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House approves permanent research credit, while Senate plans to move temporary extensions next week

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The House voted 274-131 on May 9 to approve legislation (H.R. 4438) that would make the alternative simplified research credit permanent at an increased rate. However, the White House issued a veto threat, and the Senate is expected to advance its own bill to extend many popular expired tax provisions through 2015.

The research credit is one of more than 50 provisions that expired at the end of 2013. The Senate Finance Committee has approved legislation that would extend 51 of the expired provisions retroactively from the beginning of 2014 through the end of 2015. The House Ways and Means Committee approved six separate bills that make only six of the expired provisions permanent. 

H.R. 4438 is the only one of the six bills House leaders have so far brought to a vote. It would allow the traditional research credit to expire at the end of 2013, but would restore and make permanent the alternative simplified credit at an increased rate of 20%. The research credit is popular with both Democrats and Republicans, but the White House threatened to veto the bill because of the estimated $156 billion cost.

The Senate is not expected to vote on the House version and has instead scheduled a vote on its own bill next week. The Senate bill should receive strong bipartisan support, but Democrats and Republicans have not yet reached an agreement on amendments. Some Republicans are pushing for votes on amendments to repeal the medical device excise tax or strip energy incentives from the bill. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act would extend nearly all of the popular “extender” provisions, including:

  • The research credit
  • The work opportunity tax credit
  • The 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
  • Alternative fuel incentives
  • Subpart F look-through rule for controlled foreign corporation income 
  • The subpart F exemption for active-financing income
  • 50% bonus depreciation
  • Reduced five-year holding period for S corporation built-in gains for dispositions 
  • 100% exclusion for gain from qualified small business stock

Ways and Means Committee Chair Dave Camp, R-Mich., has pledged to address other expired provisions such as these in the near future, but so far his committee has moved to make only the following expired provisions permanent:
  • Subpart F exception for active financing 
  • Subpart F look-through rule for controlled foreign corporation income 
  • Reduced five-year holding period for built-in-gains tax after a C corporation elects S corporation treatment 
  • Limit in reduction in basis of S corporation stock for charitable gifts to the adjusted basis of the property and not the fair market 
  • Increased limits on Section 179 expensing 

House leaders have not yet scheduled votes on any of the bills. Camp has pushed to make a limited number of the expired provisions permanent in order to give him a better baseline for scoring his tax reform proposal. But because of the high cost of permanent extensions, the veto threat and member support for a broader range of provisions, it appears more likely at this point that Congress will eventually agree on a temporary package similar to what the Senate has proposed. An agreement may not be reached until late in the year, possibly after the midterm elections in November. 

The following table describes how the expired tax provisions would be treated by the EXPIRE Act and how they have been addressed in the Ways and Means Committee and on the House floor. Where the table indicates no House action, Camp proposed to repeal or allow the expiration of the provision in his tax reform discussion draft, and has not yet indicated whether he would consider an extension outside of tax reform. The EXPIRE Act column notes when a provision was not included in the original release of the bill and had to be added in the chairman’s mark or by amendment during the markup.


