H.R. 4213: Tax Extenders Act of 2009

H.R. 4213

Tax Extenders Act of 2009

Sponsor
Rep. Charles B. Rangel

Date
December 9, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

The House is scheduled to consider H.R. 4213 under a closed rule on Wednesday, December 9, 2009. The rule provides for one hour of debate and one Republican motion to recommit, with or without instructions. H.R. 4213 was introduced on December 7, 2009, by Rep. Charles Rangel (D-NY), and referred to the Committee on Ways and Means, which took no official action.

Bill Summary

H.R. 4213 would temporarily extend $31.1 billion in expiring tax provisions through 2010, increase regulations on foreign tax reporting and compliance, and permanently increase taxes on capital investment by $24.6 billion over ten years.

The bill would provide $24.2 billion in temporary tax relief for individuals, businesses, and charitable contributions. The legislation also includes $3.4 billion in temporary tax incentives for community assistance, $2.3 billion in one-year disaster relief tax provisions, and $1.1 billion in temporary tax incentives for certain sources of energy.

To offset the loss of revenue from the short-term tax relief, H.R. 4213 would include stricter reporting rules and regulations on U.S.-held foreign assets that are estimated to raise $7.6 billion in new revenues, and a $24.6 billion permanent tax increase on investments in the midst of a recession.

The specific provisions of the bill are outlined below.

TITLE I-GENERAL PROVISIONS

Subtitle A-Individual Tax Relief

•  Deduction of State and local sales taxes:  Allows taxpayers to take an itemized deduction for State and local sales taxes instead of the itemized deduction for State and local income taxes for one year, through 2010.  According the JCT, this provision would reduce revenues by $1.85 billion over a ten year period.

 

•  Additional standard deduction for State and local real property taxes:   Extends an extra standard deduction for taxpayers who don't qualify to itemize their tax deductions, but who do pay State or local real estate taxes through 2010.  The additional deduction is equal to the amount of real estate taxes paid, up to $500 for individuals and $1,000 for joint filers.  According to JCT, this provision would reduce revenues by $1.46 billion over ten years.

 

•  Above-the-line deduction for qualified tuition and related expenses:  Extends a deduction for qualified college tuition and related expenses for one year, through 2010.  The tuition and fees deduction can reduce the amount of a taxpayer's income subject to tax by up to $4,000.  According to the JCT, this provision would reduce revenues by $1.53 billion over ten years.

 

•  Deduction for certain expenses of school teachers:  Extends an above-the-line tax deduction of up to $250 for elementary and secondary school teacher's expenses for classroom supplies through 2010.  According to JCT, this provision would reduce revenues by $228 million over ten years.

Subtitle B-Business Tax Relief

•  Tax credit for research and experimentation expenses:  Extends the tax credit for certain business research and development expenditures for one year, through 2010.  According to JCT, this provision would reduce revenues by $6.97 billion over ten years.

 

•  Exceptions for active financing income:  Extends the exceptions that allow financial services companies and manufacturers with financing arms to defer taxes on qualifying overseas income from for one year, through 2010.  According to JCT, this provision would reduce revenues by $3.92 billion over ten years.

 

•  Extension of look-through treatment of payments between related controlled foreign corporations:  Extends the so-called "look through" treatment of payments (dividends, interest, rents and royalties) between related controlled foreign corporations (CFCs).  The CFC look-through rule provides that certain payments received by a CFC from related CFCs will not be treated as income.  According to the JCT, this provision would reduce revenues by $574 million over ten years.

 

•  15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements:  Extends the special 15-year period for businesses to recover the costs of certain leasehold improvements, restaurant buildings and improvements, and retail improvements through 2010.  According to JCT, this legislation would reduce revenues by $2.56 billion over ten years.

 

•  7-year recovery period for motorsports entertainment complexes:  Extends the special seven-year period for businesses to recover the costs for Motorsports Racing Track Facilities through 2010.  According to JCT, this provision would reduce revenues by $45 million over ten years.

