We’re Back!
The Cloakroom, week of October 2, 2023
After a two-week break, we are back to update you on what has been happening.?If you've been following the news out of DC, you know that much has happened since our last report. We have seen a last-minute deal to avert a government shutdown as the House and Senate passed a short-term stopgap continuing resolution to fund the government at current levels for 45 days, until November 17th. This drama was followed by the banishment of Speaker of the House Kevin McCarthy by the GOP caucus, creating uncertainty about what will happen in the House through the fall. The big question that remains to be answered is who will serve as the next speaker.?McCarthy’s successor will determine the House’s agenda going forward. The first order of business for the new Speaker will likely be passing any outstanding appropriations bills by the 45-day deadline. Also uncertain are the prospects for the House Ways & Means Committee’s tax bill that was approved by the committee earlier this year.?
The Cloakroom Says:
I expect Ways & Means Chair Jason Smith will pressure the new Speaker to bring the tax bill to the House Floor by the end of the year. Smith was critical of his Republican colleagues who brought the speaker down, charging that it would set back the conservative agenda in the House and limit the ability of the House to exercise oversight of the Biden Administration.?
The House and? Senate decided to once again "kick the can down the road” with a? short-term stopgap measure. This was not surprising but disappointing. Given the chaos in the House, I fear we will be revisiting another last-minute short-term fix to keep the government open as the current 45-day deadline approaches. This means the House will likely be focused on finalizing outstanding appropriations bills until Nov. 17th, diverting attention from other significant legislation. I want to see This Congress pass a bipartisan, bicameral tax bill that makes some sensible, practical fixes to the current post-TCJA tax code that actually has a chance of being signed by the president. Sometimes, I wish for too much, I think. But the truth is that I’d love to be able to write about something more meaningful and real. Okay, My rant is over. Now, let's catch up on what happened while The Cloakroom was on a break.
Global Taxation
OECD?Says International Community Has Concluded Negotiations on Inclusive Framework
The OECD has announced that negotiations on the Inclusive Framework on BEPS have concluded. Formally known as the Multilateral Convention to Facilitate the Implementation of the Pillar II Subject to Tax Rule (leave it to the OECD to come up with a lengthy and unwieldy name as they often do). The OECD says the new convention will allow countries to collect more tax under treaties that set low withholding rates.
Former UK PM calls for a reduction in Britain’s Corporation Tax
Liz Truss, the former Prime Minister of the United Kingdom, recently called on the country’s Conservative Party to lower the tax on UK business to 19% from its current 25%. Truss was PM for what seemed like about five minutes last fall. I am unsure if her 49-day tenure was long enough to give her the gravitas to call for a new corporate tax rate in the UK.
CATO Institute Says OECD Global Tax Plan will cost countries more than it raises
The Libertarian-leaning Think tank, the Cato Institute, claims that the OECD global taxation plan will cost more than it will raise. Using data from the non-partisan Joint Committee on Taxation. (JCT) CATO says the plan will bring in about $220 billion in revenue for participating countries while costing them at least $248 billion. This $48 billion net loss, if accurate, may not bode well for global adoption of the plan.
In the U.S., CATO maintains that signing on to the OECD plan will reduce domestic tax revenues between $122 and $57 billion over ten years, reducing? American jobs by about? 370,000. The JCT data that CATO cites has been criticized as being overly pessimistic in its assessment of the impact of the OECD plan, and CATO’s strong opposition to the Plan should cause readers to take these estimations with a grain of salt.??
NFTC calls on OECD to clarify Pillar II rules
The National Foreign Trade Council (NFTC) this week submitted a comment letter to the OECD on the organization’s Pillar II Administrative Guidance. The U.S.-based business group called on the OECD to provide more clarity on how Pillar II’ will be implemented and to solidify the initiative's Safe Harbor provisions. Additionally, the NFTC asked for clarity on how Pillar II will treat intragroup transactions and foreign tax credits.
HouseRepublicans Warn Canada of the Consequences of Adoption of? Digital Services Tax
Forty-one members of the House Ways and Means Committee have sent a letter to The Canadian Minister of Finance, U.S. Trade Representative, and OECD warning of “significant consequences to the U.S.-Canada trade relationship if Canada adopts a? proposed digital services tax (DST).? Canada announced earlier this year that it would adopt the DST by 2024 after over 150 countries agreed to delay the adoption of the OECD’s Pillar I proposal.
