Inflation Reduction Act, Climate Change, and Hawaii Wildfires
Tax Policy/News:
August 21: IRS Accused Of Backdating Penalty Approval Documents
The IRS is starting to bring its enforcement muscle to bear on all sorts of schemes it says are ripe for abuse, from those involving pension plans organized in Malta, construction contractors that rent out compensation insurance and companies based in low-tax territories like Puerto Rico.
One tax arrangement that allows landowners to claim charitable deductions for forfeiting development rights, also known as a conservation easement, has long been in the agency's crosshairs, and a legislative crackdown on packaged versions of those tax breaks was included in last year's omnibus bill.
That's exactly what the IRS is accused of in three Tax Court cases involving partnerships that were slapped with millions of dollars of penalties for their conservation easement deductions.
Tax law requires that a revenue agent at the IRS must get the approval of their supervisor before sending out notice of penalties to a taxpayer.
According to filings submitted to the Tax Court by the partnerships, a revenue agent at the IRS emailed his supervisor on July 12, 2021, asking for approval for penalties against the partnerships - but without detailing exactly what penalties he planned to assess or the rationale the IRS planned on asserting for the penalties.
An email provided by the IRS in the LakePoint case indicated that the supervisor accused of backdating approval had trouble getting her electronic signature on the lead sheet and instead typed out language indicating her signature on the side of the form.
The emergency extension will apply to deadlines for quarterly income payments, quarterly payroll and excise tax returns, as well as certain partnership and corporate tax filings, among other filings, for any individuals and households in areas designated by the Federal Emergency Management Agency.
August 17: IRS Finalizes Rules On ERC Coronavirus Tax Credits
The U.S. Department of the Treasury and the Internal Revenue Service have finalized rules for the recapture of erroneously claimed Employee Retention Credits and other tax credits provided to employers for COVID-19 paid sick and family leave, treating them as an underpayment of taxes that may be assessed and collected.
The final rules, effective July 24, 2023, treat erroneous tax credits as underpayments of taxes that may be assessed and collected.
The Coronavirus Aid, Relief, and Economic Security Act, enacted in March 2020 just after the onset of the pandemic, provided the employee retention credit, a fully refundable tax credit against the employer component of employment tax equal to 50 percent of qualified wages paid.
Subsequent amendments extended both of these tax credits to cover wages paid from April 1, 2020, through September 30, 2021.
Under the final rules published by the IRS, any amount of ERC or paid sick or family leave wage credits that were erroneously refunded to employers will "be treated as an underpayment" of taxes and "may be assessed and collected by the Secretary in the same manner as the taxes."
Any amount of erroneously refunded credits will include "any amount of credits advanced to an employer" in accordance with the CARES Act and the FFCRA. The rules clarify that in situations where third-party payers claim tax credits on behalf of an employer, both the third-party payor and the employer may be liable for any underpayment of taxes assessed due to the erroneous refund of credits.
Employers may want to review their COVID-19 payroll tax credits in accordance with the new final rules that may require them to pay back any excess tax credits they received.
Economic News/Policy:
August 21: Freedom Caucus demands policy conditions on stopgap government funding bill
The hard-line conservative House Freedom Caucus said it plans to oppose any stopgap government funding bill that doesn't include policy measures relating to the border, the Department of Justice and "Woke" policies at the Pentagon, according to a draft press release obtained by The Hill.
The Freedom Caucus's demands on a continuing resolution put pressure on House GOP leaders, who can afford to lose just a handful of votes in their slim majority before needing Democratic support to pass any bills.
The draft release said the Freedom Caucus will "Refuse to support any such measure that continues Democrats' bloated COVID-era spending and simultaneously fails to force the Biden Administration to follow the law and fulfill its most basic responsibilities," and that "Any support for a 'clean' Continuing Resolution would be an affirmation of the current FY 2023 spending level grossly increased by the lame-duck December 2022 omnibus spending bill that we all vehemently opposed just seven months ago." The group said its members will oppose any spending measure that does not address three policy areas: the border, the "Weaponization" of the Department of Justice and FBI, and "Woke" policies in the military.