 

•  Railroad track maintenance credit:  Extends the 50 percent tax credit for certain costs of maintaining railroad tracks through 2010.  According to JCT, this provision would reduce revenues by $165 million over ten years.

 

•  Special expensing rules for certain film and television productions:  Extends through 2010 a provision that allows film and television producers to expense the first $15 million of filming costs incurred in the U.S., and the first $20 million if the costs are incurred in an economically depressed area.  JCT estimates that this provision would reduce revenues by $51 million over ten years.

 

•  Extension of expensing of "brownfields" environmental remediation costs:  Extends a provision that allows taxpayer's to expense the environmental remediation costs of cleaning up hazardous sites known as "brownfields" through 2010.  According to JCT, this provision would reduce revenues by $159 million over ten years.

 

•  Extension of mine rescue team training credit:  Extends the tax credit for mine rescue teams for one year, through 2010.  According to JCT, the provision would reduce revenues by $1 million over ten years.

 

•  Election to expense advanced mine safety equipment: Extends a provision that gives businesses 50 percent bonus depreciation for the purchase of certain mine safety equipment through 2010.  According to JCT, this provision would reduce revenues by $5 million over ten years.

 

•  Employer wage credit for activated military reservists:  Extends a tax credit for eligible small businesses of activated military reservists equal to 20 percent of the sum of wage payments to reservists through 2010.  According to JCT, the provision would reduce revenues by $4 million over ten years.

 

•  5-year depreciation for farming business machinery and equipment:  Extends through 2010 a provision that provides a five-year period for the cost of certain farm equipment to be recovered.  According to the JCT, this provision is revenue neutral over ten years.

 

•  Treatment of certain dividends and assets of regulated investment companies:   Extends a number of provisions that provide special tax treatment for foreign shareholders that invest in regulated investment companies (RICs).  The bill would extend these rules for one year, through 2010.  According to the JCT, this provision would reduce revenues by $94 million over ten years.

 

•  Extension of suspension of the 100 percent-of-net-income limitation on percentage depletion for oil and natural gas from marginal properties:  Extends a suspension on the taxable income limit for a marginal oil or gas well through 2010.  Owners of oil and gas properties could normally take a deduction equal to 100 percent of the income from the property, but not more than 65 percent of the taxpayer's taxable income.  Congress has since suspended the 100 percent limitation, a suspension which this bill would extend for one year.   According to the JCT, this provision would reduce revenues by $104 million over ten years.

 

Subtitle C-Charitable Provisions

•  Contributions of capital gain real property made for conservation purposes:  Extends the increased contribution limits of real property for conservation purposes through 2010.  The bill also extends the carryforward period for amounts in excess of these limits through 2010.  According to JCT, these provisions reduce revenues by $182 million over ten years.

 

•  Enhanced charitable deduction for contributions of food inventory:  Extends a provision that allows businesses to claim an increased deduction for contributions of food through 2010.  According to JCT, this provision would reduce revenues by $78 million over ten years.

 

•  Enhanced charitable deduction for contributions of book inventories to public schools:  Extends a provision that allows businesses to claim an increased deduction for contributions of books to public schools through 2010.  According to JCT, this provision would reduce revenues by $31 million over ten years.

 

•  Enhanced charitable deduction for corporate contributions of computer technology and equipment for educational purposes:  Extends a provision that allows businesses to claim an increased deduction for contributions of computer equipment and software to elementary, secondary, and post-secondary schools through 2010.  According to JCT, this provision would reduce revenues by $195 million over ten years.

 

•  Tax-free distributions from individual retirement plans for charitable purposes:  Extends a provision that allows individuals age 70 ½ or older to make tax free charitable contributions of up to $100,000 from an Individual Retirement Account (IRA) through 2010.  According to JCT, this provision would reduce revenues by $591 million over ten years.

