Tuesday, December 24, 2013

2014 Will Ring In Uncertainty For Many US Taxpayers

John L. HarringtonSander LurieLisa 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 provisionSection of Internal Revenue CodeProvision will no longer apply to the following
Credit for certain nonbusiness energy propertySection 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 vehiclesSection 30D(g)Property acquired after 12/31/13
Second generation biofuel producer creditSection 40(b)(6)(J)Production after 12/31/13
Incentives for biodiesel and renewable dieselSections 40A, 6426(c)(6) and 6427(e)(6)(B)Fuel sold or used after 12/31/13
Research and experimentation tax creditSection 41(h)(1)(B)Amounts paid or incurred after 12/31/13
Determination of applicable percentage of low income housing tax creditSection 42Allocations made after 12/31/13
Placed-in-service date for wind and certain other renewable resource facilities eligible to claim electricity production creditSection 45(d)Construction beginning after 12/31/13
Credit for production of Indian coalSection 45(e)(10)(A)Coal produced after 12/31/13
Indian employment tax creditSection 45A(f)Taxable years beginning after 12/31/13
New markets tax creditSection 45D(f)(1)New allocations for calendar years beginning after 12/31/13
Credit for certain expenditures for maintaining railroad tracksSection 45G(f)Expenditures paid or incurred during taxable years beginning after 12/31/13
Credit for construction of new energy-efficient homesSection 45L(g)Qualified new energy efficient homes acquired after 12/31/13
Credit for energy-efficient appliancesSection 45M(b)Appliances purchased after 12/31/13
Mine rescue team training creditSection 45NTaxable years beginning after 12/31/13
Employer wage credit for activated military reservistsSection 45PPayments made after 12/31/13
Work opportunity tax creditSection 51(c)(4)Wages paid or incurred for individuals beginning work after 12/31/13
Allocation of bond limitation on Qualified Zone Academy BondsSection 54E(c)(1)Obligations issued after 12/31/13
Deduction for certain expenses of elementary and secondary school teachersSection 62(a)(2)(D)Taxable years beginning after 12/31/13
Discharge of indebtedness on principal residenceSection 108(a)(1)(E)Discharges of indebtedness beginning after 12/31/13
Parity for exclusion for employer-provided mass transit and parking benefitsSection 132(f)Months after 12/31/13
Treatment of military basic housing allowances under low income housing creditSection 142(d)Distributions after 12/31/13
Deduction for mortgage insurance premiumsSection 163(h)(3)(E)Amounts paid or accrued after 12/31/13
Deduction for state and local general sales taxesSection 164(b)(5)Taxable years beginning after 12/31/13
Three-year depreciation for race horses two-years old or youngerSection 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 improvementsSection 168(e)(3)(E)Qualified retail improvement property placed in service after 12/31/13
Seven-year recovery period for motorsports entertainment complexesSection 168(i)(15)Property placed in service after 12/31/13
Accelerated depreciation for business property on an Indian reservationSection 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 depreciationSections 168(k) and 460(c)(6)(B)Property acquired after 12/31/13
Special depreciation allowance for cellulosic biofuel plant propertySection 168(l)Property placed in service after 12/31/13
Special rules for contributions of capital gain real property made for conservation purposesSections 170(b)(1)(E) and (b)(2)(B)Taxable years beginning after 12/31/13
Enhanced charitable deduction for contributions of food inventorySection 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 propertySections 179(b)(1), (b)(2) and (f)Taxable years beginning after 12/31/13
Election to expense advanced mine safety equipmentSection 179E(a)Property placed in service after 12/31/13
Special expensing rules for certain film and television productionsSection 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 RicoSection 199(d)(8)Taxable years beginning after 12/31/13
Above-the-line deduction for qualified tuition and related expensesSection 222(e)Taxable years beginning after 12/31/13
Above-the-line deduction for qualified tuition and related expensesSection 222(e)Taxable years beginning after 12/31/13
Tax-free distributions from individual retirement plans for charitable purposesSection 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 policySection 451(i)Taxable years beginning after 12/31/13
Modification of tax treatment of certain payments to controlling exempt organizationsSection 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 investorsSections 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 incomeSections 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 rulesSection 954(c)(6)Taxable years beginning after 12/31/13
100 percent exclusion for qualified small business stockSection 1202(a)(4)Stock acquired after 12/31/13
Basis adjustment to stock of S corporations making charitable contributions of propertySection 1367(a)Contributions made after 12/31/13
Reduction in S corporation recognition period for built-in gains taxSection 1374(d)(7)Taxable years beginning after 12/31/13
Empowerment zone tax incentivesSections 1202(a)(2), 1391, 1394, 1396, 1397A and 1397BTaxable 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 IslandsSection 7652(f)Articles brought into the United States after 12/31/13
Economic development credit for American SamoaSection 119 of P.L.109-432Taxable years beginning after 12/31/13
New York Liberty Zone tax-exempt bond financingSection 1400L(d)(2)(D)Bonds issued after 12/31/13


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