[IMGCAP(1)]If the lame-duck session of Congress fails to address the tax extenders, it will fall to incoming House Ways and Means Committee chairman Paul Ryan, R-Wis., to see that they get passed early in the next session of Congress.
Tax extenders—temporary tax provisions that are reinstated by Congress on a regular basis—have been a recurring part of the tax arena for years. Most of the current group up for debate expired at the end of 2013, and their eventual extension will be retroactive. But even though they’ve been known since the end of last year, and there is general bipartisan agreement that they need to be acted on, there is no guarantee as to when they will be passed (see our slideshow Tax Extenders You Can Count On).
The Senate passed a comprehensive extenders bill, the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, in April 2014. The bill would extend for two years more than 50 expired provisions. The House, on the other hand, has focused on permanent extension of tax provisions in a series of bills.
Added to the mix, of course, is President Obama, who has threatened to use his “veto pen” on legislation he doesn’t like.
Businesses would like to know for tax planning purposes, and the IRS would like to know so it can get out the forms and program its systems on time. Preparers would like to know so tax season begins on time.
“They will try to get it done before the end of the year,” said Dean Sonderegger, executive director of product management for Bloomberg BNA Software. “You’ll see a strong push for a grand bargain. The Republicans will try hard to make some of the provisions permanent. These will include the R&D credit, bonus depreciation and the enhanced 179 deduction. The big bargain will occur shortly after they get the continuing resolution to fund the government. And any conversation about the rest will get pushed out to 2015.”
“Of the original 60, only a handful will get through this year,” Sonderegger said. “The rest might not even be enacted in 2015. The Republicans will pass something that will be vetoed, so the effort in the lame-duck session is to get things through before that process starts. I think you will see things pass in the new Congress, but you’ll also see the veto pen come out.”
One extender that is unlikely to be passed is the look-through treatment of payments between related CFCs (controlled foreign corporations), according to Sonderegger. The rule allows U.S. taxpayers to move capital from one CFC to another without triggering U.S. tax.
“It allows corporations to more easily move offshore earnings across different borders,” he said. “If they move money back to the U.S., they have to pay tax. It’s very popular with international businesses, but I can’t see it making it through the legislative process in today’s environment.”
Among the extenders on Sonderegger’s “short list” for making it through the legislative process are the R&D credit, enhanced section 179 expensing, bonus first-year depreciation, the food donation tax deduction, the option to deduct state and local sales taxes, the Work Opportunity Tax Credit, the enhanced deduction for qualified small business stock, the credit for energy efficient improvements to existing homes, the above-the-line deduction for higher education expenses, and tax-free distributions from IRAs for charitable purposes.
All of these, of course, are subject to veto even if they pass both houses of Congress.
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