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Stay informed on key tax legislative developments with Tax Watch. From time-to-time, articles will also include commentary by distinguished practitioners on various aspects of proposed and potential tax legislation. Get the latest tax news & developments from Thomson Reuters.

Tax Watch Archive

5/10/12 — House-passed Sequester Replacement bill carries two tax changes.
On May 10, the House of Representatives by a vote of 218 to 199, 1 present, approved H.R. 5652, the "Sequester Replacement Reconciliation Act of 2012." The bill, which deals with spending cuts, carries two tax provisions. The first, at Sec. 601 of the bill, would amend Code Sec. 36B(f), to provide for full recapture of overpayments resulting from certain federally subsidized health insurance. This change would apply to tax years ending after 2013. The second change, at Sec. 611 of the bill, would amend Code Sec. 24, to require taxpayers to provide social security numbers to claim the refundable portion of the child care credit. This change would be effective for tax years beginning after the enactment date.

The text of H.R. 5652, the "Sequester Replacement Reconciliation Act of 2012" can be found on Checkpoint.

5/8/12 — Senate Republicans kill attempt to fund student loan interest reprieve with tax changes.
On May 8, the Senate voted 52 to 45, 1 present, against the motion to invoke cloture (i.e., cut off debate) on the motion to proceed to S. 2343, the "Stop the Student Loan Interest Rate Hike Act of 2012." Senate Republicans were opposed to the bill because it would have paid for keeping the current 3.4% loan rate in place with a tax change, i.e., closing an S Corporation employment tax "loophole" (see Article #2066).

On April 27, the House of Representatives by a vote of 215 to 195 passed its version of the student loan bill, H.R. 4628, the "Interest Rate Reduction Act." That Republican bill would pay for keeping federal student loan interest at current levels by eliminating funding designated for prevention and public health programs by the 2010 health care reform law. The White House has said if the President is presented with H.R. 4628, as passed by the House, his senior advisors would recommend that he veto the bill.

It's widely expected that the two parties will come to some sort of compromise before July 1 on how the student loan relief bill would be paid for. On that date, the interest rate on federal student loans is set to double.

5/7/12 — Congress returns to face full plate of legislation carrying tax changes.
On May 7, Congress returned from a one-week recess to face a variety of bills carrying tax changes.

Highway bill. The first formal conference meeting on the Highway bill is scheduled to take place on May 8. The vehicle for the conference will be H.R. 4348, the Surface Transportation Extension Act of 2012, Part II, as amended with the text of S. 1813, the "Moving Ahead for Progress in the 21st Century Act" or MAP-21.

H.R. 4348 was approved by the House on April 18 (see Article #2062). The bill would provide for a second short-term extension of various highway-related excise tax provisions, including excise taxes on fuel used by certain buses, certain alcohol fuels, gasoline (other than aviation gasoline) and diesel fuel or kerosene, certain heavy trucks and trailers, and tires. Also included in the bill is a controversial provision permitting construction of the Keystone XL oil pipeline from Canada. The Administration has threatened to veto the final bill if it contains the Keystone provision.

S. 1813 was approved by the Senate back on March 14. The Senate's version authorizes various highway and transportation funding for two years and also provides a number of important tax changes, including pension funding relief, a higher exclusion amount for employer-provided transit and vanpooling benefits, and revised rules for certain corporate reorganizations. See Weekly Alert - 03/22/2012 for details.

Student loan interest bill. The Senate was scheduled to vote on May 7, on the motion to invoke cloture on the motion to proceed to S. 2343, the "Stop Student Loan Interest Rate Hike Act of 2012." The bill aims to keep the interest rate on college students' loans from doubling on July 1, 2012, and would pay for the cost of keeping the current 3.4% loan rate in place by closing what's seen as an S Corporation employment tax "loophole." According to a summary of the legislation, the loophole would be closed by requiring those with incomes over $250,000 to include, for purposes of employment taxes, income received from a S Corporation or limited partnership interest in a professional services business. The change would target only those S Corporations that derive 75% or more of their gross revenues from the services of three or fewer shareholders or where the S Corporation is a partner in a professional service business.

