Tax relief for emergency aid passes, Taiwan tax bill could be next

The Senate has sent a disaster tax relief package (H.R. 5863) to the president for enactment, and is now seeking to use a similar process to approve legislation that would confer tax treaty benefits to Taiwan.

The disaster bill expands the exclusion from income of disaster relief payments to include payments to compensate for losses, damages and expenses from federal disasters declared as a result of any forest or range fire after Dec. 31, 2014, or resulting from the East Palestine, Ohio, train derailment on Feb. 3, 2023.

The bill would also extend the effective date of personal-casualty loss rules for disasters that were enacted as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, making several recent hurricanes qualifying disaster events. The rules, which provide that qualified losses are deductible to the extent they exceed $500 without regard to whether they exceed 10% of adjusted gross income, did not apply to disasters declared more than 60 days after its enactment. H.R. 5863 now extends the availability of the treatment to disasters declared 30 days after its own enactment.

The Senate passed the disaster relief bill by unanimous consent, and leaders are now gauging support for using a similar process to grant tax-treaty-like benefits for Taiwan.

On Oct. 29 Treasury announced it had begun talks for U.S. companies to receive reciprocal tax treatment from Taiwan, also along the lines of the U.S.’s current Model Income Tax Convention, another positive indicator for the U.S. bill.

The legislation itself would create a new section of the Internal Revenue Code, Section 894A, that would provide treaty-like benefits to Taiwan, contingent on Treasury certifying that Taiwan has granted reciprocal benefits to U.S. persons. The treaty-like benefits that would be conferred to Taiwan under the legislation include:

• Reducing the 30% withholding rate on U.S. source interest and royalties to 10% for nonresident Taiwanese aliens and Taiwanese corporations
• Reducing the dividend withholding rate to 15%, with a 10% rate under certain conditions
• Applying permanent establishment rules to determine effectively connected income
• Exempting certain U.S. wages of Taiwanese residents from U.S. tax

Both bills were originally part of a broader extender package that would have also restored 100% bonus depreciation, reinstated expensing of R&E costs under Section 174 and resurrected a more favorable calculation of the limit on the interest deduction under Section 163(j). That bill is essentially dead, and those provisions have little chance to move this year but could be part of the discussion in 2025. Lawmakers, however, may still seek other year-end vehicles to pass other noncontroversial tax provisions, including pension technical corrections or technical correction for the SECURE 2.0., which would address

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