New Rules for Claiming the R&D Credit, $80 Billion Funding Boost, and IRS Inflation Adjustments

Tax Policy:

November 15: Biden’s reliance on I.R.S. enforcement to pay for $1.85 trillion bill hits a snag.

The White House has begun bracing lawmakers for a disappointing estimate from the budget office, which is likely to find that the cost of the overall package will not be fully paid for with new tax revenue over the coming decade.

Senior administration officials are urging lawmakers to disregard the budget office assessment, saying it is being overly conservative in its calculations, failing to properly credit the return on investment of additional I.R.S. resources, and overlooking the deterrent effects that a more aggressive tax collection agency would have on tax cheats.

The C.B.O. tends to believe that the tax collection prowess of more enforcement agents will wane over time, while the White House assumes that taxpayers will become more compliant with the I.R.S. when they see tax dodgers facing consequences.

The proposal to give the I.R.S. an additional $80 billion over a decade has drawn fierce resistance from Republicans, right-leaning advocacy groups, and banks, which have warned that an empowered tax collection agency will be weaponized against conservatives and target ordinary taxpayers.

He said such groups could take even more aggressive measures to keep their tax bills low, making it harder for the federal government to collect as much tax revenue as anticipated through better enforcement of the tax code.

From 2010 to 2020, funding for the I.R.S. declined by about a fifth and its enforcement ranks fell by 30 percent, making it difficult to pursue audits and legal fights against well-financed tax evaders. The Biden administration believes that doubling the enforcement staff at the I.R.S. will go a long way toward combating tax dodgers.

November 12: New IRS rules for R&D credits causing angst

The Internal Revenue Service's recent move to set new requirements for claiming refunds on research tax credits is provoking an uproar among tax professionals. Refund claims for the research and development credit will also need to detail the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year, using Form 6765.

"That's unclear. The other thing that's not particularly clear is folks have looked at the CCA, and it looks like it applies based on some language to claims on amended returns when you're claiming a refund. But there is language in the CCA that could indicate the IRS is looking to apply this additional documentation requirement on original returns that claim a refund that also contain an R&D claim on it. So there's a lack of clarity, but it could be extraordinarily broad." The IRS has periodically listed improper claims for the R&D tax credit among its Dirty Dozen tax scams.

The new criteria could be a way to crack down on such claims, but the guidance could leave taxpayers with legitimate claims second-guessing themselves. "The IRS has publicly stated that they want to focus on higher-risk claims and provide a more seamless experience both for their exam teams as well as for taxpayers, meaning better clarity and better consistency of application to the law," said Ford.

"In order to get their refund, they really have to comply with these procedures, regardless of whether or not the form of the guidance in which this requirement was imposed was the appropriate form, because basically if you look at the end of the CCA, there's language that indicates that if the service center believes the claim was deficient, they should just hold onto the claim," said Hodes.

"The IRS has continually stated that they want more information to validate the quality of a claim, and that information can be achieved through the normal exam process with targeted questioning that's specific to each claim," she said.

November 11: IRS chief urges Congress to back proposed $80B funding boost to the agency

IRS Commissioner on Thursday urged Congress to support the Biden administration's proposal to provide the agency with an additional $80 billion over 10 years, which is expected to be included in Democrats' social spending package. "The funding proposal offers a historic opportunity to help the IRS help others," Rettig wrote in a Washington Post op-ed.

One way that Democrats are seeking to help pay for the social spending package is by giving the IRS an additional $80 billion over the course of a decade to modernize the agency's technology and strengthen its enforcement efforts against high-income households.

The CBO in September said such a proposal to increase IRS funding would increase revenue by about $200 billion.

Any suggestions that the IRS wouldn't be able to efficiently use the additional funds "Ignore the fact that the IRS workforce is the same size as in 1970, though the population has grown by 60 percent and the complexity of the economy has increased exponentially," Rettig said.

Rettig argued that additional funding would help the IRS make a "Sizable dent in noncompliance" and help to deter individuals and corporations from cheating on their taxes.

"Imagine a system where any person with a laptop or a phone wouldn't have to call the IRS to ask about their refund or return because that information would be easily available in their personal online accounts, in the language of their choice."

November 11: IRS chief calls for reinforcements

A Trump appointee atop the IRS is calling on Congress to support 's proposal to bolster the agency.

