DC roundup: Extenders deadline, TCJA sunsets, IRS tech

 

The extenders package continued to languish in the Senate past a self-imposed April 15 deadline, debate over the expected 2025 tax code overhaul began, and IRS Commissioner Daniel Werfel testified before the Senate Finance Committee. 

 

 

 

Extenders

 

The informal deadline of April 15 came and went without any movement on an extenders package that is at a potentially permanent standstill. There had been considerable speculation that Senate Majority Leader Chuck Schumer, D-N.Y., would bring the bill to the floor when time ran out on the April 15 deadline Democrats initially set for negotiations. The House-passed bill would need to pick up at least nine and maybe more Republicans to overcome 60-vote procedural hurdles, but such a move would also force Republicans on record blocking the bill.

 

Schumer instead said he would not bring the bill to the floor unless he was assured it had enough votes to pass, which would likely require a bipartisan breakthrough. Senate Finance Committee Chair Ron Wyden, D-Ore., and Ways and Means Committee Chair Jason Smith, R-Mo., have both reiterated that they remain committed to passing the bill, but there has been little movement overcoming the objections of Senate Finance Committee ranking minority member Mike Crapo, R-Idaho. Crapo said recently that negotiations remain at an impasse, and he does not appear to be actively engaged in trying to reach a deal.

 

There have been some quiet efforts among supporters of the bill, including some rank-and-file Senate Republicans, to either overcome Crapo’s opposition or restart negotiations, but nothing has so far gained any traction. An unexpected and surprising breakthrough would likely be needed for the bill to be resurrected.

 

The language used to offset the cost of these extenders — a limit on Employee Retention Credit claims, with a retroactive cutoff at the end of this past January — could be an attractive pay-for for other legislation if the extenders package continues to languish. If that ERC cutoff, which IRS Commissioner Daniel Werfel requested with urgency in testimony before the Finance Committee on April 16, passes separately, it would further decrease the extenders package’s chances of becoming law.

 

See our prior story for details on the bill itself, which would address expensing of R&E costs under Section 174, extend bonus depreciation and adjust the limit on deducting interest expense under Section 163(j). 

 

 

 

Ways and Means looks to 2025

 

The House Ways and Means Committee previewed the broad debate expected next year over the country’s fiscal future, as large swaths of the Tax Cuts and Jobs Act will expire at the end of 2025.

 

Much of the April 11 hearing fell along familiar partisan lines. Republicans touted the effects of their tax reform effort, and led by Committee Chair Jason Smith, R-Mo., blasted the energy and electric vehicle tax credits created or expanded upon by the Inflation Reduction Act. Likewise, Democrats renewed their criticism of the landmark law of the Trump administration and raised concerns over the future of Social Security if taxes aren’t raised.

 

The hearing represented the beginning of table-setting on the impending debate for Ways and Means Committee Republicans, most of whom were not present for the TCJA passage in 2017. Former Sen. Phil Gramm, R-Texas, espoused keeping the corporate rate low, possibly by ending some corporate deductions and sector-specific tax subsidies, while there was also discussion from other witnesses of maintaining personal income tax rates due to rise at the end of next year.

 

Members did not propose new positions during the hearing, instead anchoring their own positions as they begin preparation for what’s likely to be a multi-trillion dollar debate next year.

 

Grant Thornton insight

This hearing is only the beginning of a complicated negotiation and debate process that will largely be shaped by the 2024 elections and could encompass another major overhaul of the tax code, and possibly the federal budget. Expect more political and policy groundwork this year in preparation for changes that may be on the same scale as the 2017 or 1986 tax reform efforts.

 

 

 

Werfel on IRS tech, Free File

 

Testimony by IRS Commissioner Daniel Werfel before the Senate Finance Committee on April 16 largely focused on the agency’s technology procurement and Free File pilot program, available in 19 states this year.

 

Senators of both parties raised concerns about technology procurement costs for the agency, which requested an additional $104 billion for the next 10 years, despite receiving an $80 billion funding increase two years ago (approximately $22 billion of which was recently rescinded by Congress). Werfel defended the request as necessary to maintain technology for the agency, but received several questions as to whether the agency could save money by buying off-the-shelf technology instead of developing new systems.

 

Werfel also touted the early success of Free File, saying millions of taxpayers used the pilot program, which was only available in 19 states, though the agency has not yet provided a specific number, as filing season wrapped only the day before his testimony.

 

Senators also questioned Werfel about the agency’s guidance to delay the imposition of a $600 reporting threshold for Form 1099-K for two years and then set the threshold at $5,000 for a third transition year. Questioning suggested some interest in raising the threshold legislatively, but there are few vehicles that could carry the change.

 

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