Posted on Dec 17, 2015

Congressional leaders are lauding the agreement on a large extenders package that revives over 50 provisions—some permanently, such as the research credit, Code Sec. 179 expensing, and the child credit; some for five years, such as bonus depreciation, and over 25 other provisions through 2016. The $650-billion Protecting Americans from Tax Hikes (PATH) Bill of 2015 also includes over 60 other provisions on miscellaneous topics, including real estate investment trusts, tax administration and more.

“I think this is one of the biggest steps toward a rewrite of our tax code that we have made in many years, and it will help us start a pro-growth bold tax reform agenda in 2016,” House Speaker Paul Ryan, R-Wis., said during a press conference on December 16. “In addition to all of that, we are ending Washington’s days of extending tax policies one year at a time.”

Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, said that the 52 separate provision have, on a relatively frequent basis, faced expiration and require Congress to reach agreements on further extensions. “Our bill would reduce that number down to 33 provisions, still far too many, but a significant relief in terms of the on-going extenders pressure,” said Hatch in a speech on the Senate floor.

A House vote on the PATH Bill is scheduled to take place on December 17 with the Senate vote expected to follow. The $1.1-trillion omnibus spending package is slated for House and Senate votes on December 18. Lawmakers are expected to approve both bills. Following the votes, Congress will adjourn for the remainder of the year.

Tax Extenders

The extenders package calls for making permanent over 20 tax-extender benefits, split 50-50 between business and individuals. Among the extenders that the package makes permanent are:

  • the research and development credit, with special utilization by small businesses;
  • Code Sec. 179expensing, at an indexed $500,000 level/$2 million limit (and eliminating the $250,000 cap beginning in 2016);
  • state and local sales tax deductions;
  • special 15-year, straight-line cost recovery for qualified leasehold improvements, and qualified restaurant and retail improvement property;
  • an enhanced Earned Income Tax Credit;
  • an enhanced Child Tax Credit;
  • a modified classroom-expense deduction;
  • parity for exclusion of employer-provided mass transit and parking benefits;
  • tax-free distributions of up to $100,000 from IRAs for charitable purposes (among other incentives for charitable giving); and
  • an enhanced American Opportunity Tax Credit.

The extenders package also extends and modifies through 2019:

  • bonus depreciation, at 50 percent for 2015-2017 and phased down to 40 percent in 2018 and 30 percent in 2019;
  • the Work Opportunity Tax Credit, modified and enhanced for employers who hire long-term unemployed individuals to 40 percent of the first $6,000 of wages;
  • the New Markets Tax Credit, with a $3.5-billion allocation; and
  • certain look-through treatment between related controlled foreign corporations.

Finally, most other tax provisions that were in the last extenders package and had expired retroactively after December 31, 2014, are revived for two years, through 2016. Notably, these provisions include: an extension and modification of the exclusion of mortgage debt discharge; an extension of the above-the-line deduction for qualified tuition and related expenses; and over a dozen incentives for energy production and conservation.

Many other miscellaneous tax provisions were also added to the extenders package under the headings:

  • Program Integrity—safeguards surrounding ITNs, information returns, and restrictions regarding education incentives, among others;
  • Family Tax Relief—exclusions under the Work College Program, improvements toCode Sec. 529 accounts, and rollovers into simple retirement accounts, among others;
  • Real Estate Investment Trusts—restrictions on tax-free spinoffs, limitations on designation of dividends, hedging provisions, and over 10 other REIT-related provision;
  • Tax Administration—rules for IRS employees, truncated Social Security Numbers for Form W-2, clarification of enrolled agent credentials, and tweaks to the new partnership audit rules, among others); and
  • S. Tax Court—rules regarding taxpayer access to the Tax Court and additional rules and clarifications.

IRS Budget

The Consolidated Appropriations Bill, 2016, provides $11.235 billion for funding of IRS operations, $290 million (3 percent) more than the fiscal year 2015 level. The agreement directs that the funds provided above the fiscal year 2015 level be devoted to making measurable improvements in the customer service representative level of service rate, improving the identification and prevention of refund fraud and identity theft and enhancing cyber security to safeguard taxpayer data.

Press Release provided by Wolters Kluwer. More information to come, please check back to our blog.

To learn more, please reach out to Derek Northup at 972-202-8000 or Derek.Northup@cornwelljackson.com.