2021 US Treasury Green Book: How The Biden Administration Plans To Fund Its Aspirations  

On Friday, May 30, 2021, the U.S. Department of Treasury released its “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals” (the “Green Book”). The Green Book, a copy of which is locatedhere, provides detailed descriptions of the Biden Administration’s legislative tax proposals, which the White House formally announced on May 28, 2021, when it released its fiscal year 2022 Budget proposals.

Although the last Green Book was released in February 2016, the Biden Administration has continued the tradition of releasing a detailed summary of its legislative tax proposals. For business taxpayers and their owners, the Green Book contains more than a few surprises. Although the Biden Administration’s revenue proposals reflect tax policies it would like to see enacted into law, historically many of the tax proposals described in past Green Books were never enacted into law.

Given the Democrat’s control of both Congress and the White House, it is likely that some of these proposals will advance in one form or another,i.e.,as separate tax legislation or part of a broader bill such as an infrastructure bill. Of course, given the slim Democrat majority in the House and Senate, many of the Administration’s proposals are likely to change significantly before there is certainty as to what the White House and legislators finally agree to.

It should also be remembered that rejected tax proposals can quickly find a more receptive audience in two years’ time depending on the results of the mid-term elections. So, in some cases, relief or elation over some proposals may feel very different in the near future. As a result, the current Green Book should be viewed as a compass providing guidance as to the direction in which the Biden Administration wishes to take the nation’s tax policies.

The purpose of this Dykema Tax Alert is to briefly summarize the Biden Administration’s legislative tax proposals as they affect businesses and their owners, as follows:

  • Changes to Rates for Businesses and Their Owners.
  • Changes to Cross-Border Taxes.
  • Changes for Like-Kind Exchanges and Carried Interest.
  • Changes Prioritizing Clean Energy.
  • Changes to the New Markets Tax Credit.
  • Changes Designed to Improve Compliance and Improve Tax Administration.


  • Increase Corporate Income Tax Rate to 28 Percent

Prior to what is commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “TCJA”), “C corporations” were subject to a graduated tax schedule with a maximum tax rate of 35 percent. Under the TCJA, the federal income tax rate for C corporations was reduced to a flat 21 percent. The Biden Administration is proposing to increase the federal income tax rate for C corporations to 28 percent effective for taxable years beginning after December 31, 2021 (along with a phase-in rule for non-calendar year corporations).

Dykema Observation: The U.S. Chamber of Commerce has stated its support for an increase to the federal income tax rate for C corporations. However, the Chamber, as well as important Congressional leaders like Senator Joe Manchin (D-W.VA.), have signaled a preference for a 25 percent tax rate for C corporations. C corporations with deferred tax assets and liabilities on their GAAP-based financial statements will be required to revalue those assets for financial reporting purposes regardless of where the final tax rate settles.

  • Impose a 15 Percent Minimum Tax on Book Earnings of Large Corporations

The Administration is proposing to impose a 15 percent minimum tax on worldwide pre-tax book income for corporations with annual book income in excess of $2 billion, effective for taxable years beginning after December 31, 2021. For these purposes, book tentative minimum tax (“BTMT”) would equal 15 percent of worldwide pre-tax book income (net of book net operating loss deductions), less general business credits (including research and development credits, clean energy and housing tax credits) and foreign tax credits. Any excess of tentative minimum tax over regular tax would result in a book income tax. Taxpayers may also be allowed a book tax credit in future years so long as it does not reduce that year’s BTMT liability. The Biden Administration believes that this tax would help reduce the disparity in the income of large corporations as reported on financial statements and their tax returns by targeting their tax avoidance strategies.

Dykema Observation: The TCJA added Section 451(b) of the Internal Revenue Code of 1986, as amended (“Code”). Prior to the TCJA, an item of gross income was generally included in gross income for the taxable year in which received by the taxpayer. Section 451(b) of the Code provides an exception to the general rule. For taxpayers using the accrual method of accounting, the all-events test with respect to any item of gross income (or portion thereof) is generally not treated as met any later than when such item (or portion thereof) is taken into account as revenue in an applicable financial statement of the taxpayer. Now, with the proposal for a BTMT, there is an increasing trend to align income determined for financial reporting purposes,i.e., under GAAP or IFRS, with income determined for tax purposes,i.e., under the Code. The trend towards aligning book and tax income appears to be gaining momentum and is a development worthy of continued monitoring.

