White House budget signals contours of coming tax fight

White House budget signals contours of coming tax fight

Author: The Carta Policy Team
Read time:  9 minutes
Published date:  15 March 2024
Federal government appeals Corporate Transparency Act decision.


  • White House budget plan draws political lines on tax and policy

  • IRS deploys AI and launches new efforts aimed at high earners 

  • New QSBS disclosure requirements on the Schedule K-1

  • U.S. government files to appeal recent CTA lawsuit

  • TikTok divestment bill sails through House but faces roadblocks in Senate

White House budget plan is heavy on tax, light on next steps 

President Biden’s fiscal year (FY) 2025 budget proposal dropped on Monday. The $7.3 trillion budget is an important marker of the White House’s key issues, but its utility largely ends there. The document is nonbinding and, in divided government, does not hold much weight with congressional appropriators. However, the president’s budget and forward-looking tax agenda are indicators of the battle lines Democrats are drawing as the expiration date for Trump-era tax cuts approaches at the end of 2025. Biden’s proposals include:

  • Corporate tax: The president’s budget proposes raising the Corporate Alternative Minimum Tax (CAMT) from 15% to 21%, raising the corporate income tax rate from 21% to 28%, and increasing the excise tax on corporate stock repurchases from 1% to 4%. 

  • Individual tax: These are all familiar policies drawn from past budgets that target high-income individuals (generally with taxable income above $400,000) and would:

    • Increase the top marginal income tax rate.

    • Expand the scope of employees subject to the limitation on the deductibility of executive compensation in excess of $1 million, whether or not paid by a publicly traded corporation.

    • Increase the net investment income tax (NIIT) rate and additional Medicare tax rate.

    • Apply the NIIT to pass-through business income.

    • Impose a 25% minimum tax on income for all taxpayers with over $100 million in wealth (including unrealized capital gains) - also known as the “billionaire tax.”

  • Capital Income: Tax long-term capital gains and qualified dividends at ordinary rates (37% being the highest ordinary rate or 40.8% when including the NIIT) for taxpayers with income exceeding $1 million, and treat transfers of appreciated property by gift or upon death as realization events.

  • Carried Interest: Raise the tax treatment for carried interest from its current short-term capital gains rate to ordinary income levels, affecting the tax treatment for the majority of investment advisers.

  • New tax proposals: The budget contains two new proposals to create (1) a refundable credit for qualified first-time homebuyers and (2) a refundable credit for qualified home sellers. It also again includes the president’s push to make the income exclusion for forgiven student debt permanent. 

Carta is tracking a number of provisions included—or excluded—from the proposal

What’s next: The president’s budget outlines the Administration’s priorities, but will not be signed into law. The release of the president’s budget kicks off a lengthy government funding process that will likely stretch through the November elections and potentially into the next administration in 2025. Regardless of who wins the coming election, the next Congress must revisit these tax policies. 

More immediately, the outlook for a tax deal by April 15 is looking grim. Lawmakers continue to negotiate the balance of the FY 2024 funding packages to keep the government open, as well as attempt to resolve disagreements on the bipartisan tax package that cleared the House last month; the mechanics of the proposed child tax credit (CTC) expansion remains the main hold-up as Senate Republicans this week proposed CTC changes that Democrats consider unacceptable. 

Call to action: The Carta team has been closely following the tax package and pushing for the restoration of full R&D expensing. Join the effort by contacting your U.S. senators to let them know that R&D matters to the innovation community. 

Download the email template here.

IRS deploys AI and launches new effort with 125,000 cases aimed at high earners 

The IRS continues to move full speed ahead with its Strategic Operating Plan to use its increased funding to expand exam coverage of large partnerships and their high-income owners—hedge funds, private equity groups, venture capital funds, real estate investors, and law firms—targeting a group it has long been struggling to tackle. Last year, the agency established a new work unit and announced the hiring of 3,700 new higher-skilled revenue agents who could tackle complex audits. Now equipped with resources, the IRS has:

  • Deployed AI and improved technology to aid in audit selection by identifying sophisticated schemes to avoid taxes.

  • Launched an effort aimed at high-income non-filers, recently announcing 125,000 new cases focused on high earners, including millionaires, who failed to file tax returns with financial activity topping $100 billion.

  • Announced that it has outlined a simplified approach for filing administrative adjustment requests ( AARs) for partnerships under audit to correct their errors in lieu of filing a full amended return. 

What’s next: The IRS has long struggled to examine and audit large partnerships—and their sophisticated shareholders. The agency hopes that increased funding and technology will change that and is preparing (by onboarding higher-skilled staff and deploying AI) to give it a shot. Those taxpayers should expect more scrutiny this season than in years past

New QSBS disclosure requirements on the Schedule K-1

The IRS updated requirements for the 2023 Schedule K-1 of Partnership Form 1065 and S-Corp Form 1120-S to improve consistency and transparency for how Qualified Small Business Stock (QSBS) is reported, assigning specific codes for the various types of gains, including:

  • Code M - Gain eligible for Section 1045 rollover: Replacement stock purchased by partnership -  ​​Section 1045 provides a tax deferral to investors that roll over capital gain from the sale of QSB stock (held for more than six months) by purchasing other QSB within 60 days of the date of sale. 

