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August 13, 2021

Report on recent US international tax developments 13 August 2021

The Biden Administration’s and Senate Democrats‘ two-track policy to pass infrastructure legislation and an FY2022 budget resolution before the August recess bore fruit this week. First, after months of negotiation, the Senate on 10 August approved (69-30) the Infrastructure Investment and Jobs Act (H.R. 3684), a bipartisan infrastructure package that would provide US$550 billion1 in new spending that, combined with routinely authorized transportation funding, would cost $1 trillion over five years. The bill makes investments in roads and bridges, broadband, water, and power (paid for with unused COVID funds), Internal Revenue Service (IRS) cryptocurrency reporting, pension smoothing, healthcare, and other provisions.

It is unclear how soon the House will act on the infrastructure bill given Speaker Nancy Pelosi’s commitment to take up the infrastructure bill only after the Senate passes a reconciliation bill under the FY2022 budget resolution.

On 11 August, after a marathon 15-hour voting session, the Senate approved (50 to 49) the FY2022 budget resolution with reconciliation instructions (S. Con. Res. 14), clearing the way for the drafting of a $3.5 trillion package of Democratic priorities that can pass with a simple majority vote in the Senate. The resolution sets revenue and spending targets for a budget reconciliation bill but does not prescribe policy details. Those details will be worked out by various Senate and House Committees within the confines of their reconciliation instruction targets and will be developed over the coming weeks. Senate Majority Leader Chuck Schumer said, “The Budget Resolution provides a target date of September 15th to the committees to submit their reconciliation legislation. We will work towards this goal and meet, as a caucus, during the week of the 15th to review the bill.”

A leadership notice sent to House members after the Senate budget vote indicated the House will interrupt its August recess to convene on 23 August to consider the Senate-passed budget resolution. The House reportedly will not take up the Senate-passed infrastructure bill in August when it returns, however.

A Democratic memo on reconciliation circulated in conjunction with the budget resolution said offsets envisioned to be developed by the Senate Finance Committee should address corporate and international tax reform; tax fairness for high-income individuals; IRS tax enforcement; health care savings; and a Carbon Polluter Import Fee. Finance Committee Chairman Ron Wyden also issued a statement on the options the Committee will consider when it begins to fill in the parameters of the budget resolution. “Our proposals will fall into four categories: multinational corporations, the wealthiest individuals, enforcement against wealthy tax cheats and savings from other programs.“ The Committee Chairman pointed to the Wyden-Brown-Warner international tax framework as among the proposals the committee would consider in the coming weeks.

On 5 August, Senate Finance Committee Chairman Wyden introduced the Modernization of Derivatives Act (MODA), which would change the tax treatment of financial derivative transactions. Senator Wyden has previously introduced similar bills.

The proposed legislation generally aims to replace many of the current statutes and regulations addressing the tax treatment of specific derivatives with a new regime that uses one timing rule, one character rule and one sourcing rule for all transactions. Under the proposed legislation, MODA would make the following changes to derivatives:

  • Require annual mark-to-market accounting for all transactions
  • Treat all gains or losses from derivatives and certain related assets as ordinary
  • Determine the source of tax items based on the taxpayer's country of residence, incorporation or organization
  • Introduce the Investment Hedging Units concept

See EY Global Tax Alert, US: Wyden bill would change tax treatment of financial derivative transactions, dated 13 August 2021 for details.

An IRS official this week commented on the new IRS campaign aimed at financial service entities engaged in a US trade or business that was announced in June. She said the campaign will take a broad exploratory approach, not targeting specific types of transactions, and indicated that audit coverage in this area has been rare in the past. The IRS is in the process of reviewing returns to determine those which will be audited.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC



  1. Currency references in this Alert are to the US$.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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