Skip to main content

TAX TAKE: Two Hearings Beat as One in the Senate and IRS

Tax Alert

Last week, eyes were trained on two key hearings, one in the Senate and one at the Internal Revenue Service (IRS).

First, President Biden's nominee for IRS Commissioner, Daniel Werfel, appeared before the Senate Finance Committee for his confirmation hearing. As anticipated, the additional $80 billion in IRS funding from the Inflation Reduction Act (IRA) was a hot topic for senators, with Mr. Werfel fielding critical inquiries from Republicans regarding the agency's plan for deploying those additional resources. 

Meanwhile, Democrats focused primarily on the positive outcomes the additional funding is anticipated to generate, including shoring up the agency's technological resources and equalizing audit procedures by emphasizing that the additional resources will not increase the proportion of small business or households below the $400,000 threshold that are audited relative to historical norms. (Senator Mike Crapo (R-ID) reintroduced a bill on the same day as the hearing to codify that promise.) 

Senate taxwriters also addressed Mr. Werfel's vow to issue a report soon detailing a 10-year plan for deploying the additional $80 billion in funding. He was also questioned about hiring experienced practitioners to review complex tax returns, regulating tax return preparers, expanding FATCA, and the prospect of implementing a voluntary program under which taxpayers would receive pre-populated draft returns for their review and approval. 

Next, Mr. Werfel's nomination will be put to a floor vote in the Senate. All signs indicate that he will be confirmed as the next Commissioner.

Second, the IRS and Treasury Department hosted a hearing on the proposed foreign tax credit regulations released at the end of last year. While the package was widely viewed as taxpayer-favorable, several key issues remain. For example, commenters observed that while the same-country use exception applicable in the context of assessing the creditability of withholding taxes on royalties offered welcome relief, the rules stop short of providing equitable treatment, as there is no parallel rule that applies in the context of withholding taxes on payments for services. Uneven treatment of services abounds in the Code (those who followed the evolution of Tax Cuts and Jobs Act (TCJA) provisions will recall that the services cost method exception to the base erosion and anti-abuse tax (BEAT) rules had its genesis in observations that the cost of goods sold (COGS) exception to base erosion payments was of little to no benefit for services companies), and this is yet another example. It remains to be seen whether IRS and Treasury will take the opportunity to address this instance of disparate treatment in the upcoming final package. 

Looking ahead, President Biden is expected to release his FY 2024 budget on March 9, along with Treasury's Greenbook detailing the administration's tax policy priorities. Your friends at Tax Take will examine those proposals and keep you apprised. Stay tuned! #TaxTake

Upcoming Speaking Engagements and Events

Loren, Marc, and Jorge will all be speaking at the Federal Bar Association 2023 Tax Law Conference. Marc and Jorge will moderate "Floyd's Panel: 2023 Tax Legislative Update," on March 3. Loren will present the virtual program "The OECD Pillars: Buckle Up!" on March 6.

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.