Close Vote Expected on Bipartisan Infrastructure Bill

(Parker Tax Publishing September 2021)

On Thursday, the House of Representatives is scheduled to vote on a $1 trillion infrastructure bill (sometimes referred to as the "Bipartisan Infrastructure Framework") previously passed in the Senate. With several progressive members of the House Democratic caucus threatening to oppose the bill unless the House first passes a more ambitious $3.5 trillion package also working its way through Congress, it is unclear whether the bill can pass on a party line vote or if enough Republican support will materialize to overcome any Democratic defections. The bill contains several important tax provisions, including (1) for employers other than recovery businesses, the early termination of the Covid-related employee retention credit; (2) modifications to Tax Court filing and tax-related deadlines; (3) changes to the tax treatment of certain contributions to the capital of a corporation; (4) new information reporting requirements on sales of cryptocurrency and other digital assets; (5) the extension of interest rate stabilization for pension-related purposes; and (6) the inclusion of qualified broadband projects in private activity bonds. H.R. 3684, Infrastructure Investment and Jobs Act.

Background

On Thursday, September 30, the House is set to vote on H.R. 3684, Infrastructure Investment and Jobs Act, (the Bill). The Bill is a $1 trillion infrastructure package passed by the Senate on August 10, 2021, by a vote of 69-30. The Bill:

(1) extends FY2021 enacted levels through FY2022 for federal-aid highway, transit, and safety programs;

(2) reauthorizes for FY2023-FY2026 several surface transportation programs, including the federal-aid highway program, transit programs, highway safety, motor carrier safety, and rail programs;

(3) includes strategies to reduce the climate change impacts of the surface transportation system and a vulnerability assessment to identify opportunities to enhance the resilience of the surface transportation system and ensure the efficient use of federal resources;

(4) revises Buy America procurement requirements for highways, mass transit, and rail;

(5) establishes a rebuild rural bridges program to improve the safety and state of good repair of bridges in rural communities;

(6) implements new safety requirements across all transportation modes; and

(7) directs DOT to establish a pilot program to demonstrate a national motor vehicle per-mile user fee to restore and maintain the long-term solvency of the Highway Trust Fund and achieve and maintain a state of good repair in the surface transportation system.

The Bill also includes several important tax-related provisions including (1) the early termination of the employee retention credit; (2) modifications of filing deadlines for taxpayers experiencing certain disasters, (3) an extension of Tax Court filing deadlines and other events that affect certain filing deadlines, (4) a tolling of the time to file a petition with the Tax Court when the Tax Court is inaccessible; (5) additional time to file certain tax-related documents when a taxpayer is affected by a significant fire event; (6) the modification of tax treatment of contributions to the capital of a corporation; (7) new information reporting requirements for digital assets; (8) pension interest rate stabilization changes; and (9) the inclusion of qualified broadband projects and qualified carbon dioxide capture facilities in private activity bonds.

Observation: The tax changes in the Bill pale in comparison with ones being considered as part of the $3.5 trillion package working its way through Congress using the reconciliation process (which would allow it to pass the Senate with a simple majority). The tax provisions being considered for inclusion in the reconciliation bill include: an increase in the corporate tax rate; an increase in the tax rate and capital gains rate for high-income individuals; a surcharge on high-income individuals, estates and trusts; a phaseout or cap on the Code Sec. 199A deduction; an acceleration of the expiration of the temporary increase in the estate and gift tax exemption amount; an increase in the limitation on estate tax valuation reduction for certain real property used in farming or other trades or businesses; the enactment of a $10 million limit with respect to aggregate accumulations in applicable retirement accounts of certain high-income taxpayers; application of the net investment income tax to trade or business income of certain high-income individuals; limitations on the deduction for interest expense; and treating the loss of a partnership interest that becomes worthless as a capital loss to be recognized at the time of the identifiable event establishing worthlessness.

Finally, of interest to certain qualifying nonprofits, the Bill authorizes grants of up to $200,000 for energy-efficiency materials installed in a nonprofit building.

Early Termination of Employee Retention Credit

Section 80604 of H.R. 3684, terminates early the refundable employee retention (ERC) credit in Code Sec. 3134 so that it does not apply to wages paid after September 30, 2021, except for wages paid by a start-up recovery business. Code Sec. 3134 was enacted in the American Plan Act of 2021 (ARP) in March of 2021. It provides a substantially similar ERC for qualified wages as was included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136), as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted as part of the Consolidated Appropriations Act, 2020 (Pub. L. 116-260). Code Sec. 3134 extended the ERC, which was scheduled to end for quarters after June 30, 2021, through the last two quarters of 2021. H.R. 3684 terminates the ERC for wages paid after the third quarter of 2021 (i.e., September 30, 2021) for all employers other than a start-up recovery business, as defined in Code Sec. 3134(c)(5). According to revenue estimates by the Joint Committee on Taxation (JCX-33-21), the early termination of this credit will save $8.2 billion.

