Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Pat Balthazor The Treasury Department released detailed information about the Biden administration’s tax proposals for fiscal year 2022 for the American Families Plan and the American Jobs Plan (i.e., the infrastructure bill, see our previous tax alert). Traditionally, tax professionals have referred to this annual publication as the “Green Book.” The report contains new information about the effective dates of these proposed changes as well as additional details on the tax elements of each plan. It is critical to note these are only proposals and will be subject to extensive negotiations and debate. Prospects for passage Legislation needs 60 votes to pass in the Senate, unless the bills are run through the budget reconciliation process. Budget reconciliation generally is limited to one spending bill per federal fiscal year, and it was used already in the current fiscal year to pass the American Rescue Plan Act. At this point, it is uncertain whether reconciliation would be used again on either of these plans, or if the political climate will allow them to be combined into one package. However, even achieving the 50 votes needed for passage via reconciliation in the Senate (with Vice President Harris casting the tie-breaking vote) may be difficult. In addition to apparent differences within the Democratic Party over how much spending is necessary, there is a desire among some senators to pass a bipartisan infrastructure bill. The need to secure 10 Republican votes in the Senate (assuming all Democratic senators vote in favor) may limit the size and scope of any legislation. As a result, we expect lengthy negotiation and debate before any of these proposals are brought up for a vote. American Families Plan: key tax proposals Increase the top individual rate to 39.6% from the current 37%, effective for tax years beginning after Dec. 31, 2021 (this rate was at 39.6% prior to passage of the Tax Cuts and Jobs Act (TCJA) in 2017). For taxable year 2022, the top marginal rate would apply to taxable income over $509,300 for married individuals filing a joint return, $452,700 for unmarried individuals (other than surviving spouses), $481,000 for head-of-household filers, and $254,650 for married individuals filing a separate return. Tax long-term capital gains and qualified dividends of taxpayers with adjusted gross income over $1 million at ordinary rates, effective for gains required to be recognized after the date President Biden first announced the American Families Plan (April 28, 2021). Combined with the proposed increase in the top marginal rate and the 3.8% net investment income (NII) tax, capital gains would be subject to a maximum federal rate of 43.4%.
– This rate would apply to the extent that the taxpayer’s adjusted gross income exceeds $1 million. For example, a taxpayer with $900,000 in wages and $200,000 of long-term capital gain would have $100,000 of capital gain taxed at the current preferential tax rate and $100,000 taxed at the proposed ordinary income rates. End the step-up in basis of assets to fair market value as of the date of death. Specifically, a transfer of appreciated property by gift or upon death would be treated as a realization event – the donor or decedent would realize a capital gain at the time of transfer, which would be taxable income on the federal gift or estate tax return or on a separate capital gains return.
– This change generally would apply to gains in excess of $1 million for an individual and $2 million per couple, and would tax appreciation if property is not donated to charity.
– Gain on unrealized appreciation also would be recognized by a trust, partnership or other noncorporate entity that is the owner of property if that property has not been the subject of a recognition event within the prior 90 years, with such testing period beginning on Jan. 1, 1940. The first possible recognition event for any taxpayer under this provision would thus be Dec. 31, 2030.
– Protections would be put in place to exempt family-owned businesses and farms from taxes when passed down to heirs who continue to run the business. For example, payment of tax on the appreciation of certain family-owned and -operated businesses would not be due until the interest in the business is sold or the business ceases to be family-owned and -operated. In addition, the proposal would allow a 15-year fixed-rate payment plan for the tax on appreciated assets transferred at death, other than liquid assets such as publicly traded financial assets and other than businesses for which the deferral election is made.
– This proposal would be effective for gains on property transferred by gift and on property owned at death by decedents dying, after Dec. 31, 2021, and on certain property owned by trusts, partnerships and other noncorporate entities on Jan. 1, 2022.
 Subject all trade or business income of high-income taxpayers to the 3.8% Medicare tax, either through the NII tax or the self-employment (SE) tax. For taxpayers with adjusted gross income in excess of $400,000, the definition of NII would be amended to include gross income and gain from any trades or businesses that is not otherwise subject to employment taxes. Effective for taxable years beginning after Dec. 31, 2021. “Rationalize” the SE tax treatment for income from flow-through entities. Limited partners and limited liability company (LLC) members who provide services and materially participate in their partnerships and LLCs would be subject to SE tax on their distributive shares to the extent their income exceeds certain threshold amounts. Additionally, S corporation owners who materially participate in the trade or business would be subject to SE taxes on their distributive shares to the extent their income exceeds certain threshold amounts. The various exemptions from SE tax provided under current law for certain types of flow-through entity income (e.g., rents, dividends, capital gains, certain retired partner income) would remain. Effective for taxable years beginning after Dec. 31, 2021. End like-kind exchange tax deferrals for real estate gains in excess of $500,000 ($1 million for married taxpayers filing a joint return); effective for exchanges completed in taxable years beginning after Dec.31, 2021. Tax carried interests as ordinary income, effective for taxable years beginning after Dec. 31, 2021. The proposal would generally tax a partner’s share of income on an “investment services partnership interest” (ISPI) in an investment partnership as ordinary income, regardless of the character of the income at the partnership level, if the partner’s taxable income (from all sources) exceeds $400,000. In addition, partners in such investment partnerships would be subject to SE taxes on such income. Make permanent the “excess business loss limitation,” which limits the amount of business losses that can offset a taxpayer’s income from other sources. This limitation expires in 2025 under current law and was temporarily suspended for 2018, 2019 and 2020 by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Extend, increase or make permanent several credits; including the child tax credit, the child and dependent care credit, the earned income tax credit and Affordable Care Act premium tax credits.   American Jobs Plan: key tax proposals  Increase the corporate income tax rate from 21% to 28%. The rate increase would apply to taxable years beginning after Dec. 31, 2021. For taxable years beginning after Jan. 1, 2021, and before Jan. 1, 2022, the 7% rate increase would be prorated based on the portion of the year occurring in 2022. Impose a 15% minimum tax on worldwide book income in excess of $2 billion. The book income tax equals the excess, if any, of tentative minimum tax over regular tax. Additionally, taxpayers would be allowed to claim certain credits, including a book tax credit (generated by a positive book tax liability) against regular tax in future years but this credit could not reduce tax liability below book tentative minimum tax in that year. The minimum tax is targeting large corporations that report substantial book income to shareholders, yet pay little or no federal income tax. Earlier proposals would have applied to corporations with incomes above $100 million. The effective date is taxable years beginning after Dec. 31, 2021. Change the global intangible low-taxed income (GILTI) regime, effective for tax years after Dec. 31, 2021.
– Eliminate the exemption from GILTI for the 10% return on foreign tangible property (known as qualified business asset income or QBAI). This makes the U.S. shareholder's entire net controlled foreign corporation (CFC) tested income subject to U.S. tax.
– Double the GILTI tax rate to 21% from 10.5%.
– Impose a country-by-country method for calculating GILTI. This would eliminate the ability to blend excess foreign tax credits from high-tax jurisdictions against GILTI inclusions from low-taxed jurisdictions.
– Repeal the high-tax exemption for GILTI and Subpart F. Modify the current inversion rules by lowering the continuing shareholder ownership threshold to 50% rather than 80%. These changes would be effective for transactions that are completed after the date of enactment. Repeal the deduction for foreign-derived intangible income (FDII). Under current law, a 37.5% deduction is allowed for FDII, which is calculated as a percentage of intangible income from exports. The proposal states that the resulting revenue will be used to encourage research and development, but no mention is made of any specific research and development enhancements. This would be effective for taxable years beginning after Dec. 31, 2021. Repeal the base erosion and anti-abuse tax (BEAT) and replace it with a “stopping harmful inversions and ending low-tax developments” (SHIELD) rule. SHIELD would deny tax deductions for certain related-party payments to a member in the same financial reporting group where the recipient member is in a low-tax jurisdiction. The repeal of BEAT and replacement with SHIELD would be effective for tax years beginning after Dec. 31, 2022. Modify the interest expense limitation under section 163(j) for members of certain multinational groups. The interest deduction would be limited to the member’s proportionate share of the financial reporting group’s net interest expense and would be effective for taxable years beginning after Dec. 31, 2021. Create a new general business credit equal to 10% of the eligible expenses paid or incurred in connection with onshoring a U.S. trade or business. Onshoring a U.S. trade or business means reducing or eliminating a trade or business (or line of business) currently conducted outside the United States and starting up, expanding or otherwise moving the same trade or business to a location within the United States, to the extent that this action results in an increase in U.S. jobs. The proposal also includes a disallowance of deductions for expenses paid or incurred in offshoring a U.S. trade or business. This would be effective for expenses paid or incurred after the date of enactment. Repeal various tax credits and incentives for the oil and gas industry. In addition, numerous clean energy, renewable and alternative energy credits and incentives would be added or continued. These provisions clearly indicate the administration's preference toward clean energy and reduced greenhouse gas emissions, while moving away from fossil fuels. We encourage you to connect with your Baker Tilly adviser regarding how any of the above may affect your tax situation. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The Treasury Department released the “Green Book,” detailing the Biden administration’s tax proposals for the 2022 fiscal year. It specifically provides new information related to the American Families Plan and the American Jobs Plan.

