Last Major Tax Code Revision Was in 1986

Congress might let dozens of tax breaks die on Dec. 31 as part of a move to revise the U.S. tax code, last changed significantly 27 years ago, Bloomberg reported last week based on interviews with lobbyists and analysts. Allowing the so-called tax extenders to die, at least temporarily, would allow lawmakers to study which should be continued or permanently ended, Bloomberg BNA reported.

The plug may be pulled on the production tax credit for wind energy and credits for efficient home appliances. Other items such as the research and development credit are popular and likely to survive in the long run, said the lobbyists and analysts.

The National Association of Manufacturers and other business groups want Congress to end the practice of annual tax-break extensions even as they support provisions such as the research and development credit and the look-through rule for foreign subsidiaries of U.S. companies known as controlled foreign corporations, Bloomberg reported. The Business Council of Alabama is the exclusive representative of the NAM in Alabama.

A tax credit is a 100 percent, dollar-for-dollar tax reduction, unlike a deduction, which is a tax reduction of less than 100 percent.

The look-through rule allows dividends, interest and rent to be transferred between CFCs without triggering a U.S. tax obligation, Bloomberg said. Expiration of all the credits may lapse into 2014 while lawmakers decide how to proceed with a comprehensive tax revision promoted by U.S. Rep. Dave Camp, R-Mich., and U.S. Sen. Max Baucus, D-Mont. Camp chairs the House Ways and Means Committee. Baucus is chairman of the Senate Finance Committee.

Bloomberg reported that lawmakers and congressional staff members on the two tax-writing committees say they are more attentive to broader tax changes than to provisions ending in less than two months.

“At least for right now, we are much more focused on tax reform and really not talking about extenders at all at this point,” Shawn Novak, senior accountant and tax adviser for the Senate Finance Committee’s Republican staff, said recently at the American Institute of CPAs National Tax Conference in Washington.

Jeff Porter, chairman of the AICPA Tax Executive Committee, said businesses have to guess whether they can count on credits for tax year 2014. “Not knowing what kind of depreciation structure we are going to have is going to have an impact and potentially slow down our clients’ planning process,” Porter said.

The research and development credit saves taxpayers $14.3 billion over a decade, the Congressional Research Service said in June. An above-the-line deduction for college tuition and related expenses saves $1.7 billion over the same period and the credit for energy-efficient appliances is $700 million, the CRS said. Wind-power tax credits save companies $12.2 billion a decade.

In comparison, the tax deduction for home mortgage interest reduces taxes for homeowners by $379 billion every five years, the congressional Joint Committee on Taxation said in its February estimates on tax expenditures.

-Dana Beyerle