Two-year extension of expired provisions - KPMG Global
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Senate Finance approves two-year extension of expired provisions

Two-year extension of expired provisions

The Senate Finance Committee today reported a bill to extend a package of over 50 tax provisions that expired at the end of 2014—the “expired provisions.” The bill passed on a bi-partisan basis (23-3), with most of the members of the Finance Committee voting in favor.


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Generally, the bill would extend expired provisions for two years—retroactively from January 1, 2015, through December 31, 2016. The bill also includes modifications to some of the expired provisions, as well as a few revenue raising provisions.

Expired provisions that would be extended

The bill addresses substantially the same expired provisions that Congress extended through 2014, in late December 2014. Thus, for example, the bill generally would extend through 2016 the following (among other) provisions:

  • Bonus depreciation
  • The research credit
  • The exception under subpart F for active financing income
  • Look-through treatment of payments between related controlled foreign corporations (CFCs) under foreign personal holding company income rules
  • Reduced recognition period for S corporation “built-in gains” tax
  • Basis adjustment to stock of S corporations making charitable contributions of property
  • Increased expensing

In addition, the bill would reinstate a 10% credit for the purchase of electric motorcycles in 2015 and 2016. The credit, which is capped at $2,500 per qualifying vehicle, was in place prior to 2014, but was allowed to expire on December 31, 2013. The credit passed by the Finance Committee today would apply only to two-wheel, not three-wheel, electric vehicles.

Modifications and amendments

Chairman Hatch on Friday, July 17 released the “chairman’s mark” that generally provided for temporary extensions of the expired provisions. Today, Chairman Hatch released an updated version of the mark (the “modified mark”) that includes modifications to some of the provisions being extended. These modifications (that were approved by the Committee) include provisions that would:

  • Allow qualified small businesses to elect to apply some of the research credit against payroll tax liability and to treat the research credit of eligible small businesses as a specified credit (allowable against alternative minimum tax)
  • Increase the total New Markets Tax Credit allocation for calendar years 2015 and 2016
  • Provide a 4% minimum low-income housing tax credit rate for non-federally subsidized existing housing
  • Expand the exclusion for employer reimbursements of qualified bicycle commuting expenses to cover certain bicycle-sharing program expenses
  • Make the employer wage credit for employees who are activated reserve members of the uniformed services available to all employers (regardless of size) and increase the credit rate
  • Expand the work opportunity tax credit (WOTC) to include new hires who have exhausted unemployment benefits
  • Index section 179 expensing and phase-out limitations for inflation
  • Extend the credit for nonbusiness energy property to include certain “Energy Star” roof products and installation costs and to modify efficiency standards
  • Allow tribal governments and certain non-profits to allocate the energy efficient commercial buildings deduction to the person primarily responsible for designing the property, in the same manner as allowed for public property
  • Allow taxpayers to annually elect out of section 168(j) on a class-by-class basis for certain Indian reservation property
  • Reduce the private business contribution requirement for qualified zone academy bonds
  • Expand section 181 expensing rules to include qualified live theatrical productions
  • Index the teacher expense deduction for inflation and allow teacher professional development expenses to qualify
  • Make changes to railroad track maintenance credit program

The Finance Committee also approved two amendments by voice vote during today’s markup.

One amendment would convert the biodiesel fuels credit from a mixture credit to a $1 dollar per gallon production credit beginning January 1, 2016, for fuel produced by the taxpayer in the United States. An eligible discretionary blender also could claim the $1 per gallon mixture credit if given appropriate documentation by a biodiesel producer indicating that they would forego the production credit. Biodiesel also would be treated as a taxable fuel in 2016, with the excise tax paid by the taxpayer eligible to elect the credit. Other special rules also would apply.

The second amendment would “refine” the provision for excluding from income the discharge of qualified principal residence indebtedness by providing that mortgage debt discharged would be eligible for the exclusion as long as it was pursuant to an arrangement entered into and evidenced in writing before January 1, 2017.