IRS Commissioner Charles Rettig on Thursday urged Congress to support the Biden administration's proposal to provide the agency with an additional $80 billion. "The funding proposal offers a historic opportunity to help the IRS help others," Rettig, a Republican appointed by former, wrote in a Washington Post op-ed.

Republicans have resisted attempts to bolster IRS funding after cutting the agency's budget while they controlled the federal government. Rettig said in his op-ed that the IRS is challenged by the fact that it has limited resources and an increasing amount of responsibility.

Sen. Joe Manchin expressed opposition to a provision in Democrats' climate and social spending bill that would give additional tax credits for union-built electric vehicles.

A version of the legislation released by the House would provide customers a $7,500 tax credit for new EVs, with an additional $4,500 credit if the vehicle is made in the U.S. by union workers.

November 10: IRS announces inflation adjustments for standard deduction, tax brackets

The IRS on Wednesday announced inflation adjustments for 2022 pertaining to a host of features in the tax code, including the standard deduction and tax brackets. The inflation adjustments apply to the 2022 tax year, which households will file tax returns for in 2023.

The IRS releases inflation adjustments for tax provisions on an annual basis.

The adjustments are based on average inflation for the 12-month period ending in August and are not directly related to the inflation data that the Labor Department released Wednesday. Still, the IRS adjustments reflect the past year's higher inflation rate.

The $800 increase in the standard deduction for married couples from 2021 to 2022 was $500 higher than the increase from 2020 to 2021, which was $300. The IRS also released inflation adjustments for a number of other tax provisions, including the maximum amount of the earned income tax credit, the estate tax exemption amount, and the monthly limit on transportation benefits.

Some provisions in the tax code are not subject to inflation adjustments, including the $10,000 cap on the state and local tax deduction that Democrats are seeking to roll back in their social spending bill.

Build Back Better Act:

November 15: CBO to release Build Back Better score by Friday

The Congressional Budget Office said Monday that it expects to release a full cost estimate of House Democrats' social spending and climate package by the end of the day Friday. The announcement comes as House Democrats are aiming to vote on the Build Back Better spending bill this week.

A group of moderates has said they want more information about the bill's cost from the CBO prior to voting. The moderates said in their statement earlier this month that if the CBO's estimates are inconsistent with the White House estimates, they "Remain committed to working to resolve any discrepancies in order to pass the Build Back Better legislation."

The CBO had released six estimates of portions of the bill last week and released another two estimates of bill sections Monday.

The office said it expects to release estimates of the remaining bill sections by Friday, including the key portions of the bill from the House Ways and Means Committee and the House Energy and Commerce Committee. "If we can get it done before then of course we will. But certainly, by the end of Friday, we'll have the entire estimate," CBO Director Phillip Swagel said at an event hosted by the Bipartisan Policy Center and Yahoo! Finance on Monday afternoon.

Biden’s Nominations: 

November 15: Biden Weighs Choice of Jerome Powell or Lael Brainard as Fed Chair

President Biden is expected to decide as soon as this week whether to appoint Federal Reserve Chairman Jerome Powell or governor Lael Brainard to a four-year term leading the central bank beginning next February.

Mr. Biden said on Nov. 2 he would announce decisions "Fairly quickly" on the Fed.

Mr. Powell is unlikely to stay on the Fed board if someone succeeds him as chairman, and his departure could give Mr. Biden as many as four seats to fill by February. Mr. Biden's political fortunes might be tied to how the next Fed chair responds to a period of high inflation that is lasting longer than the central bank or the White House anticipated.

In the second half of 2018, as the unemployment rate dropped below 4% and deficits rose because of increased federal spending and tax cuts under the Trump administration, Ms. Brainard said the Fed might need to raise interest rates for another year or two to slow the economy.

Digital currency: Among the six sitting Fed governors, Ms. Brainard has spoken the most enthusiastically about the central bank adopting a digital dollar while raising warnings about the risks of unregulated private digital money. Ms. Brainard has detailed ways for the Fed to direct the biggest banks to manage climate-related risks as part of a broader effort to monitor potential hazards to the financial system.

