Tax Legislative Update

Transcription

1 Tax Legislative Update Breaking news from Capitol Hill from Grant Thornton s Washington National Tax Office July Senate tax writers approve 2-year extension of expired provisions The Senate Finance Committee approved tax legislation on July 21 that would generally extend the 50-plus popular tax provisions that expired at the end of 2014 retroactively from Jan. 1, 2015, through the end of The bill would also enhance many of the provisions, such as the R&D credit, but includes $1.8 billion in revenue-raising provisions. The House and Senate are expected to begin negotiating a compromise on the expired provisions after returning from the August recess in September. The House has not moved any legislation to extend all the provisions temporarily, but has instead voted to make just eight provisions permanent. Republican leaders hope to resurrect a failed deal from late last year that would make a handful of provisions permanent and extend the rest for two years. The eight provisions the House voted to make permanent are the following: Alternative simplified research credit at an increased rate of 20% Increased Section 179 expensing limits Reduced five-year holding period for S corporation built-in-gains tax Election to deduct state and local sales tax Tax-free individual retirement account distributions for taxpayers 70½ years and older Increased percentage limits and extended carryforward periods for charitable contributions of conservation easements and capital gain property (with enhancements for Alaska native corporations) Enhanced charitable deduction for contributions of food inventory S corporation basis reduction limit for charitable gifts Contacts Mel Schwarz Partner, Washington National Tax Office T E mel.schwarz@us.gt.com Dustin Stamper Director, Washington National Tax Office T E dustin.stamper@us.gt.com Shamik Trivedi Manager, Washington National Tax Office T E shamik.trivedi@us.gt.com grantthornton.com/tax The House R&D credit bill would also allow private companies with less than $50 million in gross receipts to take the credit against the alternative minimum tax (AMT). The Senate version would allow businesses less than five years old with less than $5 million in annual gross receipts to take the credit against AMT and up to $250,000 of the credit against their payroll taxes.

2 The House has not proposed any revenue-raising provisions, but the Senate legislation would use offsets to cover enhancements to some of the extenders. The Senate bill would raise $1.8 billion by doing the following: Excluding clean coal power grants from income for noncorporate taxpayers and instead requiring a 1.18% payment to the government Expanding mortgage interest reporting beginning in 2017 to include loan origination date, outstanding principal and the address of the property Pegging the excise tax and alternative credit rates for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to their energy equivalents of gasoline and diesel, resulting in the following: o LNG excise tax rate cut from 24.3 cents per gallon to 14.1 cents and a cut in the credit rate from 50 cents per gallon to 29 cents o LPG (propane) excise rate cut from 18.3 cents per gallon to 13.2 cents and credit rate cut from 50 cents per gallon to 36 cents The expansion of mortgage interest reporting and the cuts in the alternative excise tax rates are also included in two draft highway funding bills Congress is currently considering. Taxpayers who use LNG and LPG for off-highway purposes would be hit particularly hard by the cut in the alternative fuel credit rates because they would not benefit from the corresponding cut in the excise tax rate. Lawmakers stand a reasonable chance of reaching agreement on a deal to make several provisions permanent and extend the rest for two years. Democrats and Republicans came close to a similar agreement last December, but it fell apart after the administration objected that it did not extend enhancements to the earned income and child credit that are scheduled to expire at the end of If such a deal proves impossible, lawmakers should be able to agree on at least a two-year retroactive extension of nearly all the provisions, with a one-year extension as an absolute fallback. As in past years, negotiations could drag into December. The following table compares how the expired tax provisions would be treated under the Senate markup and the House bills. The Senate Finance Committee s enhancements to certain provisions may be the least likely to be included in a final deal. Many similar changes were proposed last year but were excluded in the one-year extension ultimately enacted. Provision Senate Finance Committee markup House action Individual tax provisions Itemized deduction for state and local sales taxes H.R. 622 would make permanent April 15 Above-the-line deduction for qualified tuition Above-the-line deduction of $250 for teacher classroom expenses Extends and indexes for inflation for 2015 and 2016, and makes professional development expenses eligible

