United States: Tax Policy Update - November 4, 2014

Last Updated: November 10 2014
Article by Russell W. Sullivan and Danielle R. Dellerson

NUMBER OF THE WEEK: 4 Percent.

The chance that Democrats will hold on to their majority in the Senate after tonight's election results are tallied (or possibly not until after a Dec. 6 runoff in Louisiana), according to a Washington Post election model.

LAME-DUCK LEGISLATIVE LANDSCAPE

The Post-Election Extender-Ganza. For those of you who've waited patiently for tax extenders to return to the legislative limelight, the time is nigh. Regardless of the outcome of today's midterm elections, leaders in both the House and Senate have repeatedly said they will deal with the nearly 60 expired tax breaks during the lame-duck session.

But the question is how? A partisan battle over the amendment process — or lack thereof — blocked passage of the EXPIRE Act (S. 2260, offered as an amendment in the nature of a substitute for H.R. 3474) in the Senate last spring after it passed out of the Finance Committee with bipartisan support. The EXPIRE Act extends all 55 currently expired and soon-to-expire tax provisions for the 2014 and 2015 tax years.

The House, on the other hand, passed H.R. 4 on Sept. 18, to permanently extend a limited selection of tax provisions — six, to be exact — along with some modifications and expansions to their original versions. The House bill also repeals the medical device tax and replaces the 30-hour threshold for classification as a full-time employee for purposes of the employer mandate under Obamacare with a 40-hour threshold.

Neither of the extender packages would be paid for by revenue offsets, which is significant given that the House bill is estimated to reduce federal revenues by more than $572 billion over 10 years, and President Obama has said he would veto any permanent tax cut extensions without budgetary offsets. The two-year extension proposed in the Senate bill would cost $85 billion over the 10-year window.

So, the question is, can lawmakers negotiate a deal to bridge their disparate approaches after the election, and will post-election realities help or hurt chances for a lame-duck deal?

We expect House Republicans to continue the fight to make at least some of the tax breaks permanent. High on the permanency priority list are the R&D tax credit, increased expensing under Section 179 and bonus depreciation — a trio of pro-business provisions with hefty price tags. Permanent extension of these provisions — especially the R&D tax credit — also has support from some Democrats. But, in return, Dems will demand extensions of tax breaks for low- to middle-income families, including the expanded Earned Income Tax Credit, Child Tax Credit and American Opportunity Tax Credit, all of which are set to expire in 2017.

Senate Dems will also push for at least short-term extension of tax provisions promoting renewable energy, but their bargaining power appears likely to take a hit after today's election results come into view.

Here is a side-by-side recap of the key business-related provisions that will be on the negotiating table when House and Senate leaders and tax writers return next week.

Provision

Senate (H.R. 3474)(2-year Extension of All Provisions)

House (H.R. 4)

Est. Cost 10-year

R&D credit

(Sec. 41)

A credit of 20 percent of research expenses over a base amount, determined by average receipts and expenses for the 4 preceding taxable years.

A 14 percent alternative simplified credit also available. Modified to allow qualifying startup businesses to claim unused credits against their payroll tax after applying credit to income tax liability.

Permanent 20 percent credit for qualified research expenses over a base amount equal to 50 percent of average qualified research expenses for the 3 preceding taxable years; and 20 percent of amounts paid to an energy research consortium for energy research. Provides a special rule permitting a credit for taxpayers having no qualified research expenses in any of the 3 preceding taxable years; the credit is equal to 10 percent of such expenses.

Senate: $16

House: $155

(in billions)

Sec. 179 Expensing

Increased annual expensing limit ($500,000 limit, $2 million phaseout threshold) and expanded definition of qualifying property.

Makes the increased expensing limit permanent.

Senate: $3

House: $73

(in billions)

Bonus Depreciation (Sec. 168(k))

Provides a depreciation deduction equal to 50 percent of the adjusted basis of qualifying property in the first year the property is placed into service. Another provision allows corporations to elect to increase their AMT credit limit in lieu of bonus first-year depreciation.

Makes bonus depreciation permanent and extends the allowance to a tree or vine bearing fruit or nuts. Makes permanent the election for the increased AMT credit limit in lieu of bonus depreciation.

Senate: $3.4

House: $270

(in billions)

S-Corp reduced recognition period for built-in gains tax

Reduces the holding period for S-corporations to avoid a built-in gain tax following a conversion to an S corp from 10 years to 5 years. (Sec. 1374(d)(7))

Makes the 5-year recognition period permanent.

Senate: $232 million

House: $1.5 billion

S-Corp basis adjustment

Decreases each S corporation shareholder's stock basis for charitable contributions of property by the shareholder's pro rata adjusted basis in the property. (Sec. 1367(a)(2))

Makes the provision permanent.

