Overview
On Monday, March 11th, the Biden Administration released its fiscal year (FY) 2025 budget request to Congress along with the Treasury Department’s General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals (the "Green Book"), which provides detailed descriptions of the tax proposals in the budget along with associated revenue estimates.
The Budget requests $12.3 billion for the IRS for FY2025, the same level of funding the IRS received in FY 2023. In addition to annual discretionary funding, the Budget proposes to restore full additional IRS funding included in the Inflation Reduction Act.
Similar to the FY 2024 Green Book, the FY 2025 Green Book proposes increasing the corporate tax rate from 21% to 28%, increasing the excise tax on stock buybacks from 1% to 4%, and attempting to align the US with the OECD's Pillar Two rules. On the individual side, the Green Book proposes increasing the highest marginal tax rate from 37% to 39.6% and removing the lower tax rates for capital gains and dividends and tax as ordinary income for taxpayers with income over $1 million.
The FY 2025 Green Book closely mirrors the FY 2024 Green Book but includes several key changes:
- Increase the corporate alternative minimum tax from 15% to 21%
- Extend the stock buyback excise tax to the buyback of stock of a controlled foreign corporation (CFC)
- Apply the section 162(m) deduction disallowance for compensation over $1 million to all C corporations
- Eliminate the election for a CFC to use a different taxable year than the CFC’s majority US shareholder
- Modify and expand the definition of a "10-percent shareholder" to limit the portfolio interest exclusion
- Add a third statutorily designated priority to the New Markets Tax Credit to favor community development enterprises that focus investments on populations, geographies and/or businesses that are identified by the Secretary as having significantly deeper levels of economic distress.
- Modify the previously proposed Neighborhood Homes Tax Credit for the development and rehabilitation of affordable housing
- Increase and modify the employer-provided childcare tax credit
- Create new refundable tax credits for first-time homebuyers and first-time home sellers
- Modify the depreciation rules to increase the recovery period for depreciating general aviation passenger aircraft and increase excise taxes on kerosene used for private jet travel
- Limit tax benefits for private placement life insurance
- Limit an employer's deduction for the transfer of property to a service provider to the amount included in income by the service provider
- Allow partnerships to make a push out election adjustment earlier in an audit
- Modernize reporting for foreign tax credits
- Require earlier filing dates for certain information returns
- Remove statutory limitations on the scope of evidence review in the Tax Court for innocent spouse relief cases
- Allow the IRS to provide taxpayers with electronic notices
- Increase the annual limitation on federal grants to low-income taxpayer clinics from $100,000 to $200,000 and reduce the required non-federal matching requirements
- Impose penalties for inaccurate or fraudulent employment tax returns
- Increase criminal penalties for high-income people with significant federal tax liability who willfully fail to file a tax return for multiple years
- Expand IRS summons authority for large partnerships
- Impose liability on third-party administrators instead of employers for the excise tax for non-compliant group health plans
As in previous years, Treasury Secretary Janet Yellen is expected to testify before the House Ways and Means Committee and Senate Finance Committee in the coming weeks regarding the Biden Administration’s budget and tax proposals contained in the Green Book.
The current Republican control of the House of Representatives will likely prevent consideration and enactment of several of the tax provisions included in the Green Book. However, with several provisions included in the Tax Cuts and Jobs Act provisions expiring at the end of 2025, the Green Book is likely to serve as a guidepost for Democrats in Congress as they begin to develop tax legislation this year to prepare for potential large-scale tax legislation in the next Congress.
