Resources

Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Lawmakers to consider fate of currently expired “extender” provisions

The “Tax Increase Prevention Act of 2014” (TIPA), passed late last year, extended, generally through the end of 2014, a host of then-expired “extender” provisions—but, as things currently stand, these provisions are again expired and taxpayers are again waiting to see whether, when, and how Congress will address them. However, there is some indication that action could come earlier this year with the Senate Finance Committee rumored to possibly mark up an extenders package as early as next week. This article provides a list of the extender provisions and, based on prior proposals, possible avenues Congress could take.

RIA observation: Many, if not all, of the provisions below were most recently extended by TIPA after they had been expired for most of a year. The prior extension, by the 2012 Taxpayer Relief Act, occurred after most of the provisions had been expired for over a year. In this respect, some of the justifications underlying the provisions—such as to encourage certain types of behavior during the tax year—were weaker given the retroactive passage and amounted more to good fortune to those who had happened to engage in such behavior during the year following the previous expiration. Both then and now, the delay hasn’t just affected taxpayers’ ability to engage in forward-looking tax planning, but has almost certainly influenced actual taxpayer behavior.

Expired provisions. Following are the provisions at issue, expired as of Dec. 31, 2014, arranged by subject matter. Note that TIPA also extended a number of provisions that aren’t typically categorized as extenders (e.g., empowerment zone designations, qualified zone academy bond limitation), which are generally beyond the scope of this article but could potentially be dealt with similarly going forward.

Expired individual provisions include:

…deduction for state and local sales taxes (Code Sec. 164(b)(5));
…$250 above-the-line deduction for certain expenses of teachers (Code Sec. 62(a)(2)(D));
…above-the-line deduction for qualified tuition and related expenses (Code Sec. 222);
…deduction for mortgage insurance premiums treated as qualified interest (Code Sec. 163);
…parity for exclusion for employer-provided mass transit and parking benefits (Code Sec. 132(f)); and
…exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; (Code Sec. 108).
…credit for certain health insurance costs (Code Sec. 35(a)).
RIA observation: One provision that was not extended by TIPA was the health coverage tax credit under Code Sec. 35. However, the recent Trade Preference Extension Act of 2015 (P.L. 114-27) modified and retroactively extended this credit six years through 2019.

Expired business provisions include:

…research and experimentation credit (Code Sec. 41);
…work opportunity tax credit (Code Sec. 51, Code Sec. 52);
…increase in expensing to $500,000 and in investment based phaseout amount to $2,000,000 and expanded definition of Section 179 property (Code Sec. 179);
…50% bonus depreciation (Code Sec. 168(k));
…exceptions under Subpart F for active financing income (Code Sec. 953, Code Sec. 954);
…look-through treatment of payments between controlled foreign corporations (Code Sec. 954(c)(6));
…special treatment of certain dividends of regulated investment companies (RICs) (Code Sec. 871(k));
…employer wage credit for activated military reservists (Code Sec. 45P);
…special expensing rules for film and television production (Code Sec. 181(f));
…special 100% gain exclusion for qualified small business stock (Code Sec. 1202);
…reduction in S corporation recognition period for built-in gains tax (Code Sec. 1374);
…election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation (Code Sec. 168(k));
…low-income housing 9% credit rate freeze (extended for allocations made before Jan. 1, 2016) (Code Sec. 42);
…treatment of military basic housing allowances under low-income housing credit (Code Sec. 42, Code Sec. 142);
…15-year straight line cost recovery for qualified leasehold property, qualified restaurant property, and qualified retail improvements (Code Sec. 168(e)(3)(E));
…7-year writeoff for motorsport racing track facilities (Code Sec. 168(i)(15)(D));
…deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (Code Sec. 199);
…modification of tax treatment of certain payments to controlling exempt organizations (Code Sec. 512);
…accelerated depreciation for business property on Indian reservations (Code Sec. 168(j)); and
…Indian employment credit (Code Sec. 45A).

Expired charitable provisions include:

…enhanced charitable deduction for contributions of food inventory (Code Sec. 170);
…tax-free distributions for charitable purposes from individual retirement accounts (IRAs) of taxpayers age 70 1/2 or older (Code Sec. 408(d)(8));
…basis adjustment to stock of S corporations making charitable contributions of property (Code Sec. 1367); and
…special rules for contributions of capital gain real property for conservation purposes (Code Sec. 170(b)(1)(E), Code Sec. 170(b)(2)(B)).

Expired energy provisions include:

…credit for construction of energy efficient new homes (Code Sec. 45L);
…energy efficient commercial building deduction (Code Sec. 179D(h));
…construction date for eligible facilities to claim the production tax credit or wind credit (Code Sec. 45(d));
…credit for nonbusiness energy property (Code Sec. 25C);
…alternative fuel vehicle refueling property (Code Sec. 30C);
…incentives for alternative fuel and alternative fuel mixtures (Code Sec. 6426);
…incentives for biodiesel and renewable diesel (Code Sec. 40A, Code Sec. 6426);
…second generation biofuel producer credit (Code Sec. 40(b)(6)(H)); and
…production credit for Indian coal facilities (Code Sec. 45(e)(10)).
RIA observation: TIPA did not extend the credit for electric drive motorcycles and three-wheeled vehicles under Code Sec. 30D, the credit for energy efficient appliances under Code Sec. 45M(b), or the placed-in-service date for partial expensing of certain refinery property under Code Sec. 179C(c)(1).

What’s next? There have been a number of statements over the past week by politicians indicating that extenders work is on the horizon—one by Senate Finance Committee Chairman Orrin Hatch (R-UT), and one by House Ways and Means Committee Chairman Paul Ryan (R-WI). The Finance Committee will reportedly mark up an extenders package as soon as the week of July 13th, while Rep. Ryan said that he thought Ways and Means would work on a bill in September.

In general, a main point of contention regarding extenders has been whether they should simply be re-extended on a cumulative basis to give taxpayers greater certainty, and then given a closer look on an individual basis as part of comprehensive tax reform—which has proven to be easier said than done—or whether each provision should be evaluated on its merits prior to any extension. One reason given for the most recent 1-year extension was to allow lawmakers the time to engage in more analysis to deal with the extenders in a more substantive way rather than another blanket extension. However, while most parties seem to agree that extenders should ideally be addressed as part of greater tax reform efforts, there seems to be little that is agreed upon beyond that.

There has been some legislation introduced this year targeting specific extender provisions, but nothing has gotten anywhere near enactment. These proposals would, among other things, make permanent:

…the research credit (H.R. 880, the “American Research Competitiveness Act of 2015”);
…a number of the above charitable provisions (H.R. 644, the “America Gives More Act of 2015”);
…the deduction for state and local general sales taxes (H.R. 622, the “State and Local Sales Tax Deduction Fairness Act of 2015”);
…enhanced Code Sec. 179 expensing (H.R. 636, “America’s Small Business Tax Relief Act of 2015”);
… the reduced recognition period for built-in gains of S corporations (H.R. 629); and
…certain rules regarding basis adjustments to stock of S corporations making charitable contributions of property (H.R. 639);

Previous proposals have also included, among other things, making bonus depreciation and the subpart F exemption for active financing income permanent.

The Obama Administration has threatened to veto a number of the above bills on the ground that they fail to provide an offset and would add to the deficit.

It is unclear at this point what will emerge from the Senate Finance and Ways and Means Committees. Stay tuned for further details.

 

Tagged with →