Treasury's Green Book Provides Details on Administration's Tax Blueprint

On May 28, the U.S. Treasury released its Green Book, a 114-page document explaining the Biden Administration’s fiscal year 2022 tax proposals. The Green Book provides detailed insights into plans originally outlined in the American Jobs Plan and American Families Plan, including significant changes for corporations, high-income individuals, and multinational businesses.

Corporate and International Tax Proposals

Corporate Income Tax

Increase in corporate rate: From 21% to 28%, effective for tax years beginning after December 31, 2021.
Blended rate for fiscal-year corporations crossing 2021 and 2022.
Applies to entities tied to corporate rates (REITs, insurance companies, etc.).
New 15% minimum tax on book income for corporations with $2B+ in global income.

International Tax Reforms

GILTI and FTC Changes

Repeal exemption for foreign oil & gas extraction income.
Repeal high-tax exemption for GILTI and Subpart F.
Country-by-country calculation of GILTI and FTC (replacing aggregate method).
FTC limitation expanded to “branch” baskets.
Adopt an OECD-consistent minimum tax inclusion rule for foreign-parented U.S. groups.
Repeal IRC §904(b)(4) and expand §265 to disallow deductions tied to exempt income.

Effective Date: Tax years beginning after December 31, 2021.

BEAT Replaced by SHIELD

New regime: Stopping Harmful Inversions and Ending Low-Taxed Developments (SHIELD).
Denies deductions for payments to “low-taxed members” based on global group income ratios.
Applies to both direct and indirect payments, including cost of goods sold.
Minimum tax rate tied to OECD agreement; defaults to 21% if no agreement is reached.

Foreign Tax Credit for Hybrids and CTB Elections

Applies Section 338(h)(16) to hybrid entity sales and check-the-box (CTB) elections.
Aligns character and source rules with stock sale treatment.
Aims to prevent FTC abuse and misclassification of income across baskets.

Inversion Rule Expansion

Eliminates 60% ownership threshold.
New test: Inversion occurs if post-acquisition group is managed and controlled in the U.S., lacks substantial foreign activity, and domestic entity’s FMV exceeds the foreign acquirer.
Broadens “acquisition” to include asset transfers from partnerships and businesses.

FDII Repealed

Repeals Foreign-Derived Intangible Income (FDII).
Introduces 10% business credit for onshoring activities.
Denies deductions for offshoring-related expenses.

Individual, Estate, and Gift Tax Proposals

Top Marginal Rate

Raised from 37% to 39.6%
- Applies to incomes over:
  - $509,300 (married filing jointly)
  - $452,700 (single)
  - $254,650 (married filing separately)

Capital Gains

Ordinary income rates on long-term gains for AGI over $1M.
Retroactive to April 28, 2021.
Top effective rate: 43.4% (39.6% + 3.8% NIIT)

Realization on Transfers

Transfers of appreciated property (e.g., gifts, death, trust transfers) trigger deemed sale.
$1M exclusion per person, portable to surviving spouse.
Family-owned businesses may defer tax until sale.
15-year payment plan available for certain non-publicly traded assets.

Carried Interest

Treated as ordinary income if taxpayer’s total income > $400,000.
Self-employment taxes apply.
Effective for tax years after December 31, 2021.

Like-Kind Exchanges

Tax deferral capped at $500,000 per taxpayer (or $1M per couple).
Excess gain is taxable.

Excess Business Losses

Current limitation made permanent.
Applies after December 31, 2026.

Insights and Legislative Outlook

Estate planning strategies (e.g., GRATs, defective grantor trusts) may trigger gain under new rules.
The Green Book does not include:
- Repeal of SALT cap
- QBI deduction changes
- Estate tax exemption rollback

These omissions don’t mean they’re off the table—they may re-emerge in negotiations.

Legislative Path:

With slim Democratic majorities, all Senate votes matter.
Budget reconciliation is likely needed to bypass the filibuster.
However, moderate Senate Democrats may resist using reconciliation again in 2021.

Conclusion:
The proposals in the Green Book could dramatically reshape the U.S. tax system. Multinational companies and high-net-worth individuals should begin modeling now and consult their tax advisors to plan for the potential impact.

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Treasury’s Green Book Provides Details on Administration’s Tax Blueprint