Infrastructure Bill:

November 15: Biden signs $1 trillion infrastructure bill into law

President Biden on Monday signed into law a $1.2 trillion bipartisan infrastructure bill at a boisterous ceremony outside the White House, sealing a major accomplishment of his first term. Weeks of talks and two trips to the Capitol from Biden culminated earlier this month in a bipartisan vote, with the House passing the bill 228-206.

Biden welcomed lawmakers from both parties, from Congress and from state and local governments, to celebrate the passage of the bill and tout what he said were the transformational ways it would improve day-to-day life for many Americans.

Biden used the bill signing to highlight a rare instance of bipartisanship at a polarized time in U.S. politics, even as former and other conservatives suggested that House Republicans who voted for the bill should be challenged in primaries or stripped of committee assignments.

Biden's approval ratings have been sinking for several weeks and it's unclear thus far whether the president will see a bump from the infrastructure bill becoming law.

A new Washington Post-ABC News poll conducted after the infrastructure bill passed the House found that 41 percent approve of Biden's handling of the presidency, while 53 percent disapprove, a new low for Biden. At the same time, the infrastructure bill and Biden's climate and social spending package remain popular.

November 15:  Biden signs infrastructure bill, promoting benefits for Americans

President Biden signed a $1 trillion infrastructure bill into law on Monday afternoon, a bipartisan victory that will pour billions into the nation's roads, ports, and power lines. The bill Mr. Biden signed will not address the nation's entire backlog of needed infrastructure investments, and it is not as ambitious as Mr. Biden's initial $2.3 trillion proposal.

Mr. Biden brokered agreements first with Senate Republicans, 18 of whom ultimately voted for the bill, and then with progressive Democrats in the House, who held up its final passage in order to raise pressure on centrists in Mr. Biden's party to support the larger spending bill.

If Mr. Biden's $1.85 trillion spending bill - which includes more money to combat climate change - also passes, they estimate the increased infrastructure spending will eclipse the New Deal. That increase will challenge the government's ability to spend money on time and effectively.

Liberal economists fault the package for not spending enough, particularly on climate, turning up the pressure on Mr. Biden and congressional Democrats to pass the social policy bill, which is moving through a process that would allow party leaders to pass the bill with no Republican votes.

Lawmakers are expected to take up that larger spending bill later this week, though divisions remain between progressive Democrats and their moderate colleagues, which has complicated the president's attempt to pass a bill along party lines. A critical holdout, Senator Joe Manchin III of West Virginia, has demanded that the bill be fully paid for and not add to the deficit; he has pushed to delay the bill for fear of exacerbating inflation.

Spending Bill:

November 12: Social spending bill could cut taxes for most millionaires: analysis

Democrats' $1.75 trillion social spending package could cut taxes for most millionaires, according to an analysis from the Tax Policy Center released Thursday. The analysis found that the package, called the Build Back Better plan, would give more than 65 percent of Americans making at least $1 million per year an average tax cut of $16,760.

The other 34 percent of those in that income range would see their taxes increased by an average of more than $228,300 meaning that, overall, those earning $1 million or more would on average see their taxes raise by around $68,000.

The tax cut comes because Democrats are proposing to lift an annual cap on the state and local tax deduction. Democrats have been at odds over how to address the SALT tax.

Raising the cap would have nearly no benefit for middle-income households, the analysis noted, with the Tax Policy Center adding that doing so would reduce their taxes by an average of just $20. Meanwhile, those making between $370,000 and $870,000 - who fall in the top 5 percent, but not top 1 percent, of earners - would see their after-tax income increase by 1.2 percent under the new plan.

Overall, the institute said that the latest version of the Build Back Better plan would cut taxes on average for nearly all income groups next year - save for that 34 percent of Americans earning $1 million or more.

November 14: Biden spending bill to likely slip in Senate after House delays

The Senate's debate over President Biden's social and climate spending bill appears likely to slip after the House failed to send the bill over before the Veterans Day recess. In a letter sent to the Senate Democratic caucus on Sunday, he said the Senate is "Likely" to take up the National Defense Authorization Act, a massive defense policy bill, instead.

"Due to the House pushing back consideration of the BBBA to the week of November 15th, it is likely that the Senate considers the NDAA this upcoming week as we await House passage of the BBBA," Schumer wrote, referring to the Build Back Better Act.

Though the defense bill passed out of committee over the summer, when it could come to the Senate floor has been in limbo as Democrats have tried to figure out the timing of the bipartisan infrastructure bill, which passed the Senate in August, and the social and climate spending bill.

