CONSISTENTLY DELIVERS

Apr 3, 2014

Senate Finance Committee Reports Out Tax Extenders Bill

Boasting bipartisan compromise, Senate Finance Committee Chairman Ron Wyden (D-OR) oversaw his first markup of legislation since taking over the chairmanship in February. The panel restored almost all of the 55 expired tax breaks known as "extenders" for two years, applying retroactively to the beginning of 2014 through the end of the 2015 tax year. Finance Committee members voted to adopt seven provisions in addition to those contained in a modified version of the "Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act." The final results of the markup can be viewed here, and a complete list of the provisions that made it into the bill are listed below.

The Chairman's Modified Mark, released just hours before the markup began, reinserted seven of the 12 provisions left out of the original Mark. Among the modifications were the production tax credit for renewable energy and the look-through rule for U.S. multi-nationals' foreign subsidiaries. Three more of the left-out provisions made it into the final bill via amendments offered during the markup.

The modified mark also contained an expansion of the Work Opportunity Tax Credit, making it available to employers who hire individuals who have exhausted regular unemployment benefits, and it restored the oft-maligned "NASCAR" tax break which allows for accelerated cost-recovery.

The addition of these and other provisions raised the cost of the package from $67 billion to $85 billion, according to the Joint Committee on Taxation (link to JCT doc we sent earlier today). The final cost of the bill, including the seven provisions adopted during the markup, is not yet known.

Many of the 93 amendments filed by committee members yesterday were either offered and withdrawn -- with recognition that they were not germane to the extenders package -- or were not offered at all. Unwilling to withdraw a non-germane amendment, Sen. Pat Toomey (R-PA) pushed for a vote to consider his amendment to repeal the medical device tax. Chairman Ron Wyden ruled the amendment non-germane -- a ruling that Toomey appealed, requiring a roll call vote of two-thirds of those present to consider the amendment notwithstanding the Chairman's ruling. Toomey's appeal failed along party lines, with all present Republicans voting in favor of consideration and all of the present Democrats voting against it.

Ranking Member Orrin Hatch (R-UT) summed up the sentiment expressed by many -- Republicans and Democrats alike -- that the medical device tax is "a stupid, dumb-ass tax," but said repealing it would have to wait for another day and a more appropriate bill.

It is unclear when or if the extenders package will have a vote on the Senate floor. With the House following a different approach to extenders and an election just seven months away, the extenders are likely to remain in limbo for some time.

WHAT'S IN

General Business and Cost Recovery Provisions

  • Research and development (R&D) credit . The Chairman's Mark included this provision, and an amendment offered by Sen. Chuck Schumer (D-NY) and Sen. Pat Roberts (R-KS) was adopted that would expand the availability of the R&D credit, allowing small startup businesses without income tax liability to claim the credit against their payroll taxes and allows passthrough businesses subject to the AMT to claim the credit as well (Sec. 41).
  • Various empowerment zone tax incentives. Sen. Debbie Stabenow (D-MI) offered this as an amendment, and it was adopted by voice vote during the markup (Secs. 1202, 1391, 1394, 1396, 1397A, and 1397B).
  • Bonus 50 percent first-year depreciation (Sec. 168(k)).
  • Election to accelerate certain credits in lieu of bonus first-year depreciation (Sec. 168(k)(4)).
  • The $500,000 expensing limit and $2,000,000 phaseout threshold and expanded definition of Sec. 179 property: The proposal also extends, for taxable years beginning in 2014 and 2015, the treatment of off-the-shelf computer software as qualifying property. An amendment to increase Sec. 179 expensing by indexing it for inflation was adopted during the markup and is offset by indexing tax penalties for inflation as well. The amendment was sponsored by Sens. Menendez and Toomey (Sec. 179).
  • Fifteen-year straight-line cost recovery for certain improvements (Secs. 168(e)(3)(E) and 168(e)(7)(A)).
  • Railroad track maintenance credit (Sec. 45G(f)).
  • Three-year depreciation for racehorses 2 years old or younger (Sec. 168(e)(3)(A)).
  • Special film and television production expensing rules. This was added in the Chairman's Modified Mark (Sec. 181).
  • Accelerated depreciation for business property on an Indian reservation (Sec. 168(j)).
  • Work opportunity tax credit: A credit equal to 40 percent of the qualified first-year wages of employees who are members of a targeted group. The Chairman's Mark expanded the targeted group to include those who have exhausted regular unemployment benefits (Sec. 51).
  • New markets tax credit (Sec. 45D(f)(1)).
  • Manufacturing communities tax credit. This was an amendment offered by Sen. Sherrod Brown (D-OH), and it would claw back unused New Markets Tax Credits and use them to finance a tax credit for manufacturing investments in communities that have experienced a "major job loss event" (Sec. 45(d)).
  • Special treatment of dividends from regulated investment companies (Secs. 871(k)(1) and (k)(2)).
  • Indian employment tax credit (Sec. 45A).

