Congress left town without passing a number of tax breaks that expired at the end of 2005, including the option to deduct state sales taxes in place of state income tax, a deduction for college tuition and fees, the deduction for school teachers, and a research and development credit.Although the breaks themselves are not controversial, and leaders of the Senate Finance Committee pushed for their enactment, the breaks became mired in political infighting when they were attached to "trifecta" legislation that would have included an increase in the minimum wage and a slash in estate tax rates.
Congress is expected to again take up the issue in a lame-duck session the week after the November elections, but there is no guarantee the extenders will be passed then.
In a memo to the Finance Committee tax staff, the Internal Revenue Service said that delays in enacting the extenders would have a significant adverse impact on tax administration. The 2006 draft tax forms don't contain the provisions, and because of deadlines with the vendors who print the forms, the IRS would have to issue supplemental instructions on how to claim the breaks.
Moreover, software developers will be adversely affected should there be late changes in the law, the IRS warned.
Meanwhile, the National Association of Manufacturers pressed Congress to renew the extenders, including the R&D tax credit. "A lot will be influenced by the outcome of the election, but we hope they pass the extenders then," said the NAM's senior policy director of taxation, Monica McGuire.
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