Congressional leaders early this morning introduced the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act), as well as an omnibus spending package (the Omnibus Bill).
The PATH Act would:
Extensions of provisions that already have expired generally would be retroactive to the beginning of 2015.
In addition, both the PATH Act and “Division P” of the Omnibus Bill include other significant tax policy changes, including provisions relating to real estate, the medical device excise tax, the so-called “Cadillac tax” on certain health care plans, loss deferral under section 267, modifications to the section 199 rules as applied to independent oil refiners, certain procedural matters, and a host of other issues.
The Omnibus Bill also includes a temporary extension of the ban on states and localities taxing internet access.
PATH Act—read the statutory language [PDF 223 KB] and a section-by-section description [PDF 551 KB]
Omnibus Bill—read the statutory language [PDF 2.93 MB]
The Joint Committee on Taxation (JCT) has estimated that the PATH Act would lose approximately $622 billion over the 10-year scoring window. The costs of extending items does not appear to have been offset. However, the PATH Act includes revenue raisers to offset the costs of other measures. The JCT has estimated that the tax provisions of the Omnibus Bill would lose approximately $58 billion over the 10-year scoring window.
Read the JCT revenue estimates
The House is expected to vote on the PATH Act tomorrow (December 17) and the Omnibus Bill on Friday (December 18). Assuming the bills pass the House, Senate action is expected to follow shortly thereafter. Passage of both bills likely will require bi-partisan support, so passage is not yet certain.
The PATH Act would make permanent the following provisions:
The PATH Act generally would extend the following expired provisions retroactively from the beginning of 2015 through 2019:
The Omnibus Bill includes long-term extensions to wind and solar tax credits along with a phase-out schedule for each.
With respect to wind facilities, the “begin construction deadline” for the production tax credit would be extended five years from the current deadline of December 31, 2014, to December 31, 2019. In addition, the “begin construction deadline” with respect to the election to claim the investment tax credit in lieu of the production tax credit also would be extended to December 31, 2019.
The amount of the credit would be determined by the year in which construction begins.
|Period in which construction begins||Reduction to credit|
|Before January 1, 2017||No reduction|
|After December 31, 2016, and before January 1, 2018||20% reduction|
|After December 31, 2017, and before January 1, 2019||40% reduction|
|After December 31, 2018, and before January 1, 2020||60% reduction|
The effective date for these amendments relating to wind facilities under sections 45 and 48 would be January 1, 2015.
With respect to the 30% investment tax credit for solar energy facilities under section 48, such facilities would now be required only to have begun construction by a certain deadline—rather than being placed in service (i.e., a “begin construction deadline” approach).
The deadline for solar energy property would be extended five years from the current deadline of December 31, 2016, to property whose construction begins on or before December 31, 2021.
Similar to the amendments for wind facilities, the investment tax credit for solar would be reduced the later construction begins:
|Period in which construction begins||Credit rate|
|Before January 1, 2020||30%|
|After December 31, 2019, and before January 1, 2021||26%|
|After December 31, 2020, and before January 1, 2022||22%|
In addition—unique to the proposed amendments for solar energy property—for any project for which the construction begins before January 1, 2022, but is not placed in service before January 1, 2024, the credit rate would be 10%.
The effective date for these amendments relating to solar energy property under section 48 would be the date of enactment of the legislation.
Read more at TaxNewsFlash-Legislative Updates
The PATH Act would temporarily extend (generally from January 1, 2014, through December 31, 2016) the following provisions that expired at the end of 2014:
In addition, the PATH Act 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 provision would apply only to two-wheel, not three-wheel, electric vehicles.
Refer to the statutory language of the PATH Act for more details and for the complete list of provisions that would be extended by the legislation.
The PATH Act includes a “program integrity” title that includes a host of procedural and compliance changes (most of which are scored as raising revenue). Some of the provisions in this title generally relate to the following:
The PATH Act would make a number of changes to the real estate investment trust (REIT) rules. Some of these provisions previously were included in former Ways and Means Chairman Camp’s Tax Reform Act of 2014 (and the Real Estate and Investment Jobs Act of 2015).
