Senate tax writers approve 2-year extension of expired provisions

Download RFP
US Capitol WhiteHouse[Download the PDF with a table describing the treatment of every expired provision]

The Senate Finance Committee approved tax legislation on July 21 that would generally extend the 50-plus popular tax provisions that expired at the end of 2014 retroactively from Jan. 1, 2015, through the end of 2016. The bill would also enhance many of the provisions, such as the R&D credit, but includes $1.8 billion in revenue-raising provisions.

The House and Senate are expected to begin negotiating a compromise on the expired provisions after returning from the August recess in September. The House has not moved any legislation to extend all the provisions temporarily, but has instead voted to make just eight provisions permanent. Republican leaders hope to resurrect a failed deal from late last year that would make a handful of provisions permanent and extend the rest for two years. The eight provisions the House voted to make permanent are the following:

  • Alternative simplified research credit at an increased rate of 20%
  • Increased Section 179 expensing limits
  • Reduced five-year holding period for S corporation built-in-gains tax
  • Election to deduct state and local sales tax
  • Tax-free individual retirement account distributions for taxpayers 70½ years and older
  • Increased percentage limits and extended carryforward periods for charitable contributions of conservation easements and capital gain property (with enhancements for Alaska native corporations)
  • Enhanced charitable deduction for contributions of food inventory  
  • S corporation basis reduction limit for charitable gifts

The House R&D credit bill would also allow private companies with less than $50 million in gross receipts to take the credit against the alternative minimum tax (AMT). The Senate version would allow businesses less than five years old with less than $5 million in annual gross receipts to take the credit against AMT and up to $250,000 of the credit against their payroll taxes.

The House has not proposed any revenue-raising provisions, but the Senate legislation would use offsets to cover enhancements to some of the extenders. The Senate bill would raise $1.8 billion by doing the following:

  • Excluding clean coal power grants from income for noncorporate taxpayers and instead requiring a 1.18% payment to the government
  • Expanding mortgage interest reporting beginning in 2017 to include loan origination date, outstanding principal and the address of the property
  • Pegging the excise tax and alternative credit rates for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to their energy equivalents of gasoline and diesel, resulting in the following:
          •   LNG excise tax rate cut from 24.3 cents per gallon to 14.1 cents and a cut in the credit rate from 50 cents per
             gallon to 29 cents
          •   LPG (propane) excise rate cut from 18.3 cents per gallon to 13.2 cents and credit rate cut from 50 cents per
             gallon to 36 cents

The expansion of mortgage interest reporting and the cuts in the alternative excise tax rates are also included in two draft highway funding bills Congress is currently considering. Taxpayers who use LNG and LPG for off-highway purposes would be hit particularly hard by the cut in the alternative fuel credit rates because they would not benefit from the corresponding cut in the excise tax rate.

Lawmakers stand a reasonable chance of reaching agreement on a deal to make several provisions permanent and extend the rest for two years. Democrats and Republicans came close to a similar agreement last December, but it fell apart after the administration objected that it did not extend enhancements to the earned income and child credit that are scheduled to expire at the end of 2016.

If such a deal proves impossible, lawmakers should be able to agree on at least a two-year retroactive extension of nearly all the provisions, with a one-year extension as an absolute fallback. As in past years, negotiations could drag into December. The following table compares how the expired tax provisions would be treated under the Senate markup and the House bills. The Senate Finance Committee’s enhancements to certain provisions may be the least likely to be included in a final deal. Many similar changes were proposed last year but were excluded in the one-year extension ultimately enacted.

Dustin Stamper
+1 202 861 4144

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.