United States: Tax Policy Update 25 Mar 2014

Last Updated: March 28 2014
Article by Russell W. Sullivan and Danielle R. Dellerson

NUMBER OF THE WEEK: 15. The number of times Congress has extended the Research and Development (R&D) tax credit since its inception in 1981. Broad bipartisan support for another R&D credit extension -- possibly even making it permanent -- may be the only hope for pushing a tax extenders package over the finish line.

LEGISLATIVE LANDSCAPE

Senate and House: Extenders Battle Brewing. We expect theSenate Finance Committee to take up a package of expired tax provisions, known as "extenders," starting next week, and House Ways & Means Chairman Dave Camp (R-MI) told his fellow committee members to expect to be sifting through each of the extenders beginning in early April. Both tax-writing panels will look for consensus on which extenders to abandon and which to resurrect, with divergent views on whether to do another short-term extension or pick a select few to live on in perpetuity.

Look for more rapid developments on extenders in the Senate Finance Committee, which appears focused on a short-term solution for now, while the House Ways & Means Committee delves into the costs and benefits of permanently extending specific provisions.

Wyden's Got Issues. Finance Committee Chairman Ron Wyden (D-OR) will likely introduce a bill for committee markup in the next week or two with an endorsement from the panel's ranking member, Sen. Orrin Hatch (R-UT). Fellow committee members will be encouraged to introduce amendments, with priority given to those with bipartisan support. We do not expect an offset to be included in the Chairman's Mark package, but Wyden could require that offered amendments be paid for.

Wyden faces a formidable challenge in trying to move an extenders package without an engine. In the past, the need to patch the alternative minimum tax (AMT) or address sunsetting across-the-board tax cuts provided the necessary impetus, allowing extenders to hitch a ride. Now, support for an extension of the R&D tax credit provides some horsepower for extenders, but nothing compared to past legislative vehicles.

Here are some other issues that Wyden will have to address in the process:

  • Whether to stick to traditional extenders or allow amendments on unrelated provisions.
    For example, 28 senators recently signed a letter supporting a bipartisan bill to expand the availability of the tax credit for investment in solar energy production (Section 48C of the Internal Revenue Code) so that the credit would be available for projects under construction at the time of the credit's expiration on Dec. 31, 2016, rather than only for those already "placed in service" and generating power by that time.
  • If unrelated amendments are allowed, how to keep the package from becoming an "Obamacare" bill.
    For example, if unrelated amendments are allowed, how can Wyden prevent partisan amendments, like a proposal to delay the individual mandate, that could torpedo the package?
  • Whether to extend the chosen provisions one year or make some permanent, especially in light of House indications that they will make some permanent.
  • Whether to require offsets.

Camp Lays Out Road to Reform. The possibility that permanent extension of certain extenders does not need to be paid for was echoed in a memo Camp sent to fellow Ways & Means Committee members yesterday. The letter also outlined the next steps for shaping tax policy and indicated Camp's increased willingness to take a piecemeal approach to tax reform, marking a shift from the chairman's previous all-or-nothing attitude. The memo set forth a three-pronged approach based on Camp's Tax Reform Act of 2014 discussion draft, which will include:

  • Additional bipartisan meetings with the staff of the Joint Committee on Taxation until committee members have walked through the entire discussion draft;
  • Public hearings on specific portions of the bill; and
  • Advancement of permanent legislation, including some tax extenders, that paves the way for tax reform by making incremental progress towards full reform.

REGULATORY WORLD

Surgery Sidelines Lew. Treasury Secretary Jack Lew is undergoing surgery this week, but is expected to return to official duties next week. Lew was slated to testify for a House Financial Services Committee hearing on "The State of the International Financial System" originally scheduled for Wednesday, March 26, 2014. The hearing will be postponed to a later time.

COURTS & LEISURE

Inherited IRAs Exempt in Bankruptcy? The U.S. Supreme Court heard oral arguments March 24 in a case that asks whether an inherited individual retirement account meets the exemption from a bankruptcy estate that applies to "retirement funds." The transcript for the arguments in the case, Clark v. Rameker, is available here.

LOOKING AHEAD

Senate:

No Fooling. April 1 is no joke for the Senate Permanent Subcommittee on Investigations, which will hold a hearing Tuesday, April 1, 2014, on "Caterpillar's Offshore Tax Strategy." This is the latest installment of the subcommittee's focus on corporate and individual tax evasion. The hearing will examine "the structures and methods employed by multinational corporations to allocate income outside of the United States and how such activities are affected by the Internal Revenue Code and related regulations," according to the subcommittee's website. Witnesses will include representatives of Caterpillar Inc. and PricewaterhouseCoopers LLP, as well as tax experts. A witness list will be available Friday, March 28, 2014.

Last week, the subcommittee's chairman, Sen. Carl Levin (D-MI) and its ranking member, Sen. John McCain (R-AZ), urged the Department of Justice to seek extradition of Swiss bankers and financial advisers who have allegedly assisted U.S. residents in evading taxes.

House:

IRS Targeting Hearing. The House Committee on Oversight and Government Reform will hold another hearing Wednesday, March 26, 2014, to examine the "IRS response to the targeting scandal." The sole witness will be IRS Commissioner (and frequent flier on the House hearings circuit) John Koskinen.

Chapter 11 Reform. On Wednesday, March 26, 2014, the House Judiciary Committee's Subcommittee on Regulatory Reform, Commercial and Antitrust Law will hold a hearing entitled "Exploring Chapter 11 Reform: Corporate and Financial Institution Insolvencies; Treatment of Derivatives." Witnesses will be:

  • The Honorable Christopher Sontchi
    U.S. Bankruptcy Court for the District of Delaware
  • Mr. Seth Grosshandler, Esq.
    Partner
    Cleary Gottlieb Steen & Hamilton LLP
  • Ms. Jane Vris
    General Counsel and Partner
    Millstein & Co.
  • Professor Thomas H. Jackson
    William E. Simon School of Business
    University of Rochester
  • Professor Michelle M. Harner
    Co-Director, Business Law Program
    University of Maryland Francis King Carey School of Law

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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