$95.3 Billion Aid Package, Rising Inflation, and the AI Safety Institute Consortium
Probity Tax Recovery is a tax consulting firm specializing in tax credits and incentives for small to mid-sized businesses. We work with business owners and their CPAs to identify tax credits and incentives while saving you time and money. Schedule a free consultation with a member of our team here.
Tax Policy/News:
February 9: Employer tax credit crackdown could hit industry — if it passes
The bipartisan Tax Relief for American Families and Workers Act, which passed the House and awaits Senate action, aims to extend $78 billion in tax breaks and credits, including enhancements to the child tax credit and business-related deductions.
To fund these benefits, the bill proposes to permanently end the employee retention credit, a pandemic-era tax break that has seen its costs balloon to $550 billion due to widespread fraud and misuse.
The IRS has taken steps to curb the abuse, including rejecting numerous claims and initiating criminal investigations.
Financial advisors who recommended this credit face increased scrutiny and potential penalties under the new legislation, as it seeks to classify certain advisors as "promoters" liable for significant fines.
The bill's enforcement measures could generate substantial revenue, despite skepticism about the feasibility of recouping funds from fraudulent claims.
The legislation's future is uncertain, given its potential political implications in an election year and the mixed reception it has received in Washington.
February 7: IRS spotlights IRS Employer-Provided Childcare Tax Credit
The IRS has introduced a new section on its website dedicated to the Employer-Provided Childcare Tax Credit, aimed at assisting employers in understanding and utilizing this tax benefit.
This credit is designed to support employers in covering costs related to qualified child care facilities and services provided to their employees, with the credit capping at $150,000 annually.
It covers 25% of expenses for child care facilities and 10% for child care resource and referral expenditures.
IRS Commissioner Danny Werfel emphasized the importance of this credit in helping employers offer child care services and facilities, noting that it has been underutilized.
Employers interested in claiming this credit must complete Form 8882 and can benefit from the carryback and carryforward rules associated with the general business credit.
Detailed information about this tax credit, including eligibility and claiming procedures, is now easily accessible on the IRS website.
Economic News/Policy:
February 13: Senate passes a $95.3 billion aid package for Ukraine and Israel, but fate in the House is uncertain
The bipartisan Tax Relief for American Families and Workers Act, which passed the House and awaits Senate action, aims to extend $78 billion in tax breaks and credits, including enhancements to the child tax credit and business-related deductions.
To fund these benefits, the bill proposes to permanently end the employee retention credit, a pandemic-era tax break that has seen its costs balloon to $550 billion due to widespread fraud and misuse.
The IRS has taken steps to curb the abuse, including rejecting numerous claims and initiating criminal investigations.
Financial advisors who recommended this credit face increased scrutiny and potential penalties under the new legislation, as it seeks to classify certain advisors as "promoters" liable for significant fines.
The bill's enforcement measures could generate substantial revenue, despite skepticism about the feasibility of recouping funds from fraudulent claims.
The legislation's future is uncertain, given its potential political implications in an election year and the mixed reception it has received in Washington.
February 8: Inflation is nearly back to 2%. So why isn’t the Federal Reserve ready to cut rates?
Despite the anticipation from various sectors for the Federal Reserve to start reducing interest rates to alleviate the financial strain on borrowers, Fed officials are proceeding with caution, signaling no immediate rate cuts despite inflation nearing the Fed's 2% target.
The hesitation stems from the robustness of the economy and the job market, which, while indicating a cooling of inflation pressures, also poses the risk of a resurgence in inflation if rates are cut prematurely.
The Fed's cautious stance is influenced by historical instances where premature rate cuts led to rebounding inflation, necessitating a reversal in policy.
Officials are seeking more evidence that inflation is on a sustained downward trajectory before making any moves to lower rates.
This approach reflects a balancing act between avoiding premature rate cuts that could reignite inflation and maintaining high rates that could potentially stifle economic growth or lead to a recession.
The economy's resilience, evidenced by strong hiring and economic expansion, complicates the Fed's decision-making, suggesting that the economy might withstand higher rates better than previously thought.
This situation has led to a reevaluation of when and how much the Fed might reduce rates, with some market analysts expecting fewer rate cuts than initially anticipated.
Technology:
February 8: Leading AI companies join new US safety consortium: Biden administration
The Biden administration announced the formation of the AI Safety Institute Consortium, a collaborative effort involving leading AI companies like Microsoft, Google, Apple, Meta Platforms, OpenAI, and others, along with government agencies, academic institutions, and corporations such as Northrop Grumman, BP, Qualcomm, and Mastercard.
