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Framework For Biden’s Build Back Better Infrastructure Plan Announced

Posted on November 2021November 2021 by info

After months of negotiations, the White House has announced a framework for Biden’s Build Back Better infrastructure plan, a $1.75 trillion package of social infrastructure measures paid for by tax increases. The measures are in addition to those previously approved by the Senate in the transportation-related $1 trillion bipartisan infrastructure bill. In reaching the framework, both moderate and progressive Senate and House Democrats have been forced to compromise on certain priorities.

Spending Measures

Framework for President Biden’s Build Back Better infrastructure plan includes the following spending measures:

Extension of the childcare tax credit for one year (through 2022)
Extension of the refundable earned income tax credit and other investments in affordable housing
Universal and free preschool for three and four-year olds and additional childcare funding
Expanded home care for older Americans and people with disabilities
Expanded healthcare coverage, Medicare hearing benefits and lower healthcare premiums for certain Americans
Clean energy tax credits and certain climate change provisions
Expanded access to affordable high-quality education beyond high school
Provisions for immigration system reforms

Key provisions excluded from the announced framework include paid family leave and Medicare coverage for dental and vision benefits. The framework also does not include key climate change measures that would reward electricity plants that use clean energy instead of fossil fuels, nor does it include provisions that would allow Medicare to negotiate lower prices for prescription drugs.

Tax Measures

To pay for the social spending measures, the agreement includes the following tax increases:

A 15% corporate minimum tax on companies reporting over $1 billion in financial statement profits
A 1% surtax on corporate stock buybacks
A 15% country-by-country minimum tax on foreign profits of U.S. corporations, which would bring the U.S. in line with the recent global agreement announced by the OECD
A 5% surtax on individual incomes over $10 million, an additional 3% surtax on incomes over $25 million and expansion of the 3.8% Net Investment Income Tax
Increased IRS funding to support additional enforcement resources focused on pursuing unpaid taxes of wealthy taxpayers (those with incomes of at least $400,000 per year)

DHS Report To Congress Reinforces The Need For Importers To Have ESG Policies In Place And To Know Their Vendors

Posted on October 2021November 2021 by info

Need help navigating your company’s ESG compliance and reporting policies? Contact us today!

The U.S. Department of Homeland Security (DHS) posted a report on its website on September 22, 2021 that establishes timelines for Customs and Border Protection (CBP) to respond to allegations of forced labor.

Although U.S. law has prohibited the importation of merchandise produced or manufactured by forced labor (including child labor) for more than 90 years, the issue has been under heightened scrutiny of late. A provision requiring parties to prohibit the importation of goods made by or with forced labor was included in the 2020 U.S.-Mexico-Canada Trade Agreement (USMCA), which mandated, in part, that the President establish a task force to set timelines for CBP to respond to allegations of forced labor in supply chains. These initiatives highlight the growing global focus on Environmental, Social, and Governance (ESG) issues in corporate boardrooms and on government enforcement agendas.

An Executive Order issued in 2020 established the “Forced Labor Enforcement Task Force” to improve coordination among various U.S. governmental agencies to prevent imports to the U.S. that are produced using forced labor. The task force is led by DHS and includes representatives from the Departments of State, Treasury, Justice and Labor, as well as the United States Trade Representative and U.S. Agency for International Development. The breadth of agencies represented by this task force underscores the importance the government is now placing on the issue of forced labor.

CBP is the sole government agency charged with enforcing all federal government regulations at the border and, therefore, investigates allegations of forced labor. CBP has the authority to detain, seize or exclude goods produced with forced labor and can issue a detention order known as a Withhold Release Order (WRO) if an allegation “reasonably but not conclusively” indicates that goods were produced with forced labor.

Under CBP’s rules, U.S. importers have an obligation to exercise “reasonable care,” which means that all declarations must be compliant, including compliance with the requirements that no imported goods have been manufactured with forced labor. To fulfill their responsibilities, importers should establish procedures to assess suppliers, including upstream processes for purchased goods, to understand the risks associated with the use of forced labor. Critically, the law prohibits the importation of goods made “wholly or in part” by forced labor, so that, for example, goods purchased from the European Union and produced using Chinese components, materials and parts should be considered in internal risk review processes as well. The prohibition against the importation of goods made with forced labor applies to goods from all jurisdictions.

The new timelines for investigations of allegations of forced labor will be initiated when a petition is filed alleging goods made with forced labor are likely to be imported into the U.S. Petitions can be filed by any party or Customs can self-initiate a case based on information from government sources or private reporting. Within 30 days of receipt of the petition, CBP will accept or reject it. If accepted, CBP will initiate an investigation and approximately 90 to 180 days later determine whether a reasonable suspicion of a violation of the forced labor statute exists. If a positive determination results, CBP will issue a WRO and a press release. Thereafter, if any goods are withheld by CBP at a port of entry, importers will have three months to rebut the presumption, and other administrative actions may occur, including refusal of entry of the goods and possible forfeiture/re-export.

