Legislative roundup: Extenders, GRAT bill, regulatory review

Congress returns this week to a slew of priorities while facing a slim window to address the extenders before an informal April 15 deadline set by Democrats. Opposition from Senate Finance Committee ranking minority member Sen. Mike Crapo, R-Idaho, continues to dampen hopes of an extenders deal, while Senate Finance Committee Chair Ron Wyden, D-Ore., released a new proposal aimed at estate tax planning and Republicans previewed challenges to tax regulations.   

Extenders

The Tax Relief for American Families and Workers Act (H.R. 7024) faces diminishing chances of passage in the Senate with Crapo holding fast in opposition, largely over the design and cost of a temporarily expanded child tax credit provision. Crapo’s objections come in the context of his likely ascent to Finance Committee chair next year if Republicans take a majority in the Senate, as they are currently favored to do.

Because of that dynamic, it’s unclear whether the impasse can be broken before Tax Day. Democrats previously set an informal deadline of April 15 to address the bill, and Senate Majority Leader Chuck Schumer, D-N.Y., has placed the House bill on the Senate calendar, essentially threatening to hold a cloture vote and force Republicans to go on record. Democrats could still ignore the deadline and hope that Wyden can resurrect talks with Crapo in the coming weeks. If they do hold a cloture vote, it would need 60 votes to pass. A double-digit figure of Republican senators would need to buck their senior tax writer and support the bill for it to advance[SD1] [WC2] ; a majority of Democrats are likely to vote for the legislation, though several could vote against it, as progressives have argued that the child tax credit expansion does not go far enough.

Some advocates for the bill also hold out hope for a lame-duck deal if the bill continues to stall, but the dynamics for passage could be worse at the end of the year. There is likely to be less support for the retroactive research and development expenses and the amount of money the government can claim as recouped from cutting off employee retention tax credit applications diminishes the longer it takes for the bill to pass. Election results will greatly affect the dynamics.

See our prior legislative updates for details on the bill itself, which would address the expensing of R&E costs under Section 174, extend bonus depreciation, and adjust the limit on deducting interest expense under Section 163(j).

Wyden introduces GRAT overhaul

Wyden has introduced a bill to impose restrictions on grantor annuity retained annuity trust (GRAT) planning. The Getting Rid of Abusive Trusts Act would make several changes to curb to the ability to use GRATs as a transfer tax planning technique, including:

• Requiring a minimum term of 15 years and capping the maximum term to 10 years more than the life expectancy of the recipient.
• Prohibiting decreases in the annuity during the GRAT.
• Requiring the remaining interest to have a minimum value for gift tax purposes if transferred.
• Treating the transfers between a trust and the deemed owner as a sale or exchange for income tax purposes.

The bill was announced on March 20, but legislative text has yet to be posted. The bill builds on many prior proposals from Democrats that would limit GRAT planning. It is not likely to advance this year but could be considered by Democrats in future reform efforts.

Congressional review Act deadline approaches

Several Senate Republicans recently wrote a letter to the Government Accountability Office, questioning whether Notice 2024-20, which favorably drew boundaries for the EV charging credit under Section 30C, could be overturned using the Congressional Review Act (CRA). No response has yet been provided, but the letter highlights an approaching deadline for Treasury to finalize regulations to avoid a potential challenge under the CRA next year.

The CRA permits Congress to pass a joint resolution of disapproval to invalidate a final regulation, typically within 60 legislative days of the regulation’s submission. While such a resolution must pass both chambers, CRA resolutions enjoy fast track privileges in the Senate.  They require signatures from only 30 senators to discharge from committee, cannot be amended, and the motions to proceed with them on the Senate floor are nondebatable, making them harder to filibuster. Most importantly they need only a simple majority to be adopted. However, they still must be signed by the president or overcome a veto using the standard two-thirds majority for a veto override. Republicans used the measure successfully when they controlled the House, Senate, and White House in 2017, repealing 16 of the 20 total rules overturned under the CRA. Tax regulations, especially around IRA-related energy provisions, could be similarly targeted if Republicans enjoy a similar sweep into power in the 2024 elections. The 60-day cut-off for the 2025 session is likely to occur sometime in May or June of 2024, meaning that Treasury could race to finalize as many regulations as possible in the next month to avoid potential CRA challenges next year.

Most, but not all, rules are subject to the CRA. Those that can be repealed by Congress include rules “of general or particular applicability”, those that are designed to implement, interpret, or prescribe law or policy, and rules that have “future effect.” Rules for internal administration of agencies and departments, and rules of “particular applicability” (like IRS private letter rulings) are not subject to potential overturn using the CRA. In cases where it is unclear whether a rule has been issued, the GAO’s conclusion has been used to make an ad hoc but formal determination. The GAO typically provides that to congressional offices within 15 days of request.