Legislative Lowdown

COVID Relief Package in Flux. Tax provisions were not the only items missing from the omnibus last week. Congress had to remove COVID-19 relief funding from the $1.5 trillion “omnibus” appropriations package that passed both chambers last week. The funds, which would have replenished depleted pandemic programs, were abruptly removed shortly before passage due to opposition over how the spending would be offset.
 
However, Democrats are still attempting to pass the COVID-19 supplemental. The original White House COVID-19 supplemental request sent to Congress earlier this month contained $30 billion for oral antiviral treatments, monoclonal antibodies and pre-exposure prophylaxis; the continuation of critical testing initiatives and funding for testing, treatments and vaccines for the uninsured; the start of  a “next-generation vaccine that protects against future variants;” and accelerated global vaccination efforts.
 
House Speaker Nancy Pelosi (D-CA) said during Democrats’ issue retreat last week in Philadelphia that the House would soon advance a separate COVID-19 supplemental package and that only half of the spending would be offset. Even though the White House request was reduced to $15.6 billion in the omnibus language, Pelosi has since indicated Congress may need to provide more funding. She said last week that the Biden administration’s request “was a good start,” but that “it wasn’t everything. So we would have needed to do more anyway. And we will.”
 
A push to pass even more COVID-19 funding is likely to meet Republican opposition—something that Democratic leadership has reportedly acknowledged behind closed doors. Sen. Richard Shelby (R-AL), the Senate Appropriations Committee ranking member, suggested as much last week when he said, “I don’t even know if they need any more” COVID-19 spending, adding that if Democrats “show they really needed the money, we ought to do it, but there’s a lot of ambiguity and vagueness.” Republicans have requested the Biden administration make clear the extent of unused COVID-19 relief funds already approved by Congress, but the administration has thus far only provided “staff briefings.”
 
Tax Writers Eye Extenders. Some congressional tax committee members had originally hoped to include  language extending a number of expired tax provisions in the $1.5 trillion omnibus package. These were ultimately left out. Known as “extenders,” these provisions generally move toward the end of a calendar year.
 
Rep. Richard Neal (D-MA), chair of the House Ways and Means Committee, said last week he thinks Congress will pass legislation this year to extend a number of tax credits that expired at the end of last year. That could occur during the lame-duck session—the time between the November midterm elections and the swearing in of the new Congress.
 
How many tax provisions will be included in a year-end package, however, remains undecided. Neal said recently that the research and development tax credit and renewable energy tax credits could be included.
 
According to the Joint Committee on Taxation (JCT), which released a report in January 2022 listing all expiring federal tax provisions, 40 tax provisions expired in 2021.
 
Gig Tax Reporting Threshold Bill Introduced. A bicameral group of Democrats introduced legislation today that would increase the de minimis exception for when third-party settlement organizations must issue a Form 1099-K. The American Rescue Plan Act, passed in 2021, required third-party settlement organizations to issue Form 1099-K to taxpayers who have over $600 in transactions with no transaction threshold, down from the previous threshold of $20,000 and 200 transactions.  
 
This bill, known as the Cut Red Tape for Online Sales Act, would raise the reporting threshold from $600 to $5,000 on third-party transactions. The bill would also require plain language notices to payees regarding Form 1099-K. The IRS Form 1099-K tracks income received through third-party payment methods, such as credit cards, PayPal and other payment settlement services. The provision will impact gig workers as well as other independent contractors who are compensated using third-party payment methods.
 
The bill is an attempt to lower the reporting threshold, while excluding non-business transactions, such as the cost of selling used goods online.
 
The bill was introduced by Sens. Maggie Hassan (D-NH) and Kyrsten Sinema (D-AZ) in the Senate and Reps. Chris Pappas (D-NH) and Cindy Axne (D-IA) and would apply retroactively to cover 2022.
 
Pascrell Calls for Stepped-Up Basis Rulemaking. Rep. Bill Pascrell (D-NJ), who chairs the House Ways and Means Subcommittee on Oversight, sent a letter to Treasury Secretary Janet Yellen last week highlighting the “gaps in federal law and failures to enforce aspects of current law” related to tax-free stepped-up basis on appropriated assets taxpayers inherit upon the death of another taxpayer.

Pascrell encouraged the Treasury Department and IRS to “take targeted actions to limit or even eliminate strategies that wealthy individuals and families use to exploit the stepped-up basis loophole.” He described one common estate planning strategy in which taxpayers transfer assets to an irrevocable grantor trust while still alive. This strategy allows the property to be excluded from the grantor’s gross estate at death, thereby avoiding the estate tax.
 
Pascrell ultimately asked the administration to “promulgate regulations clarifying that the phrase ‘bequest, devise, or inheritance’ in Code section 1014(b)(1) does not apply to the termination of grantor trust status upon the grantor’s death or to the transfer of an irrevocable grantor trust’s property upon a grantor’s death.”
 
As the Build Back Better Act stalls in Congress, Democratic members are seeking to accomplish their agenda through the regulatory front.

1111 Constitution Avenue

“Speak—With—Representative!” In addition to reshuffling employees and hiring thousands of new workers, the Internal Revenue Service (IRS) is turning to technological solutions to address its ever-increasing processing backlog. In an announcement last week, the agency said it “has begun using voice and chat bots on two of its specialized toll-free telephone assistance lines and IRS.gov.” According to the announcement, the bots can help taxpayers with information on how to make one-time payments, answer FAQs and clarify collection notices. The bots cannot, however, provide assistance with a taxpayer’s protected account information. Currently, the chat bots are only offered in English and Spanish.
 
