Congress Leaves Tax Breaks in Limbo for 2010

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By Robert Steere, Toolkit Staff Writer

So preoccupied is the Democratic leadership in the Senate with its massive health care restructuring effort that routine, yet essential, legislative work on important tax matters has been ignored. As a result, dozens of tax provisions benefiting individuals, businesses and charities--tax provisions that Senate leaders claim they support--were allowed to expire on December 31, 2009. Tax extender legislation, as it is called, never came up for consideration in the Senate.

The House passed the Tax Extenders Act of 2009 (H.R. 4213) on December 9, providing a one-year extension of more than 50 tax breaks that expire at the end of 2009 before lawmakers left town for winter recess. The Senate, on the other hand, preoccupied with its all-consuming health-care wrangling, was unable to find time to address the tax package. Downplaying their failure to act, Senate Finance Committee leaders announced that they plan to move forward with a $30 billion package for tax extenders early in 2010. Finance Committee Chairman Max Baucus of Montana and Ranking Member Chuck Grassley of Iowa said that they intend to enact the extension of the tax breaks "without a gap in coverage," meaning that the enacted provisions will apply retroactively to the beginning of 2010.

Ignoring the legal and practical problems already created by failing to act in 2009, Senators Baucus and Grassley simply said, "Although the House and Senate were unable to come to agreement on a package to extend several expiring tax provisions before Congress adjourned, these measures must be addressed as soon as possible. Expiration of these provisions makes it difficult for taxpayers to fully and effectively realize the intended benefits by creating uncertainty and complexity in the tax law. In an effort to provide a seamless extension of these provisions with the fewest disruptions and administrative problems, we will take up legislation as quickly as possible in the New Year."

Committee Chairman Baucus and Ranking Member Grassley sent a letter to Senate Majority Leader Harry Reid of Nevada and Minority Leader Mitch McConnell of Kentucky dated December 22, 2009 informing them that the Senate Finance Committee intends to take action in 2010 to extend a range of tax breaks for individuals and businesses that expired as 2009 came to a close.

In their letter, they said, "These provisions are important to our economy -- not only because they help create jobs, but also because they are used to address pressing national concerns. We understand that the expiration of these provisions creates uncertainty and complexity in the tax law. Taxpayers need notice of the availability of these provisions to fully and effectively utilize the intended benefits."

The House-approved Tax Extenders Act of 2009 includes more than $30 billion in tax relief for taxpayers in 2010 by extending for one year, through 2010, more than 50 temporary tax breaks. The bill includes several provisions offering tax relief to individuals totaling more than $5 billion. It also includes provisions for tax relief for businesses totaling more than $17 billion. It also provides for the extension of tax provisions encouraging charitable contributions, offering disaster relief, supporting community development, and providing tax breaks for clean energy and energy efficiency.

Tax breaks for individuals extended in the bill include:

• the optional itemized deduction of state and local sales taxes;
• the additional $500 standard deduction ($1,000 for joint filers) for real property taxes;
• the $4,000 deduction for qualified tuition and tuition-related expenses (reducing adjusted gross income); and
• the $250 deduction for classroom supplies purchased by school teachers (also reducing adjusted gross income).

Also expiring in 2009 is the alternative minimum tax (AMT) "patch" which will result in millions of new taxpayers being subject to AMT in 2010. Neither the House nor the Senate has addressed this issue.

Business tax breaks extended in the bill include:

• the research and development credit (a $7 billion item);
• the Subpart F active financing exception and the look-through treatment of payments between related controlled foreign corporations that exempts certain foreign earned income from U.S. taxation;
• 15-year straight-line cost recovery for qualified leasehold improvements, restaurant buildings and improvements, and retail improvements which would otherwise be subject to 29-year cost recovery;
• the seven-year straight-line cost recovery period for motorsports entertainment complexes (read: the "NASCAR" tax break); and
• special expensing rules for U.S. film and television productions (read: the "Hollywood" tax break).

Baucus also told reporters that fixing the estate tax, which the Senate also failed to address this year, was critical, and that he would like to see it taken up as part of tax reform legislation expected sometime in 2010.

Posted January 6, 2009.