Modifications to Tax Court Filing and Tax-Related Deadlines

Clarification of Automatic Extension of Certain Deadlines in the Case of Taxpayers Affected by Federally Declared Disasters: Under Code Sec. 7508A(a), the Treasury Secretary can postpone certain tax-related deadlines when there is either a federally declared disaster, a terroristic action, or a military action. In the Consolidated Appropriations Act, 2020, Code Sec. 7508A(d) was added to provide a mandatory minimum extension period of 60 days for taxpayers affected by federally declared disasters, regardless of whether the Treasury Secretary exercised the discretion granted by Code Sec. 7508A(a). Section 80501 of H.R. 3684 clarifies the legislative intent of that provision by stating (1) when the automatic extension ends, (2) what required acts are postponed, (3) the location of a qualifying disaster, and (4) how to proceed when there are declarations relating to multiple disasters. The provision applies to federally declared disasters declared after the date of enactment.

Postponement of Certain Acts by Reason of Service in Combat Zone or Contingency Operation: Code Sec. 7508(a) allows for the postponement for the performance of certain acts by reason of service in combat zones or contingency operations. Section 80502 of H.R. 3684 amends Code Sec. 7508(a)(1) to clarify that all Tax Court petitions receive the postponement treatment encompassed by Code Sec. 7508(a)(1). Further, the time for the government to file an erroneous refund suit against a taxpayer is also postponed under this provision. This provision applies to any period for performing an act which has not expired before the date of enactment.

Tolling of Time for Filing a Petition with the Tax Court: The ability to petition the Tax Court is one of the most important protections taxpayers have against erroneous IRS determinations. A taxpayer is provided specific deadlines by which the taxpayer must file a petition in the Tax Court, depending on the type of tax at issue. For example, a taxpayer is provided 90 days (or 150 days in certain cases) by Code Sec. 6213 to file a petition contesting a proposed deficiency, and 30 days to file a petition contesting an IRS determination to levy or file a notice of federal tax lien under Code Sec. 6330. The Tax Court consistently holds these timing rules are themselves part of the Congressional grant of subject matter jurisdiction, and thus cannot be extended. In Guralnik v. Comm'r, 146 T.C. 230 (2016), the Tax Court granted taxpayers limited relief by incorporating Federal Rule of Civil Procedure 6(a)(3) to hold that if the last day for filing a petition falls on a day when the Tax Court is inaccessible, then the last day is extended to the first day the Tax Court reopens. Recently, the Tax Court has been inaccessible and often unable to accept mail for extended periods of time due to weather, lapses in appropriations, and the COVID-19 pandemic. Thus, taxpayers must monitor the status of the Tax Court and submit a petition virtually the moment the Tax Court is accessible in order to ensure their petition is timely filed.

Section 80503 of H.R. 3684 amends Code Sec. 7451 to provide a tolling period for the time for filing a Tax Court petition when the court is inaccessible and provides taxpayers an additional 14 days to file after the Tax Court reopens from such period of inaccessibility. This provision applies to petitions required to be timely filed (determined without regard to the amendments made by this provision) after the date of enactment.

New Authority to Postpone Certain Tax Deadlines by Reason of Significant Fires: Section 80504 of H.R. 3684 amends Code Sec. 7508A to change its heading from "Authority to Postpone Certain Deadlines by Reason of Presidentially Declared Disaster or Terroristic or Military Actions" to "Authority to Postpone Certain Deadlines by Reason of Federally Declared Disaster, Significant Fire, or Terroristic or Military Actions." In addition, Code Sec. 7508A is amended by adding "a significant fire" to the list of events that result in the postponement of certain federal deadlines and defines a "significant fire" as any fire with respect to which assistance is provided under Section 420 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. These amendments apply to fires for which assistance is provided after the date of enactment.

Modification of Tax Treatment of Contributions to the Capital of a Corporation

Section 80601 of H.R. 3684 revises the rules of Code Sec. 118, relating to the tax treatment of contributions to the capital of a corporation, to provide special rules for water and sewerage disposal utilities. Under this new rule, the term "contribution to the capital of the taxpayer" includes any amount of money or other property received from any person (whether or not a shareholder) by a regulated public utility which provides water or sewerage disposal services if: (1) such amount is (i) a contribution in aid of construction, or (ii) a contribution to the capital of such utility by a governmental entity providing for the protection, preservation, or enhancement of drinking water or sewerage disposal services, (2) in the case of a contribution in aid of construction which is property other than water or sewerage disposal facilities, such amount meets certain requirements of an expenditure rule contained in Code Sec. 118(c)(2), and (3) such amount (or any property acquired or constructed with such amount) is not included in the taxpayer's rate base for rate-making purposes.

No deduction or credit is allowed for, or by reason of, any expenditure which constitutes a contribution in aid of construction to which this provision applies. The adjusted basis of any property acquired with contributions in aid of construction to which this provision applies is zero.

This provision applies to contributions made after December 31, 2020.

