Biden FY2022 Budget, Treasury Green Book Detail

1 Biden Budget, Green Book Detail Tax Proposals

Biden FY2022 Budget,Treasury Green BookDetail Administration’sTax Proposals28 May 2021

The Biden administration detailed its tax increase andother tax proposals in the FY2022 budget and TreasuryGreen Book released May 28. New details were providedon proposals outlined earlier in the Made in America TaxPlan (proposed alongside the American Jobs Planinfrastructure proposal) on March 31, and the AmericanFamilies Plan “human infrastructure” plan proposed onApril 28. The Green Book mostly sticks with provisionsunder the Jobs and Families plans and doesn’t offermany new proposals in other areas. It also omits severalproposals from Biden’s campaign tax plans.

The Green Book said the provision under which “long-term capital gains and qualified dividends of taxpayerswith adjusted gross income of more than $1 millionwould be taxed at ordinary income tax rates … would beeffective for gains required to be recognized after thedate of announcement,” which could mean the April 28rollout of the American Families Plan. There is precedentfor tax committee chairmen setting such effective datesin conjunction with the legislative process, meaning therewill likely be additional discussion on this topic.

The Administration provided significant new detail on theclean energy provisions they want enacted, and specifiesthe fossil fuels provisions they propose to eliminate,many of which overlap with those in the Obamaadministration FY2017 budget.

In the international tax area, the changes to the GILTI taxregime have been expanded to include repealing thesubpart F high tax exception and the statutory authoritythe Trump Administration relied on to issue the GILTIhigh tax exclusion regulations. Also key are additionaldetails on the workings of the SHIELD proposal thatwould replace the BEAT.

Some Democrats in Congress have been waiting onTreasury’s details on the tax proposals and estimates oftheir revenue impact to factor into whether they cansupport the proposed tax changes. The budget’s releasecomes as the Administration is seeking bipartisansupport for infrastructure plans, and Republicans havemade clear they won’t support tax increases. The outlookfor the Families Plan is even less clear and may dependon how infrastructure comes together.

Washington Council Ernst & Youngwww.ey.com/wcey

Revenue impact of major elementsAmerican Jobs Plan American Families Plan

Increasecorporate rate

to 28%$858b

Revise GILTI$533b

Fossil fuel taxes$86b

Repeal FDII$124b

Replace BEAT$390b

Restrict borrowingdeductions

$18.5b

15% min. tax,book income

$148b

Onshoring/offshoring(net zero)Housing-$61b

Clean energy-$303b

Top individual ratehike, reform

taxation of capitalincome,

NIIT/SECAchanges$691b

Extend/makepermanent ARPA

& other credits-$822b

Carried interest,like-kind, exc.

bus. loss$64b

Improvecompliance, taxadministration

$789b


International tax

Description Eff. Date 10yr score

GILTI Proposal: End the tax exemption for the first 10%return on foreign assets (i.e., repeal QBAI);calculate the GILTI minimum tax on a per-countrybasis, and increase the GILTI minimum tax to 21percent (through a 25% section 250 deduction).What’s new: In explaining the details of movingGILTI to a CBC system via the GILTI FTC basket, theAdministration would also:• Expand country by country to the foreign FTC

branch basket• Repeal the high tax exemption to subpart F

income and thereby the cross reference to thatprovision in the global minimum tax rules insection 951A

• Repeal section 904(b)(4) and expand section265 to address deductions related to tax exemptincome with the Repeal

The GILTI FTC rules would take into account anyforeign taxes paid by the foreign parent, under anincome inclusion rule (IIR) that is consistent with anOECD/Inclusive Framework Pillar Two agreement onglobal minimum taxation (if such consensus isreached).The repeal of section 904(b)(4) (enacted by theTCJA to address how U.S. expense should beallocable for FTC purposes to income that becomesexempt under the section 245A deduction) would bereplaced with an expansion of section 265 (coveringrules on expenses and interest related to tax-exempt income) to disallow deductions allocable toforeign gross income when only a partial deductionis allowed under section 245A with respect to adividend or a partial section 250 deduction withrespect to a global minimum tax inclusion.