On April 27, the House of Representatives by a vote of 215 to 195 passed its version of the student loan bill, H.R. 4628, the "Interest Rate Reduction Act." The bill would pay for keeping student loan interest at current levels by eliminating funding designated for prevention and public health programs by the 2010 health care reform law. The White House has said if the President is presented with H.R. 4628, as passed by the House, his senior advisors would recommend that he veto the bill.

Small business tax bill. During the current three-week work period, Congress will grapple with competing versions of a bill to provide tax breaks to small businesses.

On April 18, the House of Representatives passed H.R. 9, the "Small Business Tax Act," by a vote of 235 to 173. H.R. 9, a Republican-backed bill, would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal to 20% of the lesser of:

qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
taxable income (without regard to the new deduction) for the tax year.

The new small business deduction couldn't exceed 50% of the greater of: (a) W-2 wages paid to non-owners of the business; or (2) W-2 wages paid to non-owner family members of direct owners, plus W-2 wages paid to 10%-or-less direct owners. Certain partners' distributive shares of partnership items could be treated as W-2 wages for purposes of the new deduction.

The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction. The White House has previously said that the President would veto the measure if it passes Congress because the Administration believes that "this bill is not an effective way to incentivize small business investment and job creation." (See Article #2057)

The Senate, for its part, will consider S. 2237, the "Small Business Jobs and Tax Relief Act of 2012." This bill, favored by the Democrats, would create a tax credit for new payroll added in 2012 through hiring or by increasing wages. The credit would equal 10% of the excess of wages and compensation paid during calendar year 2012 over what was paid during 2011. There would be a $5 million maximum increase in eligible wages taken into account for the credit, thereby capping the amount of the credit at $500,000. S. 2237 also would retroactively extend 100% bonus first-year depreciation to apply to qualifying new property bought and placed in service before 2013 (before 2014, for certain aircraft and long-production-period property). Current law's option to claim 50% bonus first-year depreciation for qualifying new property bought and placed in service before Jan. 1, 2013 (before Jan. 1, 2014 for certain aircraft and long-production-period property) would be kept in place. Finally, the bill would expand the election to accelerate AMT credits in lieu of bonus depreciation.

Sequester bill. This week, the House of Representatives will consider the "Sequester Replacement Reconciliation Act of 2012." The bill, which deals with automatic spending cuts, carries two tax provisions. The first would amend Code Sec. 36B(f), to provide for full recapture of overpayments resulting from certain federally subsidized health insurance. This change would apply to tax years ending after 2013. The second change would amend Code Sec. 24, to require taxpayers to provide social security numbers to claim the refundable portion of the child care credit. This change would be effective for tax years beginning after the enactment date.

4/27/12 — House approves student loan interest bill paid for with funds from 2010 health care reform law.
On April 27, the House of Representatives, by a vote of 215 to 195, passed H.R. 4628, the "Interest Rate Reduction Act." The bill would extend current student loan interest rates for undergraduate Federal Direct Stafford Loans. On July 1, 2012, absent an extension, the interest rate on Stafford loans is set to double from 3.4% to 6.8%.

In a provision supported by House Republicans, the bill is paid for by eliminating funding designated for prevention and public health programs by the 2010 health care reform law. On the other hand, House Democrats had proposed a motion on April 26 (which failed by a vote of 215 to 195) to pay for H.R. 4628 by taking money from tax subsidies to big oil companies.

On April 27, the Obama Administration issued a Statement of Administration Policy (SAP), stating that if the President is presented with H.R. 4628, as passed by the House, his senior advisors would recommend that he veto the bill.

In the Senate, on April 24, Senate Majority Leader Harry Reid (D-NV) introduced S. 2343, the "Stop Student Loan Interest Rate Hike Act of 2012" (see Article 2066). The Senate is scheduled to vote on May 7 on the motion to invoke cloture (i.e., cut off debate) on a motion to proceed to S. 2343. Reid proposed paying for his bill by requiring those with income over $250,000 to include income received from a Subchapter S corporation or limited professional services business for purposes of employment taxes.

