On March 9, 2023, the Biden Administration released the Fiscal Year 2024 Budget, and the “General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals,” which is commonly referred to as the “Green Book.” The Green Book summarizes the Administration’s tax proposals contained in the Budget. The Green Book is not proposed legislation, and each of the proposals will have to be introduced and passed by Congress. Most of this year’s proposals were previously proposed by the Biden Administration. However, there are a number of notable new proposals, including proposals to increase the stock buyback tax to 4%, increase the net investment income tax (“NIIT”) rate and additional Medicare tax rate from 3.8% to 5% for certain high income taxpayers, apply the wash sale rules to digital assets, and implement several changes to the international tax laws. This blog post summarizes some of the Green Book’s key proposals.
President Biden Signs Inflation Reduction Act into Law
On August 16, 2022 President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law.
The IRA includes a 15% corporate alternative minimum tax, a 1% excise tax on stock buybacks and a two-year extension of the excess business loss limitation rules. The IRA also contains a number
Senate Democrats Reach Agreement to Pass Inflation Reduction Act
On August 7, the Senate passed the Inflation Reduction Act of 2022 (the “IRA”). The tax provisions in the bill that was passed vary from the bill that was originally released on July 27, 2022 by Senator Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-NY) in four significant
A Summary of Inflation Reduction Act’s Main Energy Tax Proposals
On August 7, the Senate passed the Inflation Reduction Act of 2022 (the “IRA”). The IRA contains a significant number of climate and energy tax proposals, many of which were previously proposed in substantially similar form by the House of Representatives in November 2021 (in the “Build Back Better Act”).
A Summary of Inflation Reduction Act’s Main Tax Proposals
On July 27, 2022, Senator Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.) released the Inflation Reduction Act of 2022 (the “IRA”). The IRA contains only two non-climate and non-energy tax proposals – a 15% corporate alternative minimum tax and a provision significantly narrowing the applicability of preferential
Summary of the Biden Administration’s Fiscal Year 2023 Green Book Tax Proposals
On March 28, 2022, the Biden Administration released the Fiscal Year 2023 Budget, and the “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals,” which is commonly referred to as the “Green Book.” The Green Book summarizes the Administration’s tax proposals contained in the Budget. The Green Book is
The Biden Administration Proposes Changes to the Taxation of Real Property
On March 28, 2022, the Biden Administration proposed changes to the taxation of real property.
Restrict Deferral of Gain for Like-Kind Exchanges under Section 1031
The Biden Administration has proposed to limit the gain that can be deferred under a like-kind exchange of real estate under section 1031 to $500,000/year
The Biden Administration Proposes Changes to the Taxation of Cryptocurrency Transactions
On March 28, 2022, the Biden Administration proposed certain very limited changes to the taxation of cryptocurrency transactions. The proposals do not change the current treatment of cryptocurrency as property for federal income tax purposes, and do not address any of the fundamental tax issues that cryptocurrency raise.
I. Apply Securities Loan Rules to Digital Assets
Under current law, securities loans that satisfy certain requirements are tax-free under section 1058.[1] The Biden Administration’s proposal would expand section 1058 to apply to “actively traded digital assets” recorded on cryptographically secured distributed ledgers, so long as the loan agreement contains similar terms to those currently required for loans of securities. [2] The Secretary would also have the authority to define “actively traded” and extend section 1058 to “non-actively traded” digital assets. In addition, the proposal would require a lender to include in gross income amounts that would have been included had the lender not loaned the digital asset (i.e., “substitute payments”). The proposals would be effective for taxable years beginning after December 31, 2022.
The Biden Administration Proposes Changes to the U.S. International Tax Rules
Introduction and Summary
On March 28, 2022, the Biden Administration proposed changes to the U.S. international tax rules.
In short, the Biden Administration proposed to:
- Enact a 15% minimum “undertaxed profits rule” (a “UTPR”) to replace the “Base Erosion Anti-Abuse Tax” (“BEAT”), and a 15% “qualified domestic minimum top-up tax” (a “QDMTT”). These proposals are intended to comply with “Pillar Two” – the “Global Anti-Base Erosion” (“GloBE”) rules – of the “Inclusive Framework on Base Erosion and Profit Shifting” (“BEPS”), agreed to by the OECD/G20 member states on October 8, 2021.[1] Under the UTPR, U.S. corporations that are members of a foreign-parented multinational located in a jurisdiction that has not implemented an “income inclusion rule” (an “IIR”) would be denied deductions as are necessary to ensure that the non-U.S. group pays an effective tax rate based on book (and not taxable) income of at least 15% in each non-U.S. jurisdiction in which the group has profits. An IIR imposes a “top-up tax” on an “ultimate parent entity” (“UPE”) in its jurisdiction to produce a 15% minimum effective rate of book income in each taxing jurisdiction in which a member of the parent’s group does business. GILTI and Subpart F are IIRs.[2]
The QDMTT proposed by the Biden Administration would be a 15% domestic minimum top-up tax that would grant the United States taxing priority over other countries enacting a UTPR. The Biden Administration proposal also indicates that U.S. multinationals will benefit from U.S. tax credits and other tax incentives, despite the fact that the OECD/G20 agreement would treat nonrefundable tax credits (like most U.S. tax credits) as reducing a company’s effective rate of tax and would impose tax or deny deductions if those tax credits reduced the company’s effective rate of tax below 15%.
- Increase the “Global Intangible Low-Taxed Income” (“GILTI”) rate from 10.5% to 20% in conjunction with an increase in the corporate tax rate from 21% to 28% (which was proposed separately). Consistent with the Biden Administration’s previous proposal, GILTI and Subpart F would be applied on a jurisdiction-by-jurisdiction basis to prevent blending. Applying GILTI and Subpart F on a jurisdiction-by-jurisdiction basis conforms them to the OECD/G20 agreement.
- Provide a 10% tax credit for expenses incurred in “onshoring a U.S. trade or business,” which is reducing or eliminating a trade or business (or line of business) currently conducted outside the United States and starting up, expanding, or otherwise moving the same trade or business within the United States, but only to the extent that U.S. jobs result. The proposal would conversely deny deductions for “offshoring a U.S. trade or business,” which is reducing or eliminating a trade or business or line of business currently conducted inside the United States and starting up, expanding, or otherwise moving the same trade or business outside the United States, to the extent that this action results in a loss of U.S. jobs.
- Authorize the IRS to issue regulations to allow taxpayers to make retroactive “qualified electing fund” (“QEF”) elections for their “passive foreign investment companies” (“PFICs”) without requesting IRS consent, so long as the U.S. government would not be prejudiced.
Proposed Regulations Regarding the Aggregate Treatment for Pass-Through Owners of PFIC Stock
On January 25, 2022, the Internal Revenue Service (the “IRS”) and the Department of the Treasury (“Treasury”) released regulations (the “Final Regulations”) finalizing provisions in prior proposed regulations which generally would treat domestic partnerships as aggregates of their partners (rather than as entities) for purposes of determining income inclusions under the Subpart F provisions applicable to certain shareholders of controlled foreign corporations.[1] Under the aggregate approach, a partner in a domestic partnership would have a Subpart F inclusion from an underlying CFC only if the partner itself is a US shareholder of the CFC.