USA: Left behind: Expired individual tax provisions
11 April 2014
Posted by: Author: Annette Nellen
Author: Annette Nellen (CPA)
About a dozen individual income tax provisions have expired or are expiring in the near future. What should be their fate?
For decades, many provisions in the Internal Revenue Code have been temporary. Most get renewed regularly but often only after they have expired. Because most of these provisions are usually renewed, taxpayers have come to expect them to be renewed even when they have expired. The uncertainty, though, adversely affects tax planning. Many of these provisions, such as credits to encourage energy efficiency, are incentives. When these incentives are retroactively renewed, their incentive effect is not fully realized.
This article looks at the individual provisions that either expired at the end of 2013 or expire in the next few years, including how long these provisions have existed and why they were enacted. Next, the article examines whether these provisions should be renewed and what some current legislative proposals would do to them.
All or nothing
Talk of tax reform and the release of specific proposals by Rep. Dave Camp, R-Mich., in February 2014 indicate that the fate of expired provisions may await a broader discussion on tax reform. In a March 24, 2014, memo to House Ways and Means Committee members about tax reform, Camp, the committee’s chairman, stated:
One important goal of tax reform is to provide certainty to American taxpayers. I think we can all agree that a short extension of tax policies is no way to legislate and is even worse for the families and businesses who utilize those tax benefits. Moreover, it further confuses the debate as to what the real revenue baseline is. It is time for clarity in both policy and baseline.
As such, beginning in April, the committee will continue its work by going policy by policy to determine which extenders should be made permanent. [Dumain and Dennis, "Tax Reform to Start With Baby Steps in the House,” Roll Call, March 24, 2014.]
Sen. Ron Wyden, D-Ore., has indicated interest in a one-year extension of these provisions ("Wyden Says Tax-Break Extension Goal of Senate Panel,” Bloomberg, Feb. 13, 2014), as well as a two-year extension (see references to EXPIRE Act in the table accompanying this article). Sen. Harry Reid, D-Nev., introduced S. 1859 in December 2013 to renew all expired provisions through 2014.
The Congressional Research Service (CRS) reports that the cost to renew all provisions that expired at the end of 2013 or later is over $900 billion for 2014 through 2023 (CRS, Tax Provisions Expiring in 2013 ("Tax Extenders”), R43124, p. 5 (11/5/13)). The cost of these provisions is one reason they are not made permanent. When they are extended for only one or two years, they cost much less than when included in a 10-year budget.
The list and analysis
This table (PDF) shows expired and expiring provisions relevant to individual taxpayers, along with background information and suggestions for their fate.
While a discussion of each expired and expiring provision seems logical to make a final decision as to its fate, there are factors weighing against this approach. One such factor is history. Many of these provisions have been renewed multiple times with no tax policy discussion occurring. While Camp has expressed interest in analyzing whether each provision is effective, his March 31, 2014, announcement that he will not seek reelection lessens the likelihood that this will happen.
The cost of the provisions and whether they must be "paid for” with other revenues will likely drive the debate on their fate. It is difficult to find revenue offsets for a one-year extension and harder still to find support for permanent extensions, particularly in an election year. Final action might not occur until after the November midterm elections. In the meantime, remind clients of the uncertainty of this situation, as well as the opportunity for clients to let elected officials know that this uncertainty is not good policy.
This article first appeared on cpa2biz.com.