The IRS plans to continue developing this technology going forward. In the announcement, it said later this year the bots will “enable taxpayers to authenticate their identity to establish payment plans, request a transcript and obtain information about their accounts, such as payoff details.”
 
TIGTA 2021 Filing Season Review. The Treasury Inspector General for Tax Administration (TIGTA) released a report on Monday on the results of the 2021 tax filing season. In its review, TIGTA focused on select information from the filing season, such as the impact of the COVID-19 pandemic and whether the IRS processed individual returns in a timely and accurate manner. 

• Backlog Problems: TIGTA found that inventory backlogs from the 2020 filing season continued to weigh down IRS operations and insisted the backlogs would persist as a problem during the current filing season “unless the IRS takes unprecedented steps to address them.”
• Help Wanted: Insufficient staffing levels is another issue plaguing the IRS, according to TIGTA. The report revealed that the IRS has hired only 67% of the employees it needs to reach its submission processing goal.
• EITC and ACTC Claims: TIGTA found that many taxpayers received inaccurate amounts on their claims, including 13,000 taxpayers who received about $20.5 million less in Earned Income Tax Credit (EITC) claims, 900 taxpayers who received over $485,000 in EITC claims, over 8,000 taxpayers who received $8.3 million less in Advanced Child Tax Credit (ACTC) claims and over 1,000 taxpayers who received $1.5 million more in ACTCs claims.

IRS Commissioner Charles Rettig is testifying on Thursday before the House Ways and Means Committee to provide an update on the current filing season. He is likely to face questions about this report, with an emphasis on how the agency plans to address these shortcomings in the future.
 
What’s the Notice Suspension Plan, Rettig? IRS Commissioner Charles Rettig has already received questions ahead of his testimony. For instance, a bipartisan group of 42 senators, including multiple members of the Senate Finance Committee, sent a letter to Rettig on Friday expressing their concern that the agency “does not have a comprehensive plan to remedy the numerous problems affecting taxpayers.” The lawmakers then asked Rettig to provide an update on multiple fronts, providing him only a three-day turnaround. Among other things, the letter asked Rettig which unsuspended notices it has the authority to suspend and if it is working on suspending any other notices. It is unclear whether Rettig has responded to the letter.  
 
Levin Letter on ERTC Backlog. Another lawmaker, Rep. Andy Levin (D-MI)—who does not sit on the House Ways and Means Committee—sent a letter last week to IRS Commissioner Charles Rettig about the agency’s processing of the Employee Retention Tax Credit (ERTC). He relayed the frustrations of his constituents, whom he said often must wait up to 10 months to receive payment checks. He urged the IRS to elevate ERTC claims as a high priority because, without receiving these payments, businesses face unavoidable decisions, such as furloughs, layoffs or closing down.

Global Getdown

Treasury Responds to GOP OECD Inquiries. The Treasury Department has responded to Senate Republicans who asked about ongoing negotiations between the Biden administration and other countries through the Organization for Economic Cooperation and Development (OECD). In a letter released last week, which focused specifically on Pillar One of the Inclusive Framework, Jonathan Davidson, assistant treasury secretary for legislative affairs, told Sen. Mike Crapo (R-ID), Senate Finance Committee ranking member, that “Pillar One implementation should respect the prerogatives of the two branches of government and should be bipartisan.” Davidson specifically responded to Crapo’s question about the revenue impact of Pillar One, saying the Treasury Department believes “that any U.S. revenue impact would be relatively small to non-existent.”
 
The letter did not address, however, multiple questions from Crapo because of ongoing negotiations. Davidson reported that “several other important issues remain open in the Pillar One negotiations,” including “important design elements remain open in the negotiations, and it is premature to provide a precise impact assessment.”
 
Wyden Continues Russia Response. Senate Finance Committee Chair Ron Wyden (D-OR) has continued releasing legislative proposals in response to Russia’s military aggression against Ukraine. Most recently, Wyden released several tax policy initiatives he is currently developing that include targeting Russian oligarchs. Wyden wants to “take away every special tax benefit for all sanctioned individuals, as well as give Secretary Yellen the authority to identify other individuals, companies, or governments supporting the invasion that should lose their tax goodies.”
 
Wyden’s proposal would: 

• remove tax breaks for individuals and entities listed on the Office of Financial Assets Control and provide the Treasury secretary the authority to add others to the list, including the governments of Russia and Belarus; and
• eliminate the preferential global intangible low-taxed income rate on Russian and Belarusian income and deny foreign tax credits and deductions for taxes paid to Russia and Belarus.

Wyden also said the committee is developing other proposals.

At a Glance

• Senate Confirms Young. The Senate today confirmed Shalanda Young—President Biden’s nominee to serve as director of the Office of Management and Budget (OMB). OMB houses the Office of Information and Regulatory Affairs, which is responsible for serving as a central authority for the review of federal regulations.
• Wharton Estimates Capital Gains Proposals. The University of Pennsylvania Wharton Budget Model, a research initiative reportedly read by Sen. Joe Manchin (D-WV), released a report last week estimating the potential revenue from capital gains taxation and deferral. It found that  removing the capital gains “lock-in effect” could produce between $115 billion and $357 billion in additional tax revenue over a decade.

Brownstein Bookshelf

• JCT Releases Bluebook. The Joint Committee on Taxation (JCT) released its Bluebook for the previous Congress. Formally known as the “General Explanation of Tax Legislation Enacted in the 116th Congress,” the Bluebook provides explanations, effective dates and estimated budget effects for the over 200 tax provisions enacted last Congress.
• CRS: Federal Gas Tax Moratorium. In response to congressional policy proposals that would suspend the federal gas tax through 2022, the Congressional Research Service released a report last week that provides an overview of the potential impacts of such a move.