Renewable Energy Regulations, Qualified Small Business Stock Exemption, and AI Roadmap
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Tax Policy/News:
November 20: New rules proposed on credits for renewable energy property
The Treasury Department and the Internal Revenue Service issued proposed regulations to update the investment tax credit rules to encompass various forms of renewable energy.
The proposal updates the kinds of energy properties eligible for the Section 48 investment tax credit to reflect various changes in the energy industry, especially when it comes to technological advances on renewable energy, and updates from last year's Inflation Reduction Act.
The proposed rules also deal with technologies that were added to the investment tax credit as energy property by the IRA, including electrochromic glass, energy storage technology, microgrid controllers, and biogas property.
On top of that, the proposed regs contain general rules for the investment tax credit, including the application of the "80/20" rule to retrofitted energy property, dual use property, and issues related to multiple owners of an energy property.
The Treasury Department and the IRS have been rolling out a stream of guidance and regulations over the past year pertaining to the Inflation Reduction Act and its provisions related to the renewable energy industry, including electric vehicles and solar and wind credits.
The notice also includes proposed rules around the eligibility of standalone battery storage for the investment tax credit, reflecting a provision in the IRA to help support the development of long-duration energy storage to help utilities transition to renewable sources like wind and solar.
The notice also includes proposed rules pertaining to the inclusion of costs of interconnection-related property for lower-output clean energy installations, including the costs of upgrades to local transmission and distribution networks that are necessary to connect the clean energy.
November 16: How certain small business stock could supercharge tax savings
Small business owners and potential investors in startup stock can benefit from the often overlooked qualified small business stock exemption in Section 1202 of the tax code.
This exemption allows shareholders in certain C-corporations to exclude capital gains, either the greater of $10 million or 10 times their investment, from their income.
Although critics question its impact on small business investments and its budgetary costs, the provision presents an opportunity for substantial tax savings. Financial advisors and tax professionals can leverage this exclusion through proper planning, applying it across multiple entities for potentially multiplied benefits.
The qualified startup stock typically involves entrepreneurs building businesses from limited resources, with the exemption proving advantageous for investors, such as angel investors or family members financing trusted employees' startup ideas.
The $10 million or 10 times holdings exemption became even more attractive to investors after changes to corporate and dividend tax rates in the 2017 Tax Cuts and Jobs Act.
Despite the significant potential savings, awareness of this opportunity remains low among taxable investors, making it a valuable but often overlooked strategy.
Shareholders should be cautious about Section 83(b) elections, especially if they are employees performing services for the company, to optimize the timing of income recognition and maximize tax-exempt capital gains later when selling equity shares.
November 14: IRS promises improvements with extra funding
IRS Commissioner Danny Werfel and National Taxpayer Advocate Erin Collins discussed the positive impact of increased funding under the Inflation Reduction Act on the IRS's capabilities at an AICPA tax conference.
Werfel highlighted the importance of a well-funded IRS, contrasting it with an underfunded one that can only issue warnings, while a funded IRS can proactively combat scams and provide tools for taxpayers.
Despite recent attempts by House Republicans to cut IRS funding, Werfel emphasized the non-political nature of the agenda, focusing on enhancing IRS accessibility and efficiency.
Werfel noted improvements in IRS phone lines and outlined plans for enhanced services leveraging technology. With additional funds, the IRS is investing in predictive models for call volume, chatbots, and voice recognition.
Werfel highlighted progress in online accounts for tax professionals and individual taxpayers, emphasizing the ongoing efforts to modernize IRS services.
Collins addressed challenges faced by the IRS, including paper backlog affecting return processing times and delays in processing amended returns. Despite improvements in call service, practitioners faced longer wait times, emphasizing the need for continued enhancement in IRS efficiency.
Economic News/Policy:
November 20: Yellen says high food and rent prices key factors in voters’ negative economic outlook
Treasury Secretary Janet Yellen noted that while rents are rising at a slower pace, they are still higher than pre-pandemic levels.
“Although prices in general are rising less quickly, Americans still see increases in some important prices, including food, from where we were prior to the pandemic. And this remains notable to people who go to the store and shop,” Yellen said on CNBC’s Squawk Box Monday.
She emphasized that Americans perceive inflationary pressure on essential items like food and housing, which significantly influences their economic outlook.
Yellen repeated consumer concerns, indicating that “rents are rising less quickly now, but are certainly higher than they were before the pandemic.”