  • Increase Top Marginal Tax Rate for Individuals

The Green Book proposal would increase the top marginal individual income tax rate to 39.6 percent, effective for taxable years beginning after December 31, 2021. In taxable year 2022, the top marginal tax rate would apply to taxable income more than $509,300 for married individuals filing a joint return, $452,700 for unmarried individuals, $481,000 for head of household filers, and $254,650 for married individuals filing separately. After 2022, the thresholds would be indexed for inflation.

  • Reform the Taxation of Capital Income

The Green Book proposes to change the preferential tax rates on long-term capital gains and qualified dividends for high-income taxpayers as follows:

i.Changes for High-Income Individuals. The Green Book proposes to tax long-term capital gains and qualified dividends of taxpayers with adjusted gross income of more than $1 million at ordinary income tax rates, with 37 percent currently being the highest rate (40.8 percent when combined with the 3.8 percent net investment income tax), but only to the extent the taxpayer’s income exceeds $1 million ($500,000 for married filing separately), indexed for inflation after 2022. If the proposal to increase the highest marginal tax rate is adopted, the total top tax rate would be 43.4 percent (which includes the net investment income tax).

Dykema Observation: This proposal would be effective for capital gains required to be recognized after the date of announcement, which is generally understood to be April 28, 2021. The Green Book did not specify the effective date applicable to the receipt of qualified dividends.

One of the many problems associated with the April 28, 2021, effective date concerns the timing of capital gains associated with partnership transactions. For example, a distribution of money from a partnership to a partner in excess of the partner’s outside basis in his or her partnership interest is taxed as capital gain. However, all such gains are deemed to occur on the last day of the partnership’s tax year, regardless of when the actual cash distribution is made. As such, a partnership distribution of money in excess of the distributee partner’s outside basis made on April 27, 2021, may not qualify for the preferential tax rate because the distribution is deemed to occur on December 31, 2021. This is just one of the many concerns that make the proposed effective date both unworkable and unfair.

ii.Transfers of Appreciated Property by Gift or on Death as Realization Events. Under the Green Book proposal, the donor or deceased owner of an appreciated asset would realize a capital gain at the time of the transfer. For a donor, the amount of the gain realized would be the excess of the asset’s fair market value on the date of the gift over the donor’s basis in that asset. For a decedent, the amount of gain would be the excess of the asset’s fair market value on the decedent’s date of death over the decedent’s basis in that asset. That gain would be taxable income to the decedent on the Federal gift or estate tax return or a separate return reporting capital gains. The use of capital losses and carry-forwards from transfers at death would be allowed against capital gains income and up to $3,000 of ordinary income on the decedent’s final income tax return, and the tax imposed on gains deemed realized at death would be deductible on the estate tax return of the decedent’s estate (if any).

A transfer would be defined under the gift and estate tax provisions and would be valued using the methodologies used for gift or estate tax purposes. However, for purposes of the imposition of this tax on appreciated assets, the following would also apply: (1) a transferred partial interest would be its proportional share of the fair market value of the entire property, and (2) transfer of property into, and distributions in kind from, a trust, partnership, or other non-corporate entity, other than a grantor trust that is deemed to be wholly-owned and revocable by the donor, would be recognition events.

Certain exclusions would apply. Transfers by a decedent to a U.S. spouse or a charity would carry over the basis of the decedent. Capital gain would not be recognized until the surviving spouse disposes of the asset or dies, and appreciated property transferred to a charity would not generate a taxable capital gain. The transfer of appreciated assets to a split-interest trust would generate a taxable capital gain, with an exclusion allowed for the charity’s share of the gain based on the charity’s share of the value transferred as determined for gift or estate tax purposes.

The proposal would also exclude from recognition any gain on tangible personal property such as household furnishings and personal effects (excluding collectibles). The $250,000 per-person exclusion under current law for capital gain on a principal residence would apply to all residences and would be portable to the decedent’s surviving spouse, making the exclusion effectively $500,000 per couple. Finally, the exclusion under current law for capital gain on Section 1202 qualified small business stock would continue to apply.

The proposal would allow a $1 million per-person exclusion from recognition of other unrealized capital gains on property transferred by gift or held at death. The per-person exclusion would be indexed for inflation after 2022 and would be portable to the decedent’s surviving spouse under the same rules that apply to portability for estate and gift tax purposes (making the exclusion effectively $2 million per married couple). The recipient’s basis in property received by reason of the decedent’s death would be the property’s fair market value at the decedent’s death. The same basis rule would apply to the donee of gifted property to the extent the unrealized gain on that property at the time of the gift was not shielded from being a recognition event by the donor’s $1 million exclusion. However, the donee’s basis in property received by gift during the donor’s life would be the donor’s basis in that property at the time of the gift to the extent that the unrealized gain on that property counted against the donor’s $1 million exclusion from recognition.

