The Senate passed a bill to retroactively extend more than 50 expired tax provisions through 2014, by a vote of 76–16 on Tuesday evening. The extender bill passed the House of Representatives on Dec. 3, and it now goes to President Barack Obama for his signature. The Joint Committee on Taxation estimates that the one-year extension of the expired provisions will cost the government almost $42 billion in lost revenue over 10 years.

Among the highlights of the bill: The research and development (R&D) credit, first-year bonus depreciation, and the increased Sec. 179 expensing limits are all extended. 

The bill, H.R. 5771, known as the Tax Increase Prevention Act of 2014, temporarily extends a host of expired individual, business, and energy tax breaks, as well as certain provisions relating to multiemployer defined benefit plans. The bill also makes some technical corrections to prior legislation.

H.R. 5771 includes another bill, the ABLE Act of 2014, which provides for tax-favored accounts that will allow disabled individuals to save money to pay for their disability expenses.

The bill contains various offsets, designed to pay for the anticipated revenue lost from the creation of ABLE accounts. Among these offsets are:

• Amending the definition of personal holding company income to exclude dividends received by U.S. shareholders from controlled foreign corporations;
• Instituting inflation adjustments for certain civil penalties (see below);
• Enacting a new Sec. 3511, allowing for certified professional employer organizations, which will be treated as an employer for work-site employees performing services for customers of the organization for employment tax purposes.

Earlier proposals to permanently extend some expired provisions, or to extend all provisions two years, through 2015, were not adopted.

Tax incentives for individuals

Tax incentives for individuals that are extended through 2014 include:

• The Sec. 62 deduction for certain expenses of elementary and secondary school teachers;
• The Sec. 108 exclusion from gross income of discharge of qualified principal residence indebtedness;
• The Sec. 132 provision providing parity between employer-provided mass transit and parking benefits;
• The Sec. 163 treatment of mortgage insurance premiums as qualified residence interest;
• The Sec. 164 deduction for state and local general sales taxes;
• The Sec. 170 special rule for contributions of capital gain real property made for conservation purposes;
• The Sec. 222 above-the-line deduction for qualified tuition and related expenses; and
• The Sec. 408 provision allowing tax-free distributions from individual retirement plans for charitable purposes.

Tax incentives for businesses

Business tax incentives extended through 2014 include:

• The Sec. 41 R&D credit;
• The Sec. 42 temporary minimum low-income housing tax credit rate for nonfederally subsidized buildings;
• The military housing allowance exclusion for determining whether a tenant in certain counties qualifies as low-income under the Housing Assistance Tax Act of 2008, P.L. 110-289;
• The Sec. 45A Indian employment tax credit;
• The Sec. 45D new markets tax credit (and carryovers of the unused limitation are extended through 2019);
• The Sec. 45G railroad track maintenance credit;
• The Sec. 45N mine rescue team training credit;
• The Sec. 45P employer wage credit for employees who are active duty members of the uniformed services;
• The Sec. 51 work opportunity tax credit;
• Sec. 54E qualified zone academy bonds;
• The Sec. 168 provision classifying certain race horses as three-year property;
• The Sec. 168 provision allowing 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
• The Sec. 168 provision allowing a seven-year recovery period for motorsports entertainment complexes;
• The Sec. 168 provision allowing accelerated depreciation for business property on an Indian reservation;
• Sec. 168 bonus first-year depreciation (for certain property with longer production periods, the property must be placed in service before Jan. 1, 2016);
• The Sec. 168 election to accelerate the alternative minimum tax credit in lieu of bonus depreciation (and special rules were added for round 4 extension property);
• The Sec. 170 enhanced charitable deduction for contributions of food inventory;
• The increased expensing limitations and treatment of certain real property as Sec. 179 property;
• The Sec. 179E election to expense mine safety equipment;
• The Sec. 181 special expensing rules for certain film and television productions;
• The Sec. 199 deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;
• The Sec. 512 modification of tax treatment of certain payments to controlling exempt organizations;
• The Sec. 871 treatment of certain dividends of regulated investment companies (RICs);
• The Sec. 897 treatment of RICs as qualified investment entities under the Foreign Investment in Real Property Tax Act, P.L. 96-499;
• The subpart F exception for active financing income;
• The Sec. 954 lookthrough treatment of payments between related controlled foreign corporations under foreign personal holding company rules;
• The Sec. 1202 exclusion of 100% of gain on certain small business stock;
• The Sec. 1367 allowance for basis adjustments to stock of S corporations making charitable contributions of property;
• The Sec. 1374 reduction in S corporation recognition period for built-in gains tax;
• Sec. 1391 empowerment zone tax incentives;
• The Sec. 7652 temporary increase in the limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands; and
• The American Samoa economic development credit under the Tax Relief and Health Care Act of 2006, P.L. 109-432.