The Freedom Caucus wants any stopgap to "Include the House-passed 'Secure the Border Act of 2023' to cease the unchecked flow of illegal migrants, combat the evils of human trafficking, and stop the flood of dangerous fentanyl into our communities." The House GOP passed that border legislation, dubbed H.R. 2, in May. The bill boosts border technology, restarts border wall construction and adds new restrictions on asylum seekers, among other measures.
The Freedom Caucus acknowledged that time is running out to pass all of the regular appropriations bills through the House, let alone find agreement with the Democratic-controlled Senate - which has marked up appropriations bills at higher levels - on spending.
The House GOP has marked up appropriations bills at lower levels than the caps that McCarthy negotiated with President Biden in a debt limit bill passed earlier this year - sinking Democratic support for the funding bills.
"As Congress continues to work to pass appropriations bills, we must rein in the reckless inflationary spending, and the out-of-control federal bureaucracy it funds, crushing the American people," the official Freedom Caucus position said.
August 21: Fed's Long-Term GDP Outlook Is Dismal; The Economy Hasn't Got The Message Yet
Because of poor productivity and population aging, typical U.S. economic growth of 2.5% or more annually was "Not possible anymore" on a sustained basis, said John Williams, the current New York Fed president who at the time was head of the San Francisco Fed, according to transcripts of a session where policymakers cut their median long-term GDP growth outlook to 1.8%, continuing a roughly decade-long slide.
For the next three years and continuing on the other side of a world-altering pandemic, the U.S. has left that seeming constraint in the dust, with growth exceeding 1.8% in 21 of the 28 quarters since, including a period of 2.5% annual growth in the years between that 2016 Fed meeting and the onset of the coronavirus pandemic, and averaging 3% so far under President Joe Biden.
When policymakers gather later this week for an annual Fed research symposium in Jackson Hole, Wyoming that will be focused on "Structural shifts," they will have to grapple with an economy in deep flux - from U.S. labor force growth that has been better than anticipated, a manufacturing construction surge, changing global supply chains, continued high inflation, and, now, hints of improving productivity.
Slower population growth is wired into the U.S. outlook at this point, immigration remains a politically-charged issue, and better productivity, the other key driver of growth, is hard to anticipate.
While many economists feel a slowdown is coming, the longer growth remains robust the more the Fed may feel it needs to lean on the economy.
Median Fed policymaker projections of potential U.S. economic growth have slid from a level around 2.5% a decade ago to 1.8% as of June 2023, when the last projections were issued.
An alternative view harkens to former Fed Chair Alan Greenspan's hunch in the mid-1990s that quickening economic growth stemmed from technological improvements that paved the way for workers to produce more per hour, allowing the economy to grow faster without raising inflation.
One year into its modernization efforts under the Inflation Reduction Act, the IRS has made significant progress toward its goals of delivering world-class service, upgrading its technology and ensuring high-income taxpayers, large corporations and complex partnerships pay taxes owed.
As the IRS marks the anniversary of the Inflation Reduction Act, it is announcing two new milestones as part of its Paperless Processing Initiative: Scanning 225 times more forms than in 2022 and enabling taxpayers to reply to an additional 51 forms and letters online.
Through the end of Filing Season 2023, IRS answered 3 million more calls, cut phone wait times to three minutes from 28 minutes, served 140,000 more taxpayers in-person, digitized 80 times more returns than in 2022 through the adoption of new scanning technology, cleared the backlog of unprocessed 2022 individual tax returns with no errors, launched two new digital tools and enabled a new direct-deposit refund option for taxpayers with amended returns.
New paperless processing initiative to eliminate paper backlogs, speed refunds - 225 times more scanned returns than 2022 Using Inflation Reduction Act resources, the IRS launched an ambitious plan - the Paperless Processing Initiative - to ensure that by Filing Season 2024 taxpayers will be able to go paperless if they choose to do so, and by Filing Season 2025, the IRS will achieve paperless processing digitizing all paper-filed returns when received.
The IRS is now providing this capability to an additional 51 notices and letters received from the IRS. These updated IRS notices and letters, which taxpayers will receive in the coming weeks, will include instructions that guide them to the appropriate upload tool.
