House Ways and Means Committee Approves Sweeping $3.8 Trillion Tax Bill

(Parker Tax Publishing May 2025)

On May 14, the House Ways and Means Committee voted along party lines (26-19) in favor of a motion to advance a $3.8 trillion package of tax proposals to the Budget Committee for inclusion in Republicans' 2025 budget reconciliation bill (i.e., "The One, Big, Beautiful Bill"). If enacted, the legislation would extend or make permanent many provisions of the Tax Cuts and Jobs Act of 2017 that are set to expire at the end of this year, and would also terminate or sunset many of the clean energy tax credits enacted by the Inflation Reduction Act of 2022; the bill also includes many new provisions such as tax breaks for tips, overtime, and car loan interest. Committee Print, Title-XI, May 2025.

Observation: While the tax package is not expected to be subject to significant amendment on the House floor (except for the SALT provisions, as discussed below), it will likely see numerous changes in the Senate. It's also worth noting that while the reconciliation bill (of which the tax package is a component) appears to be on track to pass the House, that outcome is not assured, given the slim Republican majority.

For individuals, many of the individual tax provisions under the TCJA, such as the tax brackets and increased standard deduction remain intact, with a temporary increase of the standard deduction ($1,000 for single filers, $1,500 for heads of household, and $2,000 for married filing jointly) proposed for years 2025 through 2028. Estates would get a permanent extension the estate and lifetime gift tax exemption, with an increase of the exemption amount to $15 million for single filers ($30 million for married filing jointly) in 2026, and indexed for inflation going forward.

Observation: The fate of the current $10,000 cap on the deduction for state and local taxes (SALT) remains highly contentious. The version of the bill approved on May 14 proposes increasing the SALT cap to $30,000, with a phaseout applicable to taxpayers whose income exceeds $400,000. However, it was reported that lawmakers from some higher-tax states are insisting on a higher SALT cap in order to give the bill their blessing. The negotiations over the SALT cap are ongoing.

For businesses, some of the most notable proposals are the restoration of 100 percent bonus depreciation, full deductibility for research or experimental expenditures, and an increase to the dollar limits for expensing depreciable assets under Code Sec. 179 - all retroactive to the beginning of 2025. A new, special depreciation allowance for "qualified production property" (generally, property used in a manufacturing, production, or refining activity) is also proposed. The bill also makes permanent the Code Sec. 199A deduction for qualified business income and increases the deduction percentage from 20 percent to 23 percent.

The following is a summary of the key provisions included in the bill approved on May 14:

I. New Tax Breaks for Individuals

No Tax on Tips. Section 110101 creates an above-the-line deduction for qualified tips received by an individual in an occupation which traditionally and customarily receives tips during a given tax year. The deduction is allowed from tax years 2025 through 2028.

No Tax on Overtime. Section 110102 of the proposal creates an above-the-line deduction for overtime premium pay during a given tax year. The deduction is allowed from tax years 2025 through 2028.

Enhanced Deduction for Seniors. Section 110103 provides a deduction for seniors (age 65 or older) of $4,000 per eligible filer with a modified adjusted gross income that does not exceed $75,000 for single filers ($150,000 for married filing jointly). The senior deduction is available to both itemizers and nonitemizers. The deduction is allowed for tax years 2025 through 2028.

No Tax on Car Loan Interest. Section 110104 creates an above-the-line deduction of up to $10,000 for qualified passenger vehicle loan interest during a given tax year. The deduction phases out starting when the taxpayer's modified adjusted gross income exceeds $100,000 ($200,000 in the case of a joint return). To qualify, the vehicle's final assembly must occur in the United States. The deduction is allowed from tax years 2025 through 2028.

Enhanced Employer-Provided Child Care Credit. Section 110105 of the proposal permanently increases the employer-provided child care credit, creates a separate credit amount for qualified small businesses, and indexes the maximum credit amounts for inflation.

