The prospects for the nearly $80 billion extenders bill dimmed considerably last week as Senate Finance Committee Chair Mike Crapo, R-Idaho, signaled growing reluctance to striking a deal. His persistent opposition makes a broad bipartisan agreement appear less likely, increasing the chances that Democrats will force a cloture vote before April 15, which would require overcoming a difficult 60-vote hurdle.
The Tax Relief for American Families and Workers Act (H.R. 7024) has struggled to attract enough Republican support in the Senate since passing the House in an overwhelming bipartisan vote on Jan. 31. Crapo remains the main obstacle. He has objected to both the attempt to move the bill through the Senate without a committee markup and the design of the temporarily expended child tax credit, mainly a look-back provision and increased refundability for the child tax credit. Several other Republicans have expressed concerns over the employee retention credit offset, the retroactive nature of the business changes and the political downside of giving Democrats a victory.
Crapo and Wyden exchanged proposals last week, with discouraging results. Crapo offered changes that Democrats characterized as “poison pills.” Wyden countered by offering to change the look-back provision that Crapo opposes. Crapo rejected the offer and then reportedly told fellow Republicans that he does not want to work on a tax bill this year. He later partially walked back those reports, telling reporters “I want this done, too,” but negotiations appear to have hit a stalemate.
On March 20, Senate Majority Leader Chuck Schumer, D-N.Y., put the House bill on the Senate calendar, allowing him to file cloture when the Senate returns from recess on April 8. This would potentially give Wyden and his staff only two weeks to try to resurrect talks with Crapo before setting up a critical do-or-die vote on the bill before the informal April 15 deadline Democrats have set for the bill.
A closure vote would require 60 votes to pass, meaning at least 9 Republicans would have to join with Democrats to advance the bill. While there may be enough Republicans who support the bill in a vacuum, many will not want to undermine a well-respected colleague and their top member on the Finance Committee. Several Republicans have expressed confidence over the last several weeks that the caucus would hold firm one the issue, but Crapo declined to offer a prediction on the vote after Schumer put the bill on the calendar last week.
If enacted, the legislation would:
- Restore the expensing of domestic research and experimentation (R&E) costs retroactive to 2022 and extend the treatment through 2025 while retaining the 15-year amortization period for foreign R&E.
- Reinstate the previous calculation of adjusted taxable income (ATI) for the limit on the interest deduction under Section 163(j), which would be effective through 2025 and retroactive to 2022 at the taxpayer’s election.
- Restore 100% of the bonus depreciation for property placed in service from 2023 through 2025.
- Bar employee retention credit (ERC) claims after Jan. 31, 2024
If the bill fails, taxpayers will remain stuck with the current unfavorable rules, though the provisions could be revisited later this year or in 2025.
Grant Thornton insight:
The failure of the bill would be a blow for taxpayers, who had hoped retroactive business relief would provide a windfall. If the bill is not enacted by mid-April, taxpayers should consider planning options to mitigate the impact of amortizing R&E and the Section 163(j) limitation, including allocating interest to other assets. There has been some speculation that Republicans could be more interested in a deal at year-end after the election, but it’s not clear how practical that would be. It would be very difficult to pass a bill fully retroactive to 2022 after both 2022 and 2023 returns have been filed, and lawmakers would likely have lost the ability to offset the bill by cutting off employee retention credit claims from Jan. 31.
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