There’s a hot new number in New York City. Over the past year, developers have filed more permits for 99-unit buildings than in the previous 16 years combined.
The cause is 485-x, a tax incentive meant to encourage affordable housing development and raise construction wages. It somewhat fumbles at both.
Here’s how it works. Real estate developers get a tax break if they include a certain number of affordable housing units in new buildings. A key policy element is a unit threshold, 100, beyond which developers must pay their crews at least $40 an hour—with increases at 150 units and above.
Developers have responded by building 99-unit buildings over and over again.
This situation has a historical parallel. In 1696, England imposed a property tax based on the number of windows in a home, assuming that windows were a decent stand-in for home size and owner affluence. The result was predictable: Homeowners bricked up windows, and architecture got dimmer across the country for the next century and a half.
New York is now doing the same thing, but instead of creating a distortion against daylight, it’s suppressing housing density. Lawmakers can’t claim to solve a housing crisis while placing artificial cliffs in an incentive structure. And they certainly can’t expect developers to act against their own financial interests.
To address the city’s housing crisis, New York policymakers must stop micromanaging unit counts and start designing incentives that scale. Otherwise, what started as an attempt to ease the housing crunch will become another fun fact of history.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined the failure of several states to keep their SALT cap workarounds, restrictions on clean energy tax credits, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
Congress Holds the Power to Tax, Not to Decide Accounting Rules
University of Texas accounting professor Andrew Belnap says Congress’ attempt to withhold funding from the Financial Accounting Standards Board threatens to turn the standard-setting process into a political battleground.
UK Wants Simpler, Modernized Approach to Resolving Tax Disputes
Grosvenor Law’s Richard Coopey says reforming the UK tax dispute process would lead to quicker resolution and benefit all parties involved.
Sovereignty Wins in OECD’s Side-by-Side Global Minimum Tax Deal
NFTC’s Anne Gordon says a controversial plan to change to the 15% global minimum tax deal would drive international competition while preserving local sovereignty.
How Australia’s Tax Agency Is Trying to Redefine Transfer Pricing
Grant Thornton’s Jason Casas and Keith To explain how three recent cases show the limits of the Australian Taxation Office’s legal reach of taxpayer scrutiny.
NYC Area’s Wealthiest to Feel Biggest Sting From SALT Court Loss
Applied Economics’ Bruce Wood says only a thin slice of wealthy households in the New York tri-state area are left without relief following a failed attempt by New York, New Jersey, and Connecticut to bypass the federal cap on state and local taxes.
How to Navigate the New Restrictions on Clean Energy Tax Credits
Ryan LLC’s Ian Boccaccio and Scott Stogsdill says anyone looking to construct a wind or solar facility should consider their timeline for beginning construction so they can use clean energy tax credits.
Private Equity Backed Tech Deals Face Cross-Border Tax Challenge
Goodwin’s Dulcie Daly says private equity firms must structure acquisitions in the technology sector robustly to ensure certainty and adaptability in a changing tax landscape.
US Taxpayers Need Guardrails for AI. Congress Should Get to Work
Former US Congressman Ryan Costello says Congress and regulatory agencies must establish clear rules for when and how artificial intelligence can be used in tax preparations.
Global Training Providers Face Complex Web of US, EU Tax Rules
Stripe’s Aleksandra Bal and Daniel Rossi say digital training providers need to build tax compliance into their strategy from the outset to compete in a rapidly expanding global market.
Competitiveness Wins if IRS Accepts Tax Court Ruling in AbbVie
George Mason University Law School’s Donald Kochan says the IRS should let a tax decision favoring AbbVie stand to better encourage risk taking, research and development, and strategic mergers and acquisitions.
Columnist Corner
Rhode Island’s “Taylor Swift Tax” on non-primary residences worth more than $1 million may seem reasonable on the surface, but “narrowly tailored taxes pegged to valuation thresholds are a nightmare dressed like a daydream,” Andrew Leahey writes in his latest Technically Speaking column.
States that implement similar policies should consider multistate compacts and regular property assessment cycles, but targeting the income or even wealth of high-income residents would be a better tax policy direction, Andrew argues. Read More
News Roundup
DOJ Opens Criminal Probe Into Dubious Tribal Tax Credits
Federal prosecutors have opened a criminal investigation into the sale of so-called sovereign tribal tax credits, which the Treasury Department and IRS have said don’t exist, the Senate Finance Committee said in a letter.
Treasury Looks to Revive ‘Revenge Tax’ if OECD Deal Falls Short
Treasury Department official Kenneth Kies told GOP House members the department will likely back Congress to resuscitate the so-called “revenge tax” if Europe doesn’t ultimately exempt US companies from the global minimum tax, House Ways and Means Committee Chair Jason Smith said Tuesday.
Lawsuits Mount Against Payroll Firms Over Pandemic Tax Credits
A growing number of businesses in recent weeks are suing the payroll companies that filed their employee retention tax credit claims, alleging they’re not receiving some or all of their owed refunds.
Tax Court Majority Limits Wage Credit for Cannabis Businesses
The IRS correctly limited the amount of wages a company can use to claim a newer tax credit enacted under the Tax Cuts and Jobs Act in 2017, a majority of the US Tax Court said in a precedent-setting opinion.
Tax Management International Journal
Are Advanced Pricing Agreements Ushering in a New Dawn in Africa?
KPMG Africa practitioners discuss the long-awaited application of APAs in Africa.
UK’s Serious Civil Tax Investigations Lack a Deterrence Effect
Ongoing low staffing in HMRC’s Fraud Investigation Service has caused fewer cases to be opened and reducing yields for HMRC, says a Pure Tax Investigations practitioner.
Tax Management Memorandum
New R&E Expensing Procedures Are Complex With Favorable Options
KPMG practitioners summarize the options available under Rev. Proc. 2025-28 for transitioning from TCJA to OBBBA treatment of R&E costs that offer flexibility for taxpayers, especially those who act before specified deadlines in 2025.
OBBBA Changes How High-Net-Worth Clients Use Life Insurance
The GOP tax and spending package increased the federal estate tax exemption, and high-net-worth individuals now have important choices to make as to what to do with their life insurance policies, says Henry Montag of The TOLI Center East.
Employee Retention Credit Rules Are Still Progressively Evolving
Although the Employee Retention Credit expired over three years ago, claims are still being adjudicated, and taxpayers should strategize on how to expeditiously get refunds or handle disallowed claims, says a KPMG practitioner.
Career Moves
Ex-Acting Head of IRS Large Business Unit Joins Baker McKenzie
Jennifer Best, who left the IRS last week as acting commissioner of the agency’s Large Business and International Division, is joining the tax practice group at law firm Baker McKenzie, the firm said Monday.
Skadden Brings Former IRS Appeals Chief Liz Askey to Tax Group
Skadden has announced the addition of Liz Askey as of counsel in its tax group, bringing over 30 years of experience in complex tax disputes, including high-level positions at the IRS.
Simpson Thacher Grows New York Tax Team With Partner Alec Jarvis
Alec Jarvis joined Simpson Thacher & Bartlett as a partner in its tax practice in New York, the firm announced Monday.
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