Infrastructure analysis: The ERC’s end, and what’s next

Hosted by Neil Amato

Ed Karl, CPA, CGMA, the AICPA's vice president–Tax Policy & Advocacy, has followed infrastructure legislation closely. The Infrastructure Investment and Jobs Act was passed by the House on Nov. 5 and is now scheduled to be signed by President Joe Biden. But that version is different than the version approved by the Senate in August, and there remains a companion reconciliation bill to be negotiated.

Karl shares analysis on the end of the employee retention credit, the future of corporate tax rates, preparer regulation, SALT caps, and more.

What you'll learn from this episode:

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato, a JofA senior editor, at


Neil Amato: Welcome to the Journal of Accountancy podcast. I'm your host, JofA senior editor Neil Amato. Today's episode focuses on the Infrastructure Investment and Jobs Act and companion legislation that will affect CPAs. That's from an interview recorded on Tuesday, Nov. 9, with the AICPA's Ed Karl. We'll have that, plus news on new PCAOB board members and IRS retirement account inflation adjustments, after this word from our sponsor.

Amato: The U.S. House of Representatives has passed the Infrastructure Investment and Jobs Act, and that and other legislation will affect CPAs' work going forward. Joining the Journal of Accountancy podcast to discuss that news in depth is repeat guest Ed Karl, a CPA who holds the CGMA designation. Ed is the AICPA's vice president–Tax Policy & Advocacy.

Ed, when we talked in August about this infrastructure bill, one highlight was discussion of some of the key tax provisions contained in the companion reconciliation bill. The infrastructure bill, as we said, has now been passed by the House after passing the Senate about three months ago. First, are there any tax provisions in this infrastructure bill?

Ed Karl: Yeah. Hi, Neil. Thanks for having me again. There aren't too many, but there are a couple that I'll bring up. One is a change to Code Section 7508A, which are the rules for the disaster declaration where there is a deferred due date of tax returns. We might have spoken about this in the past, but there were some changes a couple of years ago that made automatic extensions, and some of those rules were confusing, particularly as it related to the pandemic. There was some language put in the infrastructure bill to try to fix that.

Another one that some folks have been asking about is, there's a requirement for broker reporting of cryptoasset transfers. It was a bit controversial, particularly about the definition of broker. The senator who had introduced the amendment that got into the infrastructure bill also did explain that he was not trying to broaden the definition of broker, but that's something that the virtual currency community has been trying to deal with and deal with that definition.

The last item that I'll mention is that there was an early sunset of the employee retention credit. It was originally scheduled to sunset Dec. 31, 2021, but that was moved up to Sept. 30, 2021, and that is in the infrastructure bill.

Amato: Speaking of that early termination of the employee retention credit, what does that mean for businesses, and are there strategies that practitioners can advise their clients to take regarding that news?

Karl: It's a question we've been getting quite a bit since, frankly, Sept. 30, so we're already into November and the infrastructure provision had a Sept. 30 sunset. So, what does that mean for businesses and for their advisers?

I'm sure there were or are businesses who have taken advantage of the ERC even now because it was legal, but now it sunsets back to Sept. 30. We actually wrote a letter to [Capitol] Hill expressing some concerns about the confusion that our members and their clients have been expressing. Do they take it, not take it? Some have taken it. The real concern that we have is that now that it's likely to be retroactive unless something else happens to fix that, and I really don't think that is going to take place, is that penalties should not be assessed.

There are businesses who have taken advantage of the credit, reduced other payroll taxes, and now they're going to have to pay it back. We don't want to see them penalized for something that was legal at the time that they took advantage of it. The other thing we believe is that IRS should come out with some repayment strategy to help them pay back taxes that they legally took advantage of.

Amato: Talk to me now about the status of the other bill, the so-called reconciliation bill. That one contained a lot of tax provisions. Has anything changed since we last talked in August?

Karl: Yeah. Just before we leave the infrastructure bill, as you said, that was passed by the Senate in August, and last week passed by the House. That's been sent to the president for signature, and he's indicated that he will sign that bill on Nov. 15, so that's coming up in a few days.

In terms of the tax provisions that we spoke about, it's the second bill, the reconciliation bill that contains most of the tax provisions. The infrastructure bill was a traditional infrastructure bill dealing with bridges and roads and broadband.

