IRS Guidance, Tax Code Improvements, and IRA Tax Credits
Tax Policy/News:
June 15: Rep. Meuser Leads Congressional Effort To Improve Tax Code For Small Businesses
Dan Meuser and Roger Williams are urging the House Ways and Means Committee to consider the impact on small businesses of specific proposed changes to the tax code.
Meuser said that R&D expensing and bonus depreciation are critical to innovation. Before 2022, businesses were able to fully expense qualifying R&D expenditures in the year in which they occurred. Now, he said, businesses must capitalize and amortize these expenditures over five years. As a result of this change, many small businesses have been hit with much higher tax bills than expected. Bonus depreciation is also set to decrease by 20 percent annually until it hits 0 percent in 2027.
In a letter to committee leaders, Meuser and Williams outlined how these changes to the tax code regarding research and development expensing and bonus depreciation would impact small businesses.
"Last week, I convened a hearing in the Small Business Subcommittee on Economic Growth, Tax, and Capital Access titled 'American Ingenuity: Promoting Innovation Through the Tax Code.' It was evident from what we heard during the hearing that two provisions of the tax code that have already begun sunsetting, the R&D tax credit and bonus depreciation, are incredibly important incentives that enable small businesses to reinvest in their company and their employees," said Meuser, chair of the Small Business Subcommittee on Economic Growth, Tax, and Capital Access.
Meuser hopes that full expensing of the R&D expenditures and 100 percent bonus depreciation will both be restored as the Ways and Means Committee considers tax legislation in the coming days. This would allow small businesses to continue making investments in their businesses that benefit their workers and the economy, Meuser added.
In the letter, Meuser and Williams said that China's R&D tax incentive was 2.7 times more generous than the United States prior to 2022 - and since then, the United States has fallen even further behind.
June 14: Treasury, IRS Issue Guidance For The Advanced Manufacturing Investment Credit
The Internal Revenue Service today issued proposed regulations that provide guidance regarding the implementation of the elective payment provisions of the Advanced Manufacturing Investment Credit, established by the Creating Helpful Incentives to Produce Semiconductors Act of 2022, commonly known as the CHIPS Act.
This credit will incentivize the manufacture of semiconductors and semiconductor manufacturing equipment within the United States. The credit is available to taxpayers that meet certain eligibility requirements, and taxpayers can choose to receive the credit as an elective payment.
Today's proposed regulations describe how an entity can choose to make an elective payment election, which will be treated as a payment against the tax liability that is equal to the amount of the credit.
The advanced manufacturing investment credit for any taxable year is generally equal to 25% of an eligible taxpayer's qualified investment in an advanced manufacturing facility.
The qualified property must be integral to the operation of the advanced manufacturing facility.
June 13: House Committee Passes Bill Increasing Standard Deduction
Republicans on the House Ways and Means Committee advanced a series of bills Tuesday aimed at reducing taxes but also rolling back parts of the Inflation Reduction Act passed by the Democrats last year.
One of the bills, the Tax Cuts for Working Families Act, would provide a $4,000 "Bonus guaranteed deduction" for the next two years, on top of the doubled standard deduction that was included in the Tax Cuts and Jobs Act of 2017.
For tax years starting in 2024, the amount of the bonus guaranteed deduction would be $2,000 for an unmarried individual and a married individual filing a separate return, $3,000 for a head of household, and $4,000 for married individuals filing a joint return and a surviving spouse, according to a report on the bill by Congress's Joint Committee on Taxation.
The bonus guaranteed deduction would not apply to tax years after 2025.
Republicans on the committee rejected a series of amendments offered by Democrats, including a repeal of limits on the state and local tax deduction that were also part of the TCJA. House Ways and Means Committee chairman Jason Smith, R-Missouri, highlighted the bill's potential impact on helping taxpayers deal with inflation.
House Republicans on the committee also voted to approve the Build It in America Act, which would repeal the provision in the Tax Cuts and Jobs Act that limited the ability to immediately deduct research and development expenses and forced companies to begin amortizing them last year.