Enhanced Paid Family and Medical Leave (PFML) Credit. Section 110106 of the proposal makes permanent the PFML tax credit and makes three modifications. First, it expands the credit allowing employers to claim the credit for a portion of paid family leave (PFL) insurance premiums. PFL insurance is a newer offering that is primarily utilized by smaller businesses to offer paid leave benefits to their employees and is available in a growing number of states. Second, it makes the credit available in all states. Third, it lowers the minimum employee work requirement from one year to six months.

Enhanced Adoption Credit. Section 110107 of the proposal makes the adoption tax credit partially refundable up to $5,000 (indexed for inflation) beginning in tax years starting after December 31, 2024. The refundable portion of the credit cannot be carried forward.

Recognition of Indian Tribal Governments for Adoption Credit Purposes. Section 110108 of the proposal provides parity to Indian tribal governments, giving them the same ability as state governments to determine whether a child has special needs for the purposes of the adoption tax credit.

Tax Credit for Contributions to Scholarship Granting Organizations. Section 110109 creates a new tax credit for individuals beginning in calendar year 2026 for charitable contributions to tax-exempt organizations that provide scholarships to elementary and secondary school students. Such students who benefit from the scholarships must be members of a household with incomes not greater 300 percent of the area median gross income and be eligible to enroll in a public elementary or secondary school. Under this provision, the tax credit program runs through calendar year 2029.

Additional Expenses Treated as Higher Education Expenses for Purposes of 529 Accounts: Section 110110 of the proposal allows tax-exempt distributions from 529 savings plans to be used for additional educational expenses in connection with enrollment or attendance at an elementary, secondary, or home school.

Section 529 Plan Distributions Allowed for Postsecondary Credentialing Expenses. Section 110111 of the proposal allows tax-exempt distributions from 529 savings plans to be used for additional qualified higher education expenses, including "qualified postsecondary credentialing expenses" in connection with "recognized postsecondary credential programs" and "recognized postsecondary credentials."

Partial Deduction for Charitable Contributions by Non-Itemizers. Section 110112 creates a temporary deduction for non-itemizing taxpayers up to $150 for single filers ($300 for married filing jointly) for charitable cash contributions for tax years 2025 through 2028. The charitable contribution must be made to a qualified charity and cannot be made to donor-advised funds or supporting organizations.

Exclusion of Employer Payments of Student Loans. Section 110113 of the proposal makes permanent the exclusion from gross income for qualified education loan payments under Code Sec. 127(c)(1)(B). Section 110113 also indexes for inflation the maximum exclusion from gross income for educational assistance programs under Code Sec. 127(a)(2).

Disaster-Related Personal Casualty Losses Available to Non-Itemizers. Section 110114 of the proposal extends the rule allowing taxpayers to claim disaster-related personal casualty losses without having to itemize, which currently applies for disasters occurring through February 10, 2025, through the date of enactment.

MAGA Accounts. Section 110115 of the proposal creates Money Accounts for Growth and Advancement ("MAGA accounts"), a new kind of savings account administered by a bank or similar financial institution. Starting January 1, 2026, parents of any child under age 8 may open a MAGA account for their child. These accounts, allowable for children born before January 1, 2024, are eligible to receive contributions from parents, relatives, and other taxable entities as well as non-profit and government entities. Taxable entities may contribute up to $5,000 annually (indexed for inflation) of after-tax dollars to a MAGA account. MAGA account holders may not take distributions until age 18. Contributions from tax-exempt entities, such as private foundations, are not subject to the $5,000 annual limit. Account holders may access up to 50 percent of funds for higher education, training programs, small business loans, or first-time home purchases. At age 25, account holders may withdraw any amount up to the full balance of the account for these limited purposes. At age 30, account holders have access to the full balance of the account for any purpose.

Pilot Program for MAGA Account Contributions by the Federal Government. Section 110116 of the proposal creates a new pilot program for MAGA accounts. For U.S. citizens born between January 1, 2024, and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account. If the Treasury Secretary determines that an eligible individual does not have an account opened for them by the first tax return where the child is claimed as a qualifying child, the Treasury Secretary shall establish an account on the child's behalf, taking into account, to the extent possible, the parents' preferred custodian and investment fund. Parents may opt out of the account.

