Tax Update (September 10)
The New York Times ran a series of articles this week that heavily criticized the Opportunity Zone program. In one piece, authors Jesse Drucker and Eric Lipton argued that while Opportunity Zones were sold as a tool to encourage investment into areas in need, “instead, billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects.” The Opportunity Funds Association is countering this claim by noting that the program is still in its preliminary stages and highlighting projects that are lifting up communities by providing critical capital. The Association is also urging Congress to enact reporting requirements to enable the Department of Treasury to better track investments in the zones.
Extenders and Energy Tax Provisions
The tax extenders package will likely result in an end of year showdown as Congress considers a short term continuing resolution (CR). As Congress returns from its August recess, House Democrats are seeking to strengthen their negotiating position by marking up a series of clean energy provisions. These provisions include an expansion of the electric vehicle (EV) tax credit; an extension of the Investment Tax Credit (ITC) for solar; and a potential expansion of the ITC for energy storage. The markup could appear as early as the end of September.
Digital Services Tax
On Tuesday (Sep. 3), Treasury Secretary Steve Mnuchin met with French Finance Minister Bruno Le Maire to discuss France’s digital services tax. The meeting provided much needed clarity on how France, and other countries, plan to proceed after the Organization for Economic Cooperation and Development’s (OECD) ruling regarding such taxes. Treasury indicated the French have promised to follow any OECD ruling and provide refunds of revenue collected from the digital service tax. Congressional Republicans are pushing the Trump administration to publicly state that the OECD solution is the correct approach, and not country-by-country laws.
This week, the Internal Revenue Service (IRS) released two sets of proposed regulations regarding the timing of income inclusion under section 451 of the Internal Revenue Code of advance payments for goods, services, and certain other items. The proposed regulations reflect changes made by the Tax Cuts and Jobs Act (TCJA). One set of the proposed regulations affect taxpayers that use an accrual method of accounting and receive advance payments. The second set of proposed regulations affect taxpayers that use an accrual method of accounting and have an applicable financial statement.
[1 ]Drucker, Jesse & Lipton, Eric “ How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich” The New York Times, 31 Aug 2019 https://www.nytimes.com/2019/08/31/business/tax-opportunity-zones.html?searchResultPosition=2