Also see: CPA Sample Client Letter: Infrastructure Investment and Jobs Act - General Explanation

House Sends $1T Infrastructure Package to Biden; Build Back Better Bill on Hold

(Parker Tax Publishing November 2021)

On November 5, the House of Representatives passed the Infrastructure Investment and Jobs Act, a $1 trillion infrastructure bill previously passed in the Senate. The bipartisan infrastructure bill contains several important tax provisions, such as: (1) the early termination, effective October 1, of the Code Sec. 3134 employee retention credit for employers other than recovery startup businesses; (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.

Practice Aid: Use Parker's Sample CLIENT Letter as a template or just sign your name at the bottom. See Infrastructure Investment and Jobs Act - General Explanation.

Background

On November 5, the House passed H.R. 3684, Infrastructure Investment and Jobs Act. H.R. 3684 is a $1 trillion infrastructure package which the Senate passed with bipartisan support on August 10, 2021. H.R. 3684 authorizes roughly $550 billion in new funding for infrastructure, including:

(1) $110 billion of new funds for roads, bridges, and major projects;

(2) $11 billion in transportation safety programs;

(3) $39 billion to modernize public transit;

(4) $66 billion for passenger and freight rail upgrades;

(5) $7.5 billion for a national network of electric vehicle chargers;

(6) $25 billion for airport repair and maintenance, and $17 billion for port infrastructure;

(7) $50 billion for protection against droughts, floods, and wildfires;

(8) $55 billion for clean drinking water;

(9) $65 billion for broadband internet infrastructure; and

(10) $65 billion for power grid improvements.

H.R. 3684 also includes several important tax-related provisions such as: (1) the early termination, effective October 1, of the Code Sec. 3134 employee retention credit for employers other than recovery startup businesses; (2) modifications of filing deadlines for taxpayers experiencing certain disasters; (3) an extension of Tax Court filing deadlines and the temporary postponement of certain other filing deadlines; (4) additional time to file certain tax-related documents when a taxpayer is affected by a significant fire event; (5) a modification of the tax treatment of contributions to the capital of a corporation; (6) new broker information reporting requirements for digital assets; (7) pension interest rate stabilization changes; and (8) the inclusion of qualified broadband projects and qualified carbon dioxide capture facilities in private activity bonds. Finally, of interest to certain qualifying nonprofits, H.R. 3684 authorizes grants of up to $200,000 for energy-efficiency materials installed in a nonprofit building.

Observation: On November 5, the House temporarily put on hold a vote for the Build Back Better (BBB) Bill, an almost $2 trillion social spending package loaded with tax provisions. Instead, the House passed a procedural vote needed to advance the BBB for an eventual vote. In the meantime, the House is waiting on a detailed cost estimate of the BBB from the Congressional Budget Office, which could take up to two weeks.

The following is a summary of the tax provisions included in H.R. 3684.

Early Termination of Employee Retention Credit

Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted the employee retention credit (ERC) which allows eligible employers to take a credit against certain employment taxes. Originally, the credit related to employment taxes paid on a percentage of qualified wages paid after March 12, 2020, and before December 31, 2020. That termination date was later extended to July 1, 2021, by Section 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Tax Relief Act), which was enacted as part of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260). Section 207 also made several other changes to the ERC. The American Rescue Plan Act of 2021 (Pub. L. 117-2) subsequently enacted Code Sec. 3134, which extended the ERC to wages paid after June 30, 2021, and before January 1, 2022.

Section 80604 of H.R. 3684 terminates the ERC early so that it does not apply to wages paid after September 30, 2021, unless the employer qualifies as a recovery startup business under Code Sec. 3134(c)(5). For a recovery startup business, the ERC continues to apply to wages paid before January 1, 2022. A recovery startup business refers to any employer that: (1) began carrying on a trade or business after February 15, 2020; (2) for which the average annual gross receipts for the 3-tax-year period ending with the tax year preceding the calendar quarter for which the credit is determined does not exceed $1 million; and (3) with respect to any calendar quarter, was not subject to a government-ordered shutdown or a significant decline in gross receipts.