Senate: $104

House: $662

(in millions)

Exceptions under Subpart F for active financing income

Exempts certain insurance income and net gains from sale of property that produces qualified banking or financing income from income that is treated as subpart F income.

No provision.

$10 billion

Look-through rules for payments between related CFCs

Allows deferral for certain payments (interest, dividends, rents and royalties) between commonly controlled foreign corporations.

No provision.

$2.5 billion

Production tax credit

Extends the 2.3 cent per kilowatt-hour tax credit for wind and other renewable electricity produced for a 10-year period from a facility that has commenced construction by the end of 2015.

No provision.

$13 billion

Work Opportunity Tax Credit

Allows businesses to claim a tax credit equal to 40 percent of the first $6,000 of wages paid to each new hire in one of eight targeted groups, including unemployed veterans. Bill adds long-term unemployed to list of eligible populations for qualifying new hires.

No provision.

$3 billion

In addition to these business-related extenders, there are a number of provisions related to charitable giving that have bipartisan support — at least substantively — in both houses of Congress.

The Senate's EXPIRE Act included a two-year extension of a provision that permits IRA owners over 70 years old to exclude from gross income up to $100,000 per year in IRA distributions to certain public charities. The House Ways & Means Committee passed a similar bill out of committee that would make the IRA charitable rollover permanent, but the provision was not included in the House-passed extender package. Similarly, the Ways & Means Committee reported out a bill that would make the charitable deduction for conservation easements permanent, whereas the EXPIRE Act included only a two-year extension of the deduction.

Keep in mind that when lawmakers return next week, tax extenders are only one of several high priorities in what will most likely be a very brief work period before wrapping up the legislative session by mid-December. Funding the government beyond the Dec. 11 expiration of the current continuing resolution, the Defense Authorization Act (not to mention related debates over handling of the Islamic State), the renewal of the moratorium on Internet access taxes, ebola and a likely fervent push to confirm nominations in the Senate will also be competing for lawmakers' attention.

LOOKING AHEAD

Thursday, Nov. 6

Bloomberg BNA and KPMG's "The Elections: What's Next for U.S. Tax"

9 a.m. – 12:30 p.m. – Free event, in person and live streaming, 1801 K Street NW, DC.
Bloomberg BNA and KPMG are co-hosting a post-election analysis and discussion on what's next for U.S. tax policy. Register for free, live streaming of the event here .

Speakers include:

  • Russell Sullivan, partner at McGuireWoods; senior adviser at McGuireWoods Consulting; former staff director at Senate Finance Committee
  • John Buckley, former chief of staff, Joint Committee on Taxation; and former chief tax counsel, Committee on Ways and Means
  • George Callas, majority staff director, Ways and Means Subcommittee on Select Revenue Measures
  • Aruna Kalyanam, Democratic tax counsel and staff director, Subcommittee on Select Revenue Measures, Committee on Ways and Means
  • Kenneth (Ken) Kies, managing director of the Federal Policy Group, LLC; former staff director, Joint Tax Committee
  • Cathy Koch, chief adviser to the majority leader, Tax and Economic Policy Committee
  • Jim Lyons, tax counsel, Senate Finance Committee, Republican staff
  • Karen B. McAfee, Democratic chief tax counsel, Committee on Ways and Means
  • Todd Metcalf, chief tax counsel, Senate Finance Committee, Democratic staff
  • Warren Payne, majority policy director, Ways & Means Committee
  • Mark Prater, deputy staff director, chief tax counsel, Senate Finance Committee, Republican staff
  • Catherine Schultz, vice president, tax policy, National Foreign Trade Council, Inc.
  • Robert Stack, deputy assistant secretary, tax policy, Department of Treasury (International Tax Affairs)

Beginning Nov. 17: Congressional Leadership and Committee Assignments

  • The House will hold leadership votes on Nov. 17 and will select committee chairmen Nov. 17 and 18. The first round of general committee assignments, including those for the three open seats on the Ways & Means Committee, are expected by Nov. 20. The remaining committee assignments are expected the week of Dec. 1.
  • The Senate is less predictable. If we know which party has the majority by the time lawmakers return next week — and we may not — then it's a fairly simple calculation. If Republicans gain their net six seats, ranking members become committee chairs and vice versa, and Leader Reid becomes Minority Leader Reid. Assuming current Minority Leader Mitch McConnell wins re-election, he will ascend to majority leader.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
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 you may opt out by clicking here

    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.

    Disclaimer

    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.

    Registration

    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.

    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.

    Cookies

    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.

    Links

    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.

    Mail-A-Friend

    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.

    Emails

    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 .

    Security

    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.

    By clicking Register you state you have read and agree to our Terms and Conditions