Energy Provisions

  • Production tax credit for renewable energy. This provision was added to the Chairman's Modified Mark (Secs. 45(d) and 48(a)(5)).
  • Special rule for sales or dispositions to implement Federal Energy Regulatory Commission (FERC) or state electric restructuring policy . Sen. Debbie Stabenow (D-MI) offered this as an amendment, and it was passed via voice vote during the markup (Sec. 451(i)).
  • Alternative fuel (non-hydrogen) vehicle refueling property credit (Sec. 30C).
  • Credit for two- or three-wheeled plug-in electric vehicles (Sec. 30D).
  • Cellulosic biofuel producer credit (Sec. 40(b)(6)).
  • Biodiesel and renewable diesel fuel credits (Sec. 40A).
  • Biodiesel and renewable diesel fuel excise tax credits and outlay payments (Secs. 6426(c) and 6427(e)(6)(B)).
  • Nonbusiness energy property credit (Sec. 25C).
  • Credit for new qualified fuel cell motor vehicles. This provision does not expire until the end of 2014, and the bill would extend it for one additional year, through the end of 2015 (Sec. 30B).
  • Indian coal production credit (Sec. 45(e)(10)(A)(i)).
  • New energy-efficient homes credit (Sec. 45L(g)).
  • Excise tax credits for alternative fuel mixtures (Sec. 6426(e)).
  • Special depreciation allowance for second-generation biofuel plant property (Sec. 168(l)).
  • Parity between the exclusion from income for employer-provided mass transit and parking benefits. A Schumer amendment to include expenses associated with the use of a bike sharing program to the list of qualifying transportation expenses was adopted by a voice vote during the markup (Sec. 132(f)).

International Provisions

  • Regulated investment company treatment under Foreign Investment in Real Property Tax Act (FIRPTA) (Sec. 897(h)(4)).
  • Subpart F active financing income exceptions (Secs. 953(e)(10) and 954(h)(9)).
  • Look-through rule for payments between related controlled foreign corporations. This was added in the Chairman's Modified Mark (Sec. 954(c)(6)).

Key Real Estate/ Housing Provisions

  • Exclusion for discharge-of-indebtedness income on principal residence (Sec. 108(a)(1)(E)).
  • Premiums for private mortgage insurance deductible as qualified residence interest (Sec. 163(h)(3)).
  • Special rules for contributions of capital gain real property made for conservation purposes. This was added in the Chairman's Modified Mark (Sec. 170(b)).
  • Determination of low-income housing credit rate for credit allocations with respect to nonfederally subsidized buildings (Sec. 42(b)(2)).
  • Treatment of military basic housing allowances under the low-income housing credit (Sec. 142(d)).

Small Business Provisions

  • The 100-percent exclusion for gains from qualified small business stock (Sec. 1202(a)(4)).
  • Reduced S corporation recognition period for built-in gains tax (Sec. 1374(d)(7)).
  • Activated military reservists employer wage credit. The Chairman's Modified Mark made the credit available for all businesses, not just small business employers, and increased the credit for 100 percent, rather than 20 percent, of the eligible differential wage payments paid while an eligible employee is serving on active duty in the uniformed services, up to $20,000 (Sec. 45P).

Charitable

  • Basis adjustments for S corporation charitable contributions of property (Sec. 1367(a)(2)).
  • Increased charitable deduction for contributions of food inventory (Sec. 170(e)(3)(C)).
  • Modification of tax treatment of certain payments to controlling exempt organizations (Sec. 512(b)(13)(E)).
  • Tax-free distributions from IRAs for charitable purposes (Sec. 408(d)(8)).

Education

  • Qualified zone academy bonds (Sec. 54E).
  • Deduction for certain elementary and secondary school teacher expenses (Sec. 62(a)(2)(D)).
  • Deduction for qualified tuition and related expenses (Sec. 222).

General Individual Provisions

  • Deduction for state and local general sales taxes (Sec. 164(b)(5)).
  • Extenders relating to Multiemployer Defined Benefit Pension Plans (Sec. 431 and Sec. 432).
  • Credit for health insurance costs of eligible individuals. This credit was revived via amendment offered by Sen. Sherrod Brown (D-OH) (Sec. 35).

Specialized Business Provisions

  • Mine rescue team training credit (Sec. 45N).
  • American Samoa economic development credit: (P.L. 109-432 as amended by P.L. 111-312).
  • Election to expense advanced mine safety equipment (Sec. 179E).
  • Deduction for domestic production activities in Puerto Rico (Sec. 199(d)(8)).
  • The temporary increase in limit on cover over of rum excise tax revenues (Sec. 7652(f)).

For more information, contact

Russell W. Sullivan

Danielle R. Dellerson