“So I do think we’re making considerable progress in bringing inflation down. But Americans do notice higher prices from what they used to be accustomed to,” she added.
Despite the administration's assertion of "Bidenomics" and efforts to communicate the overall strength of the U.S. economy, voters remain concerned about their day-to-day expenses.
For the first time, a recent NBC News poll indicated President Biden trailing former President Donald Trump in a hypothetical 2024 presidential matchup. This suggests that economic concerns are shaping voters' perceptions and could impact political outcomes.
“It’s our job to explain to Americans what President Biden has done to improve the economy,” she told CNBC. “I think as inflation comes down, prices stop rising, and the labor market remains strong. Americans will begin to see that we have made meaningful progress.”
November 16: The Fed is probably done hiking rates. Cuts are still far off
Investors are increasingly confident that the Federal Reserve (Fed) won't raise interest rates further in the current tightening cycle, driven by recent economic data signaling a continued slowdown in inflation.
The Fed's decision to keep rates steady for a second consecutive meeting in November contributed to this optimism. Notable data points include the Consumer Price Index (CPI) rising 3.2% for the 12 months ending October, down from 3.7% the prior month, and the Producer Price Index indicating a 0.5% monthly drop in wholesale inflation. Retail sales also dipped 0.1% in October, hinting at a potential economic slowdown amid higher borrowing costs. Investors responded positively, with stocks and bonds experiencing surges.
Analysts suggest that, unlike past instances, the markets might accurately anticipate the Fed's pause. Sephora, in response to rising thefts, has removed all fragrances from store shelves and replaced them with tester bottles, altering its traditional sales strategy.
The UK experienced a notable drop in inflation to its lowest level in two years, with consumer prices rising 4.6% in October, down from 6.7% in September. While Prime Minister Rishi Sunak declared victory in halving the rate of price increases this year, critics argue that businesses and households still face high bills, and economic growth remains elusive.
The financial strain is widespread, with nearly 6 in 10 women living paycheck to paycheck, according to a study by Varo Bank, impacting various sectors, including technology and healthcare. The qualified small business stock exemption in Section 1202 of the tax code offers potential tax savings for small business owners and investors in startup stock.
Overall, economic concerns persist, driven by inflation, mounting debt, and diminishing savings, with financial institutions facing a decline in trust. Despite improvements in women's economic situations since the pandemic, challenges persist, exacerbated by historical wage disparities and pandemic-related workforce disruptions.
November 16: Women bear the brunt of financial stress in the US economy, study says
A recent study by Varo Bank, Morning Consult, and THRIVE Financial Empowerment Services reveals that nearly 6 in 10 women are living paycheck to paycheck, compared to 41 percent of men.
Women, representing two-thirds of financially fragile individuals, face the brunt of economic challenges due to historical wage disparities, making them more vulnerable to financial stress.
The impact of the pandemic, with women leaving jobs due to childcare duties, has further contributed to the economic strain on women.
The study indicates that 39 percent of women had trouble paying household expenses, compared to 35 percent of men, according to the Census Bureau’s Household Pulse Survey.
Ongoing wage disparities, lower-paying occupations for women, and the burden of household and childcare responsibilities contribute to the financial challenges faced by women. The erosion of savings and financial difficulties is not limited to women, as 48.2 percent of respondents reported sacrificing at least one basic need in the past six months due to costs, including doctor’s visits, medication, healthy food, and safe housing.
Women, who are more likely to identify as financially fragile, exhibit lower trust in financial institutions compared to men. Despite these challenges, the study notes that women's economic situations have improved since the end of the pandemic, with women's employment growing quickly, particularly as children return to in-person learning.
Flexible work arrangements, including remote work, have improved job matching, leading prime-age women (those between 25 and 54) to participate in the labor force at historically higher rates.
Technology:
November 15: US Government Unveils First AI Roadmap For Cybersecurity
The US Department of Homeland Security's (DHS) Cybersecurity and Infrastructure Security Agency (CISA) has introduced its inaugural roadmap for artificial intelligence (AI) in alignment with President Biden's Executive Order.
The order directed DHS to globally promote AI safety standards, safeguard US networks, and address potential AI weaponization. The roadmap outlines five strategic lines of effort, including using AI responsibly to support CISA's mission, assessing and assuring AI systems, protecting critical infrastructure from malicious AI use, collaborating and communicating on key AI efforts, and expanding AI expertise in the workforce.