II. Retroactive Extensions of Business Tax Breaks

Retroactive Extension of 100 Percent Bonus Depreciation. Section 111001 of the proposal allows taxpayers to immediately expense 100 percent of the cost of qualified property acquired on or after January 20, 2025, and before January 1, 2030.

Retroactive Increase to Dollar Limitations for Section 179 Expensing. Section 111103 of the proposal increases the maximum amount a taxpayer may expense under Code Sec. 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. The $2.5 million and $4 million amounts are adjusted for inflation for tax years beginning after 2025. The proposal applies to property placed in service in tax years beginning after December 31, 2024.

Retroactive Restoration of Research or Experimental Expenses Deduction. Section 111002 of the proposal allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024, and before January 1, 2030. This provision includes rules to coordinate the immediate deductibility of domestic research or experimental expenditures with the research credit, rules clarifying the treatment of foreign research or experimental expenditures, and other coordinating changes.

Retroactive Modified ATI Calculation for Purposes of Business Interest Deduction. Section 111003 of the proposal increases the cap on the deductibility of business interest expense for tax years beginning after December 31, 2024, and before January 1, 2030. Specifically, it provides that "adjusted taxable income" is computed without taking into account deductions for depreciation, amortization, or depletion. As a result, "adjusted taxable income" corresponds with the financial accounting concept of earnings before interest, taxes, depreciation, and amortization (EBITDA). This provision also permanently modifies the definition of "motor vehicle" to include certain trailers and campers designed to be towed by or ato a motor vehicle. This change allows interest on floor plan financing for such trailers and campers to be deducted.

III. New Tax Breaks for Businesses

Special Depreciation Allowance for Qualified Production Property. Section 111101 of the proposal allows taxpayers to immediately deduct 100 percent of the cost of certain new factories, certain improvements to existing factories, and certain other structures.

Renewal and Enhancement of Opportunity Zones. Section 111102 of the proposal creates a second round of opportunity zones (OZs), making adjustments and improvements to the previous policy enacted by the TCJA. This second round of OZs will begin on January 1, 2027, and end on December 31, 2033.

Repeal of Revision to De Minimis Rules for Third Party Network Transactions. Section 111104 of the proposal modifies requirements for third-party settlement organizations to eliminate their reporting requirement with respect to the transactions of their participating payees unless they have earned more than $20,000 on more than 200 separate transactions in an applicable tax period. This reverses the provision enacted in 2021 that lowered the reporting threshold to $600 with no minimum on the number of transactions.

Increased Reporting Threshold With Respect to Certain Payees. Section 111105 of the proposal generally increases the threshold for reporting payments by a business for services performed by an independent contractor to $2,000 and adjusts it for inflation for tax years beginning after December 31, 2024. The new threshold is based on payments during the calendar year. This provision applies to payments made after December 31, 2024.

Repeal of Excise Tax on Indoor Tanning Services. Section 111106 of the proposal repeals the excise tax on indoor tanning services, effective on the date of enactment.

Exclusion of Interest on Loans Secured by Rural or Agricultural Real Property. Section 111107 of the proposal allows for a partial exclusion of interest on certain loans secured by rural or agricultural real estate. Specifically, it allows for the exclusion of 25 percent of interest received by a qualified lender on any qualified real estate loan.

Treatment of Certain Sound Recording Productions. Section 111108 of the proposal makes qualified sound recording productions placed in service before January 1, 2029, eligible for expensing under Code Sec. 168(k) and allow taxpayers to expense up to $150,000 (per tax year) of costs of qualified sound recording productions under Code Sec. 181. A "qualified sound recording production" is a sound recording produced and recorded in the U.S.

