United States: Tax Policy Update - April 8, 2014

Last Updated: April 14 2014
Article by Russell W. Sullivan and Danielle R. Dellerson

NUMBER OF THE WEEK: 2. The number of traditional tax extenders that did not make it into the Senate Finance Committee bill after last week's markup produced an $85 billion two-year extension of the other 53 extenders, plus a few new provisions. The left-out provisions include a credit for energy-efficient appliances and an expensing provision for certain refinery property.

April 8, 2014  


Senate: Extender-ganza. The Senate Finance Committee marked up a bipartisan package Thursday, April 3, 2014, that, if enacted, would extend a potpourri of expired and soon-to-expire tax breaks through the end of 2015. Expansions of the research tax credit for startup businesses and an expansion of the Work Opportunity Tax Credit for employers who hire the long-term unemployed were among the surprise additions to the package. Another surprise came from Republican Senator Pat Toomey (R-PA), who pushed for a vote to consider his amendment to repeal the medical device tax despite Chairman Ron Wyden's ruling that the amendment was not germane to the extenders bill and should be considered at a more appropriate time. Toomey lost his vote to override Wyden's decision, and may have damaged his relationship with Wyden and Wyden's staff in the process. It is unclear when the full Senate will begin consideration of the bill, but it does not appear to be happening before the upcoming two-week recess.

Meanwhile, the House Ways & Means Committee is illustrating its more restrained approach to extenders, kicking off the first in a series of hearings today with a hearing focused on business tax extenders. Retiring Chairman Dave Camp (R-MI) indicated in his tax reform discussion draft that a select few should be made permanent, while the majority should be allowed to expire for good.

Levin Goes Gloves-Off With Caterpillar. Sen. Carl Levin, chairman of the Senate's Permanent Subcommittee on Investigations (PSI), put executives from Caterpillar Inc. and PricewaterhouseCoopers LLP in the hot seat on April 1, 2014, during a five-hour hearing delving into Caterpillar's international tax strategies. Executives from the multinational manufacturing company testified that the company pays a combined effective tax rate of 29 percent on both its domestic and international income, in compliance with all tax laws. Caterpillar is the most recent multinational firm to face PSI scrutiny over international tax practices. Apple, Microsoft and Hewlett-Packard have all faced similar investigations, with Levin pressing for stricter transfer pricing rules.

Murray Introduces Tax Bill. Sen. Patty Murray (D-WA), the Senate Budget Committee chairwoman, introduced legislation on March 26 that would increase and expand eligibility for the Earned Income Tax Credit, paid for by limiting corporate tax deductions for stock options paid to executives as compensation and clamping down on multinationals with foreign subsidiaries whose income is taxed below 15 percent. The measures echo proposals in the president's FY 2015 budget and are likely to be discussed at a Senate Budget Committee hearing this morning on tax reform (more information in "Looking Ahead").

House: Ryan's Budget. Speaking of budgets, House Budget Committee Chairman Paul Ryan (R-WI) introduced the GOP's FY 2015 budget last week, with no real surprises and scant detail in terms of taxes. The contender for the Ways & Means gavel proposed a top individual and corporate tax rate of 25 percent, and embraced "pro-growth tax reform" without outlining a specific plan. The House is expected to vote on the budget resolution this week.


Wish Granted. On the domestic tax front, U.S. manufacturers got their big "ask" answered in Camp's proposed overhaul of the tax code: a flat 25 percent corporate tax rate, down from the current top rate of 35 percent. Under Camp's plan, the rate would decrease by two percentage points per year over a five-year period. But the concomitant elimination of several key tax breaks would impact the manufacturing sector sooner, with some provisions taking effect immediately upon enactment and others -- including major cost recovery changes -- beginning in 2016. The net effect would likely increase the overall tax burden for many firms in those first five years, if not indefinitely.

Domestic manufacturing firms organized as pass-through entities, and subject to individual tax rates, would also pay a maximum 25 percent tax rate and would be exempt from the 10 percent surtax applicable to individual taxpayers with modified adjusted gross income above $400,000, indexed for inflation. The exemption for qualified domestic manufacturing income (QDMI) would be phased in over three years, with one-third of QDMI excluded from the top 35-percent bracket in the 2015 tax year and two-thirds excluded in the 2016 tax year. The highly unpopular Alternative Minimum Tax (AMT) would be repealed for both corporations and passthroughs.

Be Careful What You Wish For. As many in the manufacturing sector had feared, Camp's plan -- in its attempt to remain "revenue neutral" -- would jettison the accelerated cost-recovery regime and other provisions in order to help offset the $680 billion in lost revenue (over 10 years) from rate reductions. The current "modified accelerated cost recovery system" (MACRS) would be replaced with something more akin to the current "alternative depreciation system" (ADS), which requires longer recovery periods, and depreciation deductions would be determined under the straight-line method instead of the declining balance method.

The draft would also repeal the currently expired bonus depreciation provision for property with a recovery period less than 20 years -- a provision that many in the manufacturing sector are hoping will see new life in a still-under-construction extenders package in the Senate Finance Committee this week.

These cost-recovery changes, along with the repeal of some more specialized provisions such as the special allowance for second generation biofuel property, are estimated to increase revenues by $269.5 billion over 10 years -- replacing almost 40 percent of the revenue lost from reducing the corporate rate.

Camp's second-largest offset for the overall rate reduction is the amortization of research and experimental expenses over a five-year period. The provision would be phased in gradually, recouping $192.6 billion in revenue over 10 years, or 28 percent of the lost revenue from the corporate rate reduction.

