As of this writing, the Senate had adjourned to campaign prior to the election, so when we are talking about year-end tax legislation, we are talking about tax legislation in the lame duck session after the election.
As usual, the House has been able to pass several individual tax bills, while the Senate rules seem to favor putting everything together in one tax vehicle.
Let us look at what is being talked about for inclusion in that year-end lame duck tax package but, before that, one small piece of tax legislation and a provision did make it through Congress and to President Obama’s desk before the Senate left town:
- Tax breaks for Olympic medal winners. The one piece of tax legislation that did make it through Congress just before the Senate adjournment was a tax break for Olympic medal winners.
The United States Appreciation for Olympians and Paralympians Act of 2016 would generally exclude the value of Olympic and Paralympic medals and monetary awards from the U.S. Olympic Committee from an athlete’s taxable income.
The exclusion is only available to athletes with adjusted gross income for that tax year that does not otherwise exceed $1 million. The exclusion is also limited to monetary awards from the U.S. Olympic Committee, so athletes that also receive monetary awards from their particular sport federation or organization would still be subject to tax on that income.
It is also limited to prize money with respect to the Olympic or Paralympic Games, so any monetary awards for national competitions leading up to the Olympic or Paralympic Games would also not fall within the exclusion.
Needless to say, income from endorsement deals with private companies would not qualify for the exclusion and may serve to tax U.S. Olympic Committee awards if adjusted gross income exceeds $1 million.
- Restrictions on 501(c)(4) regulations. Another tax-related provision that made it through Congress as part of the stop-gap government funding legislation continues the ban on the Internal Revenue Service finishing regulations that would determine permissible levels of political activity for 501(c)(4) organizations.
EXPIRING TAX PROVISIONS
After the PATH Act made a number of regularly expiring tax provisions permanent at the end of 2015, it was not clear that we would once again be talking about the fate of expiring provisions, but here we are.
The PATH Act, besides making a number of expired provisions permanent, also extended other provisions for two or five years. A few expired provisions were left out of the PATH Act and not extended at all. The two-year extensions were generally for 2015 and 2016, and therefore they expire at the end of this year.
Renewable energy credits to encourage investment in wind, geothermal and fuel cells were omitted from the PATH Act, and Sen. Ron Wyden, D-Ore., is pushing for their inclusion in year-end legislation.
Credits only extended through 2016 include: the Code Sec. 25C nonbusiness energy property credit; the qualified fuel cell motor vehicle credit; the two-wheeled plug-in electric vehicle credit; the Indian employment tax credit; and the biodiesel, renewable diesel and alternative fuel credits.
Also included are: the second generation biofuel producer credit; the alternative fuel vehicle refueling property credit; the credit for electricity produced from renewable resources and energy credit on qualified facilities other than wind or solar; the credit for new energy-efficient homes; the railroad track maintenance credit; the mine rescue team training credit; and the American Samoa economic development credit.
There are also a number of deductions, exclusions and other tax breaks expiring at the end of 2016.
These include: the tuition and fees deduction; the mortgage debt exclusion; the mine safety equipment expense election; the film, TV and live theatrical production expense provision; the energy-efficient commercial buildings deduction; the Puerto Rico domestic production activities deduction; the shorter recovery period for racetracks and race horses; the shorter recovery period for Indian reservation property; the additional depreciation for biofuel plant property; the gain recognition rules for Federal Energy Regulatory Commission transactions; the qualified zone academy bond program; and the tax benefits for empowerment zones.
House Ways and Means Committee Chair Kevin Brady, R-Texas, has stated that he would prefer to address expired provisions as part of tax reform in 2017, rather than addressing them now. There is certainly a lot of precedent for allowing them to expire and then revisiting the issue the following year, even waiting until the end of the following year when they had expired at the beginning of that year.
The Senate Finance Committee unanimously approved the Retirement Enhancement and Savings Bill of 2016.
The legislation would seek to expand the automatic enrollment safe harbor plan, eliminate the safe harbor notice requirement for nonelectric 401(k) plans, expand the small-employer plan start-up tax credit, and repeal the maximum age for contributions to traditional IRAs. Taxable payments made for graduate or postdoctoral study would qualify as compensation for IRA contribution purposes.
Also included is an increase in excludable benefits for volunteer firefighters and emergency medical providers in state and local governments. The legislation contains a pay-for, in the form of an increase in the failure-to-file penalty.
Given the greater difficulty of getting legislation through the Senate, any bill such as this one that has unanimous approval of the Senate Finance Committee is very likely to be included in any year-end tax package.
The Empowering Employees through Stock Ownership Bill passed the House by a 287-to-124 vote.
The bill is designed to defer tax on stock options until a sale of the underlying stock provides the resources to pay the tax. Under the Alternative Minimum Tax, stock options could create a current-year tax obligation, which, in the dot-com collapse, forced many who held incentive stock options in start-ups to sell shares at depressed prices to try to come up with the money to pay a tax based on higher values at the time of the exercise of the options in an earlier year.
The legislation does garner bipartisan support.
LIMIT ON IRS ASSET SEIZURE AUTHORITY
The House passed the Clyde-Hirsch-Sowers RESPECT bill by a unanimous 415-to-0 vote. The bill would limit the IRS’s authority in conducting civil asset seizures and forfeitures under the Bank Secrecy Act to property that originated from an illegal source or was purposely structured to conceal criminal violations or regulations.
The legislation would codify current IRS policy.
DISEASED CITRUS CROPS
The House also passed legislation to permit accelerated expensing for diseased citrus crops by a vote of 400 to 20.
This legislation is also likely to be included in any year-end tax package.
The House passed the Mobile Workforce State Tax Simplification Bill of 2015 by voice vote on Sept. 21, 2016.
The legislation is designed to provide rules for when a state may tax income earned by an employee who works in more than one state. The legislation appears to have bipartisan support.
WAYS AND MEANS APPROVED
Approved by the Ways and Means Committee but still awaiting House action is legislation with respect to the tax treatment of the Indian Health Service student loan repayment program, exclusions from income for qualified student loan discharges for students who have died or suffered a permanent disability, the national megawatt capacity limitation for the Nuclear Production Tax Credit, and the tax qualification of mutual irrigation and ditch companies.
Several of these measures appear to have bipartisan support.
LOUISIANA FLOODING TAX RELIEF
Continuing a long line of congressional efforts at tax relief for disasters, legislation has been proposed to provide tax relief for Louisiana flood victims.
The legislation would provide tax relief over and above that permitted under IRS discretionary authority. It also generally has bipartisan support, but it may have to be expanded to address other disaster situations, as well, to achieve passage.
As usual, there is a largely non-controversial package of technical corrections to prior legislation just looking for a vehicle to which it can be attached to sail through Congress.
Whatever happens in the lame duck session is likely to depend upon the outcome of the Nov. 8 elections.
If either party feels that their position may be enhanced in the new Congress, there may be a push to delay any action until next year. Of course, the party that suffers a weakening of its position in the election may push to get what they can in the lame duck session.
These pieces of legislation appear to have the best hope for inclusion in any year-end tax legislation package.
George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA is principal analyst, at Wolters Kluwer Tax & Accounting.
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