Congress Fails To Reach Year-End Tax Extenders Agreement

by Mike Godfrey, Tax-News.com, Washington

24 December 2009

The leaders of the Senate Committee on Finance have informed Senate Majority Leader Harry Reid that they intend to address early next year the extension of various tax provisions expiring on or before December 31, 2009.

In a letter to Reid and Senate Minority Leader Mitch McConnell, Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley expressed regret that the Senate was unable to deliberate new legislation extending the various expiring tax breaks before the adjournment of the first session of the 111th Congress, causing further uncertainty for individual and business taxpayers trying to plan their tax affairs for the year ahead.

“Although the House and Senate were unable to come to agreement on a package to extend several expiring tax provisions before Congress adjourned, these measures must be addressed as soon as possible," Baucus and Grassley said in a joint statement.

"These expiring tax provisions help American families and businesses and address some of our most urgent national priorities, including job creation, at a critical time in our nation’s economic recovery. Expiration of these provisions makes it difficult for taxpayers to fully and effectively realize the intended benefits by creating uncertainty and complexity in the tax law. In an effort to provide a seamless extension of these provisions with the fewest disruptions and administrative problems, we will take up legislation as quickly as possible in the new year," they informed.

While legislation will not now be passed until after the December 31 expiry date for many of the tax breaks, Baucus and Grassley stated that they intend to extend the provisions without a break in coverage.

The House of Representatives has already approved a package of tax extenders in a 241 to 181 vote on December 9. This legislation has now been referred to the Senate Finance Committee. However, the Senate may deliberate on its own version of the legislation before the bill is eventually reconciled in a House-Senate conference and the legislation can be sent to President Obama's desk for his signature.

The legislation will extend several important tax benefits to individuals and businesses as well extend a number of energy tax provisions, including the biodiesel tax credit, and natural disaster relief, for a total of USD31bn in tax relief. The House bill (H.R. 4213) extends the following tax breaks for an additional year through 2010 (amongst others):

Individual Provisions

  • The deduction of State and local general sales taxes.
  • The additional standard deduction for real property taxes.
  • The above-the-line deduction for qualified tuition and related expenses.
  • The above-the-line deduction for certain expenses of elementary and secondary school teachers.

Business Provisions

  • The research and development credit.
  • The active financing exception.
  • Look-through treatment of payments between related controlled foreign corporations.
  • The 15-year straight-line cost recovery for qualified leasehold improvements, restaurant buildings and improvements, and retail improvements.
  • The seven-year straight-line cost recovery period for motorsports entertainment complexes.
  • The railroad track maintenance credit.
  • Special expensing rules for US film and television productions.
  • Expensing of “brownfields” environmental remediation costs.
  • The mine rescue team training credit.
  • The election to expense advanced mine safety equipment.
  • The employer wage credit for activated military reservists.
  • The five-year depreciation for farming business machinery and equipment.
  • Special rules for regulated investment companies.
  • A special rule for percentage depletion for marginal wells.

Energy Tax Provisions

  • Tax incentives for biodiesel and renewable diesel.
  • The alternative motor vehicle credit for heavy hybrids.
  • A tax incentive for natural gas and propane used as a fuel in transportation vehicles.
  • A special rule for sales of electric transmission property.

The cost of the tax extenders is offset by: tougher reporting requirements on certain foreign bank accounts; owners of foreign corporations, foreign partnerships and foreign trusts; and information with respect foreign financial assets, among other compliance provisions.

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