United States: Tax Policy Update: January 22, 2014

Last Updated: February 3 2014
Article by Russell W. Sullivan and Danielle R. Dellerson

Number of the Week: $104 million. The estimated amount of legal wagers placed at Nevada casinos on the outcome of Super Bowl XLVIII, pitting the Seattle Seahawks against the Denver Broncos on Feb. 2 in East Rutherford, NJ. Last year, the Nevada Gaming Control Board reported a record high of $98.9 million in Super Bowl bets. Just remember, winning bets are taxable.


The Senate: Could Tax Extenders Be Resurrected Before Easter? The Senate and the House of Representatives are on recess until next week, which gives us an extra week to speculate about what they might do when they return.

Sen. Ron Wyden, D-Ore., is likely only weeks away from officially taking the helm of the Senate Finance Committee, depending on how quickly the Senate proceeds to the confirmation of current chair Sen. Max Baucus, D-Mont., to become the next ambassador to China.

Wyden is reportedly anxious to address the 50-plus expired tax provisions that are currently in extension limbo. Senate Majority Leader Harry Reid, D-Nev., and Sen. Charles E. Schumer, D-NY, a member of the Senate Finance Committee, told reporters last week that Wyden's first priority is to address tax extenders -- hinting that he may push for an extenders package that includes all the currently expired provisions, including bonus depreciation, the R&D tax credit and the Work Opportunity Tax Credit, among others. Wyden has been very vocal about his support for currently expired energy-related tax provisions, including the production tax credit for renewable electricity and the renewable energy investment tax credit.

But can Wyden get an extenders package through the Senate, not to mention the House? Many of the provisions have bipartisan support, but senators facing tough elections this year and budget hawks will resist passing the tax cuts without paying for them, as they've traditionally done in the past. With a price tag upwards of $54 billion for a one-year extension, the battle over extenders will put Wyden's negotiating mettle to the test right out of the gate.

Senators Eyeing Open Finance Seat. Baucus's departure from the Senate and Wyden's move to the head of the dais leaves an open seat for an ambitious Democrat looking to make an impact on tax, health care, and trade policies. Senators Mark Warner, D-Va., and Amy Klobuchar, D-Minn., are reportedly vying for the seat. Warner would bring a "blue dog" sensibility to the panel, not unlike Baucus's conservative leanings. Klobuchar, on the other hand, would bring a more progressive bent, potentially more in line with Wyden on many issues. There are currently only two women, both Democrats, serving on the 24-member committee.

Bennet and Blunt Team Up on Infrastructure Bank Bill. Sens. Michael Bennet, D-Colo., and Roy Blunt, R-Mo., have introduced a bill creating a $50 billion infrastructure bank that would fund transportation, energy, communications, water and education infrastructure projects across the country. The Partnership to Build America Act, S. 1957, was already introduced in the House as H.R. 2084. It proposes to fund the bank in part by incentivizing corporate investment in infrastructure bonds via the tax code. Specifically, the legislation would allow corporations to exclude a certain portion of their overseas earnings from taxation. The amount they would be permitted to repatriate for each dollar of bond purchases would be determined by a competitive auction.

The bill has broad bipartisan support in both houses of Congress. Stay tuned.

Coburn Announces Early Retirement. Sen. Tom Coburn, R-Okla., a member of the Senate Finance Committee known for cracking down on waste, fraud and abuse in federal spending programs, announced he will retire in January 2015, a year earlier than expected. Coburn is battling a recurrence of prostate cancer, but told reporters his retirement decision was not due to his health.

The House: House Ways & Means Committee Chairman Dave Camp, R-Mich., has relaunched his charge toward comprehensive tax reform with a new "Tax Reform 101" video posted on YouTube (view here) and a new Twitter feed, @FixOurTaxCode. He is expected to pressure his Republican colleagues to keep tax reform on the forefront of the legislative table when they gather for the annual Republican retreat at the end of the month. Republican leadership is likely to resist entering into a serious tax reform effort -- and its concomitant controversies -- ahead of the 2014 elections.


Administration Eyeing Executive Action to Finance Renewable Energy. The Obama administration is looking to wield executive authority to enhance tax incentives for renewable energy investments, according to a story in Bloomberg BNA's Daily Tax Report, Jan. 22. According to the story, a former Obama energy and climate aide told members of the media that various options are under consideration, including a Treasury Department revenue ruling that would allow real estate investment trusts (REITs) to invest in renewable energy projects, including solar panels and wind turbines, while retaining the investors' preferential tax treatment.

The move would help ameliorate some of the uncertainty currently surrounding renewable energy projects due to the expiration of short-term tax incentives like the energy production tax credit and the renewable energy investment tax credit -- both of which expired at the end of 2013 and have not been addressed since.


Rent-A-Center Victory. A divided U.S. Tax Court ruled Jan. 14 that Rent-a-Center Inc.'s subsidiaries could deduct insurance payments they made to RAC's wholly owned insurance unit for policies covering workers' compensation, automobile and general liability risks. The majority thus rejected the IRS's claim that RAC owed more than $43 million in back taxes. The IRS argued that the insurance unit, which RAC incorporated in Bermuda, was established solely as a tax shelter. You can read the full opinion here.

Turbo Deduction. Intuit, the parent company of TurboTax, will have two 30-second ads air during the Super Bowl on Feb. 2 at an estimated $4 million per ad. Fortunately, the tax preparation software giant should be well positioned to take advantage of the deduction for advertising expenses under IRC 162(a) -- a deduction that tax reformers have considered limiting as part of a tax code overhaul.


Ways & Means Hearing on Employer Mandate. Chairman Camp and his Republican colleagues will delve into the Affordable Care Act's requirement that employers with 50 or more full-time employees provide health coverage or face penalties.

The hearing will focus on the 30-hours-per-week definition of "full time" under Section 4980H of the Internal Revenue Code and whether that definition disproportionately affects some industries more than others, according to the hearing advisory. The hearing is set for 10 a.m. on Jan. 28 in 1100 Longworth House Office Building.

Baucus Confirmation Hearing. Also on Jan. 28, the Senate Foreign Relations Committee will hold a hearing on the nomination of Sen. Max Baucus to be the next ambassador to China, teeing up his confirmation and departure from the Senate by early February.

SOTU to Follow. Later on Jan. 28, President Obama will head to the Capitol to deliver his annual State of the Union address. It is expected that Obama will address tax reform, likely in the context of its role in correcting the nation's growing income gap. Watch for more indications of executive actions aimed at impacting tax policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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