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Infrastructure deal adds IRS reporting, tax provisions

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Tax Hot Topics newsletter Lawmakers have reached initial agreement on bipartisan infrastructure bill (H.R. 3864) that would expand information reporting on cryptocurrency and make various other tax amendments. There are only a handful of tax provisions in the bill, but the deal should clear the way for Democrats to work on a budget resolution that could provide as much as $3.5 trillion in reconciliation instructions for major tax changes.

The Senate voted 67-22 on July 28 to move forward on the $1.2 trillion bipartisan infrastructure package, including $550 billion in new spending over five years. The vote was procedural, but it signals favorable prospects for the bill’s prospects to pass the Senate. Senate Majority Leader Chuck Schumer, D-N.Y., said he is aiming to pass the bill this week, though it will be open to amendments. The bill’s fate in the House will be tied to Democratic efforts to advance a reconciliation bill carrying the Democratic tax agenda. House Speaker Nancy Pelosi, D-Calif., recently stated that she will not hold a vote on the infrastructure package until Senate Democrats also pass a $3.5 trillion reconciliation bill.

The infrastructure package generally eschews major Democratic tax increase proposals, which Democrats are now hoping to move separately on the reconciliation bill. The infrastructure bill does raise $50 billion in net revenue from a handful both favorable and unfavorable tax changes, which include:

  • Expanding information reporting to cover digital assets like cryptocurrency
  • Extending the transportation excise taxes that fund highway spending
  • Reinstating Superfund taxes
  • Extending pension funding relief
  • Accelerating the employee retention credit cutoff for employers claiming it based on a COVID-19 shutdown
  • Carving out certain utility water and sewer property from the exclusion from contribution to capital treatment under Section 118
  • Increasing the private activity bond cap for transportation projects and expanding eligibility to include qualified broadband projects and carbon dioxide sequestration facilities
  • Expanding required IRS administrative relief for disasters

The bulk of the revenue comes from the $28 billion proposal to expand information reporting requirements on digital assets. These changes would expand broker reporting requirement to digital assets like cryptocurrency and add digital assets to current rules requiring businesses to report cash payments over $10,000.

The bill would also eliminate the employee retention credit (ERC) effective Sept. 30, 2021—three months earlier than its currently scheduled end date. It had been enhanced and extended though the end of 2022 in the American Rescue Plan Act of 2021 (ARP Act), which was enacted on March 11.

A proposal for a new $8 billion allocation to the Section 48C tax credit was included in earlier drafts of the legislation but was ultimately removed from the text of H.R. 3864 before the bill was filed.

If the infrastructure bill passes the Senate, Democrats will turn their attention to a budget resolution for their proposed reconciliation bill. Senate Majority Leader Chuck Schumer, D-N.Y., has indicated his intent to move the budget resolution as quickly as possible after the infrastructure bill moves.

The budget resolution and potential follow-up reconciliation bill still face challenges. Senate Budget Committee Chair Bernie Sanders, I-VT, recently said he believes he has 50 votes for the budget, but details are still under negotiation and moderate Democrats have pushed back. Sen. Kyrsten Sinema, D-Ariz., recently stated that while she would support moving the budget forward to start the process, she cannot back the $3.5 trillion in spending that other Democrats have put forward and will work to reduce it. Moderates have also pushed back against Pelosi’s plan to hold the infrastructure bill until the reconciliation bill is ready. House progressives, on the other hand, have rejected calls to pass the infrastructure bill until they have secured the reconciliation bill from Senate moderates.

Even if a budget is passed before the August recess, lawmakers would not be expected to write the reconciliation bill itself (containing the details of the tax proposals) until the fall.

Contact:
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

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