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. Furthermore, 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. The Internal Revenue Service (“IRS”) would be authorized to require security at any time when there is a reasonable need for security to continue this deferral. That security would be provided from any person, and in any form, deemed acceptable by the IRS.

Finally, in another significant departure from long-standing tax law, gain onunrealizedappreciation 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 theprior 90 years, with such testing period beginning on January 1, 1940 (“90-year appreciated property”). The first possible recognition event for any taxpayer under this provision would be December 31, 2030.

The proposals would be effective for gains on property transferred by gift, and on property owned at death by decedents dying, after December 31, 2021, and on certain property owned by trusts, partnerships, and other non-corporate entities on January 1, 2022.

Dykema Observation: This proposal, among the most detailed in the Green Book, reflects a sea change to the income tax treatment of property passed from one generation to the next. Contrary to the current settled expectations of most high net worth families, the proposal upends prior planning which frequently relies on successive generational (non-taxable) transfers with a corresponding step-up in basis.

The proposals also raise more questions than answers. Given that transfer of property into, and distributions in kind from, a partnership are not and realistically will never be recognition events, the currently unqualified proposal to tax such transfers is nonsensical and needs further clarification. Likewise, although the proposal would allow a 15-year fixed-rate payment plan for the tax on appreciated assets transferred at death, it makes no similar explicit acknowledgment of a multi-year payment plan for 90-year appreciated property. The proposal to tax 90-year appreciated property also raises questions of fundamental fairness given that either (i) taxpayers have relied upon settled law over the last 80 years to make transfers without a recognition event, or (ii) such property has never been subject to transfer,e.g., held within the same family partnership. If any of these proposals are to move forward, there is much work to do in establishing necessary guidelines before being added to the Code.

  • Rationalize Net Investment Income and Self-Employment Contributions Act Taxes

Currently, an owner-employee of an S corporation is not subject to employment tax on distributions of S corporation earnings. In an effort to reduce self-employment taxes, owner-employees often attempt to minimize compensation and maximize distributions from the S corporation. Likewise, such owner-employees are not subject to the “net investment income tax” (“NIIT”) on distributions of S corporation earnings. Exemptions from self-employment tax also apply to limited partners of partnerships and to LLC members who claim the statutory exemption for limited partners.

The Green Book proposes to ensure that all trade or business income of high-income taxpayers (adjusted gross income exceeding $400,000) is subject to the 3.8 percent Medicare tax, whether through the NIIT or self-employment tax. For taxpayers with adjusted gross income in excess of $400,000, the NIIT would be amended to include gross income and gain from any trade or business that is not otherwise subject to employment taxes. The proposal would be effective for taxable years beginning after December 31, 2021.

Dykema Observation: The Green Book proposal provides that “[t]he $400,000 threshold amount would not be indexed for inflation.” Like other non-indexed amounts,e.g., the alternative minimum tax, the $400,000 threshold will eventually catch more taxpayers over time, assuming the provision is both enacted into law and remains in place for an extended period.

  • Increase the Employer-Provided Childcare Tax Credit for Businesses

Employers who provide childcare facilities or contract with an outside facility for the provision of care may claim a nonrefundable credit of 25 percent of qualified care expenses and 10 percent of referral expenses, for a maximum total credit of $150,000 per year. Qualified expenses include the acquisition, construction, rehabilitation, or expansion of qualifying properties, operating costs, or contracting with a qualified childcare facility to provide services for the taxpayer’s employees.

The Green Book proposal would increase the existing tax credit to 50 percent of the first $1 million of qualified care expenses for a maximum total credit of $500,000 per year. The portion of the tax credit related to referral expenses would remain at 10 percent with a maximum amount of $150,000.

The proposal would be effective for taxable years beginning after December 31, 2021.


