Section 174 relief appears tied to child tax credit

 

Discussions over a potential year-end tax extenders package have been complicated in recent weeks by a potential linkage between Section 174 relief and the enhanced child tax credit.

 

While legislators from both parties have traditionally supported full expensing of research and experimentation (R&E) costs under Section 174, various Democratic lawmakers in recent months have indicated that they will not support a retroactive extension of Section 174 unless it is paired with expensive enhancements to the child tax credit (CTC). The potential costs for an extension of the enhanced CTC would vary based upon the length of the extension, as the Committee for a Responsible Federal Budget recently indicated the one-year cost of reviving the enhanced CTC would be roughly $130 billion, while the 10-year cost would amount to roughly $1.2 trillion. These figures may prove too expensive for some Republican lawmakers to stomach.

 

Republicans have specifically indicated they are less likely to make major concessions for business tax priorities that have traditionally been supported by Democrats — including R&E relief and extending 100% bonus depreciation, which is scheduled to revert to 80% for property placed in service in 2023. Republicans also would also like to soften the limit on interest deductions under Section 163(j), though this item may not be enough of a priority to exchange for CTC enhancements.

 

The results of the election could also complicate the tax extenders process — especially if Republicans win back one or both chambers of Congress and want to wait for January to secure a better deal. Delaying the passage of relief until 2023 could be an issue for 2022 financial statements.

 

While a deal remains very possible, the outlook is uncertain enough that taxpayers should be considering how a failure to reach an extender deal could affect their estimated tax payments, financial statements and business plans. Taxpayers also should be assessing the impact of amortizing R&E costs. Taxpayers also could consider accelerating investments to place property in service before the scheduled expiration of 100% bonus depreciation.

 

 

Contact:

 
 
Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.

 
 

More tax hot topics