  • Code N - Gain eligible for Section 1045 rollover: Replacement stock not purchased by partnership - If an investor does not purchase replacement stock within 60 days, it must still report certain required information.

  • Code O - Sale or exchange of QSB stock with section 1202 exclusion: The partnership should report the name of the corporation that issued the QSB stock, partner’s share of the partnership’s adjusted basis and sales price of the QSB stock, and dates the partnership bought and sold the QSB stock.

Bottom line: The new formalized changes to the K-1 QSBS reporting requirements are a result of the increase in partnership tax audits tied to the IRS centralized audit regime enacted in the Bipartisan Budget Act of 2015. Much of the information assigned by these new codes have been effectively required in attached statements to the Schedule K-1 as standard disclosures, but the latest updates allow both the IRS and taxpayers to better track QSBS information, particularly in the event of an audit.

New from Carta: Building the ownership economy

The employee-ownership model has proven successful at accelerating the pace of innovation, yet equity compensation remains underutilized outside the venture capital sector.

Read the Carta policy team’s latest issue brief to learn more about Carta’s vision for expanding employee ownership beyond the venture sector.

U.S. government files to appeal recent CTA lawsuit

Earlier this month a federal court in Alabama ruled the CTA unconstitutional, which has created uncertainty surrounding the filing obligations for businesses. This week, the U.S. Department of Justice filed a notice to appeal the ruling that the Corporate Transparency Act (CTA) is unconstitutional. 

What you need to know:

  • FinCEN announced it is complying with the recent court decision and not enforcing the CTA against the plaintiffs of the lawsuit.

  • A Treasury spokesperson stated that “other than for the named plaintiffs and NSBA members as of March 1, 2024, there is no change to the reporting obligations of the vast majority of reporting companies, who are still required to comply with the law.”

  • New businesses formed in 2024 are still bound by the CTA and should plan to file with FinCEN until further notice. Businesses should discuss their filing obligations with their legal counsel.

In order to help, Carta has compiled a free step-by-step guide that explains all the steps involved in CTA compliance.

In the meantime, Carta will remain on top of this and our customers (Free Launch and all paid plans) can use our CTA reporting tool to upload relevant company and ownership information and submit it to FinCEN.

TikTok divestment bill in Senate limbo

A bill to force ByteDance to divest TikTok within 180 days easily passed the House but faces an uncertain future in the Senate. The measure would ban TikTok within the United States if the divestment does not occur.

  • The bill briefly unified most House members in support of passage, even as concerned users flooded congressional offices’ call lines to object to the bill.

  •  Some Senate Democrats are more lukewarm on the bill, including Senate Commerce Committee Chair Maria Cantwell, whose panel has jurisdiction over the legislation. However, the White House has been a vocal advocate for its passage.

  • The TikTok scrutiny combines two of the few bipartisan issues in Congress: U.S. consumers’ data security and competition with China.

Why it matters: A TikTok ban triggered by a failed divestment would have wide ranging consequences beyond TikTok users; the app is now home to billions in marketing and ad campaigns, and many companies list products on “TikTok Shop.” The legislation garnered significant media attention and is not going away anytime soon. But with Senate Democrats divided, it also is not going anywhere fast.

News to know

  • Coinbase files opening brief in case against SEC. Coinbase brought a case against the SEC after the agency in December denied the exchange’s request for rules clarifying legal standards for determining whether digital assets are securities. In the brief filed on Monday, Coinbase argues that the SEC’s inability to clarify rules surrounding cryptocurrencies violates the Administrative Procedure Act.

  • IRS launches Direct File in select states. The IRS has officially launched their electronic systems for filing returns directly to the IRS in twelve states. Taxpayers in the selected states who have very simple W-2s and claim a standard deduction may be eligible to use it this tax season to file their federal income taxes.

  • Chamber and Sierra Club sue SEC over climate reporting rule. Interests on both sides of the rule have taken legal action to challenge the SEC’s new climate disclosure rules. The business group joins actions previously filed by state AGs arguing the SEC exceeded its authority and micromanages how companies make determinations around materiality. The environmental group argues the rules do not go far enough to protect investors and stripping the Scope 3 reporting requirements was “arbitrary.”

  • PCAOB Chair cracks down on audit firms. The PCAOB found that mistakes in 40% of the roughly 800 audits it recently released inspection reports for. While auditing firms assert that the findings of these reports are not as bad as they sound, the PCAOB is continuing to raise the bar on standards and levy penalties on those who do not comply.

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The Carta Policy Team
Carta’s Policy Team aims to connect the policymaking community and venture ecosystem to build an ownership economy and advance policies that support private companies, their employees, and their investors.