 

•  Modification of tax treatment of certain payments to controlling exempt organizations:  Extends through 2010 special rules regarding the tax treatment of payments made to a tax-exempt organization by entities controlled by that organization. According to JCT, this provision would reduce revenues by $20 million over ten years.

 

•  Exclusion of gain or loss on sale or exchange of certain brownfield sites from unrelated business taxable income:  Extends a provision that excludes gains or losses from the sale or exchange of any qualified brownfield property from unrelated business taxable income through 2010.  According to JCT, this provision would reduce revenues by $47 million over ten years.

 

•  Basis adjustment to stock of S corporations making charitable contributions of property:  Extends a rule that allows S-corporation shareholders to take their pro rata share of charitable deductions into account, even if those deductions would exceed their adjusted tax basis.  The provision would be extended for one year, through 2010.  According to JCT, the provision would reduce revenues by $37 million over ten years.

 

Subtitle D-Miscellaneous Provisions

•  Indian employment tax credit:  Extends through 2010 a business tax credit of up to $20,000 for employers that employ qualified individuals that live and work on or near Indian reservations.  According to JCT, this provision would reduce revenues by $49 million over ten years. 

 

•  Accelerated depreciation for business property on an Indian reservation:  Extends the placed-in-service-date for qualified business property on an Indian reservation through 2010.  Qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation and is not regularly used outside the reservation.  According to JCT, this provision would reduce revenues by $125 million over ten years.

 

•  Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico:  Extends the allowance for production activities in Puerto Rico to qualify for the domestic production activities deduction through 2010.  According to JCT, this provision would reduce revenues by $185 million over ten years. 

 

•  Temporary increase in limit on rum excise taxes to Puerto Rico and the Virgin Islands:  Extends the federal payment of $13.25 per gallon of rum produced to Puerto Rico and the U.S. Virgin Islands through 2010.  The payment is used to cover a $13.50 excise tax placed on distilled spirits imported into the U.S.   According to the JCT, this provision would reduce revenues by $128 million over ten years.

 

•  American Samoa economic development credit:  Extends the American Samoa economic development tax credit for one year, through 2010.  The credit provides tax incentives to businesses operating in American Samoa to offset their U.S. tax liability on income earned in American Samoa.  According to the JCT, the provision would reduce revenues by $18 million over ten years.

 

TITLE II-COMMUNITY ASSISTANCE PROGRAMS

•  Empowerment zone tax incentives:  Extends tax incentives for taxpayers and businesses within economically depressed areas, known as Empowerment Zones, for one year, through 2010.  According to JCT, this provision would reduce revenues by $381 million over ten years.

 

•  Renewal community tax incentives:  Extends tax incentives for taxpayers and businesses within economically depressed areas, known as Renewal Communities, for one year, through 2010.  According to JCT, this provision would reduce revenues by $786 million over ten years.

 

•  New markets tax credit:  Extends the new market tax credit for one year.  The credit is provided to businesses that make qualifying investments in community development entities.  According the JCT, this provision would reduce revenues by $1.4 billion over ten years. 

 

•  Tax incentives for investment in the District of Columbia:  Extends tax incentives for taxpayers and businesses within economically depressed areas in the District of Columbia (D.C.), known as the District of Columbia Enterprise Zone, for one year, through 2010.  In addition, the bill would extend the $5,000 D.C. first-time homebuyer tax credit for one year.  According to the JCT, these provisions would reduce revenues by $17 million over ten years.

 

•  Tax incentives for New York Liberty Zone:  Extends special depreciation allowances for certain real estate in the New York Liberty Zone for one year, through 2010.  The bill would also extend the time for issuing New York Liberty Zone bonds by one year.  The Job Creation and Worker Assistance Act of 2002 contained various tax incentives designed to stimulate the economy and aid recovery from the impact of the September 11, 2001, terrorist attacks, including these provisions for the area of lower Manhattan designated as the New York Liberty Zone.  According to JCT, this provision would reduce revenues by $318 million. 