Modifications to Low-Income Housing Credit (LIHTC). Section 111109 of the proposal makes three changes to the low-income housing tax credit (LIHTC) program. Section 111109 restores the "9% LIHTC" to its 2021 level with a 12.5 percent allocation increase, lowers the bond-financing threshold to 25 percent for projects financed by bonds with an issue date before 2030, and designates Indian and rural areas as difficult development areas (DDAs).

Increased Gross Receipts Threshold for Small Manufacturing Businesses. Section 111110 of the proposal increases the gross receipts threshold for using the cash method of accounting for manufacturing taxpayers from $25 million to $80 million. This change applies to tax years beginning after December 31, 2025. The $80 million threshold is indexed for inflation and, in 2026, will be approximately $100 million. To qualify as a "manufacturing taxpayer" a business generally must derive substantially all of its gross receipts (over the prior three tax years) from the lease, rental, license, sale, exchange, or other disposition of tangible personal property produced or manufactured by the business.

GILTI Determined Without Regard to Certain Income Derived from U.S. Virgin Islands. Section 111111 of the proposal exempts certain income earned in the U.S. Virgin Islands from being considered tested income for the purposes of certain individuals' GILTI calculations.

Extension and Modification of Clean Fuel Production Credit. Section 111112 of the proposal makes certain modifications to the clean fuel production credit. The provision requires the credit is only available to fuel produced from feedstocks produced or grown in the U.S. The provision excludes indirect land use changes for the purposes of lifecycle greenhouse gas emissions. This provision extends the credit through December 31, 2031. It requires the Secretary of the Treasury to establish distinct emission rates for specific manure feedstocks. The provision eliminates transferability for fuel produced after December 31, 2027. The provision also restricts access to the credit for certain prohibited foreign entities.

IV. TCJA Provisions Made Permanent

TCJA provisions made permanent with changes/enhancements:

Individual Tax Rates. Section 110001 of the proposal makes permanent the modified federal income tax bracket schedule and lower tax rates created by the TCJA. The provision also adds an additional year of inflation adjustment to all brackets except for the top bracket (37 percent).

Increased Standard Deduction. Section 110002 of the proposal makes permanent the nearly doubled standard deduction created by the TCJA. The provision further increases the standard deduction by including an extra year of inflation adjustment. Additionally, for tax years 2025 through 2028, this provision increases the standard deduction by an additional $1,000 for a single filer, $1,500 for head of household, and $2,000 for married filing jointly.

Limit on Individual Deductions for Certain State and Local Taxes. Section 112018 increases the cap on the state and local tax (SALT) deduction to $30,000 ($15,000 for a married taxpayer filing a separate return). In the case of a taxpayer with modified adjusted gross income (MAGI) over $400,000 ($200,000 for a married taxpayer filing a separate return), the cap would phase down by 20 percent of the excess of MAGI over the threshold until it reaches $10,000 ($5,000 for a married taxpayer filing a separate return). This provision would extend the SALT cap permanently for tax years beginning after December 31, 2025.

Increased Child Tax Credit. Section 110004 of the proposal makes permanent the doubled child tax credit of $2,000 per child, maintains the increased income phase-out thresholds, and maintains the nonrefundable, nonchild dependent credit. Additionally, this provision permanently indexes the credit amount for inflation beginning after 2026 (rounded down to the nearest $100) and leaves the refundable credit unchanged. Additionally, this provision increases the child tax credit to $2,500 per child for tax years 2025 through 2028.

Increased Section 199A Deduction. Section 110005 of the proposal makes the deduction for qualified business income under Code Sec. 199A permanent. For tax years beginning after December 31, 2025, this provision also increases the deduction percentage from 20 percent to 23 percent and changes the calculation of limitations for specified services and trade businesses (SSTBs).

Increased Estate and Gift Tax Exemptions. Section 110006 of the proposal permanently extends the estate and lifetime gift tax exemption, increases the exemption amount to $15 million for single filers ($30 million for married filing jointly) in 2026, and indexes the exemption amount for inflation going forward.

