Finance Committee’s legislation
Last month the Senate Finance Committee approved legislation, the Family and Business Tax Cut Certainty Act of 2012, that would retroactively extend certain provisions through 2013, but notably left several of the traditional items out of the package.
See TaxNewsFlash 2012-403 for the Finance Committee’s report and legislative text.
As always, the Finance Committee would extend the most prominent—and generally most expensive—of the expired provisions, among them the research credit, the work opportunity credit, and the subpart F exception for active financing income.
The legislation, expected to be introduced when the Senate reconvenes next week, also includes an inflation adjustment for the individual alternative minimum tax exemption amount, at a cost of $132 billion of the total $205 billion. The legislation includes no revenue offsets.
The Finance Committee’s limited trimming of the extenders occurred as taxwriters, pressured by deficits, have adopted a skeptical eye to provisions that the tax code treats as temporary, even though the congressional practice has been to retain them. (The omitted provisions had a one-year cost of $11 billion, according to a preliminary Joint Committee on Taxation estimate last December.)
Three Finance Republicans—John Kyl (AZ), Tom Coburn (OK) and Richard Burr (NC)—filed dissenting views of the committee’s action.
If this legislation was intended to be a prelude to tax reform, we believe it failed by not culling enough unwarranted provisions. As the legislative process continues, we hope our colleagues . . . will carefully consider the wisdom of continuing market-distorting subsidies through the tax code, particularly at a time of trillion-dollar deficits.
Provisions not included
The legislation does not address the additional first -year “bonus” depreciation deduction for 50% or 100% of the basis of qualified property, scheduled to expire generally for property placed in service after 2012. The provision—enacted in 2002 as a temporary stimulus measure—has not been considered a traditional business extender.
During the markup last month, Finance Committee members indicated that the bonus depreciation rules would be considered separately. (An extension was included in a bill the Senate considered in July, but a filibuster blocked passage.)
The Finance Committee package does include an extension of 15-year depreciation for certain leasehold and other improvements to a building.
Other provisions not extended / included:
- Adoption credit and adoption assistance programs (most recently expanded in December 2010)
- Incentives for alcohol fuels
- The placed-in-service date for facilities eligible to claim the refined coal production credit (other than refined coal facilities that produce steel industry fuel)
- Grants for specified energy property in lieu of tax credits
- Enhanced charitable contribution deductions for book inventories and computer equipment
- Expensing of “brownfields” environmental remediation costs
- Suspension of 100%-of-net-income limitation on percentage depletion for oil and gas from marginal wells
- Tax incentives for investment in the District of Columbia, including the first-time homebuyer credit
- Definition of gross estate for RIC stock owned by a nonresident not a citizen of the United States
Energy and renewable energy production incentives
The legislation would extend and modify 12 energy and renewable energy production incentives, most of which expired last year. The wind energy credit and the cellulosic biofuel producer credit, both of which expire at the end of 2012, would be modified and extended.
Of a separate set of six temporary disaster-relief provisions that expired in 2011, the committee bill would extend only one—tax-exempt bond financing for the New York Liberty Zone. The 2005 Gulf Opportunity Zone and 2008 Midwestern storm provisions would remain lapsed.
Meanwhile…in the House
The House Ways and Means Committee, which has held hearings on the extenders, has neither reported a bill nor indicated when it might act.