Insights

On December 19, 2023, the bilateral income tax treaty between the United States and Chile (formally, the Convention between the Government of the United States of America and the Government of the Republic of Chile for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and hereafter referred to as, the “Treaty”) entered into force more than a decade after it was signed.

On June 14, 2023, the Treasury Department and the Internal Revenue Service (IRS) released proposed regulations regarding the clean energy tax credits eligible for direct pay and transferability under the Inflation Reduction Act (IRA). The IRS also released FAQs for both direct pay and transferability, which provides further guidance to interested taxpayers.

Crowell’s Tax Group is pleased to recognize the contributions of Charles C. Hwang and Eric Homsi to the 13th edition of The Inward Investment and International Taxation Review, published by The Law Reviews. Charles C. Hwang served as editor, including authoring the editor’s preface. Charles C. Hwang and Eric Homsi co-authored the “United States” chapter. The chapter discusses the business tax regime in the United States with a focus on foreign direct investment.

The Treasury and IRS’s proposed guidance on the domestic content requirements under IRC Sections 45, 45Y, 48, and 48E generally track the Federal Transit Administration Buy America requirements, which represent a long-standing regime applicable to mass transportation infrastructure projects, with some important distinctions for the clean energy industry to consider when planning new projects.

On February 7, 2023, the New York State Department of Labor (“NYSDOL") published Enforcement Guidance providing information regarding the scope of the amendment to the New York State Labor Law provision that governs prevailing wage requirements for projects relating to certain renewable energy systems and NYSDOL’s enforcement power.  

On March 31st, the Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) released proposed regulations (“Proposed Regulations”) under the Clean Vehicle Credit of Internal Revenue Code Section 30D, which provides a credit for the purchase and placing in service of certain new clean vehicles (“Section 30D Credit”). The Section 30D Credit was originally enacted in 2008 and has been amended several times. Most recently, the Inflation Reduction Act of 2022 (“IRA”) made numerous amendments to the Section 30D Credit to promote the purchase and use of new clean vehicles made with battery components manufactured in North America and critical minerals sourced from the United States or countries with which the United States has a free trade agreement. The Section 30D Credit is treated as a personal or business credit depending on the use of the vehicle.  Businesses looking to transition their fleets should also consider the availability of the Credit for Qualified Commercial Clean Vehicles under Internal Revenue Code Section 45W. 

On November 30, 2022, the Internal Revenue Service (the “IRS”) released Notice 2022-61 with initial guidance (“Guidance”) on the prevailing wage and apprenticeship requirements and beginning of construction standard under the Inflation Reduction Act (the “IRA”). Shortly after, the Department of Labor (the “DOL”) published on its website Frequently Asked Questions (“FAQ”) and hosted a webinar providing additional guidance. Taxpayers meeting the prevailing wage and apprenticeship requirements may claim enhancements to various tax credits under the IRA. Under these provisions, a taxpayer seeking enhanced tax credits is required to pay prevailing wages to any laborers and mechanics employed in the construction, alteration, or repair of a qualified facility, and is required to meet certain labor hours, journeypersons-to-apprentices ratio, and participation requirements with regard to the use of apprentices at such facilities. For additional information on these requirements, please see our prior alert on this topic.

While forming a new entity is generally quite easy, corporate structure and tax considerations play a fundamental role in a startup’s ability to raise capital. Prospective investors have expectations for how a “venture backable” business (i.e., a business with the potential to generate significant returns with a potentially high valuation) is to be organized under state law and classified for income tax purposes. However, the fundamental question for founders is: what actually makes the most sense for the business? Here we briefly discuss four structures for forming a new business and their tax classifications: (1) a state law corporation classified as a C corporation; (2) a state law corporation classified as an S corporation; (3) a limited liability company (“LLC”) classified as either a C corporation or an S corporation; and (4) an LLC classified as a sole proprietorship or partnership.

President Biden will soon sign into law the Inflation Reduction Act (IRA), which provides $750 billion in funding and major federal policy changes impacting the U.S. energy, environment, healthcare and tax sectors. On August 7, 2022, the IRA passed the U.S. Senate by an all-Democrat 50-50 party line vote, with Vice President Harris breaking the tie and ensuring passage. On August 12, 2022, the IRA passed the U.S. House by a vote of 220 to 207. The President's signature, will make the bill law, and allow President Biden, U.S. Senate Majority Leader Chuck Schumer (D-NY), and U.S. House Speaker Nancy Pelosi (D-CA) to claim a major victory while making progress on a portion of the President's Build Back Better agenda just three months before the mid-term elections on November 8, 2022.

