Week in Insights: The Lithium-Iron-Phosphate Future Is Arriving

Curated by Daniel Xu

Far be it from us to ever say we told you so, but we told you so.

Tesla Inc. is reportedly disassembling a manufacturing facility in China and opening it as a battery plant in Nevada that manufactures lithium-iron-phosphate, or LFP, batteries for their electric vehicles. LFP batteries are more stable and longer lasting—though also heavier—than their cobalt- and nickel-containing counterparts.

The move is likely an attempt to meet sourcing and materials requirements for the $7,500 federal EV tax credit, as purchasing LFP batteries from China wouldn’t suffice.

It’s concerning that the pursuit of LFP technologies by major players such as Tesla may be motivated by tax credit compliance more so than technological superiority. How certain are we that LFP is the best battery technology when factoring in all interests, from environmental and efficiency to safety?

Even though Tesla’s pivot is advantageous for meeting regulatory requirements and incentivizing EV purchases through lower vehicle prices, it may have a net-negative effect if it starts a broader trend of tax policy determining research avenues and technology adoption.

This policy and innovation tug-of-war is a natural result of mixed-motive tax policy—the Inflation Reduction Act of 2022 aimed to boost EV adoption and create jobs in the US. Through a Rube Goldberg-like series of decisions, the final result may be heavier EVs that pose a greater threat to pedestrians—clearly not the intention of any stakeholders at the outset.

Here at Bloomberg Tax, we strive to analyze the interplay between tax policy and the real world. We bring together a diverse array of voices from industry, academia, and regulatory bodies to weigh in on critical issues and, where possible, tell you tomorrow’s story today.

The Exchange—It’s where great ideas intersect.

—Andrew Leahey

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social

Tesla vehicles on a lot at a dealership in Austin, on Dec. 13, 2023.

Photographer: Brandon Bell/Getty Images

State Insights

Reducing real estate transfer taxes would be a boon for housing developers in both Chicago and San Francisco, Independent Institute’s Lawrence McQuillan says.

Attorney Holland King argues that state film tax credits provide intangible benefits and that discourse on film credits should focus on making them more effective.

Federal Insights

IRS Commissioner Danny Werfel explains how the agency is focusing on wealthy tax dodgers and corporate compliance this year while working to improve online, telephone, and in-person assistance for taxpayers.

Squire Patton Boggs’ Keith Bradley breaks down real-world effects of Chevron doctrine—depending which way Supreme Court judges will rule on it this year—particularly in cases when individuals sue the government.

The application of Public Law 86-272 is being examined in the age of online commerce. Businesses must diligently document records to stay ahead, Plante Moran’s Tony Israels, David Landwehr, and Jeanette Tolar say.

The IRS is seeking billions of dollars in back taxes from Microsoft. Exactera’s Mimi Song explains how this example can teach taxpayers about transfer pricing arrangements involving intangible assets.

Jeff Mahoney of the Council of Institutional Investors and Tom Quaadman of the US Chamber of Commerce argue for and against holding auditors more responsible for their clients’ illegal acts.

Tax professionals should stay informed to help their clients prepare for possible changes in tax law during the middle of tax season, Joyce Cheng of the California Society of Enrolled Agents says.

Marcum’s Angela Gebert analyzes states’ increasing enforcement of unclaimed property laws and how companies can avoid risk and exposure.

AICPA’s Dan Snyder explains why certified public accountants should consider diversifying the services they offer to include year-round financial planning to their clients.

Global Insights

The new US-Chile tax treaty will help eliminate double taxation and expand access to foreign tax credits and lithium-ion imports, Aprio’s Vanessa Piedrahita says.

Ignacio Gepp of Puente Sur discusses the intricacies of Chile’s new tax compliance bill.

Columnist Corner

Artificial intelligence and machine learning tools can meet the demand for consistent transfer pricing valuation and compliance as international regulations continue to shift, Andrew Leahey says in his Technically Speaking column. An AI-driven approach “would ensure tax transparency, making data and models readily available for public review,” Leahey argues, adding that the long-term fiscal benefits of AI models would far exceed the initial or ongoing costs.

Career Moves

Silvana Van der Velde has joined Burges Salmon as director with the corporate tax team.

Mary Ann Jackson, shareholder in the Memphis office, has been named chair of Baker Donelson’s tax group.

William Gorrod has rejoined Morgan Lewis as partner in San Francisco.

Alejandra Garcia Earley has joined Orrick Herrington & Sutcliffe as partner with the energy and infrastructure team in Chicago.

Georgiene “Gina” Alsdorf has joined Carlton Fields as shareholder with the financial services regulatory practice in Washington, D.C.

Michael J. Stegman has joined Frost Brown Todd as partner in the tax, benefits, and estates practice group in Cincinnati, Ohio.

Julie M. Bradlow has been named chair of the tax practice group at DarrowEverett.

David Edwards will join Simpson Thacher as partner in the litigation department in London.

Benjamin Rapp will join Gibson Dunn as tax partner in Germany.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team (login required).

• Film tax credit programs were designed to attract movie and television series production to places it might not otherwise consider, creating jobs and new revenue. But more and more, the taxpayer subsidies are going to produce commercials for some of the world’s biggest consumer products companies.
• Connecticut wants to create an incentive for residents to challenge New York’s rules for taxing telecommuters, state officials said.
• Millions of families are getting conflicting advice about whether they should file taxes now or wait until closer to the April 15 deadline to see if Congress enacts a bipartisan tax bill that would expand the child tax credit.
• The uncertainty of the bipartisan tax bill that passed in the House and is stalled in the Senate is causing a domino effect of delays for tax returns for partnerships and their owners.

An empty classroom at the Discover Magical Moments childcare facility in Rochester, Minn., on Dec. 25, 2022.

Photographer: Simone Lueck/Bloomberg via Getty Images

Tax Journals

(Bloomberg Tax login required)

Tax Management International Journal

Many US subsidiaries of large foreign corporations that distribute goods in the US and report losses or low margins every year have received IRS transfer pricing “compliance alerts,” and companies should carefully weigh the consequences of their responses, Steven Wrappe of Grant Thornton says.

Taxpayers should consider implicit support and its relative value when determining an arm’s-length interest rate for intercompany loans, EY’s Craig Hillier and Mike McDonald say.

Our Team

We talk about tax a lot. But you would hear much more if you popped into one of our Teams meetings. Here’s a quick look at what some of us are watching, reading, and listening to this week.

Watching
Rebecca Baker (Editor-at-Large): “Bistro Huddy,” a series of short videos on social media about laugh-out-loud antics in an upscale restaurant in California. The show’s creator plays all the characters—the servers, the manager, the cooks, and even the customers!

Reading
Katharine Butler (Acquisitions Manager): “English Food: A People’s History.” It’s over 500 pages long, but you can just dip in and out of the different chapters and discover some fascinating social history.

Listening
Andrew Leahey (Columnist): Billy Joel’s new single, “Turn the Lights Back On.” I’ve never been a huge fan of the Long Island bard, but I’m trying to more fully take part in cultural moments when they happen. Not a bad tune.

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