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The Taxpayer Assistance and Service Act (S.5441), the TAS Act, passed the Senate by unanimous consent on Sept. 30.
The bill (previously covered here, under a different bill number than the version that advanced) contains a number of administrative mandates for the IRS and Tax Court, including:
- Refund claim determinations
The IRS would generally have 12 months to issue a determination on a refund claim. If denying the claim, the agency would be required to provide a written explanation and information describing the taxpayer’s appeal rights.
- IRS appeals
The legislation seeks to reinforce the principle that the IRS Independent Office of Appeals should evaluate disputes based on a hazards‑of‑litigation analysis. While the office has long applied this standard in practice, codifying the principle could be relevant in procedural disputes regarding access to appeals or case transitions among the offices of examination, appeals, and litigation. - Tax Court refund and credit disputes
Taxpayers can sue for a larger refund or credit in Tax Court, which may reshape litigation strategy and risk assessment. - Mandate increased digitization at the IRS
Require the IRS to establish a taxpayer dashboard for real-time information on backlogs and more electronic information related to return and refund processing status
Grant Thornton insight:
Because of the technical, noncontroversial nature of the bill, it stands a strong chance of becoming law ꟷ it still needs to pass the House of Representatives, which is not scheduled to return to session until after midterm elections take place on Nov. 3. The House Ways and Means Committee passed its own bills that take a more piecemeal approach to the changes that the TAS Act would do, but the fact that lawmakers on that side of the Capitol already have weighed these issues is a strong sign for the bill, provided lawmakers do not see major differences as sticking points.
Crypto tax reform maintains momentum with Senate bill
Sen. Steve Daines, R-Mont., a retiring member of the Senate Finance Committee, introduced his own version of cryptocurrency and digital asset tax reform on Sept. 30.
Titled the Aligning Digital Assets with Principles of Taxation Act (the ADAPT Act (PDF - 139.59KB), no bill number yet assigned), the proposal overlaps significantly with similar crypto tax reform legislation that the House Ways and Means Committee recently advanced on a bipartisan basis, titled the Digital Asset Tax Certainty Act (DATCA) (H.R. 10357 (PDF - 327.22KB)). This includes creating a de minimis exception for stablecoin payment transactions, mark-to-market election for broker dealers, and application of wash and constructive sale trading rules that apply to traditional securities to cryptocurrency markets.
The Senate bill, which thus far has three Republican cosponsors but no Democratic ones, goes further than DATCA in changes of tax treatment for digital asset lending, instruct Treasury to make new rules for foreign decentralized autonomous organizations to reorganize as U.S. corporations, and excludes passive staking income for tax-exempt organizations from business taxes.
Grant Thornton insight:
The bill represents more momentum for digital asset tax reform in Congress, though the lack of legislative days left on the calendar presents a major hurdle ꟷ as does the fact that both the primary sponsor, Daines, as well as Sen. Cynthia Lummis, R-Wyo., an original cosponsor and outspoken crypto reform advocate, are retiring at the end of this Congress.
Still, the overlapping points of the Senate bill with DATCA represent a significant foundation for a possible lame-duck session deal, especially since DATCA received a number of Democratic votes in the Ways and Means Committee. A key question is whether congressional leadership will have the appetite for crypto tax reform after midterm elections, or if political dynamics change to where Democrats feel they can draft their own version next Congress.
Growing congressional scrutiny of data center taxes
Senators from both parties have begun to examine increased taxation of data centers, as public sentiment remains mixed about the proliferation of machine learning and AI platforms and services.
Sen. Josh Hawley, R-Mo., offered the latest proposal, No Tax Breaks for Data Centers Act (S.5418), on Sept. 17 that if made law would exclude data centers from the definition of qualifying opportunity zone businesses or property, eliminating the capital gains benefits for investment in those properties.
“This is a form of corporate welfare,” Hawley said in a Sept. 16 interview Fox News. “They don't need any welfare. These people are rich. They can pay their own way."
The Republican proposal comes after two senior Democrats on the Senate Finance Committee, Sens. Mark Warner, D-Va., and Ron Wyden, D-Ore., already advanced early legislative proposals to increase data center taxes over the summer.
Warner put forward a bill, Data Center Tax Accountability and Disclosure Act (S.5054), in July that would prohibit Section 168(k) full expensing of property related to AI-related data centers if they are not Leadership in Energy and Environmental Design (LEED)-certified at Platinum or Gold levels.
In the bill this is defined as:
- A structure or group of structures dedicated to information technology (IT) equipment, network telecommunications equipment, and “data storage, processing, and transport services,” and
- Used “at least 20%” for developing or operating AI.
Wyden has yet to introduce legislation, but he released a proposal (previously covered here) in August that included an AI data center gross receipts excise tax, in addition to excluding AI-related data centers from bonus depreciation and opportunity zone tax benefits.
Grant Thornton insight:
Notably, all three proposals aim to carve out data center activity that does not support AI. While early going, the tax proposals reflect the significant drop in public sentiment towards AI, which could manifest into bipartisan agreement on tax changes.
However, the Trump administration’s stance on AI is that, “The United States is in a race to achieve global dominance in artificial intelligence. Whoever has the largest AI ecosystem will set the global standards and reap broad economic and security benefits,” and that AI will lead to, “a new Golden Age of innovation, human flourishing, and technological achievement for the American people,” according AI.gov, the administration’s official website for AI policy.
Proposals that would increase taxes on data centers face a likely presidential veto for the next two years ꟷ but could grow as a possibility of future law if seen as a politically expedient way to raise revenues for the federal government.
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