Importers should be prepared to respond to any allegation of forced labor against goods they are intending to import into the U.S. As noted above, importers only have three months to respond to goods withheld subject to a WRO, at which time it may be too late to conduct a thorough investigation as to whether the merchandise was made in whole or in part by forced labor. Such an investigation is time-consuming and usually cannot be completed after a shipment is withheld and the importer must rebut the presumption that the merchandise at issue was made with forced labor. This scenario could negatively impact a company and result in potential seizures or exclusion of goods, loss of sales, revenue and most importantly, reputational risk. Moreover, CBP can refer such cases to other agencies for criminal investigation.

This is especially important for shipments from China due to pending legislation in Congress that aims to ensure that U.S. companies are not funding forced labor among ethnic minorities such as the Uyghurs in the Xinjiang region of China. These restrictions extend to other areas of China where forced labor is suspected and, notwithstanding this pending legislation, applies to all regions of the world.

Insight

The U.S. government, together with other countries and regions (Canada, European Union, Mexico and the U.K.) has significantly increased its scrutiny of products made from forced labor. The enhanced government enforcement should prompt companies with global supply chains to ramp up their focus on potential forced labor concerns as part of the increased focus on ESG policies.

IRS Outlines Requirements For Research Credit Refund Claims

Posted on October 2021October 2021 by info

The IRS Office of Chief Counsel publicly released a memorandum [1] on October 15, 2021 highlighting the information that taxpayers need to provide when filing a refund claim involving the research credit under Internal Revenue Code Section 41 in order to meet the “specificity requirement” under Treas. Reg. § 301-6402-2(b)(1).

As a result of the memorandum, effective January 10, 2022, claims for refund based on the research credit must meet the IRS’ minimum validity standards or face a significant risk of rejection. Further, given the IRS’ current resource constraints and resulting lag time in initiating research credit claim reviews, the IRS may deem a claim for refund as invalid only after the statute of limitations for perfecting such a claim has expired.

Why this new guidance?

According to a related IRS release (IR-2021-203 dated October 15, 2021), the legal advice “is the result of ongoing efforts to manage research credit issues and resources in the most effective and efficient manner.” The release highlights that claims for the research credit comprise a substantial number of examined cases and consume significant resources for both the IRS and taxpayers.

Additionally, the Chief Counsel memorandum states, “requiring that certain specific facts be included with a claim allows the Service to screen for the likelihood of the taxpayer’s right to the refund being sought. This information helps the Service avoid paying refunds to taxpayers who have no factual support for their claim and helps the Service effectively allocate its limited resources to determining which procedurally compliant claims to examine.”

Requirements

The Chief Counsel memorandum provides that for a research credit claim for refund to be considered a valid claim and satisfy the specificity requirement, the taxpayer must, at a minimum, at the time the refund claim is filed with the IRS:

Identify all the business components to which the research credit claim relates for that year.
For each business component, identify all research activities performed and the names of the individuals who performed each research activity, as well as the information each individual sought to discover.
Provide the total qualified employee wage expenses, total qualified supply expenses and total qualified contract research expenses for the claim year (this may be done using Form 6765, Credit for Increasing Research Activities).

The memorandum also instructs taxpayers to identify “in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.”

Significantly, the identification of the legal grounds and factual basis for a taxpayer’s credit claim is not considered conclusive proof that the taxpayer is entitled to the research credit. Although formal documentation is not required to be submitted, according to the memorandum, if a taxpayer does provide documents (including a credit study) with the claim, the taxpayer must specifically identify where in the documents the facts responsive to each of criteria listed above can be found. According to the memorandum, “[a] mere volume of documents will not suffice to meet a taxpayer’s obligation.”

The memorandum recommends that the Service reject as deficient any claim for refund relating to the research credit that does not include the information described above or that is not signed under penalty of perjury. According to the memorandum, these measures should eliminate the possibility that a court will find that the Service has waived the specificity requirement under Treas. Reg. § 301.6402–2(b)(1).

The IRS will provide a grace period (until January 10, 2022) before requiring the inclusion of this information with timely filed Section 41 research credit claims for refund. Upon the expiration of the grace period, there will be a one-year transition period during which taxpayers will have 30 days to perfect a research credit claim for refund prior to the IRS’ final determination on the claim.
However, the memorandum indicates that a rejection of a refund claim may preclude a taxpayer from amending or perfecting its claim if it did not satisfy procedural requirements and the statute of limitations to file a new refund claim expires prior to perfection of the claim.
Further details will be forthcoming; however, taxpayers may begin providing this information immediately.

Insights

The Chief Counsel memorandum has already generated significant controversy within the U.S. taxpayer community and will likely be challenged at the administrative level. However, Chief Counsel’s guidance here cannot be disregarded until such time it is modified or withdrawn.

Tax professionals should be aware that strict adherence to IRS minimum standards for research credit claims is critical to ensure claims are properly processed and not rejected without potential for future resolution. More than ever, thorough documentation of a taxpayer’s research activities is necessary to support research credit claims for refund and avoid costly future litigation.

Please contact your tax advisors to determine how this new guidance impacts pending research credit claims that: (i) have not yet been filed with the IRS; or (ii) have already been filed but that the IRS has not yet accepted or examined.

(1) Chief counsel memoranda are issued by the Office of Chief Counsel to Internal Revenue Service personnel who are national program executives and managers. The memos are issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on issues. However, the memos cannot be used or cited as precedent.