John L. Harrington, Sander Lurie, Lisa M. Pekkala and Marc D. Teitelbaum for Dentons writes: Dozens of tax provisions will expire, leaving affected individuals and companies wondering about timing and likelihood of extension.
When 2013 ends, so will more than 50 US tax provisions. Nearly all of these expiring tax provisions have suffered this fate before, only to be extended retroactively after months of uncertainty for affected taxpayers.
Included among the list of expiring tax provisions are some widely used incentives, such as the research and experimentation tax credit and 50 percent "bonus" depreciation. The list of expiring tax provisions also contains a raft of energy incentives, including the production tax credit for wind energy, incentives for alternative and renewable fuels and credits for energy-efficient appliances and houses. Provisions important to individuals—such as the deduction for out-of-pocket expenses for teachers, higher exclusions for mass-transit benefits and the deduction for state and local sales taxes—will sunset at the end of this year. The same is true for provisions important to US companies with cross-border activities (for example, the "active financing exception" and the subpart F exception for dividends, interest, rents and royalties paid between related controlled foreign corporations) and businesses operating in certain designated or distressed areas. Despite their diversity, these expiring tax provisions have one thing in common: Taxpayers who use them are about to enter months of uncertainty as to their availability.
If the past is prologue, some—but not all—of these provisions will be extended, but we will not know until much later in 2014 which ones will be extended, whether they will be extended with modifications, how long they will be extended, whether the extension will be retroactive and who will be stuck "paying" for any such extension. Still, despite the history of on-again, off-again extensions, it is risky to assume that any particular provision will be extended simply because it has been extended in the past. Some in Congress have argued for postponing action on the expiring tax provisions, believing that Congress should resolve their fate as part of tax reform. For example, the staff discussion draft on "Energy Tax Reform" released on December 18, 2013, by Senate Finance Committee Chairman Baucus would replace many of the expiring energy tax provisions with a smaller set of energy tax incentives. While the wait-for-tax-reform approach is understandable, the fact remains that tax reform will be a contentious process, and even if tax reform starts to move through the House Ways and Means and Senate Finance committees in 2014, it is a long way from enactment. In addition, although there will be attempts by proponents of particular expiring tax provisions to have their expiring tax provisions considered separately, the expiring tax provisions have historically been addressed as a group. Accordingly, unless the expiring tax provisions are severed from tax reform or their historical treatment as a pack, affected taxpayers may be in for a reprise of 2010 and 2012, with a long period of uncertainty.
So, for planning purposes, let's hope that dealing with these expiring tax provisions early in 2014 makes it on Congress' list of new year resolutions.
| Expiring provision | Section of Internal Revenue Code | Provision will no longer apply to the following |
| Credit for certain nonbusiness energy property | Section 25C(g) | Property placed in service after 12/31/13 |
| Alternative fuel vehicle refueling property (non-hydrogen refueling property) | Section 30C(g)(2) | Property placed in service after 12/31/13 |
| Credit for two- or three-wheeled plug-in electric vehicles | Section 30D(g) | Property acquired after 12/31/13 |
| Second generation biofuel producer credit | Section 40(b)(6)(J) | Production after 12/31/13 |
| Incentives for biodiesel and renewable diesel | Sections 40A, 6426(c)(6) and 6427(e)(6)(B) | Fuel sold or used after 12/31/13 |
| Research and experimentation tax credit | Section 41(h)(1)(B) | Amounts paid or incurred after 12/31/13 |
| Determination of applicable percentage of low income housing tax credit | Section 42 | Allocations made after 12/31/13 |
| Placed-in-service date for wind and certain other renewable resource facilities eligible to claim electricity production credit | Section 45(d) | Construction beginning after 12/31/13 |
| Credit for production of Indian coal | Section 45(e)(10)(A) | Coal produced after 12/31/13 |
| Indian employment tax credit | Section 45A(f) | Taxable years beginning after 12/31/13 |
| New markets tax credit | Section 45D(f)(1) | New allocations for calendar years beginning after 12/31/13 |
| Credit for certain expenditures for maintaining railroad tracks | Section 45G(f) | Expenditures paid or incurred during taxable years beginning after 12/31/13 |
| Credit for construction of new energy-efficient homes | Section 45L(g) | Qualified new energy efficient homes acquired after 12/31/13 |
| Credit for energy-efficient appliances | Section 45M(b) | Appliances purchased after 12/31/13 |
| Mine rescue team training credit | Section 45N | Taxable years beginning after 12/31/13 |
| Employer wage credit for activated military reservists | Section 45P | Payments made after 12/31/13 |
