Here's a look at recent tax-related happenings on the Hill as the May 10 date looms for the Tax Relief for American Families and Workers Act of 2024's potential passage as a rider to the Federal Aviation Administration (FAA) Reauthorization Act.
Lately on the Hill
The House Ways and Means Committee has started ramping up for the expiration of many significant tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025. Last week, Chair Jason Smith (R-MO) and Tax Subcommittee Chair Mike Kelly (R-PA) announced 10 teams from within the committee’s Republican ranks to study the sunsetting tax provisions and identify legislative solutions. Each team is assigned a specific area of tax policy, namely: American manufacturing, working families, American workforce, Main Street, new economy, rural America, community development, supply chains, U.S. innovation, and global competitiveness.
“Passing the Tax Relief for American Families and Workers Act (Act) would vastly improve Republicans’ bargaining position going into the fight over the future of the Trump tax cuts,” writes Stephen Moore of The Heritage Foundation and FreedomWorks President Adam Brandon in an article for Real Clear Politics.1 “And right now, advocates for job growth and competitiveness must be prepared for this fight,” they said.
However, some Senate Republicans seem to disagree on the advantages of passing the tax Act as currently written and extending key provisions of TCJA as visible progress has remained elusive. Senate Finance Committee Chair Ron Wyden (D-OR) did offer some behind-the-scenes insight, saying, “What I can tell you is I’ve been really pleased that Republicans are talking about how to handle this among themselves. I’m glad to see that. I’m going to keep talking with them,” as reported by TaxNotes in an article on the Act’s potential passage as a rider to the Federal Aviation Administration (FAA) Reauthorization Act.
The FAA bill due May 10 could be the last legislative vehicle that could accommodate the Act, but confidence in the possibility remains low, reports TaxNotes. “It’s always possible, but look, I don’t think that’s especially likely. But we’ll see. I mean, there’s a lot of discussions about trying to find a vehicle to put it on. I don’t know if it’ll happen,” commented Senate Commerce, Science, and Transportation Committee Member J.D. Vance (R-OH).
A bipartisan coalition of House Ways and Means Committee members wrote a letter to Treasury Secretary Janet Yellen in response to Proposed Regulations (REG-142338-07) concerning definitions and rules related to donor-advised funds (DAFs). “We are concerned these regulations could have the unintended consequence of impeding charitable giving in our communities, particularly at our local community foundations,” the letter said. The lawmakers are concerned that the Regulations contain definitions that are “overly broad” by defining an investment advisor as a donor advisor, identifying funds held by certain public charities as DAFs “thus subject to more complicated regulatory regime,” and broadly defining “distributions,” which could subject operating charitable expenses to excise taxes. Also at issue was the retroactive effective date, which “would alter several longstanding industry practices in the DAF and charitable sectors.” The letter urges the secretary’s “full and fair consideration” of the issues presented before final regulations are issued.
The legislative letter was published shortly after Amber MacKenzie with the Treasury’s Office of Tax Policy addressed concerns with the Proposed Regulations at a Georgetown Law Office of Executive and Continuing Legal Education program as discussed in last week’s edition of From the Hill. Evidently, both Treasury and Congress are seeking to address “frustrations” and “concerns” that the proposed rules have induced.
Noteworthy Decisions
The Financial Crimes Enforcement Network (FinCEN) continues implementation of the Corporate Transparency Act (CTA) while judgment is on appeal.
FinCEN will continue its implementation of the CTA and beneficial ownership reporting requirements while it appeals a district court’s ruling in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), according to a notice released by the organization. The judgment determined the Act to be unconstitutional and, therefore, unenforceable against the plaintiffs. Reporting companies not party to the judgment “are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”
A group of Democratic legislators filed an amicus brief in the Eleventh Circuit, defending their authority to enact the CTA requirements under Article I of the Constitution as a matter of national security policy, foreign affairs, interstate commerce, and their authority to tax. The brief stated, “The CTA is a garden-variety, valid exercise of Congress’s core Article I authorities, supported by extensive congressional factfinding and a robust legislative record. The district court’s contrary holding rests on a cramped reading of Congress’s Article I authority, contravenes decades of precedent, and without record support impermissibly second-guesses Congress’s copious factual findings.”