Secretary of Homeland Security Alejandro N. Mayorkas emphasized the responsible use of AI, aligning with constitutional principles and relevant laws.
CISA Director Jen Easterly highlighted the immense promise and risks associated with AI, stating that the roadmap focuses on promoting beneficial uses of AI to enhance cybersecurity capabilities.
The initiative aims to advance the Administration's goal of ensuring safe and secure AI, and CISA has invited stakeholders, partners, and the public to explore the "Roadmap for Artificial Intelligence" to understand the agency's strategic vision for AI technology and cybersecurity.
November 15: Thune, Klobuchar release bipartisan AI bill
Senators John Thune (R-S.D.) and Amy Klobuchar (D-Minn.) have introduced the bipartisan Artificial Intelligence Research, Innovation, and Accountability Act of 2023.
The bill aims to establish standards for transparency and accountability in AI tools by directing federal agencies to create regulations. It proposes definitions for terms related to generative AI, sets up a self-certification system for "critical-impact" AI organizations, and mandates the Commerce Department to submit a five-year plan for testing and certifying critical-impact AI.
Additionally, the National Institute of Standards and Technology (NIST) would develop authenticity standards for online content and recommendations for technical, risk-based guardrails on "high-impact" AI systems.
The legislation, co-sponsored by Senators Roger Wicker, John Hickenlooper, Shelley Moore Capito, and Ben Ray Luján, introduces new definitions for terms like "generative" and "high-impact" AI systems.
It distinguishes between "developer" and "deployer" roles and requires companies deploying high-impact AI systems to submit transparency reports to the Commerce Department.
Thune emphasized the need for basic rules to protect consumers and foster innovation in AI, while Klobuchar sees the bill as a step toward addressing potential harms and enhancing transparency for policymakers and consumers.
This initiative follows a series of AI bills introduced in response to the increasing popularity of generative AI technology over the past year.
ICYMI:
November 14: House votes to prevent a government shutdown as GOP Speaker Johnson relies on Democrats for help
The House voted decisively to avert a government shutdown, passing a bipartisan proposal by new Republican Speaker Mike Johnson.
Facing opposition from hard-right conservatives within his party, Johnson's plan, which temporarily funds the government into the new year, received support from Democrats and passed with a 336-95 vote.
Despite 93 Republicans voting against the measure, Johnson's willingness to break with the conservative faction and collaborate across party lines marked a departure from the recent ousting of former Speaker Kevin McCarthy.
Johnson's two-part proposal, extending funding for some federal agencies until January 19 and others until February 2, sidestepped deep cuts demanded by conservatives and omitted President Joe Biden's $106 billion request for Ukraine, Israel, and border security.
Critics, including some Republicans like Rep. Chip Roy, labeled the stopgap bill as insufficient, while Johnson defended it as a strategic move to position Republicans for deeper spending cuts in the new year.
The Senate is expected to approve the proposal before the government funding deadline. Meanwhile, hardline conservatives, dissatisfied with the compromise, confronted Johnson after the vote, signaling ongoing tensions within the GOP.
Despite the challenges, Johnson's approach appears to have averted an immediate government shutdown, providing a temporary resolution as the political landscape sets the stage for further budgetary battles in the coming months.
For Fun:
November 20: Earth Just Received A Laser-Beamed Message From 16 Million Kilometers Away
NASA's Deep Space Optical Communications (DSOC) on the Psyche spacecraft has achieved a groundbreaking milestone by beaming a laser-encoded message from a position around 16 million kilometers away, which is 40 times farther than the distance between the Moon and Earth.
This optical communication demonstration is the farthest-ever of its kind, showcasing the potential for high-data-rate communication in deep space.
The DSOC beamed a near-infrared laser with test data to the Hale Telescope at Caltech’s Palomar Observatory in California. The achievement, termed "first light," occurred on November 14 and is part of a two-year tech demonstration.
Optical communication, utilizing laser beams, allows for packing vast amounts of data into tight waves, offering transmission rates 10-100 times greater than current top radio communication systems.
While radio waves are traditionally used for deep space communication, laser beams could revolutionize data transmission, enabling higher-resolution scientific instruments and faster communication for future deep space missions.
However, challenges include maintaining precision as the distance increases, with potential lag times in communication.
The successful DSOC test demonstrates progress toward enhanced communication capabilities for upcoming space exploration endeavors, including potential human missions to Mars.