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Business Tax

Key Guidance to Watch for in IRS’ 2022-2023 Plan Year

Tim Shaw  

Tim Shaw  

The IRS has received many recommendations ahead of the release of its regulatory to-do list through summer 2023. The agency is tasked with implementing new tax provisions of major legislation well into the 2022-2023 cycle.

The IRS has yet to release its 2022-2023 Priority Guidance Plan and didn’t immediately respond when asked by Checkpoint about the estimated publication date. However, the agency generally welcomes comments and suggestions about where it should focus efforts to offer clarity and promote taxpayer compliance during the 12-month periods it calls “plan years.” Recent correspondence could indicate which guidance projects will appear in its current-year plan, which began July 1.

Tax components of the Inflation Reduction Act (PL 117-169) may be featured in the upcoming project list. As previously reported, Ernst & Young wrote to the Treasury Department calling for corporate split-offs to not be factored into the imposition of the new 15% corporate alternative minimum tax in lieu of transition relief. Another provision, the 1% excise tax on corporate stock buybacks, could also be a priority following the law’s enactment. There are concerns that the definition of a stock repurchase is broad and could potentially apply to more business transactions than perhaps intended without clarification on the tax’s application.

Two excise taxes on chemical substances were reinstated by the Infrastructure Investment and Jobs Act (IIJA; PL 117-58). Commonly referred to as Superfund excise taxes, these apply to sales of taxable chemicals under Code Sec. 4661, as well as specified sales or uses of imported taxable substances under Code Sec. 4671. The controversial Superfund provisions took effect July 1 for the first time since 1995 with several modifications in addition to modernized reporting requirements. Per the 2021-2022 Priority Guidance Plan, the IRS issued Notice 2021-66 after the IIJA became law, providing a list of taxable substances subject to the Superfund chemical taxes. FAQs and tax rates for 121 substances were made available late June.

More guidance is still needed, though, according to the National Association of Chemical Distributors. In an August 3 letter to IRS Commissioner Chuck Rettig, association president Eric Byer requested “immediate guidance” to answer “urgent compliance questions” from NACD members.

“The wide range of services conducted by NACD members places them in a unique position when it comes to complying with the new obligations of the Superfund Tax,” Byer wrote. “While all taxpayers need guidance, the majority of NACD’s members are small, multi-generational, family-owned businesses. It is imperative for these companies to have as much clarity and guidance as possible to meet their responsibilities under the reinstated law.”

Specifically, Byer said relevant definitions should be fleshed out, including who is considered a manufacturer, producer, or importer. Additional clarification is needed on what it means to manufacture, produce, and import, as well as what constitutes a taxable sale or use, he said. Byer also urged the IRS to adopt industry terminology in conjunction with Harmonized Tariff Schedule (HTS) and Chemical Abstracts Service (CAS) registry numbers for taxable chemicals and substances, to avoid confusion.

“IRS use and recognition of the unique and internationally accepted identifiers of HTS codes and CAS numbers is vital to taxpayers to manage compliance with the Superfund Tax effectively,” Byer said.

According to Byer, temporary regs or similar guidance should provide for the tax treatment of imported mixtures comprised of both taxable and nontaxable chemicals or substances. To the NACD’s understanding, such mixtures are likely taxable if taxable and nontaxable components can be “easily separated,” but the IRS should definitively say so, according to Byer.

The letter continued with requests for the IRS to address which documents taxpayers need when calculating their substance rates and on which basis to measure liquids. Finally, Byer asked for Superfund excise taxes to be permanently exempted from the semimonthly deposit requirement. Instead, these payments should be made quarterly, he wrote.

“The National Association of Chemical Distributors (NACD) has been unwavering in our attempt to seek additional information regarding the reinstated Superfund tax since its resurrection,” Jennifer Gibson, NACD vice president of regulatory affairs told Checkpoint in a statement. “From preparing resources for members to sending a multitude of letters to the Internal Revenue Service (IRS) asking for guidance, our goal is to avoid the confusion and uncertainty that has been created for businesses making a sincere effort to comply.”

Adding that NACD members have powered through pandemic-created economic disruptions to meet the needs of customers, Gibson said that the association’s ask for the IRS “is simple: Provide additional clarity and realistic guidance to guarantee our members have the information they need to meet their responsibilities under the reinstated law.”

The American Bar Association’s tax section has also been vocal on what the IRS should include in its 2022-2023 plan. On August 1, the ABA sent Rettig  a letter seeking guidance on Code Sec. 142(o), relating to qualified carbon dioxide capture facilities. The section was added to the Code by the IIJA, effective for state and local bonds issued after December 31, 2021, but “sets forth a number of complicated and engineering-related requirements and uses terms that in many cases are not defined elsewhere,” the letter read. Citing statutory language that empowers Treasury to issue regs on topics such as methods for determining costs attributable to an eligible component, the ABA letter sought guidance on Section 142(o) definitions.

Later, on August 10, the ABA commented on proposed regs from April that would provide an exception to the special rule on the basic exclusion amount (BEA). The Tax Cuts and Jobs Act amended estate tax rules and increased the BEA from $5 million to $10 million, adjusted for inflation, for decedents dying and gifts made before January 1, 2026.

2019 final regs included a special rule to prevent tax-free gifts as a result of the temporary BAE increase from being taxed to a donor’s estate, but the rule didn’t distinguish between a pair of differently treated transactions. The proposed regs attempt to rectify a disparity and clarify that transfers are includible in a grantor’s gross estate.

The ABA agrees that the proposed fix would prevent an inappropriate result, that is, “for the estate of a decedent who did not part with possession, dominion, control, and enjoyment of gifted property, to benefit from the increased BEA under present law for transfers made between January 1, 2018, and December 31, 2025.” Several tweaks should be made before the regs are adopted, according to the ABA’s comments, which suggested revisions regarding:

  • The language on the scope of excepted transfers;
  • Whether enforceable promise transfers and other excepted transfers can utilize non-bonus BEA;
  • How the 18-month exception interacts with Code Sec. 2035, particularly if a transfer includible in the gross estimate under section 2035 would “benefit from the Special Rule if effectuated more than 18 months prior to the decedent’s date of death”;
  • Whether excepted transfers would capture transfers where the equity interest “is subject to the transferor’s retention of a qualified payment right” and also requires the application of Code Sec. 2701 special valuation rules; and
  • The final regs’ effective date as it relates to excepted transfers.

This pair of ABA letters follows up the Tax Section’s June 3 list of recommendations for the 2022-2023 Priority Guidance Plan, a regulatory wish list spanning across several tax sectors. About a week prior, the American Institute of Certified Public Accountants sent its 30-page guidance agenda to the IRS for the new plan year.

On August 17, the IRS put a wrap on the 2021-2022 Priority Guidance Plan with its fourth-quarter update. The agency said 77 of the original 193 guidance projects had been published or released following public input. During the fourth quarter, which ended in June, 14 projects were updated, along with 17 others that weren’t included in the initial plan.

 

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