Negotiators agreed to a package of tax and a package of spending provisions last night, and the big news (pun intended) is that the 5-year recognition period for built-in gains (BIG) – something S-Corp has been championing for more than a decade – is made permanent in the tax package! We’re also happy to see that another priority, a basis adjustment to ensure S corporation owners can receive full charitable deductions on contributions, is also made permanent in this package!
The process from here is that the packages introduced last night will be held over for a couple days so members can review them, and then vote on them separately in the House. We understand that a vote on the extender package will occur tomorrow, and the spending bill on Friday.
Then, in a move not wholly unusual for this time of year, the House would combine the two packages into one “message” and send them to the Senate. The combo message accomplishes two things – it means there’s no debate on the motion to proceed (since messages from the House are privileged) and it means there’s only one bill to filibuster, not two.
As a result, the Senate could receive the bill on Friday and vote that day if everyone cooperates, or run the clock on cloture and vote on final passage Sunday or early next week if they don’t.
That’s the process. What’s in the package? As we reported several weeks ago, the tax extenders portion has been divided into three parts – those provisions made permanent (R&E tax credit, small business expensing, built-in gains, etc.), those extended for five years (bonus depreciation, CFC look-through, etc.) and those extended for 2015 and 2016 only (everything else). You can read the full list here.
We don’t do spending here at S-Corp, so we won’t bore you with those details, but both the tax and spending package include a number of extraneous provisions that may be of interest to the business community, including:
- Lifting the long-standing ban on oil exports;
- A two year suspension of the medical device tax, as well as the two year delay in the Cadillac tax and annual fee on health insurance providers;
- REIT-related provisions based on items included in Ways and Means Chairman Brady’s recent proposal, but with further modifications and a transition rule; and
- Technical changes to the recently adopted partnership audit rules.
Left out of the package were efforts to roll back the Labor Department’s pending fiduciary duty rule or to raise the SIFI threshold for regional banks. We expect a number of these provisions to raise concerns with specific groups, so it will be interesting to see how the leadership in the House and the Senate cobble together majorities for both the tax and the spending bills.
That said, the tax package represents a major step forward for tax policy and how S corporations are treated. It gets the business community off the extender rollercoaster we’ve been on for the past three decades while setting the table for broader tax reform in 2017. We’ve been asking for permanence for years, and now it appears we’re just a couple of days away from getting it. You can bet S-Corp and our allies will be on the Hill with a message of just how important it is for Congress to enact this package.