4/25/12 — Democrats' bill would close S Corp employment tax "loophole."
Late on April 24, Senate Majority Leader Harry Reid (D-NV) introduced S. 2343, the "Stop the Student Loan Interest Rate Hike Act of 2012." Democrats said they would introduce a parallel measure in the House of Representatives.

The bill aims to keep the interest rate on college students' loans from doubling on July 1, 2012, and would pay for the cost of keeping the current 3.4% loan rate in place by closing what's seen as an S Corporation employment tax "loophole." According to a summary of the legislation, the loophole would be closed by requiring those with incomes over $250,000 to include, for purposes of employment taxes, income received from a S Corporation or limited partnership interest in a professional services business. The change would target only those S Corporations that derive 75% or more of their gross revenues from the services of three or fewer shareholders or where the S Corporation is a partner in a professional service business.

RIA observation: The bill is not likely to be popular with Congressional Republicans.

The following material can also be found on Checkpoint:

the text of S. 2343, the "Stop the Student Loan Interest Rate Hike Act of 2012";
the text of a brief summary of S. 2343, the "Stop the Student Loan Interest Rate Hike Act of 2012."

4/25/12 — Ways & Means Subcommittee to take up extenders.
On April 26, the House Ways & Means Select Revenue Measures Subcommittee will hold a hearing on tax extenders. Ahead of the hearing, the Joint Committee on Taxation released a report titled "Legislative Background of Selected Federal Tax Provisions Scheduled to Expire in 2011 or 2012." For an overview of key expiring tax provisions, and the choices faced by Congress, see Weekly Alert - 04/26/2012.

RIA observation: The hearing promises to be contentious. On April 25, Ways & Means Democrats issued a press release criticizing Republicans for "refusing to discuss" some 73 extenders, including Build America Bonds, the Code Sec. 48C advanced manufacturing credit, and national disaster relief.

The text of JCX-39-12, titled "Legislative Background of Selected Federal Tax Provisions Scheduled to Expire in 2011 or 2012" can be found on Checkpoint.

4/24/12 — Surface transportation bill headed to conference.
On April 24, the Senate sent the surface transportation bill to a joint Senate-House conference committee. H.R. 4348, the Surface Transportation Extension Act of 2012, Part II, as amended with the text of S. 1813, the "Moving Ahead for Progress in the 21st Century Act" or MAP-21, is the vehicle for the conference. The committee is charged with reconciling the two versions of the bill, which contain significant differences.

H.R. 4348 was approved by the House on April 18 (see Article #2062). The bill would provide for a second short-term extension of various highway-related excise tax provisions, including excise taxes on fuel used by certain buses, certain alcohol fuels, gasoline (other than aviation gasoline) and diesel fuel or kerosene, certain heavy trucks and trailers, and tires. Also included in the bill is a controversial provision permitting the Keystone XL oil pipeline from Canada. The Administration has threatened to veto the final bill if it contains the Keystone provision.

The following senators were appointed as conferees: Barbara Boxer (D-CA), Max Baucus (D-MT), John D. Rockefeller (D-WV), Richard Durbin (D-IL), Tim Johnson (D-SD), Charles Schumer (D-NY), Bill Nelson (D-FL), Robert Menendez (D-NJ), James Inhofe (R-OK), David Vitter (R-LA), Orrin Hatch (R-UT), Richard Shelby (R-AL), Kay Bailey Hutchison (R-TX), and John Hoeven (R-ND).

4/19/12 — House approves Small Business Tax Cut Act.
On April 18, the House of Representatives passed H.R. 9, the "Small Business Tax Act" by a vote of 235 to 173, sending the bill to the Senate for consideration. H.R. 9, which was introduced by House Majority Leader Eric Cantor (R-VA), would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal to 20% of the lesser of:

qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
taxable income (without regard to the new deduction) for the tax year.

