of The Cloakroom for 2023. We will be back in early January. Happy holidays!