| Work opportunity tax credit | Section 51(c)(4) | Wages paid or incurred for individuals beginning work after 12/31/13 |
| Allocation of bond limitation on Qualified Zone Academy Bonds | Section 54E(c)(1) | Obligations issued after 12/31/13 |
| Deduction for certain expenses of elementary and secondary school teachers | Section 62(a)(2)(D) | Taxable years beginning after 12/31/13 |
| Discharge of indebtedness on principal residence | Section 108(a)(1)(E) | Discharges of indebtedness beginning after 12/31/13 |
| Parity for exclusion for employer-provided mass transit and parking benefits | Section 132(f) | Months after 12/31/13 |
| Treatment of military basic housing allowances under low income housing credit | Section 142(d) | Distributions after 12/31/13 |
| Deduction for mortgage insurance premiums | Section 163(h)(3)(E) | Amounts paid or accrued after 12/31/13 |
| Deduction for state and local general sales taxes | Section 164(b)(5) | Taxable years beginning after 12/31/13 |
| Three-year depreciation for race horses two-years old or younger | Section 168(e)(3)(A) | Horses placed in service after 12/31/13 |
| 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements | Section 168(e)(3)(E) | Qualified retail improvement property placed in service after 12/31/13 |
| Seven-year recovery period for motorsports entertainment complexes | Section 168(i)(15) | Property placed in service after 12/31/13 |
| Accelerated depreciation for business property on an Indian reservation | Section 168(j)(8) | Property placed in service after 12/31/13 |
| 50 percent "bonus" depreciation and election to accelerate alternative minimum tax (AMT) credits in lieu of bonus depreciation | Sections 168(k) and 460(c)(6)(B) | Property acquired after 12/31/13 |
| Special depreciation allowance for cellulosic biofuel plant property | Section 168(l) | Property placed in service after 12/31/13 |
| Special rules for contributions of capital gain real property made for conservation purposes | Sections 170(b)(1)(E) and (b)(2)(B) | Taxable years beginning after 12/31/13 |
| Enhanced charitable deduction for contributions of food inventory | Section 170(e)(3)(C) | Contributions made after 12/31/13 |
| Increase in expensing to US$500,000/US$2 million, and expansion of definition of section 179 property | Sections 179(b)(1), (b)(2) and (f) | Taxable years beginning after 12/31/13 |
| Election to expense advanced mine safety equipment | Section 179E(a) | Property placed in service after 12/31/13 |
| Special expensing rules for certain film and television productions | Section 181(f) | Qualified film and television productions commencing after 12/31/13 |
| Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico | Section 199(d)(8) | Taxable years beginning after 12/31/13 |
| Above-the-line deduction for qualified tuition and related expenses | Section 222(e) | Taxable years beginning after 12/31/13 |
| Above-the-line deduction for qualified tuition and related expenses | Section 222(e) | Taxable years beginning after 12/31/13 |
| Tax-free distributions from individual retirement plans for charitable purposes | Section 408(d)(8) | Distributions made in taxable years beginning after 12/31/13 |
| Special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy | Section 451(i) | Taxable years beginning after 12/31/13 |
| Modification of tax treatment of certain payments to controlling exempt organizations | Section 512(b)(13)(E)(iv) | Payments received or accrued after 12/31/13 |
| Favorable treatment of certain dividends of regulated investment companies (RICs) to foreign investors | Sections 871(k)(1)(C) and (k)(2)(C) | Dividends with respect to any taxable year of the RIC beginning after 12/31/13 |
| RIC qualified investment entity treatment under the Foreign Investment in Real Property Tax Act (FIRPTA) | Section 897(h)(4) | After 12/31/13 |
| Exceptions under subpart F for active financing income | Sections 953(e)(10) and 954(h)(9) | Taxable years beginning after 12/31/13 |
| Look-through treatment of payments between controlled foreign corporations (CFCs) under the foreign personal holding company rules | Section 954(c)(6) | Taxable years beginning after 12/31/13 |
| 100 percent exclusion for qualified small business stock | Section 1202(a)(4) | Stock acquired after 12/31/13 |
| Basis adjustment to stock of S corporations making charitable contributions of property | Section 1367(a) | Contributions made after 12/31/13 |
| Reduction in S corporation recognition period for built-in gains tax | Section 1374(d)(7) | Taxable years beginning after 12/31/13 |
| Empowerment zone tax incentives | Sections 1202(a)(2), 1391, 1394, 1396, 1397A and 1397B | Taxable years beginning after 12/31/13 |
| Incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen) | Sections 6426(d)(5) and (e)(3) and 6427(e)(6)(C) | Fuel sold or used after 12/31/13 |
| Temporary increase in limit on cover over of rum excise tax revenues (from US$10.50 to US$13.25 per proof gallon) to Puerto Rico and the Virgin Islands | Section 7652(f) | Articles brought into the United States after 12/31/13 |
| Economic development credit for American Samoa | Section 119 of P.L.109-432 | Taxable years beginning after 12/31/13 |
| New York Liberty Zone tax-exempt bond financing | Section 1400L(d)(2)(D) | Bonds issued after 12/31/13 |
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