Highway Funding and Tax Extenders Update

Highway Debate Continues

Last week, we reported on the House’s adoption of a highway trust fund (HTF) extension through December. This extension is the first step of Chairman Paul Ryan’s plan to combine a longer term HTF extension with key international tax reforms.

Meanwhile, Senate leaders want to act now, not in December, on a longer-term extension.   Majority Leader Mitch McConnell, Sen. Barbara Boxer (D-CA), and Sen. Jim Inhofe (R-OK) support a six-year highway deal which has offsets for the first three years, but does not include international tax reform.  The Senate voted 62-36 Thursday morning to begin debate on the measure.

So both the House and Senate want a multi-year bill, but McConnell wants to pass something now and avoid revisiting the issue prior to next year’s election, while Ryan would like to leverage the highway issue to get international tax reforms.  A short-term HTF extension through December gives him more time to build support for the combo package.  Rumor is he will release a detailed plan, which should track closely with the Portman/Schumer International Working Group plan, as soon as next week.

So which is it?  Will it be a multi-year HTF extension now, or HTF extension plus international tax reforms later?  The current HTF authorization expires on July 31st  so we will know next week which view prevails, and whether Congress will be debating international tax reform this fall.

Senate Finance Moves Forward on Extenders

Good news!  The Senate Finance Committee voted this week 23-3 to send a tax extender package to the Senate floor. The extensions last for two years (2015 & 2016) and include S-Corp priorities built-in gains relief and charitable contributions basis adjustment. Relative to last year’s 11th hour retroactive one-year deal, early movement on a two year extension is welcome news.

The question now is how extenders will work its way through the Congress and ultimately to the President’s desk. There was some talk about attaching extenders to the highway bill being debated by the Senate right now, but that seems remote.  Outstanding issues regarding certain provisions, including the application of the solar tax credit, appear to stand in the way.

Regarding the post-August schedule, The Hill reports:

Congress will also have to deal with a number of big-ticket items when lawmakers return from their August recess, including a Sept. 30 deadline for government funding and the recent agreement the Obama administration struck with Iran. Hatch sounded skeptical after the markup that the package of tax breaks could be added to the Senate’s highway bill, which was released Tuesday.

Even though the timeline for passing extenders may be in flux, the fact that the bill has been reported out of committee is a good sign that Congress is moving and may act well in advance of last year’s last minute extension.

Senator Thune Supports Permanent BIG Relief!

Provisions like built-in gains have been part of extenders packages for years, and we’re still fighting to make them permanent. The good news is that we have friends in high places who share that goal.  Just this week, Senator Thune (R-SD) proposed an amendment that would do just that. During the extenders markup, Sen. Thune offered up his legislation to, among other items, make permanent the five year recognition period for built in gains.  He had this to say:

“I support this legislation to ensure that American families and businesses do not find themselves facing a higher tax bill come tax season,” said Thune. “However, I believe we can do better than simply preventing a tax increase in the short term. American taxpayers deserve the certainty and predictability that only comes from making tax relief permanent, something I intend to continue to pursue on their behalf.”

As we continue working to make built-in gains relief and charitable contribution provisions permanent, Sen. Thune’s amendment shows that there is a strong constituency in the Senate for our efforts. We expect that a permanent bill on built-in gains, similar to what was proposed last year, will be introduced soon in the Senate.

Thune Files S-CORP Amendment

More good news on the tax front.  Senator John Thune (R-SD) has filed an amendment making permanent two key S corporation reforms.  Joined by Senators Ben Cardin (D-MD) and Pat Roberts (R-KS), the Thune amendment would make permanent the shorter, five-year recognition period for built-in gains as well as an improved basis adjustment for charitable contributions by S corporations.

The text of the amendment is identical to the text of H.R. 4453 and H.R. 4454, legislation sponsored by Representatives Dave Reichert (R-WA) and Ron Kind (D-WI) that passed the Ways & Means Committee earlier this month and are due to be considered by the House of Representatives in coming weeks.

As with the Reichert/Kinds bills, a large coalition of business organizations wrote in support of the Thune amendment.  The letter, signed by the American Trucking Association, the Associated Builders and Contractors, the S Corporation Associations, and twenty-one other organizations, closes, “On behalf of America’s Main Street business community, we respectfully ask that you support the Thune amendment and permanently extend the 5-year recognition period for built-in gains.”

