Tax trends to watch in ’24

2024 might come with a belated holiday gift for businesses: the end of some of the less-popular sections of the Tax Cuts and Jobs Act (TCJA). There’s bipartisan support for revising that act’s business tax provisions—including the unpopular requirement to amortize research and development expenses—Todd Metcalf, a principal in PwC’s Washington National Tax Services practice, said during the PwC Tax Media Breakfast on December 8. According to Metcalf, if a vehicle for a potential deal for the child tax credit were to emerge, some in Congress would be ready to move.

But there likely won’t be major tax reforms coming next year, given the elections in November, Metcalf said.

“My expectation is that 2024 will be a year of examining how various policies are working,” he said, including the TCJA and the Inflation Reduction Act (IRA).

Here’s what Metcalf and other PwC tax leaders see happening on the tax policy front in the year ahead:

What about the TCJA?: Many of the TCJA’s provisions, including “almost all” the changes it made to individual taxation, expire in 2025, Ken Kuykendall, US tax leader at PwC, said. Congress will most likely be looking at whether to extend certain portions of the law. Many businesses hope to see the TCJA’s international provisions extended, Kuykendall said, including GILTI, FDII, and BEAT, and want to keep the “current rates” that are in the TCJA.

The end of the Big Three? One area to watch is whether Congress can strike a deal to revise some or all of the “Big Three” business tax provisions of the TCJA: the changes it made to R&E deductions, bonus depreciation, and deductions for business interest expenses. Kuykendall said this is a “top priority for our clients,” who particularly want to see interest deductibility and “the more favorable treatment of R&D” reinstated.

Metcalf said he’s optimistic that Congress can reach an agreement. “There’s a fairly broad bipartisan consensus” that 163(j) interest expense limitation and bonus depreciation “need to be fixed or restored to their former state,” he said.

Audit watch: The IRS received additional funding from the IRA, and may be setting its sights on large companies. It’s under “a lot of pressure to increase enforcements in the large business area,” Nikole Flax, principal at PwC’s Washington National Tax Services practice, said.

IRA could get more popular: Metcalf said he didn’t see the IRA as under threat after the upcoming elections. There has been “robust” use of its tax and energy credits, he said. Lack of clarity around some areas, such as the apprenticeship program requirements, may be limiting use of some of the IRA’s tax provisions, he said. But he expects uptake to increase “as the rules evolve and people get more comfortable with it.”

Pillar Two in flux? The OECD recommends that countries adopt Pillar Two, the rule creating a 15% global minimum tax, by 2024. But that’s proving difficult.

OECD has released Pillar Two guidance and is expected to bring out at least two more tranches this year, Pat Brown, PwC’s Washington National Tax Services co-leader, said. The guidance covers such vital matters as “the mechanics of how you compute your Pillar Two liability,” Brown said. “There’s a lot of work that’s going on right now…against a backdrop of rules that are continuing to change.”

And some jurisdictions have announced that they are not ready to comply with Pillar Two yet, Brown said, raising questions as to whether they’ll be able to legislate their tax burden retroactively. Jurisdictions are “adopting a wide variety of approaches” to Pillar Two, he said, and some won’t get started until 2025.

Pillar One has stalled: Pillar One, meanwhile—the other half of OECD’s BEPS (Base Erosion Profit Shifting) 2.0 plan—is facing a lot more challenges, and may not be implemented at all. The US Senate probably will not agree to let the US adopt Pillar One, Brown said, and therefore, under the rules of the Pillar One convention, the legislation will not have enough members to go forward.