Taxableyearsbeginningafter(TYBA)12/31/21

$533b(includesestimate ofinversionprovisions)

BEAT Proposal: Replace the BEAT with the SHIELD(Stopping Harmful Inversions and Ending Low-taxDevelopments) which would deny tax deductions onrelated party payments but by reference to theeffective rate of tax on the deductible payment inthe local jurisdiction. The effective rate of tax targetwould be set by OECD agreement under Pillar 2 or,absent agreement, the tax rate would be the rate onGILTI incomeWhat’s new: Related deductible payments would bedetermined by reference to payments made to low-taxed entities that are members of the samefinancial reporting group (including a member thatis the common foreign parent, in the case of aforeign-parented controlled group).

TYBA12/31/ 22

$390b


International tax (continued)


BEAT(cont.)

Determining whether there is a low-taxed entityrequires calculating an ETR to determine if it isbelow the “designated minimum tax rate trigger,”including reductions in the gross amount ofpremiums and other consideration on insurance andannuity contracts arising out of indemnityinsurance; deductions from the amount of grosspremiums written on insurance contracts during thetaxable year for premiums paid for reinsuranceinsurance policy claims and benefits accrued andlosses paid during a taxable year (which would bedeductible payments that are within scope of theSHIELD).The ETR would be calculated based on the members’separate financial statements or the financialreporting group’s consolidated financial statements,as disaggregated on a jurisdiction by jurisdictionbasis. The proposal will include authority for theSecretary to provide special rules to addressdifferences (both permanent and temporary)between the relevant income tax base and the baseas determined under financial accounting, and toprovide rules to account for net operating losses ina jurisdiction.The amount of the denied deduction is generally thefull amount of the payment. However, it appearsdeductible payments (made to related or unrelatedparties) could be reduced by other types of costs(such as costs of goods sold). In addition, paymentsmade to financial reporting group members that arenot low-tax members would be partially subject tothe SHIELD rule to the extent that other financialreporting group members were subject to aneffective tax rate of less than the designatedminimum tax rate in any jurisdiction.The proposal will include authority for the Secretaryto address key areas:• Special rules to address differences (both

permanent and temporary) between the relevantincome tax base and the base as determinedunder financial accounting, and to provide rulesto account for net operating losses in ajurisdiction

TYBA12/31/22

$390b




BEAT(cont.)

• Exemptions from SHIELD in respect of financialreporting groups that meet, on a jurisdiction-by-jurisdiction basis, a minimum effective level oftaxation as determined to the satisfaction of theSecretary, or determine exempt payments todomestic and foreign members that areinvestment funds, pension funds, internationalorganizations, or non-profit entities, and to takeinto account payments by partnerships.

TYBA12/31/22

$390b

FDII Proposal: FDII repealedWhat’s new: Revenue to be used to “encourageR&D”

TYBA12/31/21

Net zero(FDII repeal$124b)

Inversioncurbs

Proposal: Strengthen the anti-inversion provisionsby generally treating a foreign acquiringcorporation as a U.S. company based on a reduced50 percent continuing ownership threshold andadding a provision to treat the foreign acquiring asdomestic if managed and controlled in the UnitedStatesWhat’s new: The proposal would broaden thedefinition of an inversion transaction with a greaterthan 50-percent test (eliminating the 60-percenttest), and expand the meaning of an inversion(without reqard to shareholder continuity) toinclude (1) immediately prior to the acquisition, thefair market value of the domestic entity is greaterthan the fair market value of the foreign acquiringcorporation, (2) after the acquisition the expandedaffiliated group is primarily managed and controlledin the United States, and (3) the expanded affiliatedgroup does not conduct substantial businessactivities in the country in which the foreignacquiring corporation is created or organized.The meaning of “acquisition” would be expanded toconsider direct and indirect assets, includingthrough a distribution of stock of a foreigncorporation by a domestic corporation or apartnership that represents either substantially allof the assets or substantially all of the assetsconstituting a trade or business of the distributingcorporation or partnership.