House Majority Whip included consideration of the bill on the upcoming week's House floor schedule. "Timing of consideration of the BBBA in the Senate will largely depend on when the House sends us the bill and when CBO finalizes their scores for all of the committees, which are needed to complete the 'Byrd Bath' process," Schumer wrote in the "Dear Colleague" letter.

Schumer had previously said that once the House passed the bill, the Senate would need roughly a week to make sure it complied with Senate budget rules. Schumer's office has been in contact with the parliamentarian to make sure the bill complies with the Senate's rules for reconciliation - the process Democrats are using to bypass a filibuster - and the budget resolution they passed earlier this year that teed up the spending bill.

November 16: Democrats inch closer to passing spending package

House Democrats on Monday inched closer to a pre-Thanksgiving vote on President Biden's sweeping social benefits and climate package, as Congress's official scorekeeper issued new cost estimates demanded by a group of centrist holdouts and party leaders charged ahead with plans to bring the legislation to the floor before the weekend.

The CBO developments came the same day that Biden, in a high-profile ceremony on the South Lawn of the White House, signed into law the other piece of his two-part economic agenda: a $1.2 trillion bill designed to shore up the nation's aging roads, bridges, water systems and other physical infrastructure.

House Democrats, stung by the recent trends and facing tough odds of keeping the chamber in next year's midterm elections, are hoping the infrastructure victory will lend a lift to the larger social spending bill - and help boost vulnerable incumbents heading into those elections.

The House is scheduled to leave Washington for a long Thanksgiving recess on Thursday - a day before the CBO has promised to deliver a full accounting of the legislation.

"Given its size, scope, given its unquestionable impact on American life, the American people deserve an honest, transparent debate about its true cost and contents," House Minority Leader said Monday in a speech on the House floor, characterizing the bills as a "socialist spending spree.

McCarthy's warning came just as dozens of House and Senate lawmakers of both parties gathered at the Capitol and boarded buses, shuttles and vans that whisked them to the White House to celebrate Biden's signing of the roads, bridges and broadband bill.

Even if it's passed by the House this week, it will face plenty of hurdles in the Senate, where several centrist Democrats - most notably and - have balked at various provisions.

Crypto: 

November 15: President Joe Biden to sign the bipartisan infrastructure bill⁠ into law—here’s how crypto investors will be impacted

The legislation includes tax reporting provisions that apply to digital assets like cryptocurrency and non-fungible tokens, or NFTs. There are two potential ways crypto investors will be impacted.

Overstated 1099-Bs. One provision would require each "Broker," which will mainly be exchanged, to report their cryptocurrency gains in a type of 1099 form.

With a self-custody wallet, investors own their private keys and cryptocurrency holdings, rather than using a third party, such as an exchange. If an investor were to send $100,000 worth of bitcoin from their self-custody wallet to their Coinbase wallet and sell the funds, Coinbase would be required to issue a 1099 saying that the investor sold $100,000.

The infrastructure bill provision would require similar from businesses and exchanges when they receive more than $10,000 in cryptocurrency. The provisions will not take effect until January 2024, and in the meantime, lobbyists within the cryptocurrency industry plan to push for amendments and standalone bills to adjust the provisions.

"It's up to the Treasury Department to decide who is subject to the provisions," Ivory Johnson, certified financial planner, chartered financial consultant, and founder of Delancey Wealth Management, says.

For Fun:

November 15: The longest lunar eclipse in centuries will happen this week, NASA says

You can see the longest partial lunar eclipse in hundreds of years this week. The "Nearly total" lunar eclipse is expected overnight Thursday, Nov. 18, to Friday, Nov. 19, NASA said.

"The Moon will be so close to opposite the Sun on Nov 19 that it will pass through the southern part of the shadow of the Earth for a nearly total lunar eclipse," NASA said on its website.

The eclipse will last 3 hours, 28 minutes, and 23 seconds, making it the longest in centuries, Space.com reported. Only a small sliver of the moon will be visible during the eclipse. The eclipse will be visible in many parts of the world, including North America, eastern Australia, New Zealand, and Japan, according to EarthSky.

"For U.S. East Coast observers, the partial eclipse begins a little after 2 a.m., reaching its maximum at 4 in the morning," NASA reported.