Overview of the Protecting Americans from Tax Hikes Act (aka: Tax Extenders )

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1 Overview of the Protecting Americans from Tax Hikes Act (aka: Tax Extenders ) The Protecting Americans from Tax Hikes act will grow our economy and help American taxpayers keep more of their hard-earned dollars. This bipartisan, pro-growth bill: accomplish four main goals of interest to NECA contractors: Deliver Certainty to American Taxpayers Prevent Tax Increases Grow our Economy Serve as a Bridge to Comprehensive Tax Reform We have broken down the details of the provisions that are of interest to NECA contractors as follows: Extensions Made Permanent Extension of basis adjustment to stock of S corporations making charitable contributions of property. The provision permanently extends the rule providing that a shareholder s basis in the stock of an S corporation is reduced by the shareholder s pro rata share of the adjusted basis of property contributed by the S corporation for charitable purposes. Extension and modification of research credit. The provision permanently extends the research and development (R&D) tax credit. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer s payroll tax (i.e., FICA) liability. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property. Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and

2 $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in Extension of exclusion of 100 percent of gain on certain small business stock. The provision extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item. Extension of reduction in S-corporation recognition period for built-in gains tax. The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains. Extension of deduction of State and local general sales taxes. The provision permanently extends the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes. The taxpayer may either deduct the actual amount of sales tax paid in the tax year, or alternatively, deduct an amount prescribed by the Internal Revenue Service (IRS). Extensions through 2019 Extension and modification of bonus depreciation. The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during The provision modifies the AMT rules beginning in 2016 by increasing the amount of

3 unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service. Extension and modification of work opportunity tax credit. The provision extends through 2019 the work opportunity tax credit. The provision also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40 percent of the first $6,000 of wages. Extension of new markets tax credit. The provision authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 through Extensions through 2016 Extension and modification of empowerment zone tax incentives. The provision extends through 2016 the tax benefits for certain businesses and employers operating in empowerment zones. Empowerment zones are economically distressed areas, and the tax benefits available include tax-exempt bonds, employment credits, increased expensing, and gain exclusion from the sale of certain small-business stock. The provision modifies the incentive beginning in 2016 by allowing employees to meet the enterprise zone facility bond employment requirement if they are residents of the empowerment zone, an enterprise community, or a qualified low-income community within an applicable nominating jurisdiction. Extension and modification of credit for nonbusiness energy property. The provision extends through 2016 the credit for purchases of nonbusiness energy property. The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500. Extension of credit for alternative fuel vehicle refueling property. The provision extends through 2016 the credit for the installation of nonhydrogen alternative fuel vehicle refueling property. (Under current law, hydrogen-related property is eligible for the credit through 2016.) Taxpayers are allowed a credit of up to 30 percent of the cost of the installation of the qualified alternative fuel vehicle refueling property.

4 Extension of credit for 2-wheeled plug-in electric vehicles. The provision extends through 2016 the 10-percent credit for plug-in electric motorcycles and 2-wheeled vehicles (capped at $2,500). Extension of second generation biofuel producer credit. The provision extends through 2016 the credit for cellulosic biofuels producers. Extension of biodiesel and renewable diesel incentives. The provision extends through 2016 the existing $1.00 per gallon tax credit for biodiesel and biodiesel mixtures, and the small agri-biodiesel producer credit of 10 cents per gallon. The provision also extends through 2016 the $1.00 per gallon production tax credit for diesel fuel created from biomass. The provision extends through 2016 the fuel excise tax credit for biodiesel mixtures. Extension and modification of credits with respect to facilities producing energy from certain renewable resources. The provision extends the production tax credit for certain renewable sources of electricity to facilities for which construction has commenced by the end of Extension of credit for energy-efficient new homes. The provision extends through 2016 the tax credit for manufacturers of energyefficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria. Extension of special allowance for second generation biofuel plant property. The provision extends through 2016 the 50-percent bonus depreciation for cellulosic biofuel facilities. Extension of energy efficient commercial buildings deduction. The provision extends through 2016 the above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings. Extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities. The provision extends through 2016 a rule that permits taxpayers to elect to recognize gain from qualifying electric transmission transactions ratably over an eight-year period beginning in the year of sale (rather than entirely in the year of sale) if the amount realized from such sale is used to purchase exempt utility property within the applicable period.

