TAX NEWS - 2010

US Tax: Extenders on hold as latest bill sinks in the Senate

Democratic leaders in the Senate abandoned efforts to pass legislation to extend expired tax provisions on June 24, after failing once again to garner the 60 votes necessary to end debate and move their bill to the floor for final passage. The motion to advance the latest version of the American Jobs and Closing Tax Loopholes Act of 2010 failed 57-41. Two other versions of the bill introduced earlier this month also failed to clear procedural hurdles and were withdrawn.

Since the initial proposal was unveiled on June 8, Senate Finance Committee Chairman Max Baucus, D-Mont., worked continuously to modify revenue offsets and jettison unpaid-for spending provisions in an attempt to win some Republican support. But GOP moderate Olympia Snowe of Maine, who Democratic leaders viewed as a possible swing vote, continued to object to the inclusion of a revenue provision that would subject a greater percentage of S corporation income to employment taxes. Snowe announced shortly before the latest procedural vote that she was definitely in the "no" camp, telling reporters that Democratic leaders had reneged on a promise to strip the S corporation offset from the bill, and citing concerns with the retroactive effective dates of some international tax revenue raisers. And Republicans as a bloc were united against a provision to extend unemployment benefits that would have added an estimated $33.7 billion to the federal deficit.


Path forward unclear

The decision by Majority Leader Harry Reid, D-Nev., to set extenders aside and move on to other legislation in the wake of the failed cloture vote effectively dashes hopes for sending a completed House-Senate agreement to President Obama by the Independence Day recess. Reid told reporters on June 24 that he does not intend to fold extensions of expired provisions into a small-business tax package – the next item on the Senate's agenda – but that revenue offsets in the Senate extenders bill could be pulled out for use in other legislation.

The House approved extenders legislation on May 28. Since then, members in that chamber have largely waited on the sidelines for the Senate to finish work on its own bill. House Democrats have expressed frustration at the failure of the Senate – and Republicans in particular – to act.

In a statement released June 24, Ways and Means Committee Chairman Sander Levin, D-Mich., said he "will continue pressing Senate Republicans to put aside politics and listen to the people who are looking for jobs, listen to families and businesses seeking tax relief, and to state and local governments seeking financing tools to improve our communities and create jobs."


Next up: Small business

The Senate is expected to take up a package of small-business tax incentives the week of June 28. Although a formal proposal had not been introduced at press time, a Finance Committee draft circulated on June 24 indicated that the measure could include, among other things, an additional year of bonus depreciation, short-term enhancements to the section 179 expensing rules, a temporary increase in the deduction for start-up expenses, and a temporary 100 percent exclusion of gain on certain small-business stock. Possible offsets include a provision to make "crude tall oil" ineligible for the cellulosic biofuels producer credit and a variety of provisions to close the tax gap.