Energy tax incentives

Various energy tax provisions extended through 2014 include:

• The Sec. 25C credit for nonbusiness energy property;
• The Sec. 30C credit for alternative fuel vehicle refueling property;
• The Sec. 40 second-generation biofuel producer credit;
• The Sec. 40A incentives for biodiesel and renewable diesel;
• The Sec. 45 production credit for Indian coal facilities placed in service before 2009;
• The Sec. 45 credits with respect to facilities producing energy from certain renewable resources;
• The Sec. 45L credit for energy-efficient new homes;
• The Sec. 168 special allowance for second-generation biofuel plant property;
• The Sec. 179D deduction for energy-efficient commercial buildings;
• The Sec. 451 special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities; and
• The Secs. 6426 and 6427 excise tax credits relating to certain fuels.

Pension plan provisions

Finally, two provisions affecting multiemployer defined benefit pension plans are extended through 2015:

• The Sec. 431 automatic extension of amortization periods; and
• The shortfall funding method and endangered and critical rules under the Pension Protection Act of 2006, P.L. 109-280.

Inflation-adjusted civil penalties

The following penalties will be adjusted for inflation after 2014:

• The Sec. 6651 penalty for failure to file a tax return or pay tax;
• The Sec. 6652(c) penalty for failure to file certain information returns;
• The Sec. 6695 return preparer penalty;
• The Sec. 6698 penalty for failure to file a partnership return;
• The Sec. 6699 penalty for failure to file an S corporation return;
• The Sec. 6721 penalty for failure to file correct information returns; and
• The Sec. 6722 penalty for failure to furnish correct payee statements.

This is an excellent article written By Sally P. Schreiber, J.D. and was published in the Tax Advisor

October 15, 2015

As the end of the year draws closer, Congress seems even less likely than usual to agree on a package extending all the tax breaks that are currently expired. Here’s a look at the expired provisions and the actions that are pending to extend them.

In recent years, taxpayers have been faced with great uncertainty determining whether they can depend on tax incentives to help them lower their taxes. Shortly after the year began in 2013, Congress resolved the budget impasse that had threatened to shut down the government by passing the American Taxpayer Relief Act of 2012, P.L. 112-240. That legislation extended 51 provisions for two years retroactively through the beginning of 2012 and through 2013.

Last year, in December, Congress extended most of these provisions for one year retroactively to the beginning of 2014, but not going forward, so they expired again at the end of 2014 (Tax Increase Prevention Act of 2014, P.L. 113-295).

Unlike many previous years, Congress did not spend much time or effort this summer working to fix the extenders situation, and, unlike last year, there was little discussion of making any of the perennial extenders permanent. So, as we enter the last quarter of 2015, with most tax incentives expired, it’s a good time to review which provisions might get a last minute reprieve and see what legislation is pending in Congress.

The tax incentives examined in this article are separated into incentives for individuals and businesses, followed by energy-related provisions.

Expired individual tax incentives

Tax incentives for individuals that expired at the end of 2014 include:

• Sec. 62(a)(2)(D) deduction for certain expenses of elementary and secondary school teachers, which allows teachers to deduct up to $250 they spend to buy books, supplies, computer equipment, and other materials for use in their classrooms.
• Sec. 108(a)(1)(E), which excludes from gross income discharge of qualified principal residence indebtedness income.
• Sec. 132(f), which proves parity between the exclusion for employer-provided mass transit and parking benefits by making the limit for the monthly tax exclusion for employer-provided transit passes and vanpools the same as the limit for employer-provided parking benefits.
• Sec. 163(h)(3) treatment of mortgage insurance premiums as qualified residence interest, which permits a taxpayer whose income is below certain thresholds to deduct the cost of premiums on mortgage insurance purchased in connection with acquisition indebtedness on the taxpayer’s principal residence.
• Sec. 164(b)(5) deduction for state and local general sales taxes in lieu of a deduction for state and local income taxes;
• Sec. 170(b) special rule for contributions of capital gain real property made for conservation purposes, which permits qualified conservation contributions to be deducted up to 50% of a taxpayer’s contribution base (100% for qualified farmers and ranchers).
• Sec. 222, which provides an above-the-line deduction for qualified tuition and related expenses.
• Sec. 408(d)(8), which allows taxpayers to distribute up to $100,000 in qualified charitable distributions from individual retirement plans without including the distributions in income.