Repeal of "Pease Limitation" on Itemized Deductions. Section 110011 of the proposal permanently repeals the "Pease limitation," under which certain individual taxpayers would otherwise be subject to an overall limitation on itemized deductions, and replaces it with a new overall limitation on itemized deductions. This provision caps the value of each dollar of itemized deductions at $0.35, in most cases, and applies only to taxpayers in the highest individual income tax bracket. This new limitation is effective for tax years beginning after December 31, 2025.

Exclusion of Student Loan Discharges on Account of Death or Disability. Section 110019 of the proposal permanently extends the exclusion from a taxpayer's income of any income resulting from the discharge of student debt on account of death or total disability of the student. This provision also adds social security number requirements for the taxpayer in order to be able to claim such exclusion.

Extension of Deductions for FDII and GILTI. Section 111004 of the proposal permanently increases the deduction amount for foreign-derived intangible income (FDII) from 21.875 percent to 37.5 percent and increases the deduction for global intangible low-taxed income (GILTI) from 37.5 percent to 50 percent for tax years beginning after December 31, 2025.

Extension of Base Erosion Minimum Tax Amount. Section 111005 of the proposal permanently reduces the rate from 12.5 percent to 10 percent beginning January 1, 2026. The provision also permanently retains the current treatment of tax credits for tax years beginning after December 31, 2025.

TCJA provisions made permanent without changes:

(1) Termination of personal exemptions

(2) Increased AMT exemption and phaseout thresholds

(3) Deduction for qualified residence interest limited to the first $750,000 in home mortgage acquisition debt

(4) Casualty loss deductions limited to losses resulting from federally declared disasters

(5) Elimination of miscellaneous itemized deduction

(6) Elimination of qualified bicycle commuting reimbursement exclusion

(7) Limit on exclusion and deduction for moving expenses

(8) Limit on wagering losses

(9) Increased limit on contributions to ABLE accounts

(10) Saver's credit allowed for ABLE contributions

(11) Tax-free rollovers from Section 529 plans to ABLE accounts

(12) Sinai Peninsula and other areas listed as qualified hazard duty areas

V. Healthcare Provisions

Integration of Health Reimbursement Arrangements with Individual Market Coverage. Section 110201 of the proposal codifies the final 2019 regulations issued in T.D. 9867 permitting Individual Coverage health reimbursement arrangements (HRAs) and renames the policy as Custom Health Option and Individual Care Expense (CHOICE) arrangements.

CHOICE Arrangement Participants and Cafeteria Plans. Section 110202 of the proposal permits employees enrolled in a CHOICE arrangement to use a salary reduction to pay for health plan premiums purchased through an Affordable Care Act Exchange.

Employer Credit for CHOICE Arrangements. Section 110203 of the proposal creates a two-year tax credit for small businesses with fewer than 50 employees offering coverage through CHOICE arrangements for the first time. The general business credit amount is $100 per employee, per month in the first year and $50 per employee, per month in the second year.

Contributions to HSAs by Individuals Entitled to Medicare Part A by Reason of Age. Section 110204 of the proposal allows working seniors who are eligible for Medicare Part A, but enrolled in a high deductible health plan (HDHP), to continue contributing to a health savings account (HSA). The current guardrails that apply to individuals that are under 65 and are contributing to HSAs would continue to apply to this population, including a penalty on non-qualified medical expenses purchases.

Treatment of Direct Primary Care Service Arrangements. Section 110205 allows individuals with HDHPs to also enroll in direct primary care (DPC) arrangements (and maintain their HSA) and allows HSA funds to be used to pay for DPC services. HSA distributions for DPC services cannot exceed $150 per month for individuals or $300 per month for family arrangements, adjusted annually for inflation.

Allowance of Bronze and Catastrophic Plans in Connection with HSAs. Section 110206 allows all bronze and catastrophic health insurance plans on the Exchange to be eligible plans for the purpose of making HSA contributions.

On-Site Employee Clinics. Section 110207 of the proposal allows individuals who utilize discounted health care services at a health clinic at their worksite to contribute to an HSA.

