The following information is from 2014 ThomsonReuters/Tax and Accounting, Federal Taxes Weekly Alert, 01/09/2014, Vol. 60, No. 02
In a recently updated report, the Congressional Research Service (CRS) has re-examined the temporary tax provisions that, despite being routinely extended by Congress on a one- or two-year basis, were allowed to expire as of the end of 2013. Whether and when these provisions will be retroactively extended by Congress on a temporary or permanent basis, dealt with as part of a broader tax reform effort, or simply laid to rest remains to be seen.
“Tax extenders” defined. The Code presently contains dozens of temporary tax provisions. In the past, legislation to extend some set of these expiring provisions has been referred to by some as the “tax extender” package. While there is no formal definition of a “tax extender,” the term has regularly been used to refer to the package of expiring tax provisions temporarily extended by Congress. These expiring provisions often are temporarily extended for short periods of time (e.g., one or two years).
The report lists a number of reasons why Congress may choose to enact provisions on a temporary basis, including that it gives them a chance to evaluate whether a particular provision reflects sound tax policy and that it can provide temporary economic stimulus or disaster relief. A more jaded rationale is that, for budgetary forecasting purposes, if a provision is technically temporary, regardless of whether it is routinely extended, its monetary impact is only reflected for the time that it is scheduled to be in effect. In other words, this practice minimizes the financial impact that these provisions appear to have on the long-term fiscal outlook.
A majority of the expired extenders were most recently resuscitated as part of the American Taxpayer Relief Act of 2012.
Earlier proposals regarding extenders. The report notes that the Obama Administration’s FY2014 budget reflected the notion that extenders should be looked at as part of broad tax reform. The President’s budget specifically called for permanently extending and modifying certain provisions, including the research tax credit, the work opportunity tax credit (WOTC), and the deduction for state and local sales taxes.
Many influential tax policymakers, including Rep. Dave Camp (R-MI), chairman of the House Committee on Ways and Means, Sen. Max Baucus (D-MT), chariman of the Senate Finance Committee, and Sen. Orrin Hatch (R-UT), ranking member of the Senate Finance Committee, have made remarks to the effect that tax extenders should be examined and addressed as part of comprehensive tax reform.
On Dec. 19, 2013, Sen. Harry Reid (D-NV) introduced S.1859, which would have provided a one-year extension of nearly all of the provisions that were set to expire at year-end. However, the bill failed to advance.
List of extenders that lapsed at the end of 2013. The following are among the more significant expired tax extenders:
Individual provisions.
… deduction for state and local sales taxes;
… above-the-line deduction for certain expenses of teachers;
… above-the-line deduction for qualified tuition and related expenses;
… deduction for mortgage insurance premiums deductible as qualified interest;
… parity for exclusion for employer-provided mass transit and parking benefits;
… exclusion of discharge of principal residence indebtedness from gross income;
… credit for health insurance costs.
Business provisions.
… research and experimentation credit;
… work opportunity tax credit;
… increase in expensing to $500,000 / $2,000,000 and expanded definition of Section 179 property;
… bonus depreciation;
… exceptions under Subpart F for active financing income;
… look-through treatment of payments between controlled foreign corporations;
… special treatment of certain dividends of Regulated Investment Companies;
… employer wage credit for activated military reservists;
… special expensing rules for film and television production;
… special rules for qualified small business stock;
… reduction in S corporation recognition period for built-in gains tax;
… election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation;
… low-income housing credit rate;
… treatment of military basic housing allowances under low-income housing credit;
… 15-year straight line cost recovery for qualified leasehold, restaurant, and retail improvements;
… deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;
… modification of tax treatment of certain payments to controlling exempt organizations;
… accelerated depreciation for business property on Indian reservations;
… Indian employment credit.
Charitable provisions.
… enhanced charitable deduction for contributions of food inventory;
… tax-free distributions from Individual Retirement Accounts (IRAs) for charitable purposes;
… basis adjustment to stock of S corporations making charitable contributions of property;
… special rules for contributions of capital gain real property for conservation purposes.
Energy provisions.
… credit for construction of energy efficient new homes;
… energy efficient commercial building deduction;
… construction date for eligible facilities to claim the production tax credit or wind credit;
… credit for energy efficient appliances;
… credit for nonbusiness energy property;
… alternative fuel vehicle refueling property;
… incentives for alternative fuel and alternative fuel mixtures;
… incentives for biodiesel and renewable diesel;
… placed-in-service date for partial expensing of certain refinery property;
… credit for electric drive motorcycles and three-wheeled vehicles.
Community assistance provisions.
… qualified zone academy bonds – allocation of bond limitation;
… new markets tax credit;
… American Samoa economic development credit;
… empowerment zone tax incentives.
CBO projections. The Congressional Budget Office (CBO) provided estimates of how much it would cost to extend all of the tax provisions scheduled to expire over the 2013–2023 period. The projected cost of extending all expiring tax provisions is $938.3 billion; the cost of extending all temporary investment incentives (i.e., partial expensing for investment property and Code Sec. 179 expensing allowances) is $346.1 billion; the cost of extending expansions to the child tax credit, earned income tax credit, and American Opportunity Tax Credit (currently scheduled to expire at the end of 2017) is $140.4 billion; and the cost of extending all other expiring tax provisions is $451.8 billion.