For a qualified small business that is a partnership and that so elects, the portion of the entity's qualified domestic business taxable income for the tax year that is allocable to each qualified service-providing partner would be treated as W-2 wages paid during that tax year to an employee who is a 10%-or-less direct owner. The domestic business gross receipts of the partnership for the tax year would have to be reduced by any amount treated as W-2 wages under this rule. Under an amendment in the nature of a substitute to H.R. 9, a qualified service-providing partner would be any partner who is a 10%-or-less direct owner and who materially participates in the trade or business to which the income relates.

Gross receipts and W-2 wages taken into account under the new deduction could not be taken into account for Code Sec. 199 purposes.

The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction.

The White House has previously said that the President would veto the measure if it passes Congress because the Administration believes that "this bill is not an effective way to incentivize small business investment and job creation." (See Article #2057)

The following material can also be found on Checkpoint:

H.Rept 112-425, the Committee Report for H.R. 9, the "Small Business Tax Cut Act";
the legislative text of H.R. 9, the "Small Business Tax Cut Act";
the Joint Committee on Taxation's "Description of H.R. 9, the Small Business Tax Cut Act"; and
the Joint Committee on Taxation's "Description of an Amendment in the Nature of a Substitute to the Provisions of H.R. 9, the Small Business Tax Cut Act."

4/19/12 — House passes surface transportation bill.
On April 18, the House by a vote of 293 to 127 approved H.R. 4348, the Surface Transportation Extension Act of 2012, Part II. Among other things, the bill would provide for a second short-term extension (see Article #2056) of various highway-related excise tax provisions. For example, the bill would extend through September 30, 2012, excise taxes on: (1) fuel used by certain buses, (2) certain alcohol fuels, (3) gasoline (other than aviation gasoline) and diesel fuel or kerosene, (4) certain heavy trucks and trailers, and (5) tires. These taxes were previously scheduled to expire at the end of June. Also included in the bill is a provision permitting the Keystone XL oil pipeline from Canada.

H.R. 4348 will have to be reconciled with the Senate's version of the bill. The transportation bill approved by the Senate back on March 14 (S. 1813, the "Moving Ahead for Progress in the 21st Century Act" or MAP-21) includes a number of important tax changes including pension funding relief, a higher exclusion amount for employer-provided transit and vanpooling benefits, and revised rules for certain corporate reorganizations. See Weekly Alert - 03/22/2012.

4/18/12 — House to consider surface transportation bill.
On April 18, the House was scheduled to begin consideration of H.R. 4348, the Surface Transportation Extension Act of 2012, Part II. The bill before the House would extend various excise taxes but wouldn't include other tax changes. By contrast, the transportation bill approved by the Senate back on March 14 (S. 1813, the "Moving Ahead for Progress in the 21st Century Act" or MAP-21) includes a number of important tax changes including pension funding relief, a higher exclusion amount for employer-provided transit and vanpooling benefits, and revised rules for certain corporate reorganizations. See Weekly Alert - 03/22/2012 for details.

Should the House pass H.R. 4348, it would have to be reconciled with the Senate's version of the bill.

4/18/12 — Senate Budget Committee begins markup of long-term budget plan based on Bowles-Simpson effort.
On April 18, the Senate Budget Committee was scheduled to begin marking up a long-term budget plan. Committee Chair Kent Conrad (D-ND) said his chairman's mark would be based on the Bowles-Simpson Fiscal Commission Budget Plan. This plan was the work product of the bipartisan National Commission on Fiscal Responsibility and Reform established by the President in 2010. On Dec. 3, 2010, the National Commission failed to get the necessary 14 votes from its 18 members to send its final report to Congress for consideration.

As set forth in a Senate Budget Committee overview, the Budget Plan would cut individual rates across the board, reduce the top rate to no higher than 29%, do away with the alternative minimum tax (AMT), and simplify and better target tax expenditures to promote work, home ownership, health care, charity, and savings, while increasing or maintaining progressivity.

On the corporate side, the Plan would establish a single corporate tax rate no higher than 29%, eliminate all tax expenditures for businesses, and move to a competitive territorial system.