The Green Book includes several proposals for changing the manner in which the U.S. taxes foreign income, including revisions to the cross-border provisions adopted in the TCJA. Before the TCJA, the Code effectively discouraged U.S. companies from repatriating foreign earnings as well as generally encouraged some U.S. companies to relocate their headquarters outside of the U.S. The TCJA introduced changes designed to prevent erosion of the U.S. tax base by discouraging U.S. companies from shifting profits to low-tax foreign jurisdictions, in part mandating and in part encouraging repatriation of foreign earnings and preventing corporate inversions to foreign jurisdictions. The Green Book includes proposals intended to further the TCJA objective of returning jobs and profits to the U.S., while also seeking to “prevent a race to the bottom” by better coordinating with our trading partners and other foreign governments.

  • Revise the Global Intangible Low Tax Income (“GILTI”) regime

The GILTI regime was introduced by the TCJA and was intended to discourage U.S. businesses from shifting corporate profits attributable to intangible property to foreign low-tax jurisdictions. The Green Book proposes several changes to the GILTI regime by eliminating the “QBAI” (or qualified business asset income) exemption. Additionally, the deduction allowed under Section 250 of the Code would be reduced from 50 percent to 25 percent. Lastly, the Green Book would require U.S. shareholders of controlled foreign corporations to calculate their global minimum tax on a country-by-country basis resulting in a separate foreign tax credit limitation in each country.

Dykema Observation: By reducing the deduction under Section 250 of the Code to 25 percent, and replacing the global average approach with a “jurisdiction-by-jurisdiction” calculation for foreign tax credit purposes, the Biden Administration believes that the current tax incentive encouraging U.S. companies to retain jobs and profits outside of the U.S. would be greatly diminished. Moreover, with the elimination of QBAI, the U.S. would finally and fully move to a true global tax system from its former territorial approach. In other words, the global income of U.S. businesses would now be taxed in the U.S. effectively eliminating the repatriation equation and its corresponding dividends received exemption.

  • Prevent Inversion Transactions

Under Section 7874(b) of the Code, a foreign corporation is treated as a domestic corporation if, pursuant to a plan (or a series of related transactions):

i. the foreign corporation completes the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership,

ii. after the acquisition at least 80 percent of the stock (by vote or value) of the entity is held by –

A. in the case of an acquisition with respect to a domestic corporation, by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation, or

B. in the case of an acquisition with respect to a domestic partnership, by former partners of the domestic partnership by reason of holding a capital or profits interest in the domestic partnership, and

iii. after the acquisition, the expanded affiliated group which includes the foreign corporation does not have substantial business activities in the foreign country in which, or under the law of which, the foreign corporation is created or organized, when compared to the total business activities of the expanded affiliated group.

When the tests under Code Section 7874 are satisfied, the foreign acquirer is treated as a U.S. taxpayer. Alternatively, if less than 80 percent, but more than 60 percent, of the stock (by vote or value) of the foreign entity is held by former owners of the domestic entity, the foreign entity is not treated as a U.S. taxpayer, but may be subject to increased U.S. taxation.

The Green Book proposes to capture more inverted entities as U.S. taxpayers by replacing the 80 percent ownership standard with a greater than 50 percent ownership standard and eliminating the 60 percent to 80 percent test in its entirety. The Green Book also proposes to provide that, regardless of the level of U.S. ownership, a foreign entity will be treated as a U.S. taxpayer if (1) immediately prior to the acquisition, the fair market value of the domestic entity is greater than the fair market value of the foreign acquiring entity, (2) after the acquisition the expanded affiliated group is primarily managed and controlled in the U.S., and (3) the expanded affiliated group does not conduct substantial business activities in the country in which the foreign acquiring entity is created or organized (the “Alternative Test”).

Dykema Observation: These rules would apply to transactions that are completed after the date the rules are enacted. Since there is no exception for transactions started before the effective date, there is an immediate disincentive to pursue an inversion transaction that cannot be quickly completed. Also, the rules under Code Section 7874 are quite complex to start with. The Alternative Test alone introduces an additional level of complexity and uncertainty. The purpose of the proposal would seem to have the intended result of causing U.S. businesses considering an inversion transaction to rethink whether the ends justify the means.

  • Repeal the Deduction for Foreign-Derived Intangible Income

A U.S. corporation is currently allowed to deduct 37.5 percent (21.875 percent for taxable years after December 31, 2025) of its foreign-derived intangible income (“FDII”) against its taxable income, which brings the effective tax rate on such income to 13.125 percent. The deduction for FDII was effectively an export subsidy, which many commenters believe is an illegal subsidy under World Trade Organization principles. The Green Book proposes to repeal the deduction for FDII for taxable years beginning after December 31, 2021. The stated reason is a belief that FDII is not effective in promoting domestic research and development activities, among other things.

