Negotiations among lawmakers trying to secure a deal to fund the federal government beyond its current deadline of Dec. 16, 2022, have complicated the potential path forward for a bipartisan tax extenders package in the lame-duck session.
Legislators have been discussing numerous possibilities to avoid a federal government shutdown after Dec. 16, but two potential solutions appear the most likely options at this time: a major omnibus spending bill to fund the government through the end of its fiscal year (Sept. 30, 2023), or a continuing resolution that would retain the current levels of funding for a shorter period of time — potentially just a few weeks or months.
A full omnibus bill would provide stability for the remainder of the fiscal year — and prevent the possibility of another showdown in a few weeks or months. In addition, an omnibus bill — with its tax title — would provide a simple potential path forward for notable extenders priorities, including retroactively restoring expensing of research and experimentation (R&E) costs under Section 174, extending 100% bonus depreciation, and/or retroactively providing relief from the limit on interest deductions under Section 163(j).
Unfortunately, appropriators remain far apart on top-line funding figures for an omnibus package — but the past few days have yielded some cautious optimism from lawmakers on potential progress. Sen. Richard Shelby, R-Ala., last week noted: “We’re making some positive steps.”
Still, the ongoing disputes about a potential extenders package — most notably, Democrats’ demands for expensive enhancements to the child tax credit in exchange for business tax provisions that Republicans support — remain a notable concern. House Ways and Means ranking member Kevin Brady, R-Texas, last week reiterated, “There is a mismatch in costs. Time will tell if we can sort of pare down all the requests into a really streamlined, concise, balanced, and fiscally responsible package.”
Taxpayers should closely monitor the prospects for lame-duck action on important tax provisions like R&E cost expensing and bonus depreciation in the remaining weeks of the legislative term. Whether legislation passes could have a significant impact on financial statements, estimated tax payments, and the tax impact of investments. In addition, even if an extenders package is not passed before Congress breaks for the winter holidays, there is a strong likelihood the new Congress — which will be sworn in on Jan. 3, 2023 — will continue to consider retroactive changes to important extenders provisions.
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