 

•  Tax incentives for the Gulf Opportunity Zone:  Extends the work opportunity tax credit through August 27, 2010, for eligible employers hiring in the Hurricane Katrina core disaster area.  The bill would also extend the increased rehabilitation tax credit for expenditures in the Gulf Opportunity Zone for one year, through 2010.  According to JCT, these provisions combined would reduce revenues by $32 million over ten years.

 

•  Election for refundable low-income housing credit for 2010:  Extends a provision from the Democrats' "stimulus" bill that allows State housing agencies to receive low-income housing grants in lieu of tax credits through 2010.  According to JCT, this provision would reduce revenues by $471 million over ten years.

 

TITLE III-EXPIRING GENERAL DISASTER TAX RELIEF PROVISIONS

•  Deductibility of personal casualty losses attributable to federally declared disasters:   Extends a provision that allows taxpayers who have suffered a loss in a federally-declared disaster to claim deductions for casualty losses for one year, through 2010.  The bill would allow taxpayers to calculate their loss deduction without regard to their income and maintains the $500 per loss threshold through 2010.  According to JCT, this provision would reduce revenues by $728 million over ten years. 

 

•  Expensing of certain qualified disaster expenses:  Extends a provision that allows businesses that have been adversely affected by a federally-declared disaster to expense the cost of recovery, demolition, repair, clean-up, and environmental remediation expenses for one year, through 2010.  According to JCT, this provision would reduce revenues by $32 million over ten years.

 

•  5-year carryback of net operating losses attributable to federally declared disaster:  Extends a provision that allows businesses affected by a disaster to carry back their losses for five years, reducing their tax liability in those past years.   The bill would extend the provision for one year, through 2010.  According to JCT, the provision would reduce revenues by $129 million over ten years. 

 

•  Waiver of certain mortgage revenue bond requirements for residences located in federally declared disaster areas:  Extends a provision that allows States to use revenue from tax-exempt mortgage bonds to provide loans to taxpayers that wish to acquire residences in federally-declared disaster areas through 2010.  According to JCT, this provision would reduce revenues by $63 million over ten years.

 

•  Expensing and special depreciation allowance for qualified disaster assistance property:  Extends a provision that allows businesses that have suffered from a federally-declared disaster to claim a first-year, 50 percent depreciation deduction on new property investments made in the disaster area.  This provision would be extended for one year, through 2010.  According to the JCT, this provision would reduce revenues by $1.43 billion over ten years.

 

IV-ENERGY TAX PROVISIONS

•  Incentives for biodiesel and renewable diesel:  Extends the $1 per gallon production tax credit for biodiesel and diesel fuel created from biomass, as well as the 10 cent per gallon credit for small agri-biodiesel producers through 2010.   According to JCT, this provision would reduce revenues by $1 billion over ten years.

 

•  Alternative motor vehicle credit for heavy hybrids:  Extends the motor vehicle credit for heavy hybrids-hybrids that are not passenger vehicles or light trucks-through 2010.  According to JCT, this provision would reduce revenues by $7 million over ten years.

 

•  Alternative fuel credit for natural gas and liquified petroleum gas:  Extends through 2010 the $0.50 per gallon production tax credit for natural gas and propane used as a transportation fuel for one year.  According to JCT, this provision would reduce revenues by $125 million over ten years.

 

V-FOREIGN ACCOUNT TAX COMPLIANCE

In order to raise revenue to offset the loss of revenue from the temporary tax relief provisions, H.R. 4213 includes portions of two bills (H.R. 3933 and S. 1934), which require stricter reporting on U.S.-held foreign assets by foreign financial institutions and U.S. citizens in an effort to raise more revenue by detecting tax evasion.  Neither bill has been reported by a House or Senate Committee.  According to the JCT, the more stringent reporting requirements would result in an additional $7.6 billion in revenue over ten years.