Tax incentives for businesses

Business tax incentives expired at the end of 2014 include:

• Sec. 41 research and development credit, which provides a credit of 20% of qualified research expenses over a base amount.
• Sec. 42(b)(2) temporary minimum low-income housing tax credit rate for nonfederally subsidized buildings, which allows a 9% minimum low-income housing credit rate for those buildings.
• Sec. 142(d)(2)(B)(ii), under which the military basic pay allowance for housing exclusion is disregarded with respect to a qualified building for purposes of the low-income housing credit.
• Sec. 45A Indian employment tax credit for employers of enrolled members of Indian tribes (or their spouses) who work on and live on or near an Indian reservation.
• Sec. 45D new markets tax credit (although it has not been extended for 2015, carryovers of the unused limitation for years through 2014 were extended through 2019), which provides tax credits for investments in businesses or real estate in low-income communities.
• Sec. 45G, the railroad track maintenance credit, equal to 50% of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer.
• Sec. 45N mine rescue team training credit, which provides a credit for a portion of training costs for qualified mine rescue team employees.
• Sec. 45P employer wage credit for employees who are active duty members of the uniformed services, which provides a credit for small business employers for up to 20% of the eligible differential wage payments paid while an eligible employee is serving on active duty.
• Sec. 51 work opportunity tax credit equal to 40% of the qualified first-year wages of employees who are members of a targeted group.
• Sec. 54E qualified zone academy bonds, which allows qualified schools to issue bonds for renovations (but not new construction), equipment purchases, teacher training, or developing course materials when they partner with private businesses.
• Sec. 168(e)(3)(A), which allows racehorses that are 2 years old or younger to be depreciated as three-year property instead of seven-year property.
• Sec. 168, which allows 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
• Secs. 168(i)(15) and (e)(3)(C)(ii) allowing a seven-year recovery period for motorsports entertainment complexes.
• Sec. 168(j), which allows owners accelerated depreciation for qualifying property used predominantly in the active conduct of a trade or business within an Indian reservation.
• Sec. 168(k), which provides a depreciation deduction equal to 50% of the adjusted basis of qualifying property in the first year it is placed in service (also known as bonus depreciation).
• Sec. 168(k)(4), which permits corporations to elect to accelerate their alternative minimum tax credit in lieu of bonus depreciation.
• Sec. 170(e)(3)(C), which allows businesses to make contributions of “apparently wholesome food” to charities that will use it for the care of the ill, the needy, or infants and to take an above-basis deduction for these contributions of food inventory.
• Sec. 179 increased $500,000 expensing limit and $2 million phaseout threshold and an expanded definition of Sec. 179 property to include qualified real property.
• Sec. 179E election to expense mine safety equipment, which permits taxpayers to elect to treat 50% of the cost of any qualified advanced mine safety equipment as a deduction in the year the property is placed in service.
• The Sec. 181 special expensing rules for certain film and television productions, which allows taxpayers to treat costs of any qualified film or television production as a deductible expense.
• Sec. 199(d)(8), which permits a deduction for income attributable to domestic production activities in Puerto Rico.
• Sec. 512(b)(13)(E), which modifies the tax treatment of certain payments to controlling exempt organizations so that they are not treated as unrelated business income.
• Secs. 871(k)(1) and (2), which exempts interest-related dividends and short-term capital gain dividends from a regulated investment company (RIC) from tax.
• Sec. 897(h)(4), which treats RICs as qualified investment entities under the Foreign Investment in Real Property Tax Act, P.L. 96-499.
• The subpart F exception under Secs. 953(e)(10) and 954(h)(9) for active financing income.
• Sec. 954(c)(6), which provides for lookthrough treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations under the foreign personal holding company rules.
• Sec. 1202, which provides an exclusion of 100% of gain on certain small business stock; it has reverted to 50%.
• Sec. 1367(a)(2), which allows S corporation shareholders to adjust their basis in their stock when the S corporation makes charitable contributions of property using their basis in the property instead of its fair market value.
• Sec. 1374(d)(7), which reduced the S corporation recognition period for built-in gains tax to five years.
• Sec. 1391 empowerment zone tax incentives.
• Sec. 7652(f) temporary increase in the limit on cover over of rum excise taxes from $10.50 to $13.25 per proof gallon to Puerto Rico and the Virgin Islands.
• The American Samoa economic development credit.

