President Obama signed the short-term highway funding bill on July 31, 2015.
Congress has passed a short-term highway funding bill that includes tax-raising provisions to expand mortgage reporting, provide a six-year statute of limitations for certain basis understatements, limit the basis of inherited assets and adjust the annual return filing deadlines. The filing deadline changes would push back the C corporation filing deadline and push up the partnership deadline effective for 2016 returns filed in 2017.
The bill (H.R. 3236) will also raise revenue by extending a provision allowing pension asset transfers to retiree health and life insurance accounts. It includes three tax cuts to lower the excise tax rates for liquefied natural gas (LNG) and liquefied petroleum gas (LPG), remove employees with health coverage under certain government programs from the employer requirements under the Affordable Care Act (ACA), and provide that medical care from a service-connected disability does not affect eligibility for a health savings account (HSA).
H.R. 3236 will authorize highway spending only through Oct. 29, 2015, preserving the potential for House Republicans to try to use highway funding as a vehicle for international tax reform. House and Senate Republicans are divided over whether to tie international taxes to highway spending. House Republicans originally passed an extension through the end of the year to allow time for crafting an international reform bill that would pay for a longer reauthorization of highway funding.
Senate Majority Leader Mitch McConnell, R-Ken., rejected this approach, warning his caucus that international reform will not happen this year. Instead, the Senate approved a three-year extension of highway spending funded mostly by nontax provisions such as reducing the fixed dividend rate the Federal Reserve pays to large banks and selling crude oil from the Strategic Petroleum Reserve.
H.R. 3236 represents a last-minute compromise between the two approaches. It was approved 385–42 by the House on July 29 and 91–4 by the Senate on July 30. The administration has indicated the president will sign it.
House Ways and Means Committee Chair Paul Ryan, R-Wis., will use the three-month reprieve to work on an international reform proposal that would include a dividend exemption system and a “patent box” with reduced rates for intellectual property in the United States. He would use some of the revenue from a one-time transition tax on unrepatriated earnings to pay for highway spending. The idea will continue to meet resistance, particularly in the Senate, and remains an uphill battle. Senate Finance Committee Chair Orrin Hatch, R-Utah, called using a repatriation tax for highways “bad policy,” and influential anti-tax lobbyist Grover Norquist announced that anyone voting to use repatriation on spending will be violating the “no tax increase” pledge.
The following lists the tax changes made by H.R. 3236:
Expand mortgage reporting (raises $1.8 billion) ― Expands mortgage interest reporting beginning in 2017 to include loan origination date, outstanding principal and the address of the property.
Inherited assets (raises $1.5 billion) ― Limits the basis of inherited property to the value the property is assigned for estate tax purposes for estates that are required to file an estate tax return after the date of enactment. Executors of such estates will be required to report valuations to the taxpayers and the IRS.
Six-year statute for basis overstatement (raises $1.2 billion) ― Reverses the Supreme Court’s decision in U.S. v. Home Concrete (132 S. Ct. 1836) by providing that an overstatement of basis can be a substantial understatement of gross income for purposes of applying a six-year statute of limitations. It will apply to any return still open under current law as of the date of enactment.
Adjust filing deadlines (raises $314 million) ― Modifies the filing deadlines so that partnership and S corporation returns are due March 15 (or two-and-a-half months after the tax year) and individual, C corporation and trust returns are due April 15 (or three-and-a-half months after the tax year). Automatic six-month extensions will be available for all returns except trusts, which will have five-and-a-half-month extensions. The changes will generally be effective for tax years beginning in 2016, except calendar-year C corporations will get only a five-month extension until 2026 and C corporations with tax years ending on June 30 will use their current filing deadlines until 2026. The provision will also make changes to employer plan reporting deadlines and will make Reports of Foreign Bank and Financial Accounts (FBARs) due with the individual return on April 15 (with an automatic six-month extension available).
Extend transfers of excess pension assets (raises $172 million) ― Extends through Dec. 31, 2025 (four years), a rule allowing employers to transfer excess defined benefit pension plan assets to retiree medical accounts and term life insurance.
ACA employer requirements (costs $816 million) ― Excludes employees with health coverage under TRICARE and the Veterans Administration from being counted toward the employer excise tax requirements under the ACA for failing to offer adequate and affordable coverage.
HSA requirements (costs $384 million) ― Provides that medical care from a service-connected disability does not affect eligibility for an HSA.
Equalize alternative fuel taxes (costs $90 million) ― Pegs the fuel tax rate for LNG and LPG (propane) and compressed natural gas (CNG) to their energy equivalents of gas and diesel beginning in 2016. The result would not change the tax rate from CNG, but would cut the LNG rate from 24.3 cents a gallon to 14.2 cents, and LPG from 18.3 cents a gallon to 13.2 cents. It does not include a provision from a recent extenders bill passed by the Senate Finance Committee that would also cut the alternative fuel credit rate for LNG and LPG by tying it to their energy equivalents.
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