Phaseout and Repeal of Domestic Manufacturing Deduction. Just when manufacturers thought they could live with the changes to cost recovery and R&E, the draft smacks them on the head with the phaseout and repeal of the deduction for domestic production. The 9 percent deduction (6 percent for certain oil and gas activities) is currently available to a wide range of industries beyond the manufacturing sector, including domestic construction and certain engineering and architectural services. Camp's provision, Sec. 3122 of the discussion draft, would reduce the deduction to 6 percent in 2015, 3 percent in 2016 and repeal it after that, bringing in $115.8 billion in new revenue in the process.

Capital Contributions Included in Gross Income. Manufacturers and state and local governments are also not pleased with Camp's proposal to largely eliminate one of the ways localities entice companies to locate in their district. Camp's draft explains that requiring corporations to report capital contributions as income -- including the types of incentives and concessions that states and localities offer to attract businesses to relocate -- would help remove a "federal tax subsidy" for such enticements.

Is It Worth It? The reality is that many corporations will find the tradeoff worth it for the 25 percent rate. Passthroughs defined as manufacturers also might support the package because it gives them the 25 rate. But those that do not meet the domestic manufacturing definition, or are in a high-growth industry, such that increased capital costs provide enough depreciation deductions to offset most or all of their income, may prefer the status quo.


IRS Releases Guidance for Same-Sex Couples' Retirement Plans. The Internal Revenue Service issued the long-awaited guidance on retirement plans for same-sex married couples in the wake of the U.S. Supreme Court's decision in United States v. Windsor, which struck down the Defense of Marriage Act. The link to the guidance concerning prospective and retrospective considerations and timing for plan amendments can be found here. The guidance makes clear that retirement plans are not required to apply the Windsor ruling retroactively.


"Stupid" Tax System. Jason Furman, the chairman of President Obama's Council of Economic Advisers, told attendees at the International Tax Policy Forum conference "I like to describe the system that the U.S. has right now as a 'stupid territorial tax system.' " Furman went on to say that the international aspects of the U.S. tax code are the most broken, "in that right now it does a combination of raising relatively little revenue and doing that while imposing a substantial distortion."

In Other "Stupid" Tax News... Senate Finance Committee Ranking Member Orrin Hatch (R-UT) made it pretty clear he's not worried about running again when he let slip the phrase "stupid-ass tax," in reference to the medical device tax, during last week's markup. The Mormon lawmaker immediately followed the phrase with "I probably shouldn't have said that," eliciting laughter from the packed hearing room.


There is a flurry of activity on the Hill this week before the House and Senate recess for two weeks.


  • Committee on Ways & Means: Extenders. Committee Chairman Dave Camp will take on business tax extenders during a hearing Tuesday, April 8, 2014. According to a committee advisory, "The hearing will explore the value in having stable, permanent tax policy for employers, as well as the problems caused by tax policies that frequently expire and are extended for short periods of time (and often retroactively). To that end, the hearing specifically will consider those expired business tax provisions that are either made permanent or are provided long-term extensions under the discussion draft of the Tax Reform Act of 2014." Witnesses include:
    • Ms. Judith Zelisko
      Vice President of Tax, Brunswick Corporation
    • Mr. Bob Stallman
      President, American Farm Bureau Federation
    • Mr. James Redpath
      Managing and Tax Partner, HLB Tautges Redpath, Ltd.
    • Mr. Joshua Odintz
      Partner, Baker & McKenzie LLP
    • Mr. Thomas Hungerford
      Senior Economist and Director of Tax and Budget Policy, Economic Policy Institute
  • Committee on Ways & Means: Final Employer Mandate Regulations. The Subcommittee on Health will hold a hearing Tuesday, April 8, 2014, on the implications of the Treasury Department's recently released final regulations implementing the employer mandate and employer information reporting requirement provisions of the Affordable Care Act. J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health Policy for the Treasury Department, will be the sole witness.
  • Committee on Oversight and Government Reform: Lerner Facing Contempt Vote. Chairman Darrel Issa (R-CA) has teed up a resolution that the committee will vote on this Thursday, April 10, 2014, to hold former Internal Revenue Service official Lois Lerner in contempt for refusing to answer questions from the committee concerning alleged targeting of certain applicants during her tenure as the head of the IRS division that reviews tax-exemption applications.


  • Committee on Finance: Tax Preparers. The committee will hold a hearing Tuesday, April 8, 2014, entitled "Protecting Taxpayers from Incompetent and Unethical Tax Preparers." Witnesses include:
    • The Honorable John A. Koskinen, Commissioner, Internal Revenue Service
    • Ms. Nina E. Olson, National Taxpayer Advocate, Internal Revenue Service
    • Mr. James R. McTigue Jr., Director, Tax Issues, Government Accountability Office
    • Mr. William Cobb, President & CEO, H&R Block
    • Ms. Janis Salisbury, Chair, Oregon Board of Tax Practitioners
    • Dr. John Barrick, Associate Professor, Brigham Young University
    • Ms. Chi Chi Wu, Staff Attorney, National Consumer Law Center
    • Mr. Dan Alban, Attorney, Institute for Justice
  • Budget Committee: Tax Reform. Chairwoman Patty Murray (D-WA) will focus on how changes to the tax code can help spur economic growth and promote fairness. Witnesses include:
    • John L. Buckley, J.D., Former Chief Counsel, House Committee on Ways and Means and former Chief of Staff, Joint Committee on Taxation
    • Jane Gravelle, Ph.D., Senior Specialist in Economic Policy, Congressional Research Service
    • Diana Furchtgott-Roth, Senior Fellow, Manhattan Institute for Policy Research

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.