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Green Book provides more details on Biden tax proposals

Video For years, companies have looked to better enable their organizations and serve their customers by considering – if not embracing – digital technologies. The COVID-19 pandemic, which emptied buildings as employees shifted to working from home, changed the customer buying experience and had a  severe impact on production lines and supply chains. This compelled many to accelerate their search for technology or automation solutions. An organization’s ability to drive adoption of technology and embrace an innovative culture is critical. Choosing the right technology among so many choices is hard. 
Are you overwhelmed with the number of technology solutions? This e-book provides practical information and advice to evaluate, implement and successfully adopt new technologies.
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Video Construction projects are a constant stream of change. Each work package is subject to adjustments based on changes to job sites, designs, market conditions, schedules and resources. Auditors cannot and should not try to stop projects from experiencing change, however, they should ensure that project changes comply with the contract terms. This webinar will focus on the action items that an auditor can perform to identify the financial risk of changes and quantify the impacts.            In this on-demand webinar, viewers will learn: Why budgets and contract values change Financial risks of project changes How to test project changes for contract compliance
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This on-demand webinar focuses on the action items that an auditor can perform to identify the financial risk of change orders and quantify the impacts.

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Auditing change orders, contingency and allowances

video With the new ASC 842 lease accounting deadline quickly approaching, companies are already feeling behind on their compliance preparation. In today's market, it's important that controllers and financial executives understand all the options that fit their organization in order to achieve compliance with ASC 842.  During this 90-minute on-demand workshop, specialists from Baker Tilly, EZLease and LeaseAccelerator will walk through the important changes of ASC 842 and how to begin planning and managing an implementation project.  Key topics include: Challenges of the new ASC 842 accounting close Practical steps to kick-start your compliance Best practices from companies that have already implemented Presenters: Paul Dunn, CPA
Partner, Consulting Services - Baker Tilly Jeff Weinberg, CPA
Senior Manager, Consulting Services - Baker Tilly Colleen Tigges
SVP and General Manager - EZLease Dennis Carey, CFA
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Chief Marketing Officer - LeaseAccelerator
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During this on-demand workshop, specialists from Baker Tilly, EZLease and LeaseAccelerator will walk through the important changes of ASC 842 and how to begin planning and managing an implementation project. Get practical steps to kick-start your compliance with ASC 842.

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video Are you involved in cross-border sales of goods to consumers in the U.S., U.K. or EU? It doesn’t matter where you are established, changes to e-commerce and value-added tax (VAT) are widespread and complicated.  Watch our on demand webinar to ensure you are up-to-speed on the consequences for your business. The webinar features specialists in the fields of VAT and e-commerce, who can help you understand the rules for selling goods to consumers in each country, including: The current status of the sales tax obligations when selling goods to consumers in the U.S. The new e-commerce rules in the U.K. as of Jan. 1, 2021 The current e-commerce rules in the EU and the new e-commerce rules in the EU as of July 1, 2021
Frequently asked questions related to e-commerce in the EU 
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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Watch Baker Tilly’s on demand e-commerce and value-added tax (VAT) webinar, providing insight on the rules for selling goods to consumers in the U.S., U.K. and EU.

