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TAX MATTERS

assets to accounts that are not maintained (SALT), the states failed to prove that the
by a broker. These changes apply with cap is unconstitutional.
respect to returns and statements required Facts: Sec. 164 permits a federal
to be filed or furnished after Dec. deduction for taxes paid to state and
31, 2023. local governments. Prior to enactment of
the law known as the Tax Cuts and Jobs
Disaster relief Act (TCJA), P.L. 115-97, taxpayers were
The legislation modifies the automatic permitted to deduct the full amount of
extension of certain deadlines for taxpay- SALT taxes paid or incurred. However,
ers affected by federally declared disasters the TCJA placed a cap on the deduction,
Infrastructure Act’s tax in Sec. 7508A, which was enacted in limiting it to $10,000. Four states —
provisions the Setting Every Community Up for Connecticut, Maryland, New Jersey, and
Retirement Enhancement (SECURE) New York — filed suit in federal district
Early end of ERC, cryptoasset Act of 2019, P.L. 116-94. The definition court challenging the constitutionality of
reporting are among act’s of a disaster area in Sec. 7508A(d)(3) is the cap.
changes. amended to mean “an area in which a In addition to arguing the cap is

major disaster for which the President constitutionally sound, the government
The employee retention credit (ERC) provides financial assistance under section claimed that the district court lacked
was terminated early and broker 408 of the Robert T. Stafford Disaster jurisdiction to hear the case. The district
reporting of cryptoasset transfers will be Relief and Emergency Assistance Act court established its jurisdiction; however,
required as a result of the Infrastructure (42 U.S.C. 5174) occurs.” Previously, that it held that the cap did not violate the
Investment and Jobs Act, P.L. 117-58, paragraph cross-referred to the definition Constitution. The four states appealed to
that was signed into law by President Joe in Sec. 165(i)(5)(B). the Second Circuit.
Biden on Nov. 15, 2021. The legislation Issues: The government argued again
was approved in the House on Nov. 5, Other tax provisions on appeal that the court lacked jurisdic-
2021, after passing the Senate in August. The act includes other tax provisions, tion to hear the case. The basis for its ju-
including extension of various highway- risdictional argument was twofold: First,
Employee retention credit related taxes, and extension and modifica- the government contended that the states
The act made wages paid after Sept. 30, tion of certain Superfund excise taxes. did not have standing to proceed with
2021, ineligible for the ERC, except for It also allows private activity bonds for their claim. To have standing, a plaintiff
wages paid by an eligible recovery startup qualified broadband projects and carbon must have suffered an injury, the injury
business, which retained the credit’s dioxide capture facilities. must be traceable to the defendant, and
statutory sunset of Dec. 31, 2021. ■ Infrastructure Investment and Jobs the injury would be remedied by a judicial
Act, P.L. 117-58 holding in the plaintiff’s favor. Second,
Cryptoasset reporting the government asserted that the suit was
Section 80603 of the act imposes — By Alistair M. Nevius, J.D., and barred by the Anti-Injunction Act (Sec.
new cryptoasset information report- Ken Tysiac. 7421(a)), which provides that no suit with
ing requirements on brokers. The the purpose of restraining the assessment
Sec. 6045(c)(1) definition of “broker” is or collection of any tax may proceed.
expanded to include anyone who for con- Second Circuit: SALT cap The states argued that the cap is
is not unconstitutional
sideration effectuates “transfers of digital unconstitutional because the SALT
assets on behalf of another person.” For deduction is constitutionally mandated
these purposes, “digital asset” is defined The $10,000 maximum deduction by Section 8 of Article 1 and the 16th
as “any digital representation of value for state and local taxes is upheld Amendment. Alternatively, the states
which is recorded on a cryptographically by the Second Circuit. argued that because the cap coerces the
secured distributed ledger or any similar states to lower taxes or cut spending, it IMAGE BY SERGEI CHEREDNICHENKO/ISTOCK
technology.” The Second Circuit affirmed a district violates the 10th Amendment, which
The legislation amends Sec. 6045A to court’s holding that although four states provides that powers not granted to
require brokers to provide information had standing to challenge the cap on the federal government are reserved to
returns reporting any transfers of digital the deduction for state and local taxes the states.

32 | Journal of Accountancy February 2022