Gym Membership Fees Treated as Amounts Paid for Medical Care. Section 110208 of the proposal allows individuals to use their HSA for physical fitness memberships and instructional physical activity up to $500 per year for an individual and $1,000 per year for a family with up to 1/12th of such expenses allowed per month.

Both Spouses May Make Catch-Up Contributions to the Same HSA. Section 110209 of the proposal allows both spouses who are HSA-eligible and age 55 or older, who currently must open separate HSAs to make their respective catch-up contributions (an extra $1,000 annually), to deposit their catch-up contributions into one account.

FSA and HRA Terminations or Conversions to Fund HSAs. Section 110210 of the proposal allows employees, at the employer's discretion, to convert flexible spending arrangement (FSA) and health reimbursement arrangement (HRA) balances into an HSA contribution upon enrolling in an HDHP-HSA. The conversion amount is capped at the annual FSA contribution limit ($3,300 in 2025).

Special Rule for Medical Expenses Incurred Before Establishment of HSA. Section 110211 of the proposal allows medical services incurred within 60 days before the establishment of an account to be eligible qualified medical expenses (QME).

Contributions Permitted if Spouse Has Health FSA. Section 110212 of the proposal allows individuals to be eligible for an HSA even if the individual's spouse is enrolled in an FSA.

Increase in HSA Contribution Limit for Certain Individuals. Section 110213 of the proposal allows individuals who make less than $75,000 annually (or $150,000 in the case of families) to contribute an additional $4,300 (or $8,550 in the case of families) each year to their HSA, indexed for inflation. Such additional amounts are phased out for individuals making $100,000 annually (or $200,000 for families).

VI. Sunsetting and Phaseouts of Energy Credits

Termination of Previously-Owned Clean Vehicle Credit. Section 112001 of the proposal accelerates the expiration of the previously-owned clean vehicle credit to December 31, 2025.

Termination of Clean Vehicle Credit. Section 112002 accelerates the expiration of the clean vehicle credit to December 31, 2025. This provision also implements a special rule for tax year 2026 that only allows vehicles produced by manufacturers that have not sold 200,000 new clean vehicles as of December 31, 2025, to qualify for the credit.

Termination of Qualified Commercial Clean Vehicles Credit. Section 112003 of the proposal accelerates the expiration of the qualified commercial clean vehicles credit to December 31, 2025. This provision also implements a special rule allowing vehicles acquired pursuant to a written binding contract entered into before May 12, 2025, to qualify for the credit.

Termination of Alternative Fuel Vehicle Refueling Property Credit. Section 112004 accelerates the expiration of the alternative fuel vehicle refueling property credit to December 31, 2025.

Termination of Energy Efficient Home Improvement Credit. Section 112005 accelerates the expiration of the energy efficient home improvement credit to December 31, 2025.

Termination of Residential Clean Energy Credit. Section 112006 of the proposal accelerates the expiration of the residential clean energy credit to December 31, 2025.

Termination of New Energy Efficient Home Credit. Section 112007 of the proposal accelerates the expiration of the new energy efficient home credit to December 31, 2025. This provision includes a special rule allowing homes that have commenced construction before May 12, 2025, to qualify for the credit if they are acquired by December 31, 2026.

Phaseout and Restrictions on Clean Electricity Production Credit. Section 112008 of the proposal phases out the clean electricity production credit. There is a 20 percent credit reduction for facilities placed in service in calendar year 2029, a 40 percent reduction for facilities placed in service in calendar year 2030, a 60 percent reduction for facilities placed in service in calendar year 2031 and zero credit available after December 31, 2031. Transferability is repealed for facilities where construction begins two years after the date of enactment of this bill. The provision also restricts access to the credit for certain prohibited foreign entities.