The second bill, the Build Back Better bill that's part of reconciliation, deals with nontraditional infrastructure, more like education and the environment, things like that. The intent for that bill is to be paid for with various tax provisions, and that's what we spoke about.

One of the consistent ones we've spoken about, it came up in President Biden's campaign, raising the corporate income tax rates. We were hearing 26.5% that the corporate rate could go up [to]. That's out completely right now.

Carried interests changes? Out. Raising the individual ordinary income tax rate to the 39.6% rate again: that's gone. I don't know if you've recalled — I don't think this was around in August, but it did come up after we spoke, this so-called billionaire's tax.

It was very short-lived. It was basically a mark-to-market provision where billionaires based on prior year income, they would calculate [adjusted gross income] based in the millions, so the billionaire tax based on assets. But it was calculated based on annual income, a mark-to-market of unrecognized gains. That was very short-lived and was dropped.

Capital gains and dividend rate increases; there were a couple of QBI changes that Code Section 199A; the estate and trust provisions that were in that bill have been dropped. The grantor trust rules were dropped. There were certain restrictions put on valuations on the transfers of certain non-business assets, those were dropped.

The early sunset of the increase of the unified credit. Just remember, we've spoken about this, that the unified credit was practically doubled at the end of 2017 as part of tax reform, but it was scheduled to automatically sunset Dec. 31, 2025.

There was talk about accelerating that to Dec. 31, 2021, just in a couple months. That's gone also. There were a lot of provisions that we spoke about, it was a good part of the conversation we had on August, and those are all gone. All gone.

Amato: That's a lot of provisions that are now out. If they are out, how are they going to pay for the legislation?

Karl: That's the big question and that's what came back up in the latest iteration of the House bill. By the way, there have been three iterations of the Build Back Better Act. The one in September had close to 2,500 pages.

Then there was a rules committee version where they dropped a lot of those provisions. That was about 1,700 pages. Then, after the election debacle that the Democrats faced last Tuesday, a week ago on election day and did so poorly at the ballot box, a lot of Democrats in the House said, "Let's just add back a lot of the provisions that we were interested in having, a lot of the environmental and social safety net provisions." They wanted them back in the bill.

They were put in, and the bill grew back to about 2,200 pages. You asked, how do they pay for all those items that they added back? Let me just give you a sampling. One is a 15% corporate minimum tax based on book income, something that we're not at all thrilled with and wrote a letter of opposition.

We've never been keen on alternative minimum taxes. It's just much simpler to adjust the rates. If you feel that corporations or individuals are not paying their fair share, then just adjust the rates. It's much simpler. But they came up with this minimum tax based on book income and tying the tax rules to the book income rules is a problem for us. There shouldn't be an undue influence on the accounting rules based on the tax rules. We oppose that. But that was added, a 15% corporate minimum tax.

A 1% excise tax on the repurchase of corporate stock; expanded net investment income tax for individuals, estates, and trusts; and a surcharge on high-income individuals, estates, and trusts. That would be 5% of the taxpayer's modified adjusted gross income in excess of $10 million. We're talking about individuals. Another 3% on modified adjusted gross income in excess of $25 million.

But just note that for estates and trusts, those surcharges kick in in a much lower level, at $200,000 and $500,000 for estates and trusts. I'll say one last thing. Surprisingly, it does raise a little bit of revenue. But they added a revised SALT cap into the latest version. The reason it raises revenue is — again, I mentioned the sunset of TCJA provisions, tax reform provisions at Dec. 31, 2025. One of the things that was scheduled to sunset was the SALT cap. The $10,000 SALT cap was scheduled to sunset on that day.

Amato: Remind people of the SALT acronym, what that stands for.

Karl: State and local tax, thank you, that state and local tax cap that a lot of states have been troubled by since its passage. There was a provision to revise that cap. What they're going to do is raise it to $72,500. They're going to do it through Dec. 31, 2031. In other words, they actually make it effective for 2021, the year we're in now, and they extend that sunset from 2025 to 2031.

But what happens is it raises about $2 billion because at Dec. 31, 2025, that cap would have gone away altogether. It's going to stay, albeit at a higher level, but it's going to stay for an additional five years. The sum total of all those changes is that it actually raises revenue, raises about $2 billion. These are some of the things that have been added to try to replace the revenue loss by that long list of items I mentioned a few minutes ago.

Amato: Anything out there, any surprises left when the reconciliation bill goes back to the Senate, or what else should tax practitioners need to be looking out for?

