Last week, we did a post-election analysis that highlighted the broad implications of the new Republican Congress. A return to “regular order” and increased legislative activity overall, including in the tax space, was our basic conclusion.

One wild card at the time was the possibility of President Obama issuing an Executive Order on immigration. He’s promised to do so and, despite pushback from Republicans and many members of his own party, he appears poised to release something on Friday.

What are the implications of such an action on tax extenders in the Lame Duck? Absent action on immigration, the options for extenders are:

  1. A one-year extension for 2014 only;
  2. A two-year extension for 2014 and 2015; or
  3. A two-year extension together with some provisions being made permanent.

For S corporations, the option Congress embraces makes a big difference. Two S corporation-specific provisions – the shorter holding period for built-in gains and the basis adjustment on charitable donations – are in play. Permanent versions of both provisions passed the House twice this year. Beyond those items, we hear from our members consistently on the importance of the R&D tax credit and the increased limits on 179 expensing. These items, too, are in play to be made permanent.

On which option prevails, there are lots of variables but the key variable is the number of House conservatives – the “Hell No” Caucus – who argue that Congress should do only the minimum on extenders (one year for 2014) and then come back next year and use their new majority to reshape the package with the intent of eliminating certain provisions while making other items permanent.

Right now, it’s wholly unclear just how many conservatives hold this position. Speaker Boehner might be able to move a broader package despite their opposition, but it may take a test vote to find out.

What is completely clear is that membership in the Hell No caucus will grow multi-fold and may include members of the Republican Leadership if the President chooses to go his own way on immigration.

At that point, any prospect of permanence for tax extenders, or even a two-year extension, goes away. Instead, the universe of possible outcomes reverts to a one-year extension of most if not all the provisions or, less likely but also a possibility, no action at all. It’s hard to adopt tax policy if the federal government is shut down, starting December 11th when the current funding expires.

That’s not good for tax policy nor those families and businesses relying on these provisions. Nor is it good for the government or the economy to be moving into crisis mode so quickly after the voters had a chance to express their preferences.

On the other hand, voters also chose to re-elect President Obama, and the ball is in his court on this one.