Phaseout and Restrictions on Clean Electricity Investment Credit. Section 112009 of the proposal phases out the clean electricity investment credit. There is a 20 percent credit reduction for facilities placed in service in calendar year 2029, a 40 percent reduction for facilities placed in service in calendar year 2030, a 60 percent reduction for facilities placed in service in calendar year 2031, and zero credit available after December 31, 2031. Transferability is repealed for facilities which construction begins two years after the date of enactment of this bill. This provision restricts access to the credit for certain prohibited foreign entities.

Repeal of Transferability of Clean Fuel Production Credit. Section 112010 of the proposal eliminates transferability of the clean fuel production credit for fuel produced after December 31, 2027.

Restrictions on Carbon Oxide Sequestration Credit. Section 112011 of the proposal repeals transferability for carbon capture equipment where construction begins two years after the date of enactment of this bill. This provision also restricts access to the credit for certain prohibited foreign entities.

Phaseout and Restrictions on Zero-Emission Nuclear Power Production Credit. Section 112012 of the proposal phases out the zero-emission nuclear power production credit. There is a 20 percent credit reduction for electricity produced in calendar year 2029, a 40 percent reduction for electricity produced in calendar year 2030, a 60 percent reduction for electricity produced in calendar year 2031 and no credit available after December 31, 2031. The provision eliminates transferability for fuel produced after December 31, 2027. This provision also restricts access to the credit for certain prohibited foreign entities.

Termination of Clean Hydrogen Production Credit. Section 112013 of the proposal accelerates the expiration of the clean hydrogen production credit to facilities the construction of which begins after December 31, 2025.

Phaseout and Restrictions on Advanced Manufacturing Production Credit. Section 112014 of the proposal makes modifications to the advanced manufacturing tax credit and accelerates its termination. The provision eliminates wind energy components sold after December 31, 2027, and eliminates the credit for all other components after December 31, 2031. Transferability is repealed for components sold after December 31, 2027. This provision restricts access to the credit for certain prohibited foreign entities.

Phaseout of Credit for Certain Energy Property. Section 112015 of the proposal aligns the expiration of the investment tax credit for geothermal heat pumps with the clean electricity investment tax credit. There is a 20 percent credit reduction for facilities placed in service in calendar year 2029, a 40 percent reduction for facilities placed in service in calendar year 2030, a 60 percent reduction for facilities placed in service in calendar year 2031 and no credit available after December 31, 2031. This provision also restricts access to the credit for certain prohibited foreign entities.

VII. Additional "Pay-Fors"

Income from Hydrogen Storage Added to Qualifying Income of Certain PTPs. Section 112016 of the proposal expands the activities that can be categorized as qualifying income of a publicly traded partnership (PTP) to include the transportation or storage of liquified hydrogen or compressed hydrogen, and the generation of electricity or capture of carbon dioxide at a direct air capture or carbon capture facility.

Limit on Amortization of Certain Sports Franchises. Section 112017 of the proposal limits amortization deductions for certain sports-related intangibles.

Excessive Employee Remuneration from Controlled Group Members. Section 112019 of the proposal applies aggregation rules for the purposes of the deduction limitation and allocation of deduction applied under Code Sec. 162(m) as it relates to certain excessive employee remuneration.

Expanded Tax on Excess Compensation Within Tax-Exempt Organizations. Section 112020 of the proposal provides that a "covered employee" under Code Sec. 4960(c)(2) includes any employee of an applicable tax-exempt organization that receives remuneration in excess of $1 million.

Modified Excise Tax on Investment Income of Private Colleges and Universities. Section 112021 of the proposal amends the current excise tax on net investment income framework for certain private colleges and universities under Code Sec. 4968 with a tiered system based on an institution's student-adjusted endowment.

Increased Tax on Net Investment Income of Certain Private Foundations. Section 112022 of the proposal applies higher excise tax rates on private foundations reporting $50 million or more in total assets.

Certain Purchases of Employee-Owned Stock Disregarded for Excise Tax Purposes. Section 112023 of the proposal amends Code Sec. 4943 and states that shares of stock repurchased by a company from a retiring employee who participated in the company's Employee Stock Ownership Plan are treated as outstanding for purposes of calculating the share of that company owned by a private foundation.