Democrats on the committee blasted Republicans for favoring large companies with the tax legislation and doing too little to help families.
Economic News/Policy:
June 14: Fed Chair Powell Sees Progress On Inflation, Though Not Quickly Enough
Chair Jerome Powell offered a nuanced view Wednesday of how the Fed intends to address its core challenge at a time when inflation is both way below its peak but still well above the central bank's 2% target: Give it more time, and maybe some help from additional interest rate hikes.
By leaving rates alone, at least for now, Powell and other top Fed officials hope to use the extra time to more fully assess how higher borrowing rates have affected inflation and the economy.
Powell underscored that the Fed will need to feel confident that inflation is moving steadily closer to its 2% target.
The Fed's aggressive streak of rate hikes, which have made mortgages, auto loans, credit cards and business borrowing costlier, have been intended to slow spending and defeat the worst bout of inflation in four decades.
Should inflation come down further, some economists think the Fed may not actually have to raise rates again.
"With inflation set to moderate noticeably, we are skeptical that the Fed will resume hiking interest rates," Ryan Sweet, chief U.S. economist of Oxford Economics, wrote in a note.
One reason why Fed officials may be predicting additional rate hikes is that the economy has remained surprisingly resilient this year, with more persistent inflation that might require higher rates to cool.
June 14: Democrats Fume As House GOP Plans Steep Spending Cuts Despite Debt Ceiling Deal
House Republicans are plowing forward with plans to mark up their funding bills at lower levels than the limits agreed upon with Democrats just weeks ago, teeing up what could be a nasty spending battle - and a potential government shutdown - later this year.
Democrats are fuming after House Republicans said this week that they plan to shoot for much lower than the top-line spending targets negotiated by President Biden and Speaker Kevin McCarthy as part of their deal to raise the debt limit.
Rep. Rosa DeLauro (Conn.), the top Democrat on the House Appropriations Committee, told reporters Tuesday the latest move across the aisle “all but guarantees a shutdown.”
Congress passed the bill earlier this month to raise the debt limit before an early June deadline to prevent a national default, but key spending cuts were necessary to win backing from Republicans.
Despite bipartisan support for the plan, the bill has been met with growing opposition from conservatives since its passage as hard-liners criticize the measure for not going far enough to curb spending.
Under the plan, House Appropriations Chairwoman Kay Granger said the GOP-led spending panel would mark up the fiscal 2024 government funding bills at the fiscal 2022 top-line level.
The proposed limits are more in line with a separate bill - known as the Limit, Save, Grow Act of 2023 - which Republicans passed earlier this year to raise the debt limit, along with a host of partisan spending measures calling for more than $4 trillion in cuts over the next decade.
Sen. Shelley Moore Capito (R-W.Va.) emphasized that bipartisan spending talks will be tougher under whichever path, but she told The Hill she thinks the House GOP plan could "definitely" make it more difficult for the party to secure further increases for their priorities in negotiations with Democrats.
Energy and Environmental Policy/News:
June 15: Thanks To IRA Tax Credits, It's Now Cheaper To Make Solar And Wind Components In The U.S.
For the first time ever, solar and wind components made in the U.S. are less expensive than imports, a new study by researchers from Dartmouth and Princeton has found.
"The study reveals how the Inflation Reduction Act transforms the economics of wind and solar power to help delink our climate goals from overseas supply chains that are marred by labor abuses, higher levels of pollution, and shipping bottlenecks," said nonprofit BlueGreen Alliance Vice President of Manufacturing and Industrial Policy Ben Beachy in a press release from the organization.
The study found that developers of solar and wind will save big by using components manufactured in the U.S. while paying fair wages to workers.
The researchers found that solar photovoltaic modules made entirely from components manufactured in the U.S. and assembled domestically will now be 30 percent cheaper than imported modules because of the 45X manufacturing tax credit.
