2015 Tax Extender Legislation Passed by Congress – Now to President Obama for Signature

By Alistair M. Nevius, J.D. – Journal of Accountancy

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.

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