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House Republicans move to make expired provisions permanent

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Tax Hot TopicsHouse Republicans advanced permanent extensions of several popular expired tax provisions last week despite veto threats from the Obama administration and complaints from Democrats.

More than 50 popular provisions expired at the end of 2014 after they were extended retroactively for just one year in December. House Republicans are repeating the approach they tried last year in an attempt to make some of the provisions permanent. Instead of putting together a comprehensive package to temporarily extend all of the provisions, they proposed to make only a handful permanent. The full House last week packaged six Ways and Means Committee extender bills into two pieces of legislation and approved both easily.

H.R. 644 was approved 279–137 and would make the following provisions permanent:
  • The S corporation basis reduction limit for charitable gifts
  • Increased percentage limits and extended carryforward periods for charitable contributions of conservation easements and capital gain property
  • Tax-free individual retirement account distributions for taxpayers at least 70½

The bill would also expand favorable treatment for charitable contributions of conservation easements from farmers and ranchers to Alaska Native Corporations. It would cut the 2% excise tax rate on private foundation investment income to 1%.

H.R. 636 was approved 272–142 and would make the following provisions permanent:
  • Increased Section 179 expensing limits
  • The reduced five-year holding period for built-in-gains tax after an S corporation conversion
  • Enhanced charitable deduction for contributions of food inventory

The president threatened to veto both bills despite supporting the underlying policy, arguing that the country cannot afford to make the provisions permanent without paying for them.

The House is also expected to vote on two more permanent extender provisions approved by the Ways and Means Committee last week. The bills would make permanent the state and local sales tax deduction and repeal the traditional research credit in favor of a permanent alternative simplified research credit at a 20% rate. Democrats on the committee again objected to the process, complaining that they should have an opportunity to vote on the expired provisions they support.

The House action doesn’t represent significant progress. Congress is unlikely to begin negotiating the expired provisions in earnest until much later in the year. Senate tax writers have no immediate plans to take up the extender bills and are instead focusing on a package of noncontroversial tax provisions and preparing for tax reform. Democrats and Republicans nearly reached an agreement last year that would have extended most of the provisions for two years and made a handful permanent. Republicans could try to resurrect a similar deal this year but may be forced to settle for temporary extensions again.

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