Key Tax Extenders in Limbo


By Adam Goode

Over 50 tax extenders expired at the end of 2013.  Many of these provisions are popular tax incentives used by U.S. manufactures. Presently, these extenders have yet to be extended by Congress; however, the House Ways and Means Committee began discussion on April 29, 2014 to determine what should be done with the extenders.  In the past, these extenders would be temporarily extended with relative ease.  However, with increased focus on the cost impact of these tax incentives to the U.S. Government, more thorough deliberation is expected to ensue.  Some of the key incentives impacting manufacturers include the following:     

The R&D Credit – The R&D tax credit is used by manufacturers to drive growth through increased productivity and new product development.  According to the National Association of Manufacturers, 70% of R&D credit dollars are used to pay salaries of R&D workers.  Elimination of this credit could have an adverse impact on innovation and development within U.S. manufacturing.  Proposed permanent extension of this credit is included in the American Research and Competitiveness Act of 2014 (H.R. 4438).

Section 179 Expensing - Section 179 allows manufacturers to immediately expense certain capital activity up to a prescribed amount rather than taking the deduction over a period of time. In recent years, this section of the Code has helped to spur business investment for many small and medium sized manufacturers.  America’s Small Business Tax Relief Act of 2014 (H.R. 4457) proposes to permanently extend this section of the Code.  Furthermore, it seeks to increase the caps to $500,000 with a $2 million phase-out.

Foreign Subsidiaries – There are several extenders impacting tax rules related to foreign operations.  Active Financing Income (H.R. 4429) and Controlled Foreign Corporations "look-through" rules (H.R. 4464) would provide extended relief the manufacturers with overseas operations and allow U.S. manufactures to be more competitive globally.

Many of the lobbyist groups representing manufacturers are working hard to make these provisions permanent to avoid what has become recurring uncertainty surrounding these incentives.  Further, lobbyists are working to provide quick resolution with retroactive application.  The longer the extenders remain in limbo, the less effective the impact of these provisions will be as U.S. manufactures are operating without clarity.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.


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