  • Replace the BEAT with the Stopping Harmful Inversions and Ending Low-Tax Developments (“SHIELD”) Rule

The Green Book proposes to repeal the “base erosion and anti-abuse tax” (“BEAT”) currently codified in Code Section 59A and replace it with a new rule referred to as the “Stopping Harmful Inversions and Ending Low-Tax Developments” (“SHIELD”) rule, effective for taxable years beginning after December 31, 2022.

The Biden Administration believes that BEAT does not adequately address the concerns and incentives that have led to the erosion of the U.S. tax base and seeks to replace it with a much stronger provision. In this regard, the Green Book references the OECD/G20 Inclusive Framework on BEPS project under OECD Pillar Two and the comprehensive agreement on minimum taxation which is currently being negotiated by the U.S. and the international community, and which would adopt an “income inclusion rule” imposed on a jurisdiction-by-jurisdiction basis. In support of the OECD/G20 efforts, the Green Book incorporates references to OECD Pillar Two for purposes of the proposed SHIELD rule.

The SHIELD rule, which would apply to financial reporting groups with global annual revenues greater than $500 million, would disallow a deduction with respect to payments made by a domestic corporation to a “low-tax member.” For these purposes, a “low-tax member” is defined as “any financial group member whose income is subject to (or deemed subject to) an effective tax rate that is below a designated minimum tax rate.” The designated minimum tax rate is an effective tax rate that is below either the rate determined under OECD Pillar Two (when approved) or the U.S. global minimum tax rate, which is currently 21 percent. However, a recent Treasury release said that corporations around the world should pay at least a 15 percent tax on their earnings while also indicating that the 15 percent minimum is a “floor and that discussions should continue to be ambitious and push that rate higher.”

Dykema Observation: The Biden Administration believes that putting a floor beneath the tax bills of multinational corporations in other countries will help the President’s proposal to raise the U.S. corporate income tax rate to 28 percent by reducing the incentive for corporations to continue shifting profits to low-tax jurisdictions.

  • Limit Foreign Tax Credits from Sales of Hybrid Entities

For purposes of applying the foreign tax credit rules to either a sale of an interest in certain hybrid entities or a change in the U.S. tax classification of certain hybrid entities where such change is not recognized for foreign tax purposes, the source and character of an item of gain or loss would be determined as if the event was a sale or exchange of stock (and not of the underlying assets). This change would be effective after the date of enactment.

  • Restrict Deductions for Disproportionate Borrowing in the United States

In the case of multinational groups that prepare consolidated financial statements (“financial reporting groups”), the Green Book proposes to limit a financial reporting group member’s deduction for interest expense if such member has net interest expense for U.S. tax purposes and the member’s net interest expense for financial reporting purposes exceeds the member’s proportionate share of the group’s net interest expense reported on consolidated financial statements. Thus, if a financial reporting group member has excess interest expense, a deduction would be disallowed for the excess net interest expense for U.S. tax purposes. If a member fails to substantiate its proportionate share of the group’s net interest expense for financial reporting purposes, or if a member so elects, the member’s interest deduction would be limited to the member’s interest income plus 10 percent of the member’s adjusted taxable income, as defined under Code Section 163(j).

Any disallowed portion of interest expense may be carried forward indefinitely. Pursuant to the Green Book, this provision, effective for taxable years beginning after December 31, 2021, would not apply to financial services entities or any financial reporting group that would otherwise report less than $5 million of net interest expense, in the aggregate, on one or more U.S. income tax returns for a taxable year.

  • Tax Incentives for Locating Jobs and Business Activity in the United States

To create incentives for bringing offshore jobs and investments back to the United States, the Green Book proposes to create a new general business credit equal to 10 percent of the eligible expenses paid or incurred in connection with relocating a foreign trade or business to the U.S., but only to the extent of an increase in U.S. jobs.

The Green Book also proposes to disallow deductions for expenses incurred in connection with offshoring a U.S. trade or business, but only to the extent of a decrease in U.S. jobs.

The proposal would be effective for expenses paid or incurred after the date of enactment.


The Biden Administration intends to close loopholes in the U.S. tax system that disproportionately favor high-income individuals. The Green Book proposals include the taxation of carried interest as ordinary income rather than capital gain, and decreasing the amount of gain deferral for like-kind exchanges.