New Information Reporting Requirements for Cryptocurrency and Other Digital Assets

Definition of Broker Revised: Section 80603 of H.R. 3684 adds to the definition of "broker" in Code Sec. 6045 any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. Such broker is required to file a return showing the name and address of each customer, with such details regarding gross proceeds and such other information as the IRS may require with respect to such business. A digital asset generally is defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the IRS.

New Return Requirement for Certain Digital Asset Transfers: The Bill amends Code Sec. 6045A to provide a return requirement for certain transfers of digital assets not otherwise subject to reporting. In addition, any broker, with respect to any transfer (which is not part of a sale or exchange executed by such broker) of a covered security which is a digital asset from an account maintained by such broker to an account which is not maintained by, or an address not associated with, a person that such broker knows or has reason to know is also a broker, must file a report showing the information otherwise required to be furnished with respect to such digital asset transfers.

New Reporting Penalties for Filing to Furnish Information Relating to Digital Asset Transfers: Additionally, reporting penalties are added under Code Sec. 6724 for failing to furnish the required digital asset transfer information under Code Sec. 6045A.

The above changes relating to cryptocurrency and other digital assets apply to returns required to be filed, and statements required to be furnished, after December 31, 2023.

Changes Relating to Minimum Funding Standards for Single-Employer Defined Benefit Pension Plans

Section 80602 of H.R. 3684 changes the rules relating to minimum funding standards for single-employer defined benefit pension plans by amending (1) the table in Code Sec. 430(h)(2)(C)(iv), relating to segment rates used to determine the shortfall amortization installments with respect to minimum funding standards for single-employer defined benefit pension plans, and (2) the table in Section 303(h)(2)(C)(iv)(II) of the Employee Retirement Income Security Act of 1974.

These amendments apply with respect to plan years beginning after December 31, 2021.

Inclusion of Qualified Broadband Projects and Qualified Carbon Dioxide Capture Facilities in Private Activity Bonds

Sections 80401 and 80402 of H.R. 3684 add qualified broadband projects and qualified carbon dioxide capture facilities to the list of exempt facility bonds in Code Sec. 142.

The amendments relating to qualified broadband projects apply to obligations issued in calendar years beginning after the date of enactment. The amendments relating to qualified carbon dioxide capture facilities apply to obligations issued after December 31, 2021.

Grants for Energy-Efficiency Materials Installed in a Nonprofit Building

Section 40542 of H.R. 3684 authorizes up to $200,000 in grants to individual nonprofit organizations for the purchase of energy-efficiency materials, the installation of which results in a reduction in use of energy or fuel. For this purpose, the term "energy-efficient material" includes:

(1) a roof or lighting system or component of the system;

(2) a window;

(3) a door, including a security door; and

(4) a heating, ventilation, or air conditioning system or component of the system (including insulation and wiring and plumbing improvements needed to serve a more efficient system).

The term ''nonprofit building'' means a building operated and owned by an organization that is described in Code Sec. 501(c)(3) and is exempt from tax under Code Sec. 501(a). In determining whether to award a grant, the following performance-based criteria will be applied:

(1) the energy savings achieved;

(2) the cost effectiveness of the use of energy-efficiency materials;

(3) an effective plan for evaluation, measurement, and verification of energy savings; and

(4) the financial need of the applicant.

Highway Tax-Related Provisions Included in H.R. 3684

(1) Section 80102(a)(1) extends to September 30, 2028, the highway-related taxes in Code Secs. 4041(a)(1)(C), 4041(m)(1)(B), and 4081(d)(1). The taxes under those provisions were originally scheduled to expire after September 30, 2022.

(2) Section 80102(a)(2) extends to October 1, 2028, the tax on the use of certain heavy vehicles in Code Secs. 4041(m)(1)(A), 4051(c), 4071(d), and Code Sec. 4081(d)(3).

(3) Section 80102(b) extends the heavy vehicle use taxes in Code Sec. 4481(f) and 4482(c)(4) and 4482(d), originally scheduled to expire in 2023, to 2029.

(4) Section 80102(c) extends the time for applying for floor stocks refunds under Code Sec. 6412(a)(1).

(5) Section 80102(d) extends the time for engaging in certain exemption transactions in Code Sec. 4221(a) to October 1, 2028, and certain exemption transactions in Code Sec. 4483(i) to October 1, 2029, from October 1, 2022, and October 1, 2023, respectively.

(6) Section 80102(e) amends Code Sec. 9503 to extend the appropriation of certain taxes to the Highway Trust Fund as well as authorize further additional transfers to the trust fund.

(7) Section 80201 amends Code Secs. 4661 to extend and modify certain superfund taxes and rates. This provision also amends and modifies the rules in Code Sec. 4672 for determining taxable substances subject to the superfund excise taxes.

(8) Section 80301extends the applicable date for the application of customs user fees in the Consolidated Omnibus Budget Reconciliation Act of 1985 as well as the rate for merchandise processing fees in Section 503 of the United States-Korea Free Trade Agreement Implementation Act.

(9) Section 80403 increases the national limitation amount for qualified highway or surface freight transportation facilities from $15 billion to $30 billion.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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