Update on the Infrastructure Investment and Jobs Act

By Dalton Bradshaw, CPA

After months of debates and concessions, the Infrastructure Investment and Jobs Act (the “Act”) was passed by Congress on November 5, 2021. On Monday of this week, President Biden signed the Act into law at a White House ceremony.

What began as a massive $3.5 trillion plan to bolster the nation’s infrastructure in early 2021, has been significantly revised and reduced in the preceding months through bipartisan negotiations. Many of the initial provisions within the Act relied on increases in the corporate tax rate and IRS enforcement efforts for funding the spending. However, through bipartisan negotiations, much of the revenue-raising measures were dropped and are now part of the Build Back Better Act, which is still making its way through Congress.

While a large portion of the tax provisions were dropped from the bill, a few remain in the Act and are the focus of this week’s Beyond the Bottom Line. The tax changes included in the Act comprise those that raise revenue to fund the cost of the bill, and those that will promote private investment in infrastructure.

Cryptocurrency Reporting Requirements

As we discussed in a September edition of the Beyond the Bottom Line newsletter, the Act calls for increased reporting requirements regarding cryptocurrencies. Under the current law, reporting of cryptocurrency transactions is generally only required when used as compensation or, in the context of capital property, for transactions exceeding $600. However, the Act calls for reporting requirements of any cryptocurrency transactions that are not addressed in the code as it stands today. Therefore, brokers will now be required to report all transactions to the IRS, whether it be a purchase or sale of cryptocurrency or the use of cryptocurrency to purchase goods and services. Additionally, failure to file penalties related to information returns are extended to cover the reporting requirements under these provisions. These new reporting requirements are expected to generate a substantial amount of tax revenue that will be a significant component in covering the cost of the bill. These requirements will not take effect until 2023.

Other Revenue Generating Provisions

In addition to the reporting requirements for cryptocurrency, the Act calls for an extension of pension funding stabilization requirements and an early termination of the employee retention credit to cover the cost of the bill. By extending the pension funding stabilization requirements, employers can defer their funding obligations, which in turn, reduces their contribution deductions and, thus, increases the amount of taxable income. The extension of pension funding stabilization requirements is a common tactic used by Congress to fund legislation and was most recently used in the American Rescue Plan Act of 2021.

The Employee Retention Credit was introduced in response to rising unemployment and business closures in the wake of the Coronavirus pandemic and provided a refundable credit for an employer’s portion of Medicare tax withholdings if certain requirements were met. The credit was extended through December 31, 2021 by the American Rescue Plan Act earlier this year. However, the provisions of the Infrastructure Act call for an early termination by eliminating the credit for wages paid after September 30, 2021.

Tax Changes to Bolster Infrastructure Improvements

While many of the infrastructure-related provisions were cut from the bill, several changes remain in place. Specifically, the Act seeks to bolster infrastructure investments through the following measures:

• Retroactively allowing qualifying contributions made after 2020 to water or sewer utility corporations to be excluded from income (restoring an exclusion previously eliminated by the Tax Cuts and Jobs Act of 2017);
• Classifying as private activity bonds and, thus exempt from taxation, bond issuances for qualified broadband projects and the creation of carbon dioxide capture facilities; and
• Extending the imposition of excise taxes on the sale of heavy trucks and trailers, fuels, diesel and special fuels, and tires through September 30, 2028 (currently set to expire after September 30, 2022).

Changes to Tax Procedures

Although unrelated to tax increases and infrastructure, minor changes have been introduced related to tax procedures. These procedure changes include the following:

• Minor modification to the determination of the start of the mandatory 60-day deadline extension for areas impacted by federally declared disasters;
• Authority to postpone deadlines for federally declared disasters now includes “significant fires”; and
• Extension of deadlines for Tax Court cases and petition filings related to recovery of erroneously issued refunds for military members serving in combat zones.

We will continue to monitor any developments related to the Act and provide any necessary updates as they occur. If you have any questions or concerns on how these provisions could impact you or your business, please contact your BMSS professional at (833) CPA-BMSS.