Fiscal year 2023 Green Book released

The budget is being positioned as a deficit-reduction plan and focuses on significant tax increases for corporations and the wealthy to accomplish this goal. The budget is being proposed against the backdrop of continuing discussions in Congress on the latest iteration of the president’s Build Back Better agenda and the Organization for Economic Cooperation and Development (OECD) and G-20 framework for a global minimum tax and provisions to address base erosion and profit shifting.

While a number of provisions from the FY22 Green Book, including international tax provisions, are included in the FY23 Green Book, some have been refined to account for developments since they first were proposed. Following are highlights of the administration’s latest Green Book proposals.

Corporate and international tax provisions

• Increase the corporate tax rate to 28% and increase the effective tax rate on a global intangible low-taxed income inclusion to 20%.
• Adopt top-up rules to replace the base erosion and anti-abuse tax and address foreign jurisdiction adoption of the OECD framework for base erosion and profit shifting.
• Provide tax incentives for the cost of relocating jobs and business activity to the U.S. and remove tax deductions for the cost of relocating jobs overseas.
• Conform the definition of “control” for purposes of Section 368(c) with the corporate affiliation test in Section 1504(a)(2).
• Expand access to retroactive qualified electing fund elections for passive foreign investment company shareholders.
• Expand the definition of “foreign business entity” under Section 6038 to include taxable units located in foreign jurisdictions resulting in foreign informational reporting at the taxable unit level rather than at the entity level.

Individual provisions

• Increase the top marginal income tax rate to 39%.
• Tax long-term capital gains and qualified dividends of individuals with adjusted gross income of more than $1 million at ordinary income tax rates.
• Impose a 20% minimum tax on income, including generally unrealized capital gains, for those worth more than $100 million.
• Modify certain estate and gift tax provisions.
• Tax capital gains at death.

Other provisions

• Address digital assets, including proposals to expand foreign account reporting to digital assets, apply mark-to-market rules to digital assets, and treat certain digital asset lending transactions similarly to securities lending for purposes of nonrecognition and income inclusion.
• Modify certain provisions affecting partnerships, including tightening the basis rules under Section 754 in related-party transactions, taxing certain carried interests at ordinary rates, providing authority to address the tax treatment of lending transactions involving publicly traded partnership equity interest, and modifying the centralized partnership audit regime to cover self-employment tax and net investment income tax and to provide relief from permanent loss of tax benefits under the push-out election.
• Eliminate deferral for gains from like-kind exchanges on real estate in excess of $500,000 (or $1 million for married individuals filing a joint return).
• Require 100% recapture of depreciation deductions as ordinary income for certain depreciable real property.

Looking ahead

While the recently released Green Book provisions look to the next fiscal year’s legislative agenda, congressional activity on current tax legislation continues. The House recently released its version of the Securing a Strong Retirement Act (SECURE 2.0), which includes retirement-related tax provisions, and Democrats continue working on the president’s Build Back Better agenda. Additionally, as always, potential tax changes in foreign jurisdictions and states will keep taxpayers and their advisers on their toes.