Revenue raisers in chairman’s modification

The bill would not offset the costs of extending expired provisions. However, the modification to the chairman’s mark includes three provisions that would offset the costs of modifications to the expired provisions. These provisions would:

  • Modify mortgage information reporting requirements to include outstanding principal, address of secured property, and loan origination date
  • Change tax rates, alternative fuel excise tax credits, and outlay payment provisions for liquefied natural gas (LNG) and liquefied petroleum gas (LPG)
  • Provide for eligible non-corporate recipients of certain clean coal power grants the ability to exclude such grants from income and reduce basis of depreciable property, subject to one-time upfront payment to federal government

The first provision (listed above) is also included in the highway funding bill that recently passed the House.

Provisions expiring in 2015 not addressed in extenders bill

Although over 50 provisions expired at the end of 2014, a handful of provisions are currently scheduled to expire during 2015. The bill as passed by the Finance Committee today does not address the provisions that are scheduled to expire during 2015, relating to the following:

  • Aviation excise taxes such as: (1) the temporary extension of increased excise taxes on certain aviation fuel, (2) air transportation “ticket taxes,” (3) air “cargo” taxes, and (4) the exemption for aircraft in fractional ownership aircraft programs (all generally applicable until September 30, 2015)
  • Multi-employer pension plan funding rules that allow such plans to take additional time to amortize unfunded liabilities (currently applicable for applications submitted on or before December 31, 2015)
  • Special rules for three categories of severely unfunded multi-employer plans and allowance of certain multi-employer plans to start or stop using the shortfall funding method without Treasury approval (currently generally applicable for plan years through December 31, 2015)

Historically, aviation excise taxes have been addressed as part of airport and airways authorization bills rather than as part of extenders legislation. However, no action on either the aviation taxes or the pension provisions has been scheduled at this time.

Sense of the Senate regarding tax reform

The bill expresses the sense of the Senate that: (1) Congress should pursue comprehensive tax reform that eliminates temporary provisions from the Code and instead makes meritorious provisions permanent and allows others to expire; and (2) a major focus of such reform should be fostering economic growth and lowering tax rates by broadening the tax base.

Documents and resources

The Joint Committee on Taxation (JCT) prepared the following documents with respect to the mark up of the extenders bill by the Finance Committee:

The Finance Committee also provided summary descriptions of the provisions in the extenders bill on the Finance website.

KPMG in late December 2014 produced a chart [PDF 202 KB] that lists the provisions that expired at the end of 2014, as well as those that will expire during 2015.

Future prospects

It is unclear when the full Senate will take up the bill reported by the Senate Finance Committee, although it seems unlikely that it would do so before the impending August congressional recess.

The House has already passed legislation to make a number of expired provisions permanent. For example, the House in May 2015 passed a bill that would make the research credit permanent.

The House Ways and Means Committee has not yet acted on legislation that would extend beyond 2014 the larger package of “tax extenders” addressed by the Senate Finance Committee today.

KPMG observation

In his opening statement, Chairman Hatch spoke in favor of making a number of the expiring provisions permanent law.


… I believe we should be working to make a number of these tax extender provisions permanent. The House has passed several bills that would do just that, and I think there are enough votes here in the Senate to do the same, at least with regard to some of the more important provisions.


While this would suggest that Hatch may agree with the House in exploring permanence for a number of extenders, he was less clear as to how or when that process might begin. Thus, the status of the expired provisions is largely in the same place as it was last year, at this time. Last year (in April 2014), the Senate Finance Committee marked up a two-year, retroactive, extension of almost all of the expired provisions The House, however, took the same approach it is taking this year by passing legislation to make several expired provisions permanent. Ultimately, in December 2014, the House and Senate agreed on a one-year retroactive extension of almost all the expired provisions. For most taxpayers, the expired provisions expired again shortly after that legislation was enacted—at the end of 2014.

This leaves the spotlight on the House to act next by either adopting the Senate two-year approach or continuing to push for permanence for certain extenders. That process is likely to begin when Congress returns to Washington in the fall.

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