Bipartisan Infrastructure and Jobs Act Passed by the House of Representatives
On November 5, 2021, the House of Representatives passed the $1 trillion Bipartisan Infrastructure and Jobs Act (BIJA), which had previously been approved by the Senate. President Biden has stated that he will sign the bill into law this week. While the major tax provisions on the Biden Administration’s agenda would be contained in the Build Back Better Act (still under consideration), the Infrastructure bill does contain several tax provisions.
Early Termination of the Employee Retention Tax Credit (ERTC)
As noted in prior Tax Flashes, the BIJA terminates the ERTC for most employers. The credit will not be allowed after the third quarter of 2021 for employers other than Startup Recovery Businesses. A Startup Recovery Business is defined as one that:
- Began conducting any trade or business after February 15, 2020; and
- Which had average annual gross receipts not exceeding $1 million; and
- Does not otherwise qualify for the ERTC either by full or partial closure or significant decline in gross receipts requirements.
Since, for the fourth quarter 2021, a company will not otherwise be eligible for the ERTC, an employer that would qualify under prior rules should be eligible if it can otherwise satisfy the Startup Recovery Business rules.
An early termination of the credit presumptively would require employers that monetized the fourth quarter credit by reducing employment tax deposits to repay these amounts. It is not clear whether the IRS will impose late deposit penalties and interest. The Service normally claims no ability to abate interest but can abate penalty based on reasonable cause. The IRS will provide notification of a penalty waiver procedure for this situation.
Information Reporting for Brokers for Digital Assets
The bill contains a controversial provision that produced considerable debate in the Senate prior to passage, which requires any “broker” to report digital asset transfers. The rather broad definition of a “broker” includes those who regularly provides services in connection with the transfer of such assets. Failure to report subjects the taxpayer to civil penalties without reasonable cause.
The cryptocurrency industry has spent recent weeks seeking to have this language removed or modified. However, under the rules of the House, no amendments were made to the bill.
The Treasury Department will need to issue further guidance with respect to this provision, which applies to returns and statements required to be filed and furnished after December 31, 2023. The delayed effective date likely means that there may be legislative changes to this rule over the next couple of years.
Modification of Pension Smoothing Rules
The practice of “pension smoothing” permits the use of higher future interest rates in determining a company’s future pension liability. The interest rate stabilization table issued within the Internal Revenue Code, scheduled to expire at the end of the 2025 plan year, is now extended for another five years.
This rule is expected to reduce the level of current contributions and, correspondingly, a reduction of deductions in determining taxable income. This should generate higher tax revenue.
Modification of Contribution to Capital Rule
The exclusion from income of contributions to the capital of corporations is added for certain regulated public water and sewage disposal utilities. This rule is effective for contributions made after December 31, 2020, and, therefore, is retroactive.
The law also provides certain automatic extensions of filing deadlines related to federal disasters, including “significant fires.”
The above bill has not yet been signed or finalized and the summary included indicates what has been agreed to as of today. There might be additional modifications before President Biden signs the legislation. Your Marcum advisors will post all updates.
For questions regarding how the tax provisions within this new law may affect you or your business, please contact Michael D’Addio at [email protected] or your Marcum tax advisor.