This consortium aims to ensure the safe development and deployment of generative AI technologies, in line with President Biden's executive order to enhance AI safety while maintaining data privacy.
The consortium, operating under the U.S. AI Safety Institute, will focus on creating guidelines for various safety measures including red-teaming, capability evaluations, and risk management.
This initiative reflects the government's commitment to mitigating the risks associated with AI, such as job displacement and election interference, while fostering innovation and setting safety standards in the rapidly evolving field of artificial intelligence.
February 7: Top White House aide to lead AI Safety Institute
The Biden administration has appointed Elizabeth Kelly, an economic adviser to the president, as the head of the newly established AI Safety Institute within the National Institute for Standards and Technology (NIST), emphasizing the administration's commitment to addressing the challenges and risks associated with artificial intelligence (AI).
This move aligns with the White House's broader strategy to ensure the safe and responsible development of AI, a technology Commerce Secretary Gina Raimondo describes as "generation-defining."
The institute aims to lead in developing guidelines, evaluating AI models, and conducting fundamental research to mitigate risks while promoting innovation.
Vice President Harris highlighted the importance of balancing public protection with technological advancement, asserting that the institute's foundation and the accompanying AI safety framework are critical steps toward shaping the future use of AI.
Kelly expressed her dedication to implementing the White House's AI safety framework and building the institute's operations to serve as a long-term asset for both the country and the global community.
Energy and Environmental Policy/News:
February 7: Future of EV Tax Incentives Under Scrutiny Amid Potential Policy Shifts
The affordability of electric vehicles (EVs) in the U.S. has significantly improved, largely due to $7,500 tax credits introduced by President Joe Biden's climate legislation.
However, these incentives face uncertainty with potential political changes ahead. Critics, particularly from the Republican party, have expressed opposition to such pro-EV policies, suggesting that the tax credits could be targeted for revision or elimination should there be a shift in political power.
The tax credits, a key component of the Democrats' Inflation Reduction Act aimed at promoting clean energy and climate initiatives, could be subject to changes through administrative actions or congressional spending cuts, especially in the context of federal debt limit negotiations.
While a complete rollback of the Inflation Reduction Act is unlikely, specific provisions, particularly those related to EVs, could be reevaluated.
The ongoing political debate underscores the tension between fostering an American manufacturing renaissance in clean energy and addressing budgetary constraints, with the future of EV incentives hanging in the balance amidst these complex dynamics.
ICYMI:
February 8: IRS Direct File progresses through internal testing
The IRS's Direct File free tax system, aimed at facilitating free tax filing, has successfully completed a pilot test with IRS employees in 12 states, signaling progress in the system's development.
Elizabeth Kelly, an economic adviser to the president, leads the initiative, which is part of efforts to make tax filing more accessible and reduce reliance on commercial tax prep software.
Despite opposition from some Republicans and concerns about the system's constitutionality, the pilot is moving forward with plans to expand testing to more taxpayers.
The system currently does not pre-populate tax returns with W-2 information, but this feature could be added in the future.
Critics argue that the new system won't significantly impact tax professionals, as many taxpayers prefer the guidance of a professional.
The IRS plans to offer live online support for the system, although sustaining high-quality customer support remains a challenge amidst potential funding cutbacks.
For Fun:
February 9: NASA climate satellite blasts off to survey oceans and atmosphere of a warming Earth
NASA's latest climate satellite, the Pace (Plankton, Aerosol, Cloud, Ocean Ecosystem), was successfully launched into a polar orbit by SpaceX to embark on a groundbreaking $948 million mission aimed at closely monitoring the Earth's oceans and atmosphere.
Positioned 420 miles above the Earth, the satellite is set to revolutionize our understanding of the planet by conducting daily scans with two advanced scientific instruments, and monthly measurements with a third, over a minimum span of three years.
This mission is expected to enhance weather forecasting, track Earth's climatic shifts, and predict harmful algae blooms with unprecedented precision.
The Pace satellite, which can observe in 200 colors compared to the 7 or 8 colors of current Earth-observing satellites, stands out as the most sophisticated mission to date for studying ocean biology, promising new insights into the interactions between atmospheric aerosols and marine life.
This launch is part of NASA's broader effort, in collaboration with India on the Nisar mission, to employ advanced technology in understanding and mitigating the impacts of climate change, despite previous political challenges to the project's continuation.