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2014 Tax Extenders Legislation Uncertainty Impairs Capital Expenditure Planning and Business Acquisitions

April 30, 2014 Business & Tax Blog Legislation

On April 3, 2014, the Senate Finance Committee favorably reported out of Committee the “Expiring Provisions Improvement Reform and Efficiency Act.” The Act has bipartisan Senate Finance Committee support, but it is uncertain when and how the House Ways and Means Committee will deal with the subject. The Act would extend the effect of certain tax code provisions which expired on 12/31/2013. Included within the business provisions that would be extended, generally for 2 years, are special depreciation rules for qualified leasehold, restaurant and retail improvements, 50% bonus depreciation provisions and first-year expensing opportunities for certain capital expenditures. Also included is a reduction in S corporation recognition period for the built-in gains tax.

Included within the individual provisions that would be extended for 2 years through 2015 are exclusions from gross income of certain discharged principal residence indebtedness, deduction for state and local taxes, and tax-free distributions from IRA’s of taxpayers aged 70 ½ or older for charitable purposes.

The full Senate is expected to take up the bill shortly. On the House side, Ways and Means Committee Chairman Dave Camp (R-Mich.), who is retiring at the end of this year, released a draft bill in February that only included certain business tax extenders. The Committee began its review of the bill earlier this month. However, Camp has said that he favors a more permanent solution and wants to further explore through the Spring and into the Summer which expired provisions should be made permanent and which should expire for good. It remains to be seen which extenders will ultimately be considered by the House, and which provisions will be extended permanently, over some period of years or allowed to stay expired. Those provisions that are extended will hopefully be applied retroactively to January 1, 2014, but planning in this uncertain environment remains challenging. It is expected that final congressional action on an extenders package will be delayed until after November’s elections.

James L. Turner