Energy tax incentives

Various energy tax provisions expired at the end of 2014 include:

• Sec. 25C, which provides a 10% credit for qualified nonbusiness energy property.
• Sec. 30B, which provides a credit for qualified fuel cell motor vehicles.
• Sec. 30C, which provides a 30% credit for the cost of alternative (non-hydrogen) fuel vehicle refueling property.
• Sec. 40(b)(6), which provides a credit for each gallon of qualified second-generation biofuel produced.
• Sec. 40A credit for biodiesel and renewable diesel, which includes the biodiesel mixture credit, the biodiesel credit, and the small agri-biodiesel producer credit.
• Sec. 45(e)(10)(A)(i), a production credit for Indian coal facilities placed in service before 2009.
• Sec. 45 credits for facilities producing energy from certain renewable resources.
• Sec. 45L, which provides a credit for each qualified new energy-efficient home constructed by an eligible contractor and acquired by a person from the eligible contractor for use as a residence during the tax year.
• Sec. 168(l), which provides a depreciation allowance equal to 50% of the adjusted basis of qualified second-generation biofuel plant property.
• Sec. 179D deduction for energy-efficient commercial buildings.
• Sec. 451(i) special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities.
• Secs. 6426(c) and 6427(e) excise tax credits for alternative fuels.

Legislation pending

At this writing, there are two different efforts to extend the expiring tax credits. The Senate bill introduced this summer, the Tax Relief Extension Act of 2015, S. 1946, generally provides for a two-year extension. The provisions would be reinstated to the beginning of this year and for 2016. The House of Representatives’ bill, Tax Cuts for America Act of 2015, H.R. 1808, has a much smaller list of seven tax provisions, and the bill would extend those benefits for only this year retroactively.

If history is any guide, if Congress finally acts, it will be at the last minute, which makes planning nearly impossible. With the election nearing, the situation this year may be even worse than usual. 

AICPA asks Congress to act

On Oct. 1, Troy Lewis, CPA, Chair of the AICPA Tax Executive Committee, sent a letter to Congress urging action on tax extender legislation to address the uncertainty taxpayers face in tax planning and compliance.

The Internal Revenue Service said Friday it’s ready to process tax year 2017 returns claiming four additional tax benefits recently renewed retroactively into law, including tax breaks related to energy conservation and production.

The Bipartisan Budget Act that Congress passed last month retroactively renewed for tax year 2017 dozens of tax extenders that had already expired at the end of 2016. The IRS has now reprogrammed its processing systems to handle tax returns claiming four energy-related tax incentives, in addition to several other popular tax extender items that it previously programmed for its systems. The IRS said taxpayers can now file 2017 returns claiming:

• Credit for nonbusiness energy property claimed on Form 5695

• Alternative motor vehicle credit claimed on Form 8910

• Credit for qualified plug-in electric drive motor vehicles claimed on Form 8936

• Credit for certain two-wheeled vehicles claimed on Form 8936

The IRS previously already reprogrammed its processing systems to handle the three benefits most likely to be claimed on returns filed early in the tax season (see IRS ready to process some retroactive tax breaks). Starting last month, taxpayers could also file returns claiming:

• Exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982,

• Mortgage insurance premiums treated as qualified residence interest, claimed on Schedule A, and

• Deduction for qualified tuition and related expenses claimed on Form 8917.

The IRS said it’s continuing to work closely with tax professionals and the tax prep industry to make sure their software can now handle these new provisions. Filing electronically and choosing direct deposit will expedite tax refunds. The IRS is continuing to update its systems to handle tax returns claiming the other tax extenders that were retroactively renewed by the new law, enacted on Feb. 9, but in general, those benefits affect a smaller number of taxpayers. Taxpayers eligible for these benefits can avoid delays or possibly needing to file an amended return later, by filing after IRS systems have been updated to reflect the changes. Check Extenders and Form Updates for future updates. Other affected forms, instructions and publications that the IRS had already released, are being revised and reposted to Download Forms.

Taxpayers who have already filed their 2017 federal tax return and now want to claim one of these renewed tax benefits can do so by filing an amended return on Form 1040X. Amended returns can’t be filed electronically and can take up to 16 weeks to process.