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House votes to pay for highways with mortgage reporting and limits on the basis of inherited assets

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Tax Hot TopicsThe House of Representatives voted 312 to 119 on July 15 to approve a highway spending bill that would raise $5 billion with a revenue title that expands reporting on mortgage interest, provides a six-year statute of limitations for certain basis understatements and limits the basis of inherited assets.

The legislation (H.R. 3038) would also raise revenue by extending a provision on pension asset transfers and rearranging the filing deadlines for businesses. It includes one tax cut that would lower the excise tax rates for liquefied natural gas (LNG) and liquefied petroleum gas (LPG).

H.R. 3038 would extend highway spending only through the end of 2015. House Ways and Means Committee Chair Paul Ryan, R-Wis., said the short-term extension is meant to give Congress time to craft an international tax reform bill that would pay for a longer reauthorization of highway funding, which is currently set to expire at the end of July. Ryan supports international reform to implement a dividend exemption and a possible “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.

President Obama has offered support for the House’s short-term bill, but Senate Republicans oppose the plan. Senate Finance Committee Chair Orrin Hatch, R-Utah, has called using a repatriation tax on spending “bad policy,” and Senate Majority Leader Mitch McConnell, R-Ky., is working on a longer-term highway bill. McConnell has discussed using nontax revenue raisers, such as an adjustment to the interest rate used in the Thrift Savings Plan for government employees, to pay for a bill that would last between 18 months and three years. A six-year bill with only three years of offsets could also be used to try to create a trigger for tax reform in 2017. There has been some discussion of attaching an extension of the provisions that expired at the end of 2014 to such a bill.

The tax provisions in the House-passed highway bill include the following:
  • 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 that the property is assigned for estate tax purposes for estates required to file an estate tax return after the date of enactment. Executors of the estate would 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 would apply to any return still open under the law change after the date of enactment.
  • Adjust filing deadlines (raises $314 million) ― Modifies the filing deadlines so that partnership and S corporation returns would be due March 15 (or two-and-a-half months after the tax year) and individual and C corporation returns would be due April 15 (or three-and-a-half months after the tax year). Automatic six-month extensions would be available for all returns. The changes would generally be effective for tax years beginning in 2016. Exceptions are that calendar-year C corporations would get only a five-month extension until 2026 and C corporations with tax years ending on June 30 would use their current filing deadlines until 2026.
  • Extend transfers of excess pension assets (raises $172 million) ― Extends through Dec. 31, 2015 (four years) a rule allowing employers to transfer excess defined benefit pension plan assets to retiree medical accounts and term life insurance.
  • Equalize alternative fuel taxes (costs $90 million) ― Pegs the fuel tax rate for LNG, LPG and compressed natural gas (CNG) to their energy equivalents of gas and diesel beginning in 2016. The result would not change the tax rate for 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.

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Dustin Stamper
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