5 Extension of excise tax credits relating to alternative fuels. The provision extends through 2016 the 50 cents per gallon alternative fuel tax credit and alternative fuel mixture tax credit. Extension of credit for new qualified fuel cell motor vehicles. The provision extends through 2016 the credit for purchases of new qualified fuel cell motor vehicles. The provision allows a credit of between $4,000 and $40,000 depending on the weight of the vehicle for the purchase of such vehicles. Additional Provisions Updated ASHRAE standards for energy efficient commercial buildings deduction. The provision modifies the deduction for energy efficient commercial buildings by updating the energy efficiency standards to reflect new standards of the American Society of Heating, Refrigerating, and Air Conditioning Engineers beginning in Modification of filing dates of returns and statements relating to employee wage information and nonemployee compensation to improve compliance. The provision requires forms W-2, W-3, and returns or statements to report non-employee compensation (e.g.,form MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. The provision also provides additional time for the IRS to review refund claims based on the earned income tax credit and the refundable portion of the child tax credit in order to reduce fraud and improper payments. The provision is effective for returns and statements relating to calendar years after the date of enactment (e.g., filed in 2017). Safe harbor for de minimis errors on information returns and payee statements. The provision establishes a safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements by providing that if the error is $100 or less ($25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return and no penalty is imposed. A recipient of such a return (e.g., an employee who receives a Form W-2) can elect to have a corrected return issued to them and filed with the IRS. The provision is effective for returns and statements required to be filed after December 31, 2016.

6 Tax Provisions Included in The Consolidated Appropriations Act of 2016 (aka: The Omnibus ) Health Care Taxes The Omnibus contains several important provisions to protect employers from taxes imposed by the Affordable Care Act (ACA): o Delay the "Cadillac Tax" for Two Years: Among all its various mandates and regulations, the so-called Cadillac tax unjustly penalizes employers who do the right thing by providing excellent coverage to their employees. For the next two years, our multiemployers would not have to navigate what is sure to be a complex Internal Revenue Service (IRS) rulemaking process, and to implement the Cadillac tax, and our employees will not brace themselves for what could be a depredation of their benefits. This provision delays the start date of the Cadillac Tax from 2018 to o Make the Cadillac Tax Deductible against Income Tax: Should the Cadillac Tax go into effect in 2020, this legislation will make payments of the tax permanently deductible against income tax. This change will conform the Cadillac Tax to how current law treats such excise taxes. o Suspend the Health Insurance Tax for One Year: This tax levies an annual fee on health insurance providers. As expected, health insurance providers are directly passing this cost among others along to taxpayers in the form of higher premiums. This bill would suspend this costly tax for Energy Taxes The Omnibus contains changes to both natural resource and renewable energy tax provisions. o Wind Production Tax Credit (PTC): The Omnibus provides that the 2 /kwh PTC for wind will be extended to 2020, and phased out for projects beginning construction in 2017 according to the following schedule: % (of present value) % (of present value) % (of present value)

7 o Solar Investment Tax Credit (ITC): The Omnibus provides that the solar ITC and the residential energy- efficiency solar property will stay at 30% through 2019 and then is gradually phased down by 2022 for projects that begin construction in 2020 according to the following schedule: 2017 through % % % 2022 (and beyond) 10% Natural Resources Because the package lifts the crude oil export ban, there will be increased economic incentives to refine crude near ports or refine crude abroad. To help mitigate the effects of lifting the ban to refiners who are not near ports, the proposal provides temporary tax relief to the transportation costs of certain refineries. The provision does not apply to integrated oil companies, and expires after 2021.

