Republicans in Congress advanced a number of narrow tax bills over the last several weeks in an effort to prepare as much tax legislation as possible for a last-ditch legislative push.
There will be very few opportunities to pass tax bills before the end of the year, so many of the bills are unlikely to move. But a few do have bipartisan support and could gain some last-minute traction if an opportunity arises. Congress is planning to recess until after the election as soon as members agree on a short-term extension in government funding, so any tax legislation will likely have to be passed in a lame duck session.
The most significant bills Republicans are working on include the following:
Retirement plan rules – The Senate Finance Committee voted 26 to 0 to approve a bill that would make several significant retirement plan changes. The Retirement and Enhancement and Savings Act of 2016 would expand the ability of smaller employers to pool together and create multi-employer qualified plans. The bill also included many technical changes, a few small revenue offsets, and provisions to ease 401(k) safe harbor rules, repeal the age limit on individual retirement account (IRA) contributions, allow IRAs to hold S corporation bank stock, and improve the small employment startup and automatic enrollment credit. It will be difficult to find floor time to advance this measure before adjournment, but the bipartisan support could give it a boost
Family Limited Partnership valuation regulations (H.R. 6042 and the Protect Family Farms and Businesses Act) – Two bills have been introduced that would prevent new proposed regulations on valuation discounts for family controlled entities (FCEs) from taking effect. The proposed regulations, if finalized in their current form, could essentially prevent taxpayers from claiming any valuation discounts on transfers of FCE interests. These bills are unlikely to be enacted, but could increase pressure on the IRS to relax some of the more aggressive rules in the proposed regulations.
State and local income tax (H.R. 2315) – The full House has approved legislation that would bar states from taxing the income of nonresident employees who stay less than 30 days. A similar bill passed the House in 2012 before sputtering, but this year a companion bill in the Senate (S. 386) has 45 cosponsors. With limited time left on the calendar, enactment is probably still unlikely.
Medical expense deduction (H.R. 3590) – The full House voted 261 to 147 to lower the adjusted gross income threshold for deducting medical expenses from 10% back to 7.5%. The threshold was raised to 10% for most taxpayers in 2014. Seniors can still use the 7.5% threshold this year, but it is scheduled to rise to 10% next year. The vote was partisan and the bill is not supported by the president.
Employee stock award (H.R. 5719) – The Ways and Means Committee has approved legislation that would allow qualifying employees of certain private companies to generally defer income on stock awards until the stock is sold, the company goes public, or seven years after the stock vests. The bill was scheduled for a floor vote.
Citrus tree expensing (H.R. 3957) – The House has passed legislation that would expand expensing for replacing damaged citrus trees to allow investors who own less than half a grove to qualify as well as taxpayers who buy a blighted grove.
Olympian tax exclusion (H.R. 5946 and S. 2650) – Both the full House and Senate have passed legislation that would exclude Olympic and Paralympic medals and prize money from income, but the House version limits the benefit to medal winners with income of $1 million or less. The legislation passed easily in both chambers and could be enacted if members can agree on a unified version.
Student loan forgiveness (H.R. 5204) – The House Ways and Means Committee has approved legislation that would exclude student loan forgiveness form income for students who have died or become disabled.
Tax-exempt irrigation companies (H.R. 4220) – The House Ways and Means Committee has approved legislation to relax the governance rules and income limitations for tax-exempt mutual ditch or irrigation companies
Nuclear production tax credit (H.R. 5879) – The House Ways and Means Committee approved legislation that would extend the advanced nuclear power production tax credit and allow public entities to pass the credit on to certain taxable partners
Lawmakers are also discussing using the lame duck session after the election to pass technical corrections, change the new audit partnership rules and extend some of the expiring provisions that were not made permanent as part of the tax bill late last year.
Partner, Washington National Tax Office
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