The Tax Court recently issued a memorandum opinion in the case of Continuing Life Communities Thousand Oaks, LLC v. Comm’r, T.C. Memo. 2022-31, questioning the scope of the IRS’s discretion over whether a taxpayer’s accounting method clearly reflects income. Section 446(a) of the Internal Revenue Code, sets out the general rule that a taxpayer is to compute its taxable income using the same method of accounting it uses to compute its income in keeping its books. As with most areas of the tax law, this general rule is subject to exceptions, which are subject to further exceptions. Section 446(b) sets out the fundamental exception to the general rule, providing that if the taxpayer’s method of accounting does not clearly reflect income the IRS can determine the taxpayer’s taxable income under the method which, “in the opinion of the [Commissioner], does clearly reflect income.” It is the scope of this discretion afforded to the Commissioner that was at the heart of the issue in Continuing Life.

On July 1, 2021, the Internal Revenue Service released Revenue Ruling 2021-13 (the “Revenue Ruling”) providing guidance regarding the tax credit for carbon oxide sequestration under Section 45Q. The Revenue Ruling provides guidance on what constitutes carbon capture equipment, who is eligible to claim the credit, and what is the relevant placed-in-service date for purposes of the Section 45Q credit.

At an event in Pittsburgh, PA, yesterday, President Biden unveiled his plans for creating jobs and growing the economy by investing more than $2 trillion in infrastructure, improving access to childcare and educational opportunities, and reforming the corporate tax system. Dubbed the American Jobs Plan, the proposal fulfills a number of campaign promises and incorporates many of the legislative proposals for transforming the power generation and transportation sectors, improving racial equity and economic opportunity for all Americans, and strengthening the country’s labor force and communities that have passed the Democratic led House of Representatives over the past two years. 

President Biden signed the American Rescue Plan Act of 2021 (the Act) into law on March 11, 2021. The Act is the latest relief package providing aid and economic stimulus in response to the COVID-19 pandemic. Furthering Congress’s objective of providing relief directly to employers, the Act extends and expands the employee retention tax credit (ERC) and the paid sick and family medical leave tax credits that were initially enacted under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) and the Families First Coronavirus Response Act, respectively, and subsequently amended by the Consolidated Appropriations Act, 2021 (the CAA).

On July 2, 2020, the Department of the Treasury and Internal Revenue Service (collectively, the Treasury) issued temporary regulations (the Temporary Regulations) under Section 1502 of the Internal Revenue Code of 1986, as amended (the Code),1 providing guidance to consolidated groups related to waiving the net operating loss (NOL) carryback period under Section 172 for certain losses attributable to certain acquired members.2

The past two weeks have seen many important tax changes coming out of Washington. Crowell & Moring, LLP has been following these developments carefully and issuing Tax Alerts to keep our clients and friends informed of changes in the tax laws and at the IRS. In this Tax Alert, we highlight our “Top Five” tax developments, which businesses should be considering as they weather the COVID-19 crisis. We will be discussing these issues in our upcoming webinar on Friday, April 3.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus package, was approved by the U.S. House of Representatives by a voice vote on March 27, 2020 despite opposition from certain Republican members who were seeking a roll call vote. The package was approved unanimously by the U.S. Senate with a vote of 96-0 on March 25, 2020. It is the third coronavirus emergency response bill considered this month in Congress, which passed the Coronavirus Preparedness and Response Supplemental Appropriations Act on March 6 and the Families First Coronavirus Response Act on March 18.

The Families First Coronavirus Response Act, the second coronavirus emergency response bill passed by Congress, was signed into law by President Trump on the evening of March 18, 2020. Despite a few minor setbacks in the Senate, the bill moved quickly through the U.S. Congress and passed with overwhelming bipartisan support. This legislation follows the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020, which was signed into law by President Trump on March 6, 2020. A third package of broad economic stimulus measures is now being negotiated and is expected to be considered in the coming weeks.