Practice Tip: Due to the early termination of the ERC, employers (other than recovery startup businesses) that reduced employment tax deposits and/or received an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, after September 30, 2021, will have to repay those amounts. Under Reg. Sec. 31.3134-1T, any amount of the ERC to which an employer is not entitled is treated as an underpayment of the taxes, which the IRS can assess and collect in the same manner as the taxes.

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.

Prior to being amended by H.R. 3684, Code Sec. 7508A(d) provided qualified taxpayers a mandatory 60-day period that is to be disregarded "in the same manner as the period specified under [Code Sec. 7508A(a)]." Last June, the IRS issued final regulations (T.D. 9950) on the new mandatory 60-day postponement under Code Sec. 7508A(d). The IRS concluded that Code Sec. 7508A(d) was ambiguous because it did not specify the time-sensitive acts to be postponed by the mandatory 60-day postponement period and, in Reg. Sec. 301.7508A-1(g), the IRS interpreted Code Sec. 7508A(d) to provide that the time-sensitive acts postponed for the mandatory 60-day postponement period are the acts, if any, that the Treasury Secretary determines in his or her discretion to be postponed under Code Sec. 7508A(a) or (b). Section 80501(a) of H.R. 3684 in effect claws back the IRS's exercise of discretion in the final regulations by amending Code Sec. 7508A(d)(1)(B) to specify that the time-sensitive acts to which the 60-day mandatory postponement applies are the acts described in Code Sec. 7508(a)(1)(A)-(F). These acts are:

(1) filing returns;

(2) paying taxes;

(3) filing a Tax Court petition;

(4) the allowance of a credit or refund;

(5) filing a claim for a credit or refund; and

(6) bringing a lawsuit for a credit or refund.

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: 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, if contesting a proposed deficiency, a taxpayer has 90 days (or 150 days in certain cases) under Code Sec. 6213 to file a petition, and if contesting an IRS determination to levy or file a notice of federal tax lien under Code Sec. 6330, a taxpayer has 30 days to file a petition. 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, in order to ensure the timely filing of their petitions, taxpayers have had to monitor the status of the Tax Court and submit a petition virtually the moment the Tax Court reopens.

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, including by reason of a lapse in appropriations, a "filing location" is inaccessible or otherwise unavailable to the general public on the date a petition is due. Under this provision, taxpayers have an additional 14 days to file a Tax Court petition after the Tax Court reopens from such period of inaccessibility. In addition, Section 80503 adds Code Sec. 7451(b), which provides that for these purposes a "filing location" includes (1) the office of the clerk of the Tax Court, and (2) any online portal made available by the Tax Court for electronic filing of petitions (i.e., the Tax Court's DAWSON e-filing system). 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

Under Code Secs. 6045 and 6045A, any person doing business as a broker is required to file annual information returns on Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, to report certain information about their customers to the IRS, such as the customer's identity, the gross proceeds from sales of securities for such customer, and for "covered securities," cost basis information. Brokers are also required to furnish the same information reported to the IRS to their customers by February 15 of the year following the calendar year for which the Form 1099-B is required to be filed.

H.R. 3684 expands the Form 1099-B reporting and furnishing requirements to include cryptocurrency and other digital asset transactions, beginning with returns required to be filed and statements required to be furnished in 2024 for transactions occurring in calendar year 2023.

Observation: Expanding broker reporting to crypto assets was one of the proposals included in the Biden Administration's General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals (also known as the "Greenbook") issued earlier this year. The Greenbook states that tax evasion using crypto assets is a rapidly growing problem, and the global nature of the crypto market allows U.S. taxpayers to conceal assets and taxable income by using offshore crypto exchanges and wallet providers. Beginning with the 2020 Form 1040, page 1 of the form includes the question "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in virtual currency?"

Definition of Broker Revised: Section 80603 of H.R. 3684 amends the definition of "broker" in Code Sec. 6045(c)(1) to include 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: H.R. 3684 also 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 80301 extends 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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