E-commerce in the U.S., U.K. and EU – What do B2C companies need to know now? 

Authored by Angelina Fadorsen The pandemic has brought a heightened awareness to the need for companies to have effective and efficient plans for potential disruption.  While the conversation of managing disruption in supply chain management is nothing new, it finally has earned the attention many believe it has needed for the past two or three decades. Many cases over the last year have shown first-hand that how companies deal with disruptions can make or break their future. Although the pandemic may be considered a black swan event when it comes to disrupting supply chain, that should not discount the importance of effective risk management and properly implemented business continuity plans. Failure to recognize and understand the risks your organization faces will likely lead to unnecessary disruptions and subsequent loss of profits. Even with the most structurally sound strategies in place, a supply chain company is destined for failure if it lacks a fully completed risk assessment and disaster plan.   Supply chain disruptions can come in various forms that affect companies differently depending on factors such as their location, their product and their supplies. A disruption can be defined as an unforeseen breakdown, malfunction or failure of one’s production and/or distribution that negatively impacts the supply chain process. So what disruptions should your supply chain management company plan for? That question might not have an easy answer, but companies can begin protecting their supply chain by planning for the risks currently trending which, according to DHL’s Resilince360 Annual Risk Report, include the following: Environmental Climate change has been a global concern and a growing risk as it relates to supply chain management for years. Climate change affects not only the intensity but also the frequency of large-scale natural disaster disruptions such as wildfires, tropical storms, droughts and hurricanes. From climate change comes tougher environmental regulations heavily affecting many of the production and distribution channels of supply chain companies. There are countless rulings issued by the Environmental Protection Agency, as well as numerous federal laws, and a growing number of global regulations that are becoming more stringent. Can you afford to keep emissions at the level they currently stand? Can you afford to lose a full day of power due to extreme flooding? Can you afford the switch to low-sulfur fuels to align with the International Maritime Organization (IMO) requirements? Can you afford to work at 1/8 capacity of your staff when evacuations are mandatory due to spreading forest fires? No one can completely eliminate the risks associated with climate change and environmental regulations, but everyone can effectively, efficiently and realistically plan for them with an appropriately implemented business continuity plan.  Locational How much trade risk your company faces has probably drastically changed just within these last few years. Not unlike climate change, trade risk has been an area of concern within supply chain management for years, but the growing potential of a full-scale trade war has created even more uncertainty in recent years.   Continuing uncertainty and increasing tensions as it relates to trade policy have made it impossible to determine a clear-cut answer for how to reduce the risk a company faces, but at the same time, can you afford to leave it unaddressed entirely? Probably not.  If recent times have taught us anything, it is that supply chain companies need to consider restructuring their manufacturing and overall operational composition. By adopting an end-to-end structure, supply chain management companies create complete visibility into their organization’s operations, allowing them to become more agile and to make real-time decisions when it comes increased/stricter tariffs, additional trading regulations, border disputes, etc. Political  Generally speaking, we can prepare for political changes, as we typically know when potential disruptions are coming – an election year, a voting month, a shift in party power, etc. You can typically plan for these bumps in the road.  Additionally, it is important to remember that just because your country might not be experiencing political unrest, you can still be greatly affected by other countries or areas that are. That’s the nature of supply chain. You need to be prepared at all times. And as you know, the list of potential issues across the globe is a lengthy one, from trade wars and tariffs to economic struggles and various types of sanctions. With this in mind, you should periodically adjust – or, at the minimum, revisit – your organization’s supply chain management goals and visions. This will help ensure that your company’s goals still align with and address the current political climate. Additionally, it will help ensure you have a well-balanced and mixed SCM plan that takes into consideration what is necessary for the organization’s survival in times of extreme political unrest – not just in your homeland but throughout the world.  Companies obviously cannot realistically and effectively plan for all possible disruptions – for instance, nobody saw a once-in-a-generation pandemic coming – but that should not interfere with adequately planning for those situations that may arise. With supply chain being an ever-changing industry, companies need to ensure they are continually monitoring, sufficiently preparing for, and taking appropriate action on the risks that affect them the most. Managing disruption is not a sprint, but a marathon. Proactive and continual risk management is the key to creating long-term success for any supply chain management company. Failure to do so will quickly create an insolvent company that is unable to recover from the lack of planning for risk and disruption. How Baker Tilly can help Baker Tilly is deeply experienced in the circumstances surrounding supply chain management disruption caused by the factors mentioned above, as well as other unforeseen situations. We can assist your company with risk framework, risk assessment, business continuity planning, regulatory compliance assessment and review, supply chain analytics and overall strategy, planning and optimization. Connect with a member of Baker Tilly’s supply chain team to discuss how our Value Architects™ can help you prepare now, for tomorrow.