Demand for more than 1.6 million more wind and solar jobs will be brought about by the 45X manufacturing tax credit and the renewable energy tax credits combined, compared to how many would have been needed without the IRA, the press release said.
The IRA will also ramp up demand for cement, aluminum and steel made in the U.S. to be used in wind and solar projects.
The report found that aluminum demand will be increased by solar and wind power expansion due to the IRA, as it is one of the main materials used in solar panel manufacturing.
June 14: Treasury Department And IRS Release Direct Pay And Transferability Guidance
The U.S. Department of the Treasury and IRS on June 14, 2023, released two notices of proposed rulemaking regarding the direct payment of tax credits under Section 6417 of the Internal Revenue Code, the transferability of tax credits under Section 6418 and temporary regulations regarding mandatory information and registration requirements for taxpayers planning to make an elective payment election under Section 6417 or to make an election to transfer certain tax credits under Section 6418.
The NOPRs and temporary regulations provide much-needed clarity to taxpayers seeking to either receive a direct payment of tax credits or secure buyers of tax credits for efforts aimed at achieving certain environmental, manufacturing and energy goals.
As part of the Inflation Reduction Act, certain taxpayers may elect for a direct payment in lieu of a tax credit.
Other taxpayers are eligible for direct pay of the following energy, environmental and manufacturing credits for a limited number of years: Sections 45V, 45Q and 45X. Taxpayers may also make a yearly election to transfer all of an eligible credit to an unrelated taxpayer, provided that consideration for such a transfer is paid in cash.
Any taxpayer other than those entitled to direct payments are entitled to transferability.
The credit is taken into account in the first taxable year of the transferee taxpayer ending with or after the taxable year of the eligible taxpayer with respect to which the credit was determined.
These new monetization options, along with the traditional tax equity options, provide significant opportunities for renewable energy developers to monetize tax credits and for investors to make investments in renewable energy projects to reduce their effective tax rate and satisfy environmental, social and governance goals.
ICYMI:
June 20: Hurricane Bret Could Soon Form; Invest 93L Continues To Strengthen
Tropical Storm Bret formed in the Atlantic Ocean on Monday and became the second named storm of the 2023 Atlantic hurricane season.
Bret will continue to strengthen, and the tropical storm is expected to become Hurricane Bret by late Wednesday.
The National Hurricane Center is also watching an area of showers and thunderstorms in the eastern tropical Atlantic dubbed Invest 93L. Forecasters say chances are increasing for Invest 93L to develop into a tropical depression or tropical storm later this week.
Flood threat continues for the Southeast on Tuesday with multiple days of severe weather and flash flooding in store as relentless rain falls over an already-drenched region.
For Fun:
June 16: We Finally Know How Photosynthesis Starts: It Takes Just a Single Photon
During photosynthesis, a symphony of chemicals transforms light into the energy required for plant, algal, and some bacterial life. Scientists now know that this remarkable reaction requires the smallest possible amount of light – just one single photon – to begin.
A US team of researchers in quantum optics and biology showed that a lone photon can start photosynthesis in the purple bacterium Rhodobacter sphaeroides, and they are confident it works in plants and algae since all photosynthetic organisms share an evolutionary ancestor and similar processes.
The team says their findings bolster our knowledge of photosynthesis and will lead to a better understanding of the intersection of quantum physics in a wide range of complex biological, chemical, and physical systems, including renewable fuels.
"A huge amount of work, theoretically and experimentally, has been done around the world trying to understand what happens after a photon is absorbed," says Graham Fleming, a biochemist at the University of California, Berkeley.
Using specialized tools, they created a photon source that made a pair of photons from one photon of higher energy using spontaneous parametric down-conversion. The challenge was dealing with single photons, which are easy to lose. To get around this, the scientists used the herald photon as a guide.
By demonstrating how individual photons behave during photosynthesis, this research gives us important information about how nature's energy conversion process works. Artificial photosynthesis techniques may one day be the key to sustainably surviving and thriving in space.