A summary of the "Fiscal Commission Budget Plan," dated April 18, 2012 can be found on Checkpoint.

4/18/12 — House Ways & Means OKs child-tax-credit-related anti-abuse measure.
On April 18, the House Ways & Means Committee by a vote of 22 to 12, favorably reported out of Committee legislation that would require filers to provide their social security number in order to claim the refundable portion of the child tax credit. The Committee also approved by voice vote, legislation that would require recipients to repay in full overpayments of health exchange subsidies. Committee approval of both pieces of legislation will be sent back to the House Budget Committee as required under reconciliation instructions.

4/17/12 — "Buffet Rule" bill stalls in Senate.
On April 16, Senate Democrats failed to gain the necessary 60 votes to begin consideration of S. 2230, the "Paying A Fair Share Act of 2012," which would impose a minimum 30% tax on adjusted gross income (AGI), less charitable contributions, for individuals with AGI in excess of $1 million. The motion to invoke cloture (i.e., cut off debate) on the motion to proceed to the bill failed by a vote of 51-45, effectively killing it for the time being.

S. 2230 embodies the so-called "Buffett Rule," the principle that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle class families pay. The "Buffett Rule" was also a component of President Obama's economic growth and deficit cutting suggestions that he sent to Congress (see Article #1979), and is sure to continue to be a rallying call for the Democrats in the run up to the Presidential election.

In anticipation of the vote on S. 2230, the Joint Committee on Taxation released JCX-33-12, Estimated Revenue Effects of S. 2230, the "Paying a Fair Share Act of 2012," which estimated that the bill would raise $46.7 billion for the period 2012 - 2022.

The Joint Committee on Taxation's JCX-33-12, Estimated Revenue Effects of S. 2230, the "Paying a Fair Share Act of 2012" can be found on Checkpoint.

4/17/12 — House Ways & Means releases Committee Report for Small Business Tax Cut Act.
The House Ways & Means Committee recently released H. Rept 112-425, the Committee Report for H.R. 9, the "Small Business Tax Cut Act." The House Report contains an explanation of the bill provisions, estimated revenue effects, and text of the proposed legislation. H. Rept 112-425 also contained a dissenting statement by the Democratic minority. The White House has said the President would veto the measure if it passes Congress because the Administration believes that "this bill is not an effective way to incentivize small business investment and job creation."

H.R. 9, which was introduced by House Majority Leader Eric Cantor (R-VA), would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal to 20% of the lesser of:

qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
taxable income (without regard to the new deduction) for the tax year.

Gross receipts and W-2 wages taken into account under the new deduction could not be taken into account for Code Sec. 199 purposes.

The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction.

The following material can also be found on Checkpoint:

H. Rept 112-425, the Committee Report for H.R. 9, the "Small Business Tax Cut Act";
the legislative text of H.R. 9, the "Small Business Tax Cut Act";
the Joint Committee on Taxation's "Description of H.R. 9, the Small Business Tax Cut Act"; and
the Joint Committee on Taxation's "Description of an Amendment in the Nature of a Substitute to the Provisions of H.R. 9, the Small Business Tax Cut Act."

3/30/12 — Surface Transportation Act of 2012 signed into law.
On March 30, President Obama signed into law the "Surface Transportation Extension Act of 2012." It has been assigned a Public Law number: P.L. 112-102. Among other things, the bill provides for a short-term extension of various highway-related excise tax provisions. For example, the bill extends through June 30, 2012, excise taxes on: (1) fuel used by certain buses, (2) certain alcohol fuels, (3) gasoline (other than aviation gasoline) and diesel fuel or kerosene, (4) certain heavy trucks and trailers, and (5) tires. These taxes were previously scheduled to expire at the end of March.

The legislative text of the "Surface Transportation Extension Act of 2012" can be found on Checkpoint.

