The Treasury Department released its “Greenbook” Monday detailing the tax proposals in the Biden administration’s budget, including plans to raise the corporate tax rate to 28% and levy taxes on the unrealized capital gains of “extremely wealthy” individuals.
The
“This budget continues the economic momentum and deficit reduction the president set in motion through smart, fiscally sound investments in the security, health, and prosperity of the nation,” said Treasury Secretary Janet Yellen in a statement. “This budget also furthers a fairer, more efficient Tax Code that will allow funding for key fiscal priorities that promote opportunity for every American.”
The Biden budget also aims to increase funding for the Internal Revenue Service. The budget provides a total of $14.1 billion for the IRS, which includes an increase of $798 million above fiscal year 2021 to improve the taxpayer experience and expand customer service outreach to underserved communities and the taxpaying public at large.
The budget also provides $310 million for IRS business systems modernization to accelerate the development of new digital tools to enable better communication between taxpayers and the agency.
For tax preparers, the plan would expand and increase penalties for noncompliant tax return preparation and e-filing and authorize IRS oversight of paid preparers. The plan also aims to address compliance in connection with tax responsibilities of expatriates, simplify foreign exchange gain or loss rules and exchange rate rules for individuals, and increase the threshold for simplified foreign tax credit rules and reporting.
Budget proposals also aim to modernize various tax rules, including those for digital assets. Rules would be changed for treating loans of securities as tax-free to include other asset classes and address income inclusion, provide for information reporting by certain financial institutions and digital asset brokers for purposes of exchange of information, and require reporting by certain taxpayers of foreign digital asset accounts. In addition, the plan would amend the mark-to-market rules for dealers and traders to include digital assets.
Other provisions in the Greenbook would make the New Markets Tax Credit permanent and allow selective basis boosts for bond-financed Low-Income Housing Credit projects. The Greenbook also contains provisions to eliminate fossil fuel tax preferences, and to modify oil spill liability trust fund financing and Superfund excise taxes.
For individuals, the proposals would increase the top marginal income tax rate for high earners, reform the taxation of capital income, and impose a minimum income tax on the wealthiest taxpayers.
For extremely wealthy taxpayers, a minimum income tax would require prepayment of taxes on unrealized capital gains, so liquid taxpayers would be taxed at a rate of at least 20% on their income including unrealized capital gains. Several tax breaks used by high-income taxpayers to avoid income, estate, and gift taxation would be closed, including the carried interest preference and the like-kind exchange real estate preference, which would be eliminated for those with the highest incomes.
For families and students, the proposals would make the adoption tax credit refundable and allow certain guardianship arrangements to qualify, as well as provide income exclusion for student debt relief.
The proposals would also modify income, estate and gift tax rules for certain grantor trusts as well as require consistent valuation of promissory notes. The proposals would change tax administration for trusts and decedents’ estates, including limiting the duration of Generation-Skipping Transfer Tax exemption.
Other items in the budget proposal seek to close tax breaks by:
- Taxing carried interests as ordinary income;
- Repealing the deferral of gain from like-kind exchanges;
- Requiring 100% recapture of depreciation deductions as ordinary income for certain depreciable real property;
- Limiting a partner’s deduction in certain syndicated conservation easement transactions;
- Limiting the use of donor-advised funds to avoid private foundation payout requirement; and,
- Extending the period for assessment of tax for certain qualified opportunity fund investors.
The proposals would establish an untaxed income account regime for certain small insurance companies, expand pro rata interest expense disallowance for business-owned life insurance, correct drafting errors in the taxation of insurance companies under the Tax Cuts and Jobs Act of 2017, and define the term “ultimate purchaser” for purposes of diesel fuel exportation.
Other proposals in the plan aim to improve tax administration and compliance by enhancing the accuracy of tax information, addressing taxpayer noncompliance with listed transactions, and amending the centralized partnership audit regime to allow the carryover of a reduction in tax that exceeds a partner’s tax liability. The plan would authorize limited sharing of business tax return information to measure the economy more accurately, impose an affirmative requirement to disclose a position contrary to a regulation, and require employers to withhold tax on failed nonqualified deferred compensation plans. The proposals would extend to six years the statute of limitations for certain tax assessments.
In the area of benefits tax administration, the plan would clarify the tax treatment of fixed indemnity health policies, clarify the tax treatment of on-demand pay arrangements, and rationalize the funding for post-retirement medical and life insurance benefits.