Reporting on certain foreign accounts:  Requires foreign financial institutions, foreign trusts, and foreign corporations to obtain and provide information from each of their account holders to determine if any account is American-owned.  Foreign financial institutions would also be required to comply with verification procedures and to report any U.S. accounts maintained by the institution on an annual basis.

Any foreign financial institution that did comply with the new verification and reporting standards would be subject to a 30 percent tax on income from U.S. financial assets held by the foreign institution.  The withholding tax would not apply to any payment if the owner is a foreign government, an international organization, a foreign central bank, or any other class identified by the Treasury Department as posing a low risk of tax evasion.

H.R. 4213's requirements would exclude U.S. accounts in foreign institutions if the aggregate value of the account did not exceed $10,000.  

The foreign reporting requirements would take effect in 2013.

 

Under Reporting With Respect to Foreign Assets:  Requires any U.S. taxpayer with a foreign financial asset exceeding $50,000 in value to report the asset with their tax return.  The penalty for failure to report a foreign financial asset would be $10,000 and could possibly increase to as much as $50,000.

 

Other Disclosure Provisions:  Requires shareholders of passive foreign investment companies to file an annual report with information as required by the Treasury Department.

 

Provisions Related to Foreign Trusts:  Establishes reporting requirements on U.S. owners of foreign trusts similar to those for U.S. holders of foreign assets.  A U.S. taxpayer failing to report a foreign owned trust would pay the greater of $10,000 or 35 percent of the amount of the trust. 

 

Possible Concerns:  Some Members may be concerned that the provisions to address offshore tax evasion never received full Committee consideration and could have effects that reach far beyond the scope of closing offshore loopholes.  According to the Republican Ways and Means Committee staff, H.R. 3933 was the subject of only one subcommittee hearing.  In addition, the Committee reported that "several witnesses who appeared at the hearing, and numerous other interested parties who subsequently submitted comments for the formal hearing record, did raise serious questions about whether various provisions.... were effective and workable ideas."  While Members may support closing offshore loopholes, they may also be concerned that this legislation could have adverse unintended consequences such as divestment of U.S. assets by foreign banks.

 

TITLE VI-OTHER REVENUE PROVISIONS

Carried Interest Tax Increase:  H.R. 4213 would increase the tax rate on so-called "carried interest" levied on investment partnerships by treating carried interest as normal income and taxing it at the standard income tax rate (currently 35 percent) rather than the capital gains rate (currently 15 percent).  According to the JCT, this proposal would result in a $24.6 billion tax increase on investments in partnerships over the next ten years. 

Most private equities and hedge funds are managed as partnerships, with a general partner who manages the fund and contributing partners who supply capital and share in the fund's profits.  Partnerships generally do not pay corporate income tax and their gains and losses are passed to the partners and taxed as capital gains at a capital gains rate.   Private equity and hedge fund managers generally receive two forms of compensation from a fund:  a small percentage of the fund's assets like a contributing partner, and a higher percentage of the fund's annual earnings that only the fund's manager receives-known as carried interest.

 

Possible Concerns:  Some Members may be concerned that H.R. 4213 would include a $24.6 billion tax hike on investment partnerships at a time when unemployment stands at 10 percent.  Tax increases on investment could discourage the entrepreneurial risk-taking that is crucial to economic growth and job creation.  Some Members may also believe that a permanent tax increase should not be used to offset temporary tax relief.

Cost

According to the Joint Committee on Taxation (JCT), H.R. 4213 reduces revenue by $31.1 billion over the next ten years by providing temporary tax relief in 2010 and increases revenue over the same span by $32.2 billion by tightening foreign asset reporting and regulation and treating carried interest as normal income for tax purposes. Thus, the result of the legislation would be a $1.1 billion increase in revenue over the next ten years.