One significant change would restrict tax-free spinoffs involving REITs, effective for distributions on or after December 7, 2015, subject to a “grandfather rule” for certain distributions pursuant to transactions described in ruling requests submitted to the IRS on or before such date. A spin-off involving a REIT generally would qualify for tax-free treatment only if “Distributing” and “Controlled” both were REITs immediately following the spin (or if Controlled had been a taxable REIT subsidiary of the REIT, provided certain other conditions are satisfied). Further, neither Distributing nor Controlled would be permitted to elect to be treated as a REIT for 10 years following a tax-free spin-off transaction (other than an election for Controlled when both Distributing and Controlled would be REITs immediately following the spin).
Other amendments would: (1) reduce the percentage of REIT assets that may be securities of taxable REIT subsidiaries from 25% to 20%; (2) create an alternative three-year averaging safe harbor (based on adjusted bases or fair market value) for the prohibited transactions tax; (3) repeal preferential dividend rules for publicly offered REITs and provide authority for alternative remedies for preferential dividends paid by REITs that are not publicly offered; and (4) modify the REIT earnings and profits rules to prevent duplication of taxation. Other REIT provisions also are included.
With respect to FIRPTA, the PATH Act generally would: (1) increase the ownership threshold permitted for a foreign person in a publicly traded U.S. REIT without triggering FIRPTA (from 5% to 10%); (2) provide relief from FIRPTA for REIT stock held by certain “qualified shareholders”; (3) modify the rules for determining when a REIT or regulated investment company (RIC) is domestically controlled for purposes of the FIRPTA rules; and (4) provide an exemption from FIRPTA for U.S. real property interests held by foreign pension funds meeting certain conditions.
In addition, the PATH Act includes revenue-raising provisions that generally would: (1) increase the rate of withholding on dispositions of U.S. real property interests (other than personal residences) from 10% to 15%; (2) modify the application of the “cleansing rule” to interests in RICs and REITs; and (3) not treat dividends from RICs and REITs as dividends from related corporations (even if the RIC or REIT owns shares in a foreign corporation) for purposes of determining whether dividends from a foreign corporation are eligible for the dividends received deduction.
The PATH Act would impose a two-year moratorium on application of the medical device excise tax. Under the legislation, the tax would not apply to sales made between January 1, 2016 and December 31, 2017.
The PATH Act would delay for two years the so-called “Cadillac tax”—an excise tax on certain high-cost health insurance plans. Under the PATH Act, the tax would not be in effect until January 1, 2020.
A separate provision would also provide a one-year moratorium (for 2017) on application of the fee applicable to health insurance providers.
The PATH Act would temporarily create a special rule for independent oil refiners that enhances the section 199 domestic manufacturing deduction. Specifically, the legislation would allow an independent refiner to reduce transportation costs allocable to “qualified production activities income” (QPAI) by 75%, thus increasing the amount of deduction. The rule would be applicable for tax years beginning between 2016 and 2021.
The PATH Act proposes a few amendments to the partnership audit reform measures that were recently enacted as part of the “Bipartisan Budget Act of 2015" (Pub. L. 114-74). These changes include modifications to the general rules for determining the amount of an imputed underpayment to take into account: (1) capital gains rates in the case of C corporation partners, and (2) passive activity losses in the case of publicly traded partnerships (PTPs). The bill also includes a clarification to the period of limitations on making adjustments and other technical changes.
The PATH Act does not address a number of other significant issues that have been raised about the new regime. Read KPMG's description of the partnership audit provisions TaxNewsFlash-United States [PDF 185 KB]
Section 633 of the Omnibus Bill includes an extension through October 1, 2016, of the ban on states and localities taxing internet access or placing multiple and discriminatory taxes on internet commerce.
The PATH Act also includes a host of other significant tax law changes. Some of these changes are revenue raisers that may have been included to offset the costs of provisions not related to extending provisions that expired or that are scheduled to expire. These provisions include the following:
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