A syndicated conservation easement partnership can deduct just a fraction of its original claimed deduction as its appraiser overstated the “highest and best use” of the donated property. Buckelew Farm LLC v. Commissioner, T.C. Memo. 2024-52, No. 14273-17 (April 25, 2024).
Buckelew Farm LLC (Buckelew) in 2013 claimed a $47.6 million charitable contribution deduction for its donation of a conservation easement over land located in Georgia. The IRS disallowed the deduction, taking issue with the land valuation, which its expert determined to be valued at a much lower $4.6 million.
Buckelew’s appraiser based his valuation on the “highest and best use” of the property, which he determined to be a previously proposed “development of a 307-lot hunting and conservation oriented residential community.” At the time, the property was not zoned for such use; however, he determined the development possible “based on conversations with the County Planning and Zoning Director.”
The IRS’ appraiser found that the “highest and best use” would be “continued timber production, possible agriculture, recreation (primarily hunting and fishing), and extremely low-density residential use in conjunction with long-term speculative investment for alternative uses.” He also found that the proposed development would not be legally permissible and noted the lack of public sewer, which would “require construction of on-site sewage treatment and disposal facilities.”
Treasury Regulations Section 1.170A-14(h)(3)(i) prescribes the method for valuing perpetual conservation easements. In the instance where there is no substantial record of sales of comparable easements, the fair market value is the difference between the fair market value or the property prior to the conservation restriction and the fair market value of the property after the conservation restriction. The court determined that both appraisers followed the requirements, and the difference was solely based on the determination of “highest and best use.”
The court sided with the IRS’ appraiser, having “serious concerns” as to whether the proposed development was “legally permissible, financially feasible, and maximally productive.” The county zoning director testified that his opinion provided to Buckelew that the development was “possible” did not guarantee that the department would approve the rezoning, nor was he aware of the planned use of community septic and gravel roads, which would have changed his opinion.
In addition to the reduction of the charitable deduction, Buckelew also is on the hook for a 40% gross valuations misstatement penalty under §6662(a) and (h).
Other Important Developments
IRS Technical Guidance
- Final Regulations T.D. 9992 has been issued defining whether a qualified investment entity (such as a real estate investment trust or REIT) is domestically controlled, including the treatment of qualified foreign pension funds. Particularly, guidance is provided as to when foreign persons are considered to hold directly or indirectly stock in a qualified investment entity. Portions of the proposed regulations regarding the §892 exemption will be addressed in a separate rulemaking.
- Revenue Procedure 2024-23 has been released providing the List of Automatic Changes to which the automatic change procedures apply.
Miscellaneous
- IR-2024-119 issued by the IRS announces a new Alternative Dispute Resolution (ADR) Program Management Office, which will work with the IRS Business Operating Divisions “to help taxpayers resolve tax disputes earlier and more efficiently.” ADR has existed, however, and the dedicated office seeks to “increase awareness” and make the program more “attractive and accessible.”
- IR-2024-118 announces the opening of the application period from April 22, 2024 to June 12, 2024 for Low Income Taxpayer Clinic (LITC) matching grants. Qualifying organizations may receive a matching grant from the IRS to develop, expand, or maintain an LITC.
- The IRS has released a draft Form 7208 and instructions, Excise Tax on Repurchase of Corporate Stock, to figure the excise tax on repurchases of stock.
- The Pension Benefit Guaranty Corporation (PBGC) has released the variable rate premium for payment years beginning in April 2024. The interest rates are used to value vested benefits for variable rate premium purposes.
Continued Coverage of the Inflation Reduction Act (IRA)
- Final Regulations T.D. 9993 was released describing the rules for the election to transfer eligible clean energy tax credits. The rules also contain special rules applicable to partnerships and S corporations, excessive credit transfer and recapture, and the required pre-filing registration process.
- Notice 2024-36 has been released to announce the second round allocation of the Section 48C tax credit, along with additional clarifications to the process. The Notice states that “the 48C Portal will open to accept concept paper submissions no later than Tuesday, May 28, 2024. Taxpayers must submit concept papers prior to 5:00 PM Eastern Time, within 30 calendar days after the 48C Portal opens.”
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1“Senate GOP Must Seize Opportunity To Expand Trump Tax Cuts,” realclearpolitics.com, April 20, 2024.