3/29/12 — Congress passes short-term extension of highway bill.
On March 29, both the House of Representatives and the Senate passed H.R. 4281, the "Surface Transportation Extension Act of 2012." Thus, the bill is ready for the President's signature. Among other things, the bill provides for a short-term extension of various highway related excise tax provisions. For example, the bill would extend through June 30, 2012, excise taxes on: (1) fuel used by certain buses, (2) certain alcohol fuels, (3) gasoline (other than aviation gasoline) and diesel fuel or kerosene, (4) certain heavy trucks and trailers, and (5) tires. Without Congressional action, these taxes would have expired at the end of March.

The legislative text of the "Surface Transportation Extension Act of 2012" can be found on Checkpoint.

3/29/12 — Senate vote buries bill repealing "big oil" tax subsidies & extending energy tax incentives.
On March 29, the Senate by a vote of 51 to 47 failed to garner the necessary votes to invoke cloture (i.e., cut off debate) on S. 2204, the "Repeal Big Oil Tax Subsidies Act." The vote effectively kills the bill, which would have repealed five tax subsidies for the five largest integrated oil and gas companies, and used the resulting revenue to extend expired and expiring renewable energy tax incentives.

3/29/12 — House passes Republican budget resolution for FY 2013.
On March 29, the House by a vote of 228 to 191 approved H.Con.Res. 112, the House Republican budget resolution for FY 2013. Among other things, the budget resolution would reduce the top individual and corporate tax rates to 25%, repeal the AMT, shift from a worldwide tax system to a territorial regime, drastically reform Medicare and Medicaid, and repeal the 2010 health care reform legislation. See Article #2044 for more details.

3/28/12 — House W&M OKs Small Business Tax Cut Act.
On March 28, the House Ways and Means Committee by a vote of 21 to 14 approved the Chairman's Mark in the Nature of a Substitute to H.R. 9, the "Small Business Tax Cut Act." There were no amendments adopted during the committee process.

qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
taxable income (without regard to the new deduction) for the tax year.

Gross receipts and W-2 wages taken into account under the new deduction could not be taken into account for Code Sec. 199 purposes.

The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction.

The following material can also be found on Checkpoint:

the legislative text of H.R. 9, the "Small Business Tax Cut Act";
the Joint Committee on Taxation's "Description of H.R. 9, the Small Business Tax Cut Act"; and
the Joint Committee on Taxation's "Description of an Amendment in the Nature of a Substitute to the Provisions of H.R. 9, the Small Business Tax Cut Act."

3/27/12 — Senate Democrats' bill would create credit for new hiring and extend 100% bonus first-year depreciation.
On March 26, Senate Majority Leader Harry Reid (D-NV) introduced the "Small Business Jobs and Tax Relief Act of 2012," a measure apparently meant to compete with House Republicans' job-creating "Small Business Tax Cut Act" (see Article #2050).

The Reid bill would create a tax credit for new payroll added in 2012 through hiring or by increasing wages. The credit would equal 10% of the excess of wages and compensation paid during calendar year 2012 over what was paid during 2011. There would be a $5 million maximum increase in eligible wages taken account for the credit, thereby capping the amount of the credit at $500,000.

The "Small Business Jobs and Tax Relief Act of 2012" also would also retroactively extend 100% bonus first-year depreciation to apply to qualifying new property bought and placed in service before 2013 (before 2014, for certain aircraft and long-production-period property). Current law's option to claim 50% bonus first-year depreciation for qualifying new property bought and placed in service before Jan. 1, 2013 (before Jan. 1, 2014 for certain aircraft and long-production-period property) would be kept in place. The bill also would expand the election to accelerate AMT credits in lieu of bonus depreciation.

The following material can also be found on Checkpoint:

the legislative text of the "Small Business Jobs and Tax Relief Act of 2012"; and
a fact sheet on the "Small Business Jobs and Tax Relief Act of 2012."

3/27/12 — Congress to take up short-term extension of highway bill.
On March 27, the House began debate on H.R. 4239, the Surface Transportation Extension Act of 2012. Among other things, the bill provides for a short-term extension of various highway related excise tax provisions. For example, the bill would extend through June 30, 2012, excise taxes on: (1) fuel used by certain buses, (2) certain alcohol fuels, (3) gasoline (other than aviation gasoline) and diesel fuel or kerosene, (4) certain heavy trucks and trailers, and (5) tires. Under current law, these taxes are scheduled to expire at the end of March.

