On March 11, President Joe Biden released his budget proposals for fiscal year 2025, which begins Oct. 1, 2024. The budget includes the tax-focused fiscal year 2025 Green Book. Like last year, this year’s budget is being positioned as a deficit-reduction plan and includes significant tax increases on large businesses and wealthy taxpayers.
All of the tax proposals contained in last year’s Green Book are included in this year’s Green Book, including increasing the corporate tax rate from 21% to 28%, adding a minimum tax for wealthy individuals, and treating carried interests as ordinary income, although some of the language in the proposals has been updated.
Crowe observation
Including all of last year’s proposals in this year’s Green Book is not remarkable given that no major tax legislation was enacted in 2024.
This year’s Green Book also includes several new proposals, many of which address issues arising as a result of recent compliance and enforcement initiatives. Following are highlights of the new Green Book proposals:
- Increase the corporate alternative minimum tax rate from 15% to 21%.
- Make permanent the limit on excess business losses for noncorporate taxpayers under Section 461(l) and no longer treat carryover amounts as net operating losses. Under current law, the provision expires after 2028.
- Tighten the portfolio interest exclusion to subject more foreign shareholders to taxes in the United States.
- Limit tax benefits for private placement life insurance and similar contracts. The Senate also released a proposal to address private placement life insurance arrangements.
- Tighten the rules for tax benefits related to corporate jets, consistent with the IRS’ enforcement initiative focusing on use of corporate jets.
- Make repeated willful failure to file a tax return a felony for those with a significant underpayment of tax, consistent with the IRS’ enforcement initiative focused on high-income nonfilers.
- Expand application of special designated summonses to large partnerships. Currently, these types of summonses apply only to large corporations.
- Expand application of the erroneous refund penalty to employment tax, such as in the case of erroneous claims for the employee retention credit. Currently, the penalty applies only to income tax.
- Further extend mandatory funding provided to the IRS under the Inflation Reduction Act (reduced from $80 billion to a little less than $60 billion in recent legislation) through 2034. Last year’s Green Book proposed to extend the funding through 2032 and 2033.
Looking ahead
Significant uncertainty in the current legislative landscape persists. While many on Capitol Hill include tax as an item on their legislative agendas, the major priorities that are ahead of tax on that list are likely to absorb most of Congress’ time remaining in this year’s legislative session. In the meantime, the November elections and the upcoming expiration of provisions enacted by the Tax Cuts and Jobs Act of 2017 at the end of 2025 will be potent distractions for the remainder of this year. All this makes it highly unlikely that any of the fiscal year 2025 Green Book proposals will be enacted this year.