Transactionscompletedafter date ofenactment(DOE)

Included inGILTIrevenueestimate

FTClimitationfrom salesof hybridentities

Proposal: Expand the treatment of a qualified stockpurchase for which a section 338 election is madeto sales of an interest in an entity that is treated asa corporation for foreign tax purposes but as apartnership or a disregarded entity for U.S. taxpurposes (specified hybrid entity), or taxablechanges in the classification of an entity for U.S. taxpurposes that are not recognized for foreign taxpurposes.

Transactionsafter DOE

$436m




FTClimitationfrom salesof hybridentities(cont.)

The expansion of that rule, for purposes ofapplying the foreign tax credit rules, means thesource and character of any item resulting fromthe disposition of the interest in the specifiedhybrid entity, or change in entity classification,would be determined based on the source andcharacter of an item of gain or loss the sellerwould have taken into account upon the sale orexchange of stock (determined without regard tosection 1248).

Transactionsafter DOE

$436m

Limitationof deductiononexcessiveinterest(note, thiswas droppedfrom theTCJA)

Proposal: A member of a financial reportinggroup’s interest deduction would be limited,determined by comparing the member’sproportionate share of the financial reportinggroup’s net interest expense and the member’sproportionate share of the group’s earnings(computed by adding back net interest expense,tax expense, depreciation, depletion, andamortization). The data would be reflected in thefinancial reporting group’s consolidated financialstatements. When a financial reporting groupmember has excess financial statement netinterest expense, a deduction will be disallowed forthe member’s excess net interest expense for U.S.tax purposes. A member’s excess limitation (if any)would be converted into a proportionate amount ofexcess limitation for U.S. tax purposes and carriedforward as set forth below.The rule would not apply to financial servicesentities or financial reporting groups that wouldotherwise report less than $5 million of netinterest expense, in the aggregate, on one or moreU.S. income tax returns for a taxable year. AnyFSE would need to be excluded from the financialreporting group for purposes of applying theproposal to other members of the financialreporting group.

TYBA12/31/21

$18.6b

Onshoringtaxincentives

Proposal: The proposal creates a new generalbusiness credit equal to 10 percent of the eligibleexpenses paid or incurred in connection withonshoring a U.S. trade or business, matched with adenial of deductions for expenses paid or incurredin connection with offshoring a U.S. trade orbusiness. Eligible expenses may be incurred by aforeign affiliate of the U.S. taxpayer, and the U.S.Treasury will reimburse the U.S. territory for thenew general business credits provided to theirtaxpayers pursuant to an equivalent rule.Deductions would be disallowed for expenses.Onshoring a U.S. trade or business would require ashowing that operations outside the United Stateswere moved to the United States and results in anincrease in U.S. jobs.

Expensespaid orincurredafter DOE

Net zero(credit foronshoring:- $112m;deductiondenial:$112m)


Corporate tax


Corporaterate

Proposal: increase to 28%For taxable years beginning after 1/1/21 andbefore 1/1/ 22, the tax rate = 21% plus 7 %times the portion of the taxable year thatoccurs in 2022

TYBA12/31/21

$857.8b

Minimum taxbased onbook income

Proposal: 15% minimum tax on worldwide bookincome of corporations with more than $2b insuch income.What’s new: Taxpayers would calculate booktentative minimum tax (BTMT) equal to 15percent of worldwide pre-tax book income(calculated after subtracting book netoperating loss deductions from book income),less General Business Credits (including R&D,clean energy and housing tax credits) andforeign tax credits. The book income taxequals the excess, if any, of BTMT over regulartax. A book tax credit (generated by a positivebook tax liability) could be claimed againstregular tax in future years but credit could notreduce tax liability below book tentativeminimum tax in that year.