Expanded in-person service to reach rural, underserved taxpayers IRS has hired nearly 700 employees to open or reopen 42 Taxpayer Assistance Centers across the country, while also starting a special series of events to help taxpayers living in areas far from the agency's in-person offices.
As part of IRS' effort to pursue unlawful offshore tactics, the Department of Treasury and IRS in June issued proposed rules that define Maltese personal retirement schemes used to avoid U.S. taxes as listed transactions.
Energy and Environmental Policy/News:
August 16: Manchin vows to fight implementation of IRA as ‘radical climate agenda’
Sen. Joe Manchin on Wednesday said he will keep up his battle against the Biden administration and officials who seek to "Undermine" the Inflation Reduction Act as part of their "Radical climate agenda" on the first anniversary of it being signed into law.
The West Virginia moderate, in a lengthy statement on the anniversary of the IRA being signed into law, praised parts of the legislation, which he helped author.
Manchin lauded the IRA as "One of the most historic pieces of legislation passed in decades," especially for middle- and working-class families.
"With respect to energy security, and contrary to those in the Biden Administration who seek to undermine this goal, this law re-established an all-of-the-above energy policy and empowered the growth of fossil fuels and renewables," Manchin said.
"If implemented as designed the IRA will ensure that all Americans have more reliable and more affordable power for years to come." "Make no mistake, the IRA is exactly the kind of legislation that in normal political times both political parties would proudly embrace because it is about putting the interests of Americans and West Virginians first," Manchin continued.
Wednesday's comments come as Manchin weighs his next political steps, which could include a run for a third term in the upper chamber, a No Labels third-party presidential bid or possible retirement at the end of next year.
A Senate run would likely involve a race against West Virginia Gov. Jim Justice, a popular figure who leading Republicans heavily recruited to square off with Manchin.
August 16: Progressive calls for climate emergency swell after Biden says he ‘practically’ declared one
President Biden's comment that he had "Practically" declared a climate emergency is reigniting calls on the left for him to actually take such action.
After the president was asked during a recent Weather Channel interview if he was prepared to declare a climate emergency he at first said he already had. When pressed, he said he had done so "In practice" and practically speaking.
"Declaring a climate emergency would help save lives & our environment" Rep. Ro Khanna tweeted.
"We must declare a climate emergency and advance the urgent policies necessary to confront the climate crisis and save lives," she tweeted.
GOP presidential candidate Sen. Tim Scott told Fox News that instead of making a climate emergency declaration, Biden should have been "Declaring the actual emergency, which is the emergency at our border."
In remarks to reporters Monday, White House press secretary Karine Jean-Pierre touted the president's accomplishments on climate change and said he has "Called" climate change an emergency "Since day one." "This is a president has - who has taken the climate crisis very seriously," Jean-Pierre said, according to a transcript.
Advocates say declaring a climate emergency would help repair the strained relationship between progressives and the Biden administration - particularly on environmental issues.
In terms of policy, declaring an emergency on climate change would deliver in two different ways: unlocking new powers Biden could use to address the issue and offering a symbolic recognition of the threats posed by global warming.
August 16: Federal analysis says IRA, infrastructure law could save customers billions on energy bills
The Inflation Reduction Act and Bipartisan Infrastructure Law could save Americans up to $38 billion on electricity costs over the remainder of the decade, the Energy Department projected in a report shared exclusively with The Hill.
The report customized the National Energy Modeling System, which the Energy Information Administration uses in its Annual Energy Outlook, to model energy costs and national emissions in a scenario where the two laws were never implemented, based on the 2022 outlook report.
The advanced scenario involves fewer obstacles to deployment and more use of bonus credits, whereas the moderate scenario entails more hurdles to investment and fewer electric vehicles qualifying for the laws' tax credits.
Federal judge pauses Georgia law banning hormone therapy for transgender minors What to know about new COVID-19 shots, RSV treatments The Energy Department analysis projected that the laws will save ratepayers between $27 billion and $38 billion between 2022 and 2030 compared to the scenario where neither law passed.
