Congressional Action Needed Now

The past week saw a number of different authors offering up a similar, but mixed, viewpoint of what will happen with tax reform and the Obama Administration after the midterm elections.

The main point of agreement seemed to be that comprehensive tax reform is not going to happen in 2014. It is also hard to see anything major happening on true tax reform measures in 2015 and 2016, even with a Congressional consolidation of control by the Republicans.

If the Republicans put forth a tax reform bill without Democratic support, the President would likely veto the bill. The tax reform bill would then return to Congress to vote on an override of the veto. But, the Republicans, particularly in the Senate, would have little chance of securing the two-thirds majority votes needed for the override. Then, why take the chance of a failed piece of tax legislation in the two-year (2015 and 2016) political cycle leading up to a presidential election?

Tax Extender Legislation

And, while the discussion of tax reform potentials and the reaction of the Obama Administration after the elections can make for great political theatre via sound bites and posturing, what most of us that live outside the D.C. beltway are primarily concerned with is getting Congressional action on the tax extender legislation, passage of which, has been somewhat ignored for the past year.

The elections will bring many new faces to a Congressional seat, but that doesn't happen until January, 2015. The old Congress is still the body that needs to come together to pass somewhere between 50 and 60 tax provisions that lapsed on December 31, 2013.

Taxpayers will once again be the ones paying the price because the extender legislation was not passed earlier in the year. Not knowing which of the tax extenders will be extended makes for difficult business and tax planning decisions. Should they spend their money on new equipment in 2014? Can they afford to hire new employees? Should they spend the money for new R&D? These, and many similar questions, are directly tied to the passage of extender tax legislation.

IRS Already Feeling Pinched

Then consider the IRS, which is already experiencing reduced audit and service capabilities from a decreased budget. They will need additional time, which translates directly into dollars, to modify computer programs, instructions and forms to accommodate the late year 2014 changes caused by the passage of tax extender legislation. The IRS delay will then domino down to taxpayers, causing delays in the preparation and filing of returns and, most likely, additional administrative dollars being paid.

The old Congress returns to D.C. this week, but when you factor in the Thanksgiving holiday, that leaves only about four weeks of actual available work time before year-end for the tax extender legislation to be passed by this current Congress.

Passage Likely

It is still anticipated that tax extender legislation will be passed and will be effective retroactive to January 1, 2014; to not have something passed would be political folly. But, there is no guarantee that all the now lapsed tax provisions will be extended.

Based on information gathered throughout the year, not all lapsed extenders will be extended, but the majority will make the cut, including the bonus and Sec 179 depreciation provisions that are critical to small business. The starting place for Congressional negotiations will most likely be from the prior work of the Senate Finance Committee, with special consideration being given to the many separate tax extender bills that were passed by the House of Representatives and sent to the Senate. A review of those items should provide good information for those tax extenders with strong support for passage.

If it seems that you have heard this story before, you have, most recently at the end of 2012.

We will keep you posted on new developments. 

Eide Bailly's National Tax Office serves as a resource for clients to help analyze complex tax issues related to business decisions. Our professionals are committed to helping clients stay informed about tax news, developments and trends through various specialty areas, including cost segregation studies, wealth transfer, state and local taxation, international tax, IRS controversy and procedures, tax-exempt organizations and tax legislation.