3 Tax-free IRA contributions to charity after age 70½ H.R. 644 would make permanent Feb 12 Deduction for mortgage insurance premiums Transit and parking fringe benefit equalization Exclusion for principal residence debt forgiveness income General business tax provisions Research credit and adds cost of bike share to definition of qualified transit benefit Chairman s mark would have extended through 2016 but an amendment was approved to make permanent. For businesses less than five years old with less than $5 million in annual gross receipts, the chairman s mark would allow individual research credits to offset alternative minimum tax and make up to $250,000 of credit refundable against payroll taxes. H.R. 880 was passed by the House on May 20 and would allow the traditional credit to expire but make the alternative simplified, basic research, and energy research credits permanent at a 20% rate. It would also all allow private companies with less than $50 million in gross receipts to take the credit against AMT. Qualified small business stock New markets tax credit Reduced five-year holding period for S corporation built-in gains for dispositions Work opportunity tax credit with an increased allocation of $3.94 billion in 2015 and 2016, and extends carryover period through 2021, and the chairman s mark adds a new category of eligible workers for those who have exhausted unemployment benefits H.R. 636 would make permanent Feb. 13 CFC-related payment look-through rule Subpart F exemption for active-financing income Low-income housing credit minimum credit Exclusion of military housing allowance for income test for low-income housing credit Extends current 9% minimum rate through 2016 and establishes a 4% minimum rate for the acquisition of existing housing Indian employment tax credit Employer wage credit for active-duty employees RIC-qualified investment entity treatment under FIRPTA Interest and short-term capital gains related RIC dividends, and the chairman s mark expands credit to all employers and increases rate to 100% Conservation contributions of capital gain real estate H.R. 644 would make permanent and enhance the deduction for Alaska native corporations. It was passed by the House on Feb 12.

4 Enhanced charitable deduction for gifts of food inventory Treatment of payments to controlling exempt organizations Basis adjustment to S corporation stock for charitable contributions of property Railroad track maintenance tax credit and expands to cover railroad track owned or leased as of Jan. 1, 2015, instead of Jan. 1, 2005 H.R. 644 would make permanent Feb 12 H.R. 636 would make permanent Feb 13 Mine rescue team training credit Depreciation provisions Bonus depreciation Section 179 expensing 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements Extends 50% bonus depreciation for property placed in service in 2015 and 2016 (2017 for certain long-lived and transportation property) and extends ability to claim unused AMT credits in lieu of bonus depreciation Extends and indexes for inflation the $500,000 expensing allowance and $2 million phaseout threshold to property placed in service in 2015 and 2016, and extends the treatment of real property as eligible with existing restrictions H.R. 636 would make $500,000 expensing allowance and $2 million phaseout threshold permanent and index them for inflation. It would also make computer software and HVAC units eligible and remove the restriction on revoking the election. It passed the House on Feb. 13. Three-year depreciation for racehorses Seven-year cost recovery for motor-sports entertainment complexes Expensing for advanced mine safety equipment Special expensing for film and television productions Energy tax provisions, and the chairman s mark expands eligibility to cover some smaller live theatrical productions Section 30B fuel cell vehicle Hybrid and alternative fuel vehicle credits under Section 30B would remain expired Section 30D plug-in electrical vehicle credit Credit for plug-in motorcycles that expired for 2014 is brought back for 2015 and 2016 Three-wheel vehicle credit would remain expired General plug-in vehicle credit, which will begin to phase out once 200,000 vehicles are sold, is unchanged Credit for production of Indian coal

5 Cellulosic (second-generation) biofuel credit Special depreciation for cellulosic biofuel plant property Incentives for biodiesel and renewable diesel Alternative fuel and alternative fuel mixture credit, and an amendment was approved that would convert it to a production credit that would add restrictions for blenders and requires the IRS to issue guidance within 30 days of enactment, allowing submission for all 2015 claims over a 180-day period, with payment required within 60 days for all fuels, including propane used in forklifts, but a separate revenue offset would reduce the tax credits for LNG and LPG from 50 cents per gallon to 29 cents a gallon and 36 cents a gallon respectively Requires the IRS to issue guidance within 30 days of enactment, allowing submission for all 2015 claims over a 180-day period, with payment required within 60 Alternative fuel vehicle refueling property credit Special rule for qualified electric utility dispositions to implement FERC or state restructuring policy Section 45 renewable electricity production credit Extends credit to property with construction beginning before Jan. 1, 2017, and extends ability to claim 30% Section 48 credit in lieu of Section 45 Section 45L energy-efficient new home credit Section 25C energy-efficient home improvement tax credit Section 179D deduction for energy-efficient commercial building property Incentives for specific locations Accelerated depreciation for Indian reservation business property Empowerment zone tax incentives Section 199 deduction for Puerto Rican production activities Increased limit on rum excise tax cover for Puerto Rico and the Virgin Islands, updates the energy-efficiency standards, and allows tribal governments and nonprofits to allocate the deduction to the designer and allows elections on a class-by-class basis and amends the requirements to treat certain employees as residents of an empowerment zone American Samoa economic development credits

6 Qualified Zone Academy Bonds Extends with a $400 million authorization for 2015 and 2016, and the chairman s mark reduces the private contribution requirement from 10% to 5% Tax professional standards statement This content supports Grant Thornton LLP s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to Section, Sec., or refer to the Internal Revenue Code of 1986, as amended.