TYBA12/31/21

$148.3b

Tax Compliance


Enhancedreporting offinancialaccounts

Proposal: Financial institutions would berequired to report gross inflows and outflowsfrom customer accounts on a modified versionof the current 1099-INT, covering bank, loanand investments accounts.What’s new: Gross inflows and outflows wouldbe broken down for physical cash, transactionswith a foreign account, and transfers to andfrom another account with the same owner.Applies to all business and personal accountsexcept for accounts below a gross flowthreshold of $600 or fair market value of$600. Accounts with characteristics similar tofinancial institution accounts are covered.Payment settlement entities would collect TINsand file a revised Form 1099-K expanded to allpayee accounts (subject to the same deminimis threshold), reporting not only grossreceipts but also gross purchases, physicalcash, as well as payments to and from foreignaccounts, and transfer inflows and outflows

TYBA12/31/22

$462.6b


Tax Compliance (continued)Description Eff. Date 10yr score

IRS regulation of paid tax return preparers

The Secretary would be given authority toregulate tax return preparers

DOE $575m

Increasepenalties on“ghost”preparers

The penalty would be increased to the greaterof $500 per return or 100% of the incomederived per return by a ghost preparer. Theproposal would also increase the limitationsperiod during which the penalty may beassessed from three years to six years.

Returnsrequired tobe filedafter12/31/21

$242m

Expandbrokerreporting forcrypto-currencyassets

Brokers – including entities such as U.S. cryptoasset exchanges and hosted wallet providers –reporting on crypto assets would includereporting on certain beneficial owners ofentities holding accounts with the broker.Combined with existing law, the proposalwould require a broker to report grossproceeds and such other information as theSecretary may require with respect to sales ofcrypto assets with respect to customers, andin the case of certain passive entities, theirsubstantial foreign owners.

TYBA12/31/22

De minimis

Certificationof taxpayerID numbersforreportablepayments

Permit IRS to require payees of any reportablepayments to furnish their TINs to payors underpenalty of perjury.

Paymentsmade after12/31/21

$1.8b

Enhancedcompliancere: listedtransactions

Numerous proposals, including increasing thesection 6501(a) limitations for returnsreporting benefits from listed transactionsfrom three years to six years, increasing thelimitations period for listed transactions undersection 6501(c)(10) from one year to threeyears; impose penalties on shareholders whosell the stock of an “applicable C corporation”secondary liability (without resort to any Statelaw).

Various $5.4b

Other Amend the centralized partnership auditregime; enhance penalties related to noticesand tax court cases

Effectiveuponenactment

$1.8b


Individual tax


Rate Proposal: Increase the top marginal individualincome tax rate to 39.6%What’s new: In taxable year 2022, the topmarginal tax rate would apply to taxable incomeover $509,300 for married individuals filing ajoint return, $452,700 for unmarried individuals(other than surviving spouses), $481,000 forhead of household filers, and $254,650 formarried individuals filing a separate return.

TYBA12/31/21

$132b

Capitalgains &dividends

Proposal: “Long-term capital gains and qualifieddividends of taxpayers with adjusted grossincome of more than $1 million would be taxed atordinary income tax rates”What’s new: “would be effective for gainsrequired to be recognized after the date ofannouncement”

“date ofannounce-ment.”

$322b

Stepped-up basis

Proposal: End stepped-up basisWhat’s new: Payment of tax on the appreciationof certain family-owned and operated businesseswould not be due until the interest in the businessis sold or the business ceases to be family-ownedand operated.

Gains onpropertytransferredby gift & onpropertyownedat death bydecedentsdying after12/31/21 &propertyowned bynon-corporateentities on1/1/22

CarriedInterest

Proposal: Tax carried (profits) interests asordinary incomeWhat’s new: Tax as ordinary income a partner’sshare of income on an “investment servicespartnership interest” (ISPI) in an investmentpartnership, regardless of the character of theincome at the partnership level, if the partner’staxable income (from all sources) exceeds$400,000.