State Taxation
Here are a few links to notable state taxation news:
Tax Administration/ Legislation and Regulation
领英推荐
Senate Finance? Holds Confirmation Hearing for IRS Chief Counsel Nominee
Last week, The Senate Finance Committee (SFC) held a confirmation hearing for Marjorie Rollinson, the Biden Administration’s nominee for the Chief Legal Counsel at the IRS. , formerly with Ernst & Young, Rollinson was grilled by. SFC Republicans about her willingness to act impartially and fairly in her new role. She insisted she would fairly and impartially enforce all tax laws. Committee Republicans also expressed concern about the IRS's failure to issue new regulations by statutory deadlines.
Senators call on IRS to make U.S. Tax System fairer
Senators Chris Van Hollen (D-MD), Elizabeth Warren (D-MA), Sheldon Whitehouse (D-RI), and Bernie Sanders (I-VT) wrote a letter to Treasury Secretary Janet Yellen urging the agency to use its statutory authority to close tax loopholes to make the tax system more fair. More specifically, the Senators asked for the following? regulatory actions:
Senate Finance Committee Chair calls on IRS to crack down on wealthy tax Cheats
In a September 28 letter to IRS Commissioner Danny Werfel, Senate Finance Committee Chair Ron Wyden (D-OR) called on the service to step up its enforcement on 1.4 million high-income taxpayers who have not filed tax returns. Wyden urges the IRS to use funding provided by last year’s Inflation Reduction Act (IRA) to fund the enforcement effort, which he says could yield more than $65 Billion.
IRS Establishes New Division to Increase Collections from Pass-Through Businesses
The IRS announced that it had created a new organization within the Large Business and International (LB&I) Division to increase collections from Pass Through business entities. Such as S-Corporations, LLCs, partnerships, and large corporations. The Service says it plans to create 3,700 positions to focus on the enhanced enforcement efforts. The IRS says the effort will also focus on high-income and high-wealth pass-through business owners. Funding for the initiative was provided by last year’s Inflation Reduction Act (IRA), according to the IRS.
The Cloakroom Says:
This heightened focus on pass-throughs will not sit well with? Pass-Through owners as they await the 2025 expiration of the 20% pass-through business income deduction under Section 199A that the TCJA created. There is strong support from business owners for Congress to make the deduction permanent. The new IRS crackdown may provide some fuel for the effort in Congress to make the deduction permanent. There is strong bipartisan support in the House and Senate to do just that. Pass-throughs have long called for a level playing field with C-Corps, especially since the Corporate rate was slashed to 21% by the TCJA. If the crackdown is what it will take to get Congress to act on making the deduction permanent, then I am all for it.
PCAOB?proposes to expand liability for auditors
The Public Accounting Oversight Board has voted to expand liability for individual auditors when they contribute to violations by the audit firms. The Proposal would widen the scope of who the PCAOB can charge under a rule enacted in 2005. The board voted unanimously (5-0) for the change.? The PCAOB will accept comments on the proposal until November 3, 2023.
Other tax policy links:
Interesting Tax Link of the Week
Japan’s Home Town Tax Program
Japan has a unique tax program allows taxpayers to redirect a portion of their income tax to a rural region of their choice. The Fursato Nozei program allows taxpayers to receive local goods and services from the region to which they direct their tax payments. Taxpayers also receive a tax deduction for participating in the program. Initiated in 2008, the program is an innovative way to support economic development in Japan’s rural regions.
What to watch this fall:
Since we are now into October, I thought it was a good time to give a heads-up on what we will be watching for the rest of the year
This past Monday, the U.S. Supreme Court kicked off its fall session. On the Tax front, all eyes are on how the court will handle the much-anticipated Moore vs. the U.S . case that could determine Congress’ authority to tax unrealized gains. On the legislative front, we will be watching for any action on the aforementioned House Republican’s tax bill. We will also watch for any kind of year-end tax extenders bill. As always, we will stay on top of any new developments. Happy fall, everyone!
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