TAX EXTENDERS
Linked to the Bush-era tax cuts are a package of so-called tax extenders. These
are popular but temporary tax incentives. Many of the tax extenders were
effective only through 2011 but may be retroactively extended for the entire
2012 tax year by the lame-duck Congress. Others were extended through 2012.
IMPACT.
Before his re-election President Obama called for extension of the higher
education tuition deduction, AMT relief (the AMT “patch”), the
enhanced Work Opportunity Tax Credit (WOTC) for veterans, and the production
tax credit for wind energy projects, among other extenders. Now that he has
been re-elected, there is nothing to indicate that the President will withdraw
his support for extending these provisions. The question is: will lawmakers go
along with the President’s proposals and when will they act?
IMPACT.
Democrats and Republicans generally agree that the longer they wait to extend
some or all of the extenders, the greater the likelihood of a delayed 2013
filing season. The IRS is preparing to process 2012 returns under the tax law
as it now reads. The IRS will need time to adjust its processing systems for
late legislation.
Comment
In past years, the tax extenders were routinely approved by Congress, either at
year-end or early in the subsequent year and made retroactive. This year may be
different. Some lawmakers have balked at the estimated $200 billion cost over
10 years of extending all of these tax benefits. However, it is unclear which
extenders, if any, would be allowed to expire. In August, the Senate Finance
Committee (SFC) approved the Middle Class Tax Relief Act of 2012, which did not
renew some of the tax extenders (such as brownfields remediation expensing and
the first-time homebuyer credit for the District of Columbia); but these
extenders could be added back before the passage of a final bill.
Comment
The tax extenders may also be held up by legislation unrelated to taxes. Some
lawmakers are upset that Congress recessed before the November elections
without passing a farm bill and drought disaster relief. They have promised not
to move on the extenders or other legislation until Congress acts on a farm
bill.