Karl: Let me go through a couple that have been discussed, particularly the one I just mentioned, the SALT cap relief. The Senate has not been happy with the SALT cap relief that was put in the House bill. They think it's skewed toward upper-income taxpayers.

In other words, the cap was raised to $72,500, but it applies for everybody. We know that lower income taxpayers don't itemize, so they have no need for the SALT deduction anyway. In the Senate, what they want to do is eliminate the cap altogether, the $10,000 cap, but to do it for taxpayers below $400,000 AGI. That way it would be skewed towards middle and lower income taxpayers who itemize.

I would look for that pushback in the Senate if the current bill is approved by the House. It hasn't been voted on just yet. But when that bill gets voted on in the House, and it's likely to be in its current iteration, and it would have to be sent back to the Senate, there almost assuredly will be changes. Another one that I'd look for is the corporate rate increase that, I'd mentioned, was eliminated completely, pretty much based on Senator Kyrsten Sinema's concern about raising the corporate rate. She's a moderate senator from Arizona and at the 11th hour expressed concerns about that increase.

There's a possibility that we could still see a corporate rate increase. I doubt that it would be as high as the 26.5% that I mentioned before. But I think if it were raised to let's just say 23% or 24%, I think a lot of people would say that was a successful pushback on that rate increase. Again, I don't know any of these things. I'm just trying to project out what could possibly be discussed.

There was a draft subchapter K, since subchapter K or the partnership provisions, there was a draft bill released by Senator Ron Wyden. He's the chair of the Senate Finance Committee. We've submitted a couple of letters dealing with that discussion draft. We're not thrilled with it. There are a lot of unknowns. The question is, will that make its way into a version of a reconciliation bill? The answer we believe is no. We just don't think that those changes are ready for primetime. There were a lot of unknowns about that, a lot of unknown impacts by making those changes. I don't think those are ready to go.

Preparer regulation, something that I've spoken about for quite awhile, could come back in the Senate. It's not in the House bill. It's possible that the Senate could raise it, and we're watching that one very vigilantly. We have some opinions about preparer regulation, which we do support, but we think it should be a very specific and articulated regulation that IRS is given. They shouldn't be given unfettered authority to regulate. We would like to see them basically go back to the program they had several years ago with a couple of minor modifications.

Financial transaction reporting — there were a lot of people asking about that one, that 1099s that banks had to issue for transactions, and that one is almost assuredly dead. There was a huge bipartisan pushback on that one.

The last one I'll mention is something we just spoke about, the retroactive sunset of ERC. What I was alluding to in responding to your question earlier was that the retroactive sunset is already a done deal. It's in the infrastructure bill, that bill won't be changed, and it's almost 100% going to be signed by the president on Nov. 15. The question I have in my mind, will something come up in the reconciliation bill that would undo the retroactive nature of this sunset or try to fix some of the penalty problems that I mentioned? It's unlikely to change. We don't think they will eliminate the retroactivity of it.

Amato: Well, definitely a lot of moving parts, a lot of things to follow, and you've been following it closely. Ed, thank you very much.

Karl: Thank you, Neil. The last thing, I'll pull out my crystal ball and say that I still believe that there will be another bill, the reconciliation bill that contains all the tax changes. I think sometime between Thanksgiving and Christmas is the window for that bill to pass. If I had to take a guess today, it's more likely just before Christmas.

Amato: Again, that was Ed Karl. Thanks to Ed for his time and insights on a topic we'll continue to follow.

In other news, the PCAOB has a new chairperson and several new board members. Erica Williams is now the chair, and the board added members Christina Ho, Kara Stein, and Anthony Thompson. The previous chairman, Duane DesParte, will remain a member of the oversight board. Ken Tysiac has that story for us.

And, the IRS issued inflation adjustments for 2022 for a variety of tax provisions, including various tax credits, the standard deduction, and the tax rate tables. The IRS also has updated the 2022 dollar-amount ceilings and thresholds for a wide range of qualified retirement plans and accounts, including traditional IRAs and Roth IRAs.

One number among many in the coverage by Paul Bonner is that the limitation on deferrals for 401(k)s is $20,500 for 2022, up from $19,500 in 2021.

We'll post the articles on the topics mentioned in this episode's show notes, or you can visit for more news. Finally, a request to subscribe, share, rate, and review the JofA podcast wherever you get your podcasts. Thank you for listening.