H.R. 4239 is expected to be approved by the House, and then sent to the Senate for consideration.

RIA observation: In effect, this means that the House will not move forward on the Senate-passed surface transportation bill for at least a few more months. For details on the Senate-passed surface transportation bill, see Weekly Alert - 03/22/2012.

3/27/12 — House W&M set to mark up Small Business Tax Cut Act.
On March 28, the House Ways and Means Committee is scheduled to markup H.R. 9, the "Small Business Tax Cut Act." The bill would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal to 20% of the lesser of:

qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
taxable income (without regard to the new deduction) for the tax year.

Gross receipts and W-2 wages taken into account under the new deduction could not be taken into account for Code Sec. 199 purposes.

The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction.

The following material can also be found on Checkpoint:

the Joint Committee on Taxation's "Description of H.R. 9, the Small Business Tax Cut Act";
the Joint Committee on Taxation's "Description of an Amendment in the Nature of a Substitute to the Provisions of H.R. 9, the Small Business Tax Cut Act";
the text of a press release on the "Small Business Tax Cut Act"; and
the text of a press release on the "Small Business Tax Cut Act."

3/27/12 — House poised to consider Republican budget resolution for FY 2013.
On March 27, the House Rules Committee was scheduled to consider H.Con.Res. 112, the House Republican budget resolution for FY 2013. House floor consideration of the measure is expected to begin on Wednesday, March 28. Among other things, the budget resolution would reduce the top individual and corporate tax rates to 25%, repeal the AMT, shift from a worldwide tax system to a territorial regime, drastically reform Medicare and Medicaid, and repeal the 2010 health care reform legislation. See Article #2044 for more details.

3/27/12 — Senate begins consideration of bill repealing "big oil" tax subsidies & extending energy tax incentives.
On March 27, the Senate began consideration of S. 2204, the "Repeal Big Oil Tax Subsidies Act." The bill would repeal five tax subsidies for the five largest integrated oil and gas companies ("companies"), and use the resulting revenue to extend expired and expiring renewable energy tax incentives.

The following provisions would be repealed or altered:

the amount of creditable foreign taxes available to the companies would be limited to the amount of foreign income taxes that would have been payable if the taxpayer wasn't a dual capacity taxpayer (i.e., a taxpayer that is subject to a foreign levy and also receives a specific economic benefit, such as oil and gas drilling rights, from the levying country);
gross receipts derived by the companies from the sale, exchange, or other disposition of oil, natural gas, or a primary product thereof would be excluded from the definition of "domestic production" for purposes of the Code Sec. 199 domestic manufacturing deduction;
intangible drilling costs would be capitalized as depreciable or depletable property rather than immediately expensed under Code Sec. 263(c);
instead of depreciating an oil and gas well based on fixed percentage of gross income, under which the total deductions can potentially exceed the basis in the property, the companies would be required to use the cost depletion method; and
the companies would be unable to deduct under Code Sec. 193 the costs of tertiary injectants used in enhanced oil recovery, and would instead be required to capitalize these costs.

The resulting revenue would be used to extend expired and expiring renewable energy tax incentives, including the Code Sec. 25C credit for energy-efficient existing homes, the Code Sec. 30(f) credit for certain plug-in electric vehicles, the Code Sec. 30C(g) credit for alternative fuel vehicle refueling property, and the Code Sec. 45M(b) credit for energy-efficient appliances.

The text of S. 2204, the "Repeal Big Oil Tax Subsidies Act" can be found on Checkpoint.

3/22/12 — Republicans' 2013 budget resolution headed to House floor.
Late on March 21, the House Budget Committee by a vote of 19-17 approved Budget Committee Chairman Paul Ryan's (R-WI) 2013 budget proposal, dubbed the "Path to Prosperity." Among the more salient features of the plan are reducing the top individual and corporate tax rates to 25%, repealing the AMT, shifting from a worldwide tax system to a territorial regime, drastically reforming Medicare and Medicaid, and repealing the 2010 health care reform legislation.

