Overview of the Tax Provisions in the Infrastructure Investment and Jobs Act

On November 15 in a bipartisan ceremony, President Biden signed into law H.R. 3684, the “Infrastructure Investment and Jobs Act,” (the “Infrastructure Act”).

Although most of the tax provisions are expected to be included in the pending H.R. 5376, “Build Back Better" bill, the Infrastructure Act includes several tax-related provisions. These provisions can be grouped along five themes: digital assets, clean energy taxes and credits, tax-exempt bonds, workforce and tax deadlines and tolling provisions.

Digital assets

As many expected, the Infrastructure Act requires individuals and firms acting as digital asset brokers to report transaction information to the IRS for tax purposes, beginning for tax year 2023. It also requires businesses to report any cryptocurrency payments worth more than $10,000, which is similar to current requirements for cash transactions.

The Joint Committee on Taxation estimated that these reporting requirements will help the IRS collect approximately $28 billion in additional federal income taxes,[1] primarily by eliminating uncertainty around what transactions have to be disclosed and what type of information has to be provided by intermediaries to facilitate further disclosures by U.S. taxpayers and their tax return preparers.

The term “digital asset” is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology” as specified by the Treasury in forthcoming regulations.

The term “broker” is defined broadly as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” There was a last-minute bipartisan proposal to narrow this definition but it did not make it into the final version of the bill. But there is an expectation that the Treasury will invoke its authority under I.R.C. Section 7805 to interpret the term “effectuating transfers” in a narrow enough fashion to exclude from the definition non-market makers such as miners, software developers, and platform service providers. 

We expect the words “any person” to be interpreted as applicable to U.S. or non-U.S. brokers. As long as the information to be reported concerns assets of U.S. persons, this would be consistent with multiple other informational reporting rules currently in place, e.g., FATCA and FDAP withholding.

Although a proposal to explicitly extend the application of the “wash sales” rule under I.R.C. Section 1091 to crypto assets did not make it into the final version of the Infrastructure Act, we expect it to re-surface as part of the Build Back Better bill. The “wash sales” rule disallows a tax loss to a taxpayer, other than a dealer in securities, that sells her securities at a loss and, within a 30-day period, purchases the same securities. The rule currently does not apply to cryptocurrency because it is treated as “property” for tax purposes.

Clean Energy and Interstate Highway Taxes and Credits

Superfund Excise Taxes

Starting in 1980, petroleum and chemical companies were required to pay excise taxes on certain chemicals under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). These CERCLA taxes were used to finance EPA cleanups of hazardous waste sites without further appropriation. Congress allowed those taxes to expire in 1995.

Section 80200 of the Infrastructure Act reinstates the CERCLA taxes starting July 1, 2022, through December 31, 2031, and it also modifies them. Specifically, it reimposes a per-ton tax on the sale of certain chemicals and sets the amount per chemical, ranging from 44 cents per ton on potassium hydroxide to $9.74 per ton on benzene, butane, and other chemicals that are common in fuels and industrial products. However, it reduces from 50% to 20% the threshold for the amount of chemical that must be present in a product before the product is taxed. In addition, it effectively increases the tax levied on a product if the party fails on a timely basis to provide data to the IRS regarding the product, by raising the chemical’s appraised value. Treasury must publish an initial list of taxable substances no later than January 1, 2022.

The Joint Committee on Taxation estimated that the reinstatement of CERCLA taxes will raise approximately $14.45 billion over a 10-year period.[2] The measure enjoyed broad bipartisan support, both for its environmental equity impact and as a non-income tax revenue raiser, despite warnings by the oil and chemical industries that the cost of the reinstated taxes will be ultimately passed on to American consumers.

Highway Taxes

The Highway Trust Fund (HTF) was established in 1956 to provide a more dependable source of funding from the federal government for the construction of the interstate highway system. The Infrastructure Act extends through FY 2028 the highway-related taxes that help finance the HTF.

Civil Nuclear Credit Program

The Infrastructure Act provides $6 billion to establish a Civil Nuclear Credit Program, which would provide tax credits to older nuclear power facilities that might otherwise close due to rising costs and decreasing electricity prices. It establishes a process for nuclear plant operators to apply through a bidding process. A credit would last for four years, and no new credits could be issued after the end of FY 2031.

Tax-Free Contributions to Public Utilities

The Infrastructure Act reverses, in part, the 2017 Tax Cuts and Jobs Act’s amendment to I.R.C. Section 118. Regulated public utilities set up as corporations are again allowed to receive tax-free contributions to fund the construction of drinking water or sewage disposal facilities. This change is expected to stimulate new infrastructure investments with respect to drinking water and sewage disposal enhancements.

Tax-Exempt Bonds

The Act doubled from $15 billion to $30 billion the maximum amount of tax-exempt highway or surface freight transfer facility bonds that local or state governments can issue.

The Act also added two new categories of private activity tax-exempt bonds: bonds funding carbon capture and direct air capture technologies projects and bonds funding broadband deployment in rural areas where a majority of households do not have access to broadband.

The Act reduces the amount of the tax credit for carbon oxide sequestration where a project is funded by tax-exempt bonds by adding a new provision to I.R.C. Section 45Q(f). The amount of the limitation under the new provision is to be determined as of the end of a taxable year.

Workforce

Employee Retention Tax Credit Terminated Early

To help businesses partially offset during the pandemic the costs of keeping employees on the payroll and the costs of employer-sponsored health insurance, Congress enacted the Employee Retention Tax Credit, which is currently set to run through Dec. 30, 2021.

The Act terminates the tax credit three months early, on October 1, 2021, except for recovery startup businesses for which the expiration remains the end of the year. It also modifies eligibility requirements for recovery startup businesses, requiring that they started operations after February 15, 2020, and had annual gross receipts of less than $1 million.

Defined Benefit Retirement Plans

The “Smoothing” Rule - Defined Benefit Retirement Plans

The Act extends for five years the temporary provisions, recently extended under the American Rescue Plan Act, intended to stabilize pension funding percentages for defined benefit retirement plans. Specifically, the Act maintains the current 10 percent range through 2030 (instead of 2025), then gradually widens the range until 2035, when it would return to a 60 percent range.  

Tax Deadlines and Tolling Provisions

The Act fine-tunes the rules in Section 7508A and 7508 to reflect recent experiences with extending tax deadlines for tax payments as well as filing federal tax returns and tax court petitions.