TYBA12/31/21

$1.5b

NIIT &SECAtaxes

Proposal: Rationalize Net Investment Income andSelf-employment Contributions Act taxesWhat’s new: For taxpayers with AGI in excess of$400,000, the definition of NIIT would beamended to include gross income and gain fromany trades or businesses not otherwise subject toemployment taxes; limited partners and LLCmembers who provide services and materiallyparticipate in their partnerships and LLCs wouldbe subject to SECA tax on distributive shares ofpartnership or LLC income above thresholds.

TYBA12/31/21

$237b


Individual tax (continued)


Like-kind Proposal: End Section 1031 like-kind exchanges forgains greater than $500,000What’s new: Allow the deferral of gain up to anaggregate amount of $500,000 for eachtaxpayer ($1 million in the case of marriedindividuals filing a joint return) each year for realproperty exchanges that are like kind

TYBA12/31/21

$20b

461(l) Proposal: Make permanent the TCJA’s 461(l)disallowance of excess business loss for non-corporate taxpayers

TYBA12/31/26

$43b

Child taxcredit

Make permanent the full refundability of the ChildTax Credit, while extending the other expansions tothe CTC through 2025

TYBA12/31/21

-$449b

Childcare Make permanent the temporary Child andDependent Care Tax Credit (CDCTC) expansion

TYBA12/31/21

-$104b

Increase the employer-provided childcare tax creditfor businesses

TYBA12/31/21

-$302m

EITC Make permanent the EITC expansion TYBA12/31/21

-$105b

ACA Make permanent American Rescue Plan expansionof premium tax credits

After12/31/22

-$163b


ExpandLow-incomeHousing TaxCredit

Create an additional type of Housing Credit DollarAmount (HCDA) called an “Opportunity HCDA.”Housing Credit Agencies would have a separateceiling for OHCDAs from their existing allocationceilings of HCDAs. Buildings in difficultdevelopment areas (DDAs) receiving eitherallocations of HCDAs or OHCDAs would receivebasis boosts of up to 50 percent. The DDA basisboost provision is permanent.

Calendaryearsbeginningw/2022

-$32b

Neighbor-hoodHomesInvestmentTax Credit

New tax credit, the Neighborhood HomesInvestment Credit (NHIC), to support newconstruction for sale, substantial rehabilitation forsale, and substantial rehabilitation for existinghomeowners

Calendaryearsafter2021

-$13b

NMTC Permanently extend the New Markets Tax Credit(NMTC); annual allocation of $5 billion indexed forinflation after 2026.

AfterDOE

-$3.9b

Bonds Create Qualified School Infrastructure Bonds(QSIBs), similar to BABs; expand the category oftransportation infrastructure private activitybonds (PABs) created by SAFETEA-LU and exemptfrom state PAB volume caps.

Calendaryearsbeginningw/2022

-$11.8b

Housing/Infrastructure


Energy


Reformtaxation offoreign fossilfuel income

Modify foreign oil and gas extraction income andforeign oil related income rules

Unlessspecified,TYBA12/31/21

$84.8b

Modify tax rule for dual capacity taxpayers $1.4b

CleanElectricityTax Credits

Extends the PTC (section 45) and ITC (section48) at full credit levels for 5 years and phasesdown by 20% over five years. In addition, the ITCis expanded to include stand-alone energystorage. Includes direct payment option in lieu ofthe tax credit.

Construct-ion after12/31/21

-$249b

25D Extends the Residential Energy Efficiency Credit(section 25D) for five years with a phase-out by20% over five years. The credit is expanded toinclude battery storage technology.

-$16.1b

NewTransmissionITC

30% ITC for electric transmission property with aminimum voltage of 275 kv and capacity of 500megawatts. Includes direct payment option.

