Congress extends expired tax provisions and amends Tax Cuts and Jobs Act

Woman reading book with computer showing a chartCongress attached a substantial tax package to the government funding bill enacted on Feb. 9, reinstating dozens of tax incentives that expired at the end of 2016 and making the first revisions to the recently enacted tax reform bill.

The Bipartisan Budget Act of 2018 (H.R. 1892) emerged from a compromise between Senate Democrats and Republicans, and includes tax priorities from both sides. Most significantly, it reinstates the "extender" tax provisions that had expired in 2016. But the overwhelming majority of these provisions were only extended for a single year. They are now retroactively available for 2017, but remain expired for 2018. Key extender provisions extended for 2017 include (full list available in table below):

  • Alternative and biofuel fuel credits
  • Section 45L credit for energy-efficient new homes
  • Section 25C for energy-efficient home improvement
  • Section 25D for residential energy property
  • Section 179D deduction for energy-efficient commercial building property
  • Indian employment tax credit under Section 45A
  • Railroad track maintenance tax credit under Section 45G
  • Expensing for advanced mine safety equipment
  • Mine rescue team training credit under Section 45N
  • Three-year depreciation for racehorses
  • Seven-year cost recovery for motor-sports entertainment complexes
  • Special expensing for film and television and live theatrical productions
  • Section 199 deduction for Puerto Rican production activities

The Section 48 and Section 45 energy credits were also extended for the property types excluded from last extension, but with various date and credit ranges.

H.R. 1892 also includes the first changes to the Tax Cut and Jobs Act since it was enacted late last year. The changes are narrow, but still something of a surprise. Democrats had previously signaled that they would oppose any incremental corrections or fixes, and would instead craft a unified platform for replacement. The revisions do the following:

  • Expand the availability of the newly created opportunity zones in Puerto Rico
  • Limit the scope of new excise tax on college and university endowments to those with 500 "tuition-paying" students (and more than 50% in the United States) rather than just 500 students
  • Clarify that the changes to alcohol excise taxes shall be not construed to pre-empt, supersede, or otherwise limit or restrict any state, local or tribal law that prohibits or regulates the production or sale of distilled spirits, wine or malt beverages.

The enactment of these provisions is a good sign for hopes that Congress can address some of the ambiguities and errors in the legislation. Their passage may indicate less reluctance than expected from Democrats to help clean up other technical glitches and unintended results. Still, further changes will likely be an uphill battle. Democrats received major concessions in this agreement, and are likely levy heavy demands for any future TCJA changes. It's worth noting that Republicans could not secure a key fix they have been pushing. The bill did not include a change to the new pass-through income deduction under Section 199 that would alleviate a bias in favor of grain cooperatives.

The bill also expands the designated disaster areas qualifying for the employer-retention credit and other tax incentives in the aftermath of Hurricanes Harvey, Irma and Maria. Similar incentives are also made available to disaster areas from the California wildfires. For more information on disaster related incentives, see our Tax Insights.

Finally, the bill includes a handful of new tax changes that have been committee and member priorities. The provisions run the gamut, from IRS administrative changes on issues like installment payment fees, whistleblower awards, and wrongful levies, to changes on hardship distributions.

The following provides more details on the tax provisions.

Extenders The legislation extends the bulk of the provisions that expired at the end of 2016 for just one year. They are generally reinstated for 2017, but remain expired for 2018. The outlook for further extension is unclear. Many Senate Republicans supported a two-year extension, while House Ways and Means Committee Chair Kevin Brady, R-Texas, opposed any extension at all. The one-year compromise keeps them alive for now, but taxpayers can no longer count on Congress to routinely extend these provisions with little controversy. Now that many of the most popular former temporary tax provisions are permanent and tax reform has been achieved, there is significant Republican reluctance to keeping the extender process alive. The table below details the provisions that have been extended.

Chart: Bipartisian budget act of 2018

New tax changes The new tax changes represent less than $2 billion in revenue changes over the next 10 years. The largest package is a series of administrative provisions that do the following:

  • Extend the waiver to the statute of limitations for refunds of tax on restitution for the wrongly incarcerated
  • Expand the relief for improper IRS levies on retirement plans
  • Cap the installment sale fee at current amount and provides a waiver if the taxpayer's adjusted gross income is within 250% of poverty level and agrees to electronic payment
  • Require the IRS to create a simplified individual income tax form for seniors
  • Create an above-the-line deduction for attorneys' fees related to certain whistleblower claims
  • Expand the definition of "collected proceeds" for determining IRS whistleblower awards
  • Create a new exception for the private foundation excess business holding tax for certain philanthropic business holdings

Two changes are made to the retirement plan hardship distribution rules. First, Treasury is directed to remove the ban on employee contributions and elective deferrals for six months after a hardship distribution. Second, employers would be permitted to allow hardship distributions for employer contributions and investment earnings.

The legislation clarifies that Section 6050W requirements for payment card and third-party network reporting do not apply to a foreign payee merely because a payment is made in U.S. dollars. It also allows the foreign-earned income exclusion to certain members serving in a combat zone. Finally, the bill repeals a shift in the timing of estimated tax payments for September 2020 that was originally enacted simply for budget scoring rules.

Contacts Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Shamik Trivedi
Manager, Washington National Tax Office
T +1 202 521 1511

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