UBTI Increased by Certain Fringe Benefit Expenses. Section 112024 of the proposal amends Code Sec. 512 to increase the unrelated business taxable income (UBTI) of a tax-exempt organization by including the amount paid or incurred for any qualified transportation fringe benefit.

Name and Logo Royalties Treated as UBTI. Section 112025 of the proposal amends Code Sec. 512 and Code Sec. 513 to increase the UBTI of a tax-exempt organization by including the income from any sale or licensing by an organization of its name or logo.

Exclusion of Research Income Limited to Publicly Available Research. Section 112026 of the proposal amends Code Sec. 512 to increase the UBTI of a tax-exempt organization by including the income generated from non-public research for an organization whose tax-exempt purpose is to provide publicly available research as unrelated business income.

Limit on Excess Business Losses of Noncorporate Taxpayers. Section 112027 of the proposal makes the limitation on excess business losses by noncorporate taxpayers permanent. The provision also provides that excess business losses disallowed in tax years beginning after December 31, 2024, are taken into account in determining a taxpayer's excess business losses in subsequent tax years.

1-Percent Floor on Charitable Deductions by Corporations. Section 112028 of the proposal establishes a floor equal to one percent of taxable income for the deductibility of corporate charitable contributions. In the case of a corporation with charitable contributions exceeding the 10 percent limit, the provision allows taxpayers to add the amount disallowed under the one percent floor to the amount carried over to the subsequent year.

Enforcement Remedies Against Unfair Foreign Taxes. Section 112029 of the proposal provides a response to certain unfair taxes, which include both discriminatory and extraterritorial taxes imposed on U.S. persons (or certain foreign entities owned by U.S. persons) by a foreign government. The provision responds to unfair taxes by increasing the rate of tax generally applicable to certain taxpayers connected to the foreign jurisdiction. The provision also applies to certain domestic entities that are owned by a tax resident of a foreign jurisdiction that imposes an unfair tax.

Reduction of Excise Tax on Firearms Silencers. Section 112030 of the proposal eliminates the transfer tax on silencers.

Modifications to De Minimis Entry Privilege for Commercial Shipments. Section 112031 of the proposal repeals worldwide, effective July 1, 2027, the de minimis privilege that allows shipments bound for American businesses and consumers valued under $800 to enter the U.S. free of duties and taxes.

Limitation on Drawback of Taxes Paid with Respect to Substituted Merchandise. Section 112032 of the proposal limits the drawback of excise tax for tobacco products to scenarios in which excise tax has been paid on the exported goods that are used as the basis for the drawback claim.

Removing Taxpayer Benefits for Illegal Immigrants. Sections 112101 through 112106 of the proposal include provisions designed to ensure that illegal immigrants do not receive tax credits and other tax benefits.

Preventing Fraud, Waste, and Abuse. Sections 112201 through 112211of the proposal include provisions (two of which are discussed below) designed to limit fraud, waste, and abuse within the federal tax system.

Enforcement Provisions for COVID-Related Employee Retention Credits. Section 112205 of the proposal increases the penalty for aiding and abetting the understatement of a tax liability by a COVID employee retention tax credit (ERTC) promoter. The provision makes clear that the pre-enactment standard for applying the aiding and abetting penalty remains unchanged despite the targeted increase in the amount of the penalty that applies solely to ERTC promoters. This section also requires a COVID-ERTC promoter to comply with due diligence requirements with respect to a taxpayer's eligibility for (or the amount of) an ERTC and applies a $1,000 penalty for each failure to comply. Under current law, taxpayers can claim COVID-related ERTC until April 15, 2025. This section bars the IRS from issuing any additional unpaid claims, unless a claim for such credit or refund was filed on or before January 31, 2024.

Task Force on Termination of Direct File. Section 112207 of the proposal terminates the current Direct File program at the IRS and establishes a public-private partnership between the IRS and private sector tax preparation services to offer free tax filing, replacing both the existing Direct File and Free File programs.

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.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com