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Treasury releases ‘FY23 Green Book’ describing President Biden’s tax proposals for businesses

April 2022


In brief

The White House released its Fiscal Year 2023 Budget (‘FY23 Budget’) on March 28. Also on March 28, the US Treasury released the General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals, commonly referred to as the ‘Green Book.’ The Green Book explains the revenue proposals in the President's budget and serves as a guidepost to Congress for tax legislation by describing current law (adjusted baseline), proposed changes, the rationale from a policy perspective, and Treasury’s revenue projection.

The White House summarizes the tax provisions of the FY23 Budget as outlining steps toward a fairer tax code that encourages investment in the United States, stops the shifting of jobs and profits abroad, and ensures that corporations and high-income individuals “pay their fair share.”

The FY23 Budget would raise the corporate tax rate to 28%, complemented by other changes to corporate tax provisions intended to incentivize job creation and investment in the United States. Additionally, the FY23 Budget asserts that it would prevent MNCs from using tax havens to “game the system,” reiterating the Biden administration’s commitment to the OECD’s Pillar Two proposal. The FY23 Budget also features individual tax increase proposals, including a new proposed 20% minimum tax on taxpayers with net wealth greater than $100 million. Finally, the FY23 Budget requests a total of $14.1 billion in funding for the IRS, including investments in IRS tax enforcement intended to increase tax compliance.

The FY23 Budget and Green Book generally assume the previously proposed tax provisions from the House-passed ‘Build Back Better’ reconciliation bill (H.R. 5376) as a baseline. That bill includes more than $1.5 trillion in business, international, and individual tax increase provisions, but certain Administration tax proposals such as a corporate rate increase, were not included in the bill due to opposition from moderate Congressional Democrats. The House-passed bill also included some taxpayer-favorable provisions, including a measure that would reinstate current deductibility for Section 174 research expenditures that became subject to amortization in 2022 under a provision of the 2017 tax reform act and relief from the current cap on individual itemized deductions for state and local taxes (SALT). The FY23 Budget baseline does not include the House SALT cap relief provision.

Observation: Senate action on the House-passed reconciliation bill has been stalled due to objections from Senator Joe Manchin (D-WV) overspending provisions in the House bill and other issues. A revised Senate version of the reconciliation legislation will need the support of all 50 Democratic Senators and nearly all House Democrats to be enacted over the expected objections of Congressional Republicans.

Action item: Companies should evaluate and model the potential effect of the corporate tax increase proposals set forth by President Biden and the pending reconciliation legislation. Companies also should engage with policy makers about how specific proposals may affect their employees, job creation, and investments in the United States.

This Insight covers the FY23 Budget proposals (and proposed effective dates) listed in the table below that are generally applicable to businesses. See our previous PwC Insight for additional coverage of President’s Biden’s FY23 Budget.

Proposal

Proposed effective date

Raise the corporate income tax rate to 28%

Tax years beginning after December 31, 2022. 

Tax years beginning before January 1, 2023, and ending after December 31, 2022, the tax rate would equal 21% plus 7% times the portion of the tax year that occurs in 2023.

Repeal the BEAT and adopt the undertaxed profits rule (UTPR) Tax years beginning after December 31, 2023.

Provide tax credit for onshoring jobs to the United States and remove tax deductions for shipping jobs overseas

Expenses paid or incurred after the date of enactment.
Prevent basis shifting by related parties through partnerships

Tax years beginning after December 31, 2022.

Conform definition of ‘control’ with corporate affiliation test

Transactions occurring after December 31, 2022.

Expand access to retroactive qualified electing fund (QEF) elections

The date of enactment. Regulations or other guidance would permit taxpayers to amend previously filed returns for open years.

Expand the definition of foreign business entity to include taxable units Tax years of a controlling US person beginning after December 31, 2022 and accounting periods of foreign business entities that end with or within such tax years.
Tax carried (profits) interests as ordinary income

Tax years beginning after December 31, 2022.

Repeal deferral of gain from like-kind exchanges Exchanges completed in tax years beginning after December 31, 2022.
Increased recapture of depreciation deductions as ordinary income for certain depreciable real property Depreciation deductions in tax years beginning after December 31, 2022 and dispositions completed in tax years beginning after December 31, 2022.
Address taxpayer noncompliance with listed transactions

Extend statute of limitations to six years:

The date of enactment.

Liability on shareholders for unpaid income taxes of applicable corporations:

Sales of controlling interests in the applicable C corporation stock on or after April 10, 2014

Modernize rules, including those for digital assets

Modernize securities loan nonrecognition rules and address income inclusion:

Tax years beginning after December 31, 2022.

Reporting by certain financial institutions and digital asset brokers:

Returns to be filed after December 31, 2023.

Reporting foreign digital asset accounts:

Returns to be filed after December 31, 2022.

Mark-to-market rules for dealers and traders:

Tax years beginning after December 31, 2022.

Establish an untaxed income account regime for certain small insurance companies Effective for distributions, sales, and other transactions that occur in tax years of a covered insurance company beginning after December 31, 2022.
Expand pro rata interest expense disallowance for business-owned life insurance 

Applies to contracts issued after December 31, 2021.

Correct drafting errors in the taxation of insurance companies under the 2017 tax reform act

Capitalization rate of net premiums for group life insurance contracts: 

Effective as if it had been a part of the original 2017 act.

International and nonproportional reinsurance lines of business:

Tax years beginning after December 31, 2022. 

Below is a summary of (i) Fiscal Year 2022 Budget (‘FY22 Budget’) proposals also included in the FY23 Budget and (ii) newly proposed FY23 Budget tax proposals.

Previously proposed in FY22 Budget New FY23 Budget proposals
  • Raise the corporate income tax rate to 28%
  • Provide tax credit for onshoring jobs to the United States and remove tax deductions for shipping jobs overseas
  • Tax carried (profits) interests as ordinary income
  • Repeal deferral of gain from like-kind exchanges
  • Address taxpayer noncompliance with listed transactions
  • Modernize certain rules, including those for digital assets
  • Reporting by certain financial institutions and digital asset brokers
  • Repeal the BEAT and adopt the undertaxed profits rule (UTPR)
  • Prevent basis shifting by related parties through partnerships
  • Conform definition of ‘control’ with corporate affiliation test
  • Expand access to retroactive QEF elections
  • Expand the definition of foreign business entity to include taxable units
  • Increase in recapture of depreciation deductions as ordinary income for certain depreciable real property
  • Modernize certain rules, including those for digital assets
    • Modernize securities loan nonrecognition rules and address income inclusion
    • Report foreign digital asset accounts
    • Mark-to-market rules for dealers and traders
  • 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 2017 tax reform act 

Contact us

Pat Brown

Pat Brown

Washington National Tax Services Co-Leader, PwC US

Nita Asher

Nita Asher

Principal, International Tax Services, PwC US

Julie Allen

Julie Allen

National Tax Services and Mergers & Acquisitions Tax Leader, PwC US

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