  • Tax Certain Profits Interests as Ordinary Income

Generally, cash compensation paid to a service provider is subject to a current maximum federal income tax rate of 37 percent in the year received. However, a service provider who performs services for a partnership (including an LLC classified as a partnership for federal income tax purposes) can also be compensated with an equity interest in the partnership, which is commonly referred to as a “profits interest,” “carried interest” or “promote.” Unlike cash compensation, the receipt of a properly structured profits interest is not taxable to the service provider upon receipt. More importantly, when the service provider’s distributive share of partnership income consists of long-term capital gain, the service provider would be subject to a current maximum federal income tax rate of 20 percent (without the additional 3.8 percent NIIT). Additionally, the capital gain would generally avoid self-employment tax.

For many years, there have been proposals to eliminate the tax benefits for these types of service provider partnership interests granted in the context of investment companies. One such proposal was the addition of Code Section 1061 by the TCJA, which increased the long-term capital gain holding period from one year to three years in specific contexts. Of course, while the changes made by the TCJA had the appearance of reducing the tax benefits associated with these types of service provider partnership interests, in reality, these changes were of little economic consequence. Most of the affected taxpayers regularly hold their investments for periods longer than three years.

The Green Book’s proposal would effectively eliminate the preferential tax rate for service provider partnership interests,i.e., carried interest, when the taxable income of the service provider partner exceeds $400,000 effective for taxable years ending after December 31, 2021. The proposal would also require such a partner to pay self-employment tax on capital gains.

The proposed change is effective only for partners of an “investment services partnership interest” (an “ISPI”). An ISPI is defined as an interest in an “investment partnership” that is held by a person who provided services to the partnership in exchange for the interest. A partnership is classified as an “investment partnership” if (i) substantially all of its assets are “investment-type” assets and (ii) more than half of the partnership’s contributed capital is from partners whose partnership interest is treated as an investment and not held in connection with the activities of a trade or business.

Dykema Observation: The Biden Administration appears to believe that it is better to take two swings at the carried interest baseball than one. Since the Green Book proposes to eliminate the preferential tax rate for capital gains for individuals with taxable income above $1 million, the proposed change to the manner in which an ISPI is taxed would only impact individuals with taxable income below $1 million and above $400,000, assuming that both changes are enacted. Of course, if the general capital gains tax rate remains unchanged, then the second swing would have the full intended effect. It should also be noted that the proposed change would impact many real estate development partnerships where developers traditionally receive a promote. In such cases, the real estate development partnership could be classified as an “investment partnership.”

  • Repeal Deferral of Gain from Like-Kind Exchanges

Code Section 1031 was originally enacted as a way to help family farmers. Over time, the “like-kind exchange” rule has been used in tandem with the rule allowing a basis step-up at death to allow generational transfers of property for which no income tax was ever paid on the build-up of asset appreciation over time.

The “like-kind exchange” rule was recently addressed by the TCJA, where the rule was limited only to exchanges of real property. The Green Book goes further than the TCJA by repealing the “like-kind exchange” rule for exchanges of real property where annual gain deferral would exceed $500,000 for individual filers or $1 million for married individuals filing jointly.

Dykema Observation: The proposal would be effective for exchangescompletedafter December 31, 2021. Therefore, although the “like-kind exchange” rule provides for a 180-day period to complete the sale of relinquished property and purchase of replacement property, that period effectively narrows with every day the calendar approaches December 31, 2021. Taxpayers seeking to complete a “like-kind exchange” transaction must understand that transactions started after July 1, 2021, will not have the full 180-day period to complete the exchange.


The Biden Administration has been clear about its desire to prioritize clean and renewable forms of energy. The Green Book includes several proposals that would dramatically alter U.S. tax policy by eliminating all fossil fuel subsidies remaining in the Code, while substantially expanding tax incentives that encourage clean energy sources, energy efficiency, carbon sequestration, and electric vehicle adoption.

  • Elimination of Fossil Fuel Tax Preferences

The Green Book would repeal several credits, deductions and other special provisions that are targeted towards encouraging oil, gas, and coal production. The targeted Code provisions include the: (1) 15 percent enhanced oil recovery credit; (2) credit for oil and natural gas produced from marginal wells; (3) expensing of intangible drilling costs; (4) deduction of costs paid or incurred for any tertiary injectant used as part of tertiary recovery methods; (5) exception to passive loss limitations provided to working interests in oil and natural gas properties; (6) use of percentage depletion with respect to oil and natural gas wells; (7) two-year amortization of independent producers’ geological and geophysical expenditures; (8) expensing of exploration and development costs; (9) percentage depletion for hard mineral fossil fuels; (10) capital gains treatment for royalties on the disposition of coal or lignite; (11) exemption from the corporate income tax for publicly-traded partnerships with qualifying income and gains from activities relating to fossil fuels; (12) oil spill liability trust fund excise tax exemption for crude oil derived from bitumen and kerogen-rich rock; and (13) accelerated amortization for air pollution control facilities.