Supply chain disruptions can come in various forms that affect companies differently depending on factors such as their location, their product and their supplies. Read this article to learn how your company can begin protecting your supply chain by planning for environmental, locational and political risks currently trending. 

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Baker Tilly and NACD: 2021 Governance Outlook Projections on Emerging Board Matters Baker Tilly and the National Association of Corporate Directors (NACD), the authority on boardroom practices representing more than 20,000 board members, released the 2021 Governance Outlook: Projections on Emerging Board Matters, featuring Baker Tilly’s 2021 Strategic Risks for Boards. The outlook is designed to give corporate directors and senior executives a comprehensive overview of major business and governance issues likely to demand board focus over the coming year. Baker Tilly’s 2021 Strategic Risks for Boards focuses on three key risks facing organizations resulting from challenges of the COVID-19 pandemic, including questions directors should ask themselves. Financial resiliency  Is our strategy still appropriate considering all that we have already experienced and our projections for 2021? Do we need to consider mergers and acquisition (M&A) targets, divestiture of certain business units, or layoffs or furloughs, not only from a strategic perspective but also with an eye toward reputational risk? Does the organization have the appropriate capital structure and resources to execute its plans? Supply chain Do we as the governing board have a clear picture of all supply-chain tiers to ensure resiliency? What measures have the organization's leaders put in place to ensure that the business is not affected in the same manner if a systemic disruption happens in the future? Workforce issues Does the organization have the right talent-management system in place, including up-to-date talent profiles, to support any changes to the work-force that may be necessary to handle a COVID-19–type situation in the future? What did we learn from the pandemic slowdown in terms of hiring practices and flexible work arrangements that should be permanently incorporated into the HR strategy? The report also highlights NACD survey findings about leading board priorities for 2021.
Baker Tilly – NACD BoardTalk blog article: Evolve Risk-oriented Roles and Their Effectiveness Using the Three Lines Model No matter the size or industry, every organization manages risk and pursues compliance to some extent—but how effectively? The Three Lines Model helps leadership, including boards of directors, see the delineation of roles and responsibilities along the “three lines”: day-to-day management, risk oversight and monitoring functions, and risk assurance-oriented functions, such as internal audit. It also provides a customizable framework upon which to build your organizational understanding of and approach to risk management and monitoring functions.
Baker Tilly – NACD BoardTalk blog article: Directors Talk Post-Breach Processes After a cyber breach, it’s too late for “should haves”—but there’s still a chance for your company to respond quickly and appropriately to mitigate reputational and regulatory fallout. A recent roundtable cohosted by NACD and Baker Tilly in Chicago discussed specific post-breach considerations that boards should plan for include: ­Escalation ­Public response ­Regulatory restraints ­D&O insurance ­Ask questions

Green Book provides more details on Biden tax proposals

Technology overload: a guide to making smarter decisions

Auditing change orders, contingency and allowances

ASC 842 workshop: compliance and implementation best practices

E-commerce in the U.S., U.K. and EU – What do B2C companies need to know now?

Navigating and managing disruption in supply chain management

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Green Book provides more details on Biden tax proposals

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