Provision EXPIRE Act (Senate Finance Committee) House action
Individual tax provisions
Itemized deduction for state and local sales taxes
  • Extends through 2015
  • No action yet
  • Above-the-line deduction for qualified tuition and expenses
    • Extends through 2015
  • No action yet
  • Above-the-line deduction of $250 for teacher classroom expenses
    • Extends through 2015
  • No action yet
  • Tax-free IRA contributions to charity after age 70½
    • Extends through 2015
  • No action yet
  • Deduction for mortgage insurance premiums
    • Extends through 2015
  • No action yet
  • Transit and parking fringe benefit equalization
    • Extends through 2015, and an amendment was approved that adds cost of bike share to definition of qualified transit benefit
  • No action yet
  • Exclusion for principal residence debt forgiveness income
    • Extends through 2015
  • No action yet
  • Health care tax credit for displaced workers
    • An amendment was approved extending through 2015
  • No action yet
  • General business tax provisions
    Research credit
    • Extends through 2015. For businesses less than five years old with less than $5 million in annual gross receipts an amendment was approved that would allow individual research credits to offset alternative minimum tax and make up to $250,000 of credit refundable against payroll taxes.
  • H.R. 4438 would allow the traditional credit to expire but make the alternative simplified credit permanent with a 20% rate, and that was passed by the House on May 9.
  • Qualified small business stock
    • Extends to apply to stock acquired before Jan. 1, 2016
  • No action yet
  • New markets tax credit
    • Extends through 2015
  • No action yet
  • Reduced five-year holding period for S corporation built-in gains for dispositions
    • Extends through 2015
  • H.R. 4453 would make permanent and was passed by the Ways and Means Committee
  • Work opportunity tax credit
    • Extends through 2015 and the chairman’s mark adds those who have exhausted unemployment benefits as a new category of eligible workers
  • No action yet
  • CFC-related payment look-through rule
    • Extends through 2015
  • H.R. 4464 would make permanent and was passed by the Ways and Means Committee
  • Subpart F exemption for active-financing income
    • Extends through 2015
  • H.R. 4429 would make permanent and was passed by the Ways and Means Committee
  • Additional properties eligible for low-income housing credit
    • Extends and modifies credit rate for unsubsidized new buildings through 2015.
  • No action yet, but Camp’s tax reform discussion draft would retain and modify provision
  • Exclusion of military housing allowance for income test for low-income housing credit
    • Extends through 2015
  • No action yet
  • Indian employment tax credit
    • Extends through 2015
  • No action yet
  • Employer wage credit for active-duty employees
    • Extends through 2015, and the chairman’s mark expands the credit to all employers and increases rate to 100%
  • No action yet
  • RIC-qualified investment entity treatment under FIRPTA
    • Extends through 2015
  • No action yet
  • Interest and short-term capital gains-related RIC dividends
    • Extends through 2015
  • No action yet
  • Conservation contributions of capital gain real estate
    • Extends through 2015
  • No action yet, but Camp’s tax reform discussion draft would retain and modify this provision
  • Enhanced charitable deduction for gifts of food inventory
    • Extends through 2015
  • No action yet
  • Treatment of payments to controlling exempt organizations
    • Extends through 2015
  • No action yet
  • Basis adjustment to S corporation stock for charitable contributions of property
    • Extends through 2015
  • H.R. 4454 would make permanent and was passed by the Ways and Means Committee
  • Railroad track maintenance tax credit
    • Extends through 2015
  • No action yet
  • Mine rescue team training credit
    • Extends through 2015
  • No action yet
  • Depreciation provisions
    Bonus depreciation
    • Extends 50% bonus depreciation for property placed in service in 2014 and 2015 (2016 for certain long-lived and transportation property) and extends ability to claim unused AMT credits in lieu of bonus depreciation
  • No action yet
  • Section 179 expensing
    • Extends the $500,000 expensing allowance and $2 million phaseout threshold to property placed in service before Jan. 1, 2016, and an amendment was accepted to index these figures to inflation
  • H.R. 4457 would make $500,000 expensing allowance and $2 million phaseout threshold permanent, but would not index these figures for inflation.
  • 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
    • Extends through 2015
  • No action yet
  • Three-year depreciation for racehorses
    • Extends through 2015
  • No action yet, but Camp’s tax reform discussion draft would retain and modify this provision
  • Seven-year cost recovery for motor-sports entertainment complexes
    • Extends through 2015
  • No action yet
  • Expensing for advanced mine safety equipment
    • Extends through 2015
  • No action yet
  • Special expensing for film and television productions
    • Extends through 2015
  • No action yet
  • Energy tax provisions
    Section 30D plug-in electrical vehicle credit
    • General credit, which will begin to phase out once 200,000 vehicles are sold, is not extended
    • Credit for three-wheeled vehicles allowed to expire, but the credit for motorcycles is extended through 2015
  • No action yet
  • Credit for production of Indian coal
    • Extends through 2015
  • No action yet
  • Cellulosic (second-generation) biofuel credit
    • Extends through 2015
  • No action yet
  • Special depreciation for cellulosic biofuel plant property
    • Extends through 2015
  • No action yet
  • Incentives for biodiesel and renewable diesel
    • Extends through 2015
  • No action yet
  • Alternative fuel and alternative fuel mixture credit  
    • Extends through 2015 for all fuels, including propane used in forklifts
  • No action yet
  • Alternative fuel vehicle refueling property credit
    • Extends through 2015
  • No action yet
  • Special rule for qualified electric utility dispositions to implement FERC or state restructuring policy
    • Extends through 2015
  • No action yet
  • Partial expensing of refinery equipment
    • Not extended
  • No action yet
  • Section 45 renewable electricity production credit
    • Eextends credit to property with construction beginning before Jan. 1, 2016, and extends ability to claim 30% Section 48 credit in lieu of Section 45. Grant in lieu of credit not extended.
  • No action yet
  • Section 45M energy-efficient appliance credit
    • Not extended
  • No action yet
  • Section 45L energy-efficient new home credit
    • Extends through 2015
  • No action yet
  • Section 25C energy-efficient home improvement tax credit
    • Extends through 2015 and expands the credit to include energy star roofing
  • No action yet
  • Section 179D deduction for energy-efficient commercial building property
    • Extends through 2015 and updates the energy efficiency standards
  • No action yet
  • Incentives for specific locations
    Accelerated depreciation for Indian reservation business property
    • Extends through 2015
  • No action yet
  • Empowerment zone tax incentives
    • Extends through 2015
  • No action yet
  • Section 199 deduction for Puerto Rican production activities
    • Extends through 2015
  • No action yet
  • Increased limit on rum excise tax cover for Puerto Rico and the Virgin Islands
    • Extends through 2015
  • No action yet
  • American Samoa economic development credit
    • Extends through 2015
  • No action yet
  • New York Liberty Zone tax-exempt bond financing
    • Not extended
  • No action yet
  • Qualified Zone Academy Bonds
    • Extends through 2015, and reduces the private contribution requirement to 5%
  • No action yet
  • Contact
    Mel Schwarz
    202.521.1564
    mel.schwarz@us.gt.com

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