Unless otherwise specified, the proposals would be effective for taxable years beginning after December 31, 2021. In the case of royalties, the proposal would be effective for amounts realized in taxable years beginning after December 31, 2021. The repeal of the exemption from the corporate income tax for publicly-traded partnerships with qualifying income and gains from activities relating to fossil fuels would be effective for taxable years beginning after December 31, 2026.

  • Extend and Enhance Renewable and Alternative Energy Incentives

The Green Book proposal would extend the full production tax credit for qualified facilities commencing construction after December 31, 2021, and before January 1, 2027. Starting in 2027, the credit rate would begin to phase down to zero over five years. The credit rate would be reduced by 20 percent for facilities commencing construction after December 31, 2026, and before January 1, 2028, 40 percent for facilities commencing construction after December 31, 2027, and before January 1, 2029, and so on until the credit rate reaches zero.

The proposal would extend the credits for investments in solar and geothermal electric energy property, qualified fuel cell power plants, geothermal heat pumps, small wind property, offshore wind property, waste energy recovery property, and combined heat and power property. Starting in 2022, the investment credit would be expanded to include stand-alone energy storage technology that stores energy for conversion to electricity and has a capacity of not less than five kilowatt hours. The credit would be restored to the full 30 percent rate for eligible property that begins construction after December 31, 2021, and before January 1, 2027. After 2026, the credit rate will begin to phase down to zero over five years. Eligible property commencing construction after December 31, 2026, and before January 1, 2028, will receive 80 percent of the full credit, property commencing construction after December 31, 2027, and before January 1, 2029, will receive 60 percent of the full credit, and so on until the credit rate reaches zero in 2031.

Taxpayers would have the option to elect a cash payment in lieu of the business tax credits (i.e., a direct pay option).

  • Tax Credits for Electricity Transmission Investments

The Green Book proposal would provide a credit equal to 30 percent of a taxpayer’s investment in qualifying electric power transmission property placed in service in a given year. Qualifying electric power transmission property would include overhead, submarine, and underground transmission facilities meeting certain criteria, including a minimum voltage of 275 kilovolts and a minimum transmission capacity of 500 megawatts. Qualifying property would also include any ancillary facilities and equipment necessary for the proper operation of the transmission facility.

Taxpayers would have the option to elect a cash payment in lieu of the tax credits (i.e., a direct pay option).

  • Establish New Tax Credits for Qualifying Advanced Energy Manufacturing

The proposal would modify and expand Code Section 48C. The definition of a qualifying advanced energy project would be revised to include: industrial facilities; recycling in addition to production; and expanded eligible technologies, including but not limited to energy storage and components, electric grid modernization equipment, carbon oxide sequestration, and energy conservation technologies. Selection criteria would be revised to include evaluating wages for laborers and additional consideration for projects that create jobs in communities impacted by the closure of coal mines or coal power plants.

The proposal would authorize an additional $10 billion of Section 48C tax credits for investments in eligible property used in a qualifying advanced energy manufacturing project. Of the $10 billion allocation, $5 billion would be specifically allocated to projects in coal communities. Successful applicants would have the option to elect a cash payment in lieu of the 48C tax credits (i.e., a direct pay option).

Applications for the additional 48C tax credits would be made during the three-year period beginning on the date on which the additional authorization is enacted. Applicants who are allocated the additional credits must provide evidence that program requirements have been met within 18 months of the date of acceptance of the application and must place the property in service within three years of the date of the issuance of the certification.

  • Creating Tax Credits for Heavy- and Medium-Duty Zero-Emissions Vehicles

To incentivize the use and adoption of medium- and heavy-duty zero-emissions vehicles, the Green Book provides tax credits for the acquisition or lease of such vehicles. The amount of the credit would depend on the class of the vehicle,i.e., ranging from $25,000 per vehicle for Class 3 vehicles to $120,000 per vehicle for Class 7-8 long-haul vehicles.

