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Congress Returns and Addresses Tax Bills

10.06.2015

Increase to Threshold for Micro Captives Under ConsiderationAfter a five week recess, lawmakers returned to work in September and took up several tax bills. While some tax bills moved out of committee, their ultimate passage by both the House and Senate before year-end is unclear. Congress has only a finite number of days in which to complete work on a number of tax bills, including the tax extenders, possible reforms to the Affordable Care Act (ACA), and energy legislation.

Tax extenders

The House Ways and Means Committee continues to pass permanent extensions of some of the tax extenders in stand-alone bills. In September, the Ways and Means Committee approved five tax measures in stand-alone bills that are typically part of an extenders package. The extenders moved by the committee include the Educator Tax Relief Bill of 2015 (HR 2940), which would make permanent the above-the-line deduction for classroom expenses of schoolteachers; the Restaurant and Retail Jobs and Growth Bill (HR 765), which would make permanent the 15-year depreciation schedule for leasehold improvements, restaurant improvements and new construction, and retail improvements; HR 2510, which would make permanent bonus depreciation; and HR 961, which would permanently extend the Subpart F exemption for active financing income.

The full House has not yet scheduled a vote on these five stand-alone bills. Earlier this year, the full House approved stand-alone bills extending permanently the state and local sales tax deduction, the research tax credit, and a handful of other extenders. The Senate has not, to date, taken up any of the House bills. The Senate Finance Committee has approved a two-year extension of many of the extenders in one bill.

At this time, Congress appears on track to extend the extenders, as in past years, in year-end legislation. Late tax legislation always makes tax planning more complex and imposes burdens on the IRS, which must reprogram its processing systems for the coming filing season to reflect the legislation. Our office will keep you posted on developments.

Health care

The ACA modified the definitions of qualified medical expenses for health flexible spending arrangements (FSAs), health savings accounts (HSAs), and health reimbursement arrangements (HRAs). As a result, only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin (even if purchased without a prescription) are considered qualifying medical expenses. In September, the House Ways and Means Committee approved the Restoring Access to Medication Bill of 2015 (HR 1270). The bill would allow individuals to use health FSA, HSA and HRA dollars to purchase over-the-counter medicines.

The ACA also imposes a new excise tax on high-dollar health insurance plans (sometimes called "Cadillac plans.") Under current law, the excise tax is scheduled to begin after 2017. In September, a bipartisan bill was introduced in the House to repeal the excise tax. Prospects for repeal this year are uncertain. Although the bill could pass in the House, Democratic leaders in the Senate have not signed-on to repeal of the excise tax.

Energy

In September, Senate Democrats introduced a comprehensive energy bill with tax measures. The American Energy Innovation Act would extend and enhance some popular energy tax incentives. The bill refines the Production Tax Credit and provides that the credit would be available for 10 years after a facility is placed in service. For homeowners, the bill provides an investment tax credit for onsite power generation (such as rooftop solar or small wind turbines) as well as overhauling existing incentives. The more energy-efficient a residence is, the greater the tax credit (generally up to a maximum of $3,000). The bill also reauthorizes the advanced energy manufacturing credit and incentives for alternative fuels.

In a significant change, the bill would make oil companies generally ineligible to claim the Code Sec. 199 domestic production activities deduction. The Senate's GOP leadership has not scheduled a vote on the bill.

Richie D. Kingree, CPAIf you have any questions about these tax bills or other tax legislation, contact your tax advisor or Richie Kingree, Manager, Tax Services, at 314.983.1272 or rkingree@bswllc.com.

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