The report projects that the IRA and infrastructure law will lead to a decline in crude oil imports of between 44 percent to 59 percent relative to a scenario without the laws over the rest of the decade.
Even without the two laws, the model projected net imports would fall 35 percent over the same period.
The analysis indicates that U.S. greenhouse gas emissions could decline up to 41 percent relative to 2005 levels by the end of the decade, compared to 27 percent for a scenario without the laws.
Technology:
August 19: China, UK Moving On Regulation Tops The Week's AI News
China and the UK outlined their ambitions to ensure that the development of the rapidly evolving technology can flourish and stay ahead of global competitors, while pioneering guardrails against the risks posed by AI. Beijing's final set of regulations seek to balance state control of the technology with enough support that its companies can become viable global competitors.
UK Prime Minister Rishi Sunak pitched an AI summit later this year with world leaders and tech executives that seeks to position the country as a leader in developing the technology.
OpenAI, whose Chief Executive Officer Sam Altman has urged Congress to get involved in regulation, said it's testing content moderation systems and invited customers to use the company's GPT-4-based tools to oversee content.
Through the week, companies continued to show they are riding high on the AI wave as investors bet big on those connected to the technology.
Cisco Systems Inc., rose the most in six months after the company outlined headway in AI and security technology, helping ease concerns about a sales slowdown when it reported fourth-quarter results.
The democratization of such technology will be what motivates him to use it, Microsoft Corp. CEO Satya Nadella said.
The development of AI models have captured the imagination of laymen and technologists alike: two ex-Google Brain staffers have started a new AI research lab that draws inspiration from the animal kingdom - like the movements of a school of fish or the coordination of a colony of bees - an approach that could potentially lower costs in AI-training and usage.
ICYMI:
August 21: Hawaii Wildfire Victims Get Federal Tax Relief From IRS
Victims of the recent wildfires in Hawaii now have until February to file various federal individual and business tax returns and make tax payments.
The Internal Revenue Service is offering relief to any area designated by the Federal Emergency Management Agency.
The relief postpones various tax filing and payment deadlines that occurred from Aug. 8, 2023, through Feb. 15, 2024.
Because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for relief.
Penalties for the failure to make payroll and excise tax deposits due on or after Aug. 8, 2023, and before Sept. 7, 2023, will be abated as long as the deposits are made by Sept. 7, 2023.The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area.
Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS.
For Fun:
August 18: A Pink Floyd song made with AI and brain scans sounds a lot like the band
For the first time, a team of researchers at the University of California at Berkeley have re-created a song--Pink Floyd's "Another Brick in the Wall, Part 1"--from neural signals. The research team looked at the brain activity of more than two dozen people who listened to the song. That data was then decoded by a machine learning model and reconstructed into audio.
The scientists hope to someday use similar technology to help patients with speech impediments communicate with others - while also gathering more data about how the brain processes sound and music, according to a study published Tuesday in the scientific journal PLOS Biology.
"So understanding how it's processed in the brain and how we can decode it is really like the first brick in the wall," said Robert Knight, a neuroscientist at UC-Berkeley and an author of the study.
How brain waves could be used to create an eerily similar version of a Pink Floyd song is a process that began in 2009 inside a hospital in Albany, N.Y. There, 29 patients who were undergoing epilepsy treatment - namely, having a net of electrodes implanted in their brains to identify the location of drug-resistant seizures - volunteered to have their brain activity recorded while "Another Brick in the Wall, Part 1" played.
Once the sound enters the brain, neurons shoot up across different parts to decode each lyric, melody and rhythm.
From 2009 to 2015, changes in the 29 patients' brain activity were converted into a massive data set.
"That's the most promising region to make sense of the musical information," said Ludovic Bellier, a lifelong musician who is now a senior computational research scientist at the biotech company Inscopix.
The numbers Bellier crunched were turned into music using AI - a powerful machine-learning model that took into account how the brain responded to a combination of sound frequencies.
While scientists have made strides in developing machines that translate brain signals into vocals, speech-generating devices often have a robotic sound to them - and the new study could help change that, Robert Knight, a neuroscientist at UC-Berkeley and an author of the study, said.