  • Energy Efficiency and Electrification Incentives

The Green Book proposes the following:

i. Extend the Section 25C tax credit, relating to expenditures to improve the energy efficiency of a principal residence, five years and increase the lifetime limit to $1,200.

ii. Increase the Section 45L tax credit, relating to the construction of new energy-efficient homes, from $2,000 to $2,500, and extend the credit through December 31, 2026.

iii. Increase the maximum Section 179D deduction, relating to energy-efficient commercial building property placed in service during a taxable year, from $1.80 to $3 per square foot.

  • Electric Vehicle Charging Station Credits

The Green Book proposal modifies and expands the tax credit for electric vehicle charging stations. The proposal allows taxpayers to claim the tax credits on a per-device basis (i.e., electric vehicle supply equipment, or ESVE, also called a port or a charger), increases the tax credit limit on individual devices to $200,000, and extends the tax credit for five years through December 31, 2026. Taxpayers would have the option to elect a cash payment in lieu of the general business tax credits (i.e., a direct pay option). The $1,000 tax credit for refueling property installed at a taxpayer’s residence would not increase but would also be extended for five years.


  • Solidify the NMTC Program

Under current law, the New Markets Tax Credit (“NMTC”) program provides an up-to-39 percent tax credit for qualified equity investments (“QEI”) made to a qualified community development entity, provided that the QEI is held for a period of at least seven years. For calendar years 2020-2025, the national credit limitation amount is $5 billion; however, no new credit allocation authority has been authorized beyond 2025. The Green Book proposal would permanently extend the NMTC program with a new allocation of $5 billion for each year after 2025, indexed for inflation.


In recent months, the Biden administration has emphasized the importance of increasing IRS funding to address areas of noncompliance and help the agency increase its effectiveness in auditing corporations and high-income taxpayers. The IRS has faced budget cuts of 20 percent over the last 10-year period. The Green Book proposes to increase funding for the IRS.

  • Provide Additional Funding for the IRS

The Green Book proposes a multi-year adjustment to the discretionary spending allocation for the IRS Enforcement and Operations Support accounts. The total multi-year allocation would be $6.7 billion. The Green Book also proposes to provide the IRS with $72.5 billion in mandatory funding over a similar multi-year period to enhance its information technology capability and strengthen its taxpayer services.

  • Expand Broker Information Reporting With Respect to Crypto Assets

The Green Book proposes to expand the scope of information reporting by brokers who report on crypto assets to include reporting on certain beneficial owners of entities holding accounts with the broker. The proposal would require brokers, including entities such as U.S. crypto-asset exchanges and hosted wallet providers, to report information relating to certain passive entities and their substantial foreign owners when reporting with respect to crypto assets held by those entities in an account with the broker. The proposal, if adopted and combined with existing law, would require a broker to report gross proceeds and such other information as the Secretary may require with respect to sales of crypto assets of customers, and in the case of certain passive entities, their substantial foreign owners.

The proposal would be effective for returns required to be filed after December 31, 2022.

  • Modify the centralized partnership audit regime

Generally, under the Centralized Partnership Audit Regime signed into law as part of the Bi-partisan Budget Act in 2015 and effective for tax years beginning in 2018, a partner in the “adjustment year” of a partnership’s return is responsible for payment of tax from adjustments arising in the “reporting year” (i.e., the audited year) of a partnership. If the adjustment reduces the partner’s tax liability, the partner can then use the reduction to offset any income tax liability in the year of the adjustment, but not below zero, with any excess being lost.

The Green Book would amend Code Sections 6226 and 6401 to provide that the amount of the net negative change in tax that exceeds the income tax liability of a partner in the reporting year is considered an overpayment under section 6401 and may be refunded. The proposal would be effective upon enactment.

We will provide regular updates as new information is made available.

If you would like more information regarding the Biden Administration’s tax proposals, please contact Michael Cumming ([email protected] or 248-203-0740), James Brandell ([email protected] or 202-906-8633), Scott Kocienski ([email protected] or 248-203-0868), Richard Lieberman ([email protected] or 312-627-2250), Asel Lindsey ([email protected] or 210-554-5298), Nardeen Dalli ([email protected] or 248-203-0793), Victoria Remus ([email protected] or 248-203-0553) or your local Dykema relationship attorney.

With all the developments and proposed legislation coming out of Washington, D.C., it can be overwhelming to follow and understand the impact to your organization. Our team of attorneys and government policy advisors are actively monitoring these developments to help you understand what’s coming next.Stay ahead of emerging issues withDykema's Legislative Navigator, and click below to subscribe to all relevant publications.



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