8 The Consolidated Appropriations Act of 2016 (aka: The Omnibus ) The FY 2016 funding bill abides by all the terms set by the Bipartisan Budget Act of 2015, which was enacted on November 2. The legislation provides a total of $1.149 trillion to funding the operations of the federal government. Included are multiple policy riders designed to rein in bureaucratic and regulatory overreach and encourage economic growth and job creation. Highlighted program areas concerning Federal construction program funding is detailed as follows: Department of Agriculture Rural Development The bill provides a total of $2.8 billion for rural development programs, which is $368 million above the fiscal year The legislation also provides $36.7 billion in loan authorizations for rural communities to address housing, electrification and telecommunication needs. These development programs help create an environment for economic growth by investing in basic infrastructure, providing loans for rural businesses and industries, and helping to balance the playing field for buyers in rural housing markets. Conservation Programs The bill provides $864 million for the Natural Resources Conservation Service (NRCS) to help farmers, ranchers, and private forest landowners conserve and protect their land. This includes $12 million for dam rehabilitation to help rural communities ensure their small watershed projects meet current safety standards. Department of Justice The Bureau of Prisons is funded at $7.5 billion, an increase of $558 million above the fiscal year 2015 enacted level. This funding will maintain staffing levels to ensure safe and secure facilities to house the nation s federal prisoner population, and will support construction and activation of new prisons to ease overcrowding at high-security facilities.

9 General Services Administration Included in the legislation is $10.2 billion for the General Services Administration s Federal Buildings Fund (FBF), which is $1.07 billion above fiscal year This increase will provide for the construction of an additional 11 federal courthouses to address building conditions and security. The bill also seeks to increase accountability of GSA spending by requiring extensive reporting on GSA s facilities inventory, spending, and facilities exchanges. Department of Energy The bill provides $11 billion for energy programs within the Department of Energy to support programs that encourage U.S. economic competitiveness and help advance the nation s goal of an all-of-theabove energy solution. This funding includes: $2.1 billion for Energy Efficiency and Renewable Energy, which is $136 million more than the FY2015 enacted level. $206 million for activities to modernize the electricity grid, which is $59 million than the FY2015 enacted level. Funds in this account will increase the resiliency and reliability of the electric grid against cyberattacks and extreme weather events. Environmental Protection Agency (EPA) The bill holds the line on EPA funding at $8.1 billion continuing a funding level that is lower than fiscal year It also provides: $1.394 billion for the Clean Water State Revolving Fund, which is $55 million less than the 2015 enacted level. $863 million for the Drinking Water State Revolving Fund, which is $44 million less than the 2015 enacted level. Department of Labor The bill provides $12.18 billion in discretionary funding for the Department of Labor, including: $10.06 billion for the Employment and Training Administration, an increase of $339 million above the 2015 enacted level, to provide states and local communities with grants and other funding for job training, employment programs, and unemployment insurance. Included in that figure is $2.7 billion for Workforce Investment Opportunity Act (WIOA) Job Training Formula Grant program, which is

10 $86 million more than the 2015 enacted level. $1.69 billion for the Office of Job Corps to help unemployed, young Americans receive education, job training, and employment assistance. $271.1 million for Veterans Employment and Training Service (VETS), $1.1 million above the fiscal year 2015 enacted level. This includes $14.1 million for the Transition Assistance Program to help new veterans receive training for civilian employment and job search assistance. Department of Defense (Military Construction) The bill provides $8.2 billion for military construction projects an increase of $1.4 billion above the 2015 enacted level. The funds will provide for large and small construction and rehabilitation projects on military bases at home and abroad that support troops, operations, and our military families: Military Family Housing The bill provides $1.4 billion to fund construction, operation, and maintenance of military family housing for fiscal year This is $214 million above the 2015 enacted level, due primarily to an increased need for Air Force family housing. The funding will ensure quality housing is continued for nearly two million military families. Military Medical Facilities The bill includes $623 million for construction and alterations for new or existing military medical facilities. These facilities support and care for 9.8 million eligible beneficiaries, including our wounded troops abroad. Department of Defense (DoD) Education Facilities The bill includes $334 million for essential safety improvements and infrastructure work at ten DoD Education Activities facilities located within the U.S. and overseas. This funding will help address health, safety, and efficiency problems at these facilities for military children and families. Guard and Reserve The bill includes $551 million for construction or alteration of Guard and Reserve facilities in 30 states. Department of Defense (Army Corps of Engineers Civil Works) The Army Corps of Engineers is funded at $5.99 billion, an increase of $535 million above the fiscal year The bill prioritizes funding on navigation and flood control to advance public safety, boost U.S. export ability, and create jobs. This funding will help maintain and enhance national and regional waterways that handle commerce with value to the U.S.