The Thune/Cardin amendment would makes changes to the tax extenders package currently being considered by the Senate, That package already includes two-year extensions of the BIG and charitable provisions, but it faces an uncertain future.  Earlier reports suggested Republicans would vote en bloc against closing out debate to protest their on-going inability to offer amendments on the Senate floor.

The latest news, however, suggests that Republicans may support closing debate in order to ensure that the extender package keeps moving through the legislative process.  As National Journal reported earlier today:

Usually when Majority Leader Harry Reid prevents Republicans from offering amendments, GOP senators block the underlying bill. At least, that was how Republicans handled the recently dispatched energy-efficiency bill, which went down earlier this week.

“There’s probably a lot more support among Republicans for tax extenders than there perhaps was for energy efficiency,” said Sen. John Thune of South Dakota, the chamber’s No. 3 Republican.

The difference, according to lawmakers, is that some of the roughly 60 provisions in the tax-extenders package benefit constituents in some way. Thune also said that members view extending current tax policy differently than they do enacting new energy legislation.

“I just think you’re talking about tax policy,” Thune said. “You’re talking about extending tax policy. And many of them are things that our members are supportive of.”

The tax provisions that expired at the end of 2013 are extremely popular with the business community and, now that tax reform has been set aside, the only real opportunity to see them extended would be for the House and the Senate to come together on a package and send it to the President.  With strong leadership in both the House and the Senate, these two S corporation provisions are well positioned to be part of that package.

More on Extenders

The Finance Committee markup is scheduled to begin this morning and the amendment list just released shows there’s lots of pent-up demand for tax policy within the Committee.  Over 90 amendments have been filed, which begs the question, “When was the last time the Finance Committee held a markup on tax policy?” Answer – August of 2012.  As the old Wolf Brand Chili commercial used to say, “Well, that’s too long!”

There are lots of extenders that benefit S corporations along with other businesses, but two items in particular apply to S corporations only:

  • A two-year extension of the shorter, five-year holding period for built in gains; and
  • A two-year extension of the provision allowing the full deduction of appreciated property from an S corporation to a charity.

These provisions have long been part of S Corporation Modernization legislation championed by Senators Cardin (D-MD), Hatch (R-UT), and Roberts (R-KS) and S-CORP appreciates their hard work to see them included in the Senate package.  As we noted in the previous Wire, nearly the entire S Corporation Modernization bill [sponsored by S-Corp champions Reichert (R-WA) and Kind (D-WI)] was included in Ways and Means Chairman Camp’s discussion draft.

In a statement accompanying the hearing announcement, Chairman Wyden made clear his goal was to adopt a pared-back list of extenders through the end of next year and then use that time to develop and pass a more permanent reform of the tax code:

This bipartisan extenders package is the product of a Finance Committee that came together to provide needed certainty to the economy, protect jobs and maintain important priorities for working families,” Wyden said. “With that said, I am determined this will be the last extenders bill on my watch. It’s high time we focus on creating a new, 21st-century tax code, because the status quo is unacceptable.

Meanwhile, on the House side, the Ways and Means Committee just sent out a notice for a hearing next Tuesday, April 8th, to consider the “Benefits of Permanent Tax Policy for America’s Job Creators.”  According to the hearing advisory:

The hearing will explore the value in having stable, permanent tax policy for employers, as well as the problems caused by tax policies that frequently expire and are extended for short periods of time (and often retroactively).  To that end, the hearing specifically will consider those expired business tax provisions that are either made permanent or are provided long-term extensions under the discussion draft of the Tax Reform Act of 2014.

Our expectation is that this hearing will be followed by a Committee markup making permanent those “extender” provisions included in the Chairman’s discussion draft.

So the business community is confronted with two significantly different approaches to tax extenders.  The Senate approach would extend most of the package through 2015 with a commitment to reform the tax c ode before they need to be extended again, while the House eliminates most extenders and, consistent with the discussion draft, make the rest permanent.

Should be one interesting conference committee, which begs the question:  “When was the last time Congress conferenced a tax bill?”

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