After12/31/21

-$23.8b

New Creditfor ExistingNuclearFacilities

$1 billion of tax credits (with a direct paymentoption and with strong labor standards) would beallocated to existing nuclear facilities based onthe goal of maximizing the preservation ofexisting nuclear generation over the next 10years. Taxpayers bid every two years withpriority, among other criteria, to those facilitiesdemonstrating financial operating losses andwhere emissions of various air pollutants wouldincrease if facility ceased operations.

After12/31/21

-$9.8b

New 48CEnergy Mfg.Credit

Additional $10 billion of 48C tax credits allocatedto advanced energy manufacturing projects with$5 billion specifically allocated to projects in coalcommunities. Includes direct payment option.

After12/31/21

-$7.9b

New TaxCredit forHeavy andMedium-dutyzero-emissionvehicles

Similar to the existing section 30D tax credit,heavy battery zero-emission vehicles such aselectric and fuel in the class 3 to class 8 categorywould qualify for up to a maximum of $25,000for class 3 and up to $120,00 for class 8 long-haul vehicles with the incentives phasing downover six years.

After12/31/21

-$10.6b

Sustainableaviation fuel

New $1.50 per gallon tax credit for sustainableaviation fuel defined as fuel that is 50% loweremissions than conventional jet fuel. Fuels with a100% emissions reduction would qualify for a$1.75 per gallon credit. The credit expires after 6years (1/1/2028).

After12/31/21

-$6.6b

The Administration’s clean energy tax proposals all reference plans to work with Congress on pairingtax incentives with strong labor standards. This language was generally expected and has been part ofthe Administration’s effort to draw support from organized labor for their clean energy agenda.


Energy (continued)


NewHydrogenProductionTax Credit

$3 per kg production tax credit for low-carbonhydrogen production. To qualify for the credit thehydrogen must be produced using zero-carbonemissions electricity (renewables or nuclear) andwater as a feedstock, or hydrogen producedusing natural gas as a feedstock with all thecarbon emitted in the production processcaptured or sequestered. Credit phases down to$2 per kg between 2025-2027. Includes directpayment option.

After12/31/21

-$4.1b

Commercialand homeincentives

Extends/expands energy efficient commercialand residential incentives 5 years through 2026.

After12/31/21

-$18.7b

New disastermitigationcredit

New non-refundable credit for homeowners andbusinesses equal to 25% of the cost of qualifieddisaster mitigation expenditures capped at$5,000 phased out based on taxpayer’s income.

After DOE -$4b

Carbon seq. Expand/extend 45Q carbon capture andsequestration credit for 5 years (1/1/2031) withenhanced credit of $35 per ton for hard-to-abateindustrial emissions like cement production,steelmaking, hydrogen production and petroleumrefining, and $70 per ton enhanced credit fordirect air capture projects. Includes directpayment option.

After12/31/21

-$6.1

EV ChargingStations

Increases credit limit to $200,000 per device forcommercial use (up from $30,000) and extendsfor 5 years (12/31/2026) the 30% EV chargingstation credit. Includes direct payment option.

After12/31/21

-$6.3b

Superfund Reinstates and doubles Superfund excise taxes;eliminates eligibility of OSLTF for drawback.

After12/31/21

$25.3b

Fossil fuelsprovisionsrepealed

• enhanced oil recovery credit• credit for oil & gas produced from marginal

wells• expensing of intangible drilling costs• exception to passive loss limitations provided to

working interests in oil & natural gas properties• percentage depletion with respect to oil and

natural gas wells• geological and geophysical amortization period

for independent producers• expensing of exploration and development costs• percentage depletion for hard mineral fossil

fuels• capital gains treatment for royalties• exemption from corporate income tax for fossil

fuel publicly traded partnerships• excise tax exemption for crude oil derived from

bitumen and kerogen-rich rock• amortization of air pollution control facilities

GenerallyTYBA12/31/21.Repeal ofexemptionfromcorporatetax forPTPs TYBA12/31/26

$35b

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Documents

Biden FY2022 Budget, Treasury Green Book Detail