11 economy of over $1.7 trillion annually. Within the total, the bill provides: $2.6 billion for navigation projects and studies, including: More than $1.2 billion from the Harbor Maintenance Trust Fund, which is the level provided in the Water Resources Reform and Development Act of 2014, for harbor operation and maintenance activities; and Full use of the anticipated annual revenues from the Inland Waterways Trust Fund for construction and rehabilitation of the nation s inland waterways infrastructure. Department of Veterans Affairs Major Construction within the VA is funded at $1.2 billion $100 million over the President s request and $862 million above the 2015 level. Funds will be used for correcting critical seismic deficiencies, new hospital and clinic construction, and repairing crumbling infrastructure in some of the VA s oldest structures. The measure fences off $649 million for construction until the VA enters into an agreement with a non-department of Veterans Affairs Federal entity (like the Army Corps or GSA) to serve as the design and/or construction agent for each major construction project with a total estimated cost of $100 million or above. The following policy requirements on the VA are included: A requirement that VA report to Congress on construction expenditures and savings. Restrictions on VA construction funding, including changes to the scope of construction projects, transfers of funds between projects, and the use of bid savings. A requirement that VA bring in an outside government entity, such as the Corps of Engineers, to manage its largest construction projects. A restriction on VA from taking certain spending actions without approval from Congress. Department of State The bill provides $2.22 billion for Embassy Security, Construction and Maintenance (ESCM), which is $102 million less than the FY2015 level.

12 Department of Transportation The bill includes $18.7 billion in discretionary appropriations for the Department of Transportation (DOT) $847 million above the 2015 enacted level and $5.4 billion below the President s request. The bill also provides DOT with $56.4 billion in obligation limitation funding for surface transportation and safety programs. Within this total, the legislation provides $500 million for the TIGER program, which funds competitive grants for state and local road, transit, port, and railroad construction projects: Highways The bill provides the full amount authorized by the recently enacted FAST legislation $42.4 billion. This is an increase of $2.1 billion over the 2015 enacted level. This funding will provide for critical construction and improvements to the nation s roadways to improve safety, lessen travel times, and help increase commerce to boost our economy. Air Included in the legislation is $16.3 billion for the Federal Aviation Administration (FAA), $564 million above the 2015 enacted level. The bill funds FAA s Next Generation air transportation systems (NextGen) at $2.9 billion an increase of $255 million above the 2015 enacted level. Rail The Federal Railroad Administration (FRA) is funded at $1.7 billion, an increase of $52 million above the 2015 enacted level. Within this amount, Amtrak grant funding is maintained at $1.4 billion, and $25 million for rail infrastructure improvements and $25 million for positive train control grants. No funding is provided for high-speed rail. Transit The bill contains $11.8 billion for the Federal Transit Administration (FTA) an increase of $870 million over the 2015 enacted level meeting the level authorized by the recently enacted FAST legislation. The legislation allows $9.3 billion in state and local transit grant funding from the Mass Transit Account of the Highway Trust Fund, to help local communities build, maintain, and ensure the safety of their mass transit systems. o The legislation also provides a total of $2.2 billion for Capital Investment Grants ( New Starts ), full funding for state and local Small Starts grants, and funding for all current Full Funding Grant Agreement projects within FTA. These programs provide competitive grants for major transit investments including rapid rail, light rail, bus rapid transit, and commuter rail that are planned and operated by local communities.

13 Additional Policy Provisions: DOES includes a directive to stop the Occupational Safety and Health Administration from short-circuiting the rulemaking process by requiring public comment and transparency for future rulemakings and policy decisions. DOES include a prohibition that would have required contractors submitting an offer for a Federal contract to disclose campaign contributions DOES NOT include a prohibition limiting EPA from: 1) finalizing, implementing or enforcing new standards for existing and new sources of greenhouse gas emissions; and 2) implementing a final regulation clarifying the Federal jurisdiction of navigable waters under the Clean Water Act. DOES NOT include a provision prohibiting the Corps of Engineers from clarifying the definition of navigable waters as directed by the Supreme Court of the United States. DOES NOT include a provision that would have blocked the NLRB s Election rule, Joint Employer standard, and its ability to rule on the proper size of collective bargaining units.