The text of the Chairman's budget plan can be found on Checkpoint.

3/21/12 — Cantor bill would give "small businesses" 20% domestic business income deduction.
On March 21, House Majority Leader Eric Cantor (R-VA) introduced the "Small Business Tax Cut Act," which would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal 20% of the lesser of:

qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
taxable income (without regard to the new deduction) for the tax year.

The new small business deduction couldn't exceed 50% of the greater of: (a) W-2 wages paid to non-owners of the business; or (2) W-2 wages paid to non-owner family members of direct owners, plus W-2 wages paid to 10%-or-less direct owners. In some cases, distributions paid to partners could be treated as W-2 wages.

Gross receipts and W-2 wages taken into account under the new deduction could not be taken into account for Code Sec. 199 purposes.

The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction.

The following material can also be found on Checkpoint:

the legislative text of the "Small Business Tax Cut Act"; and
the text of a press release on the "Small Business Tax Cut Act."

3/20/12 — GOP budget proposal would reduce top tax rate for businesses and individuals to 25%.
On March 20, Representative Paul Ryan (R-WI), chairman of the House Budget Committee, introduced his Chairman's Mark proposing a new budget for fiscal year (FY) 2013 and setting forth appropriate budgetary levels for fiscal years 2014 through 2022.

Among other things, Ryan's budget would:

consolidate the existing six individual income tax brackets to two (10% and 25%),
reduce the corporate tax rate to 25%,
repeal the alternative minimum tax,
shift from a worldwide tax system to a territorial regime,
drastically reform Medicare and Medicaid, and
repeal the 2010 health care reform legislation.

According to Ways and Means Committee Chairman Dave Camp (D-MI), Ryan's new budget "reforms our outdated and burdensome tax code to unleash innovation and investment." However, Ways and Means Committee Ranking Member Sander Levin (D-MI) countered that the budget "would end up showering benefits on the very wealthy and soaking the middle class."

The House Budget Committee is scheduled to mark up the proposal on March 21.

The text of the Chairman's budget plan can be found on Checkpoint.

3/20/12 — House unlikely to consider surface transportation bill until mid April.
It appears that the House will not be moving forward on the Senate-passed surface transportation bill until after the April recess (April 2 - 13). Instead, the House will consider other legislation including the FY2013 budget proposal (see Article #2044). Another short-term highway bill will likely be considered by the House and Senate before the current extension expires at the end of March.

For additional details on the Senate-passed surface transportation bill, see Weekly Alert - 03/22/2012.

3/20/12 — Bill would repeal "big oil" tax subsidies & extend energy tax incentives.
On March 19, Senator Menendez (D-NJ) introduced S.2204, the "Repeal Big Oil Tax Subsidies Act." On the same day, Majority leader Harry Reid (D-NV) began the process to put the bill on the Senate's Calendar of Business pursuant to rule XIV, which is a rarely used procedural device that allows a bill to effectively bypass a referral or report from a standing committee of the Senate.

The bill would repeal five tax subsidies for the five largest integrated oil and gas companies ("companies"), and use the resulting revenue to extend expired and expiring renewable energy tax incentives.

The following provisions would be repealed or altered:

the amount of creditable foreign taxes available to the companies would be limited to the amount of foreign income taxes that would have been payable if the taxpayer wasn't a dual capacity taxpayer (i.e., a taxpayer that is subject to a foreign levy and also receives a specific economic benefit, such as oil and gas drilling rights, from the levying country);
gross receipts derived by the companies from the sale, exchange, or other disposition of oil, natural gas, or a primary product thereof would be excluded from the definition of "domestic production" for purposes of the Code Sec. 199 domestic manufacturing deduction;
intangible drilling costs would be capitalized as depreciable or depletable property rather than immediately expensed under Code Sec. 263(c);
instead of depreciating an oil and gas well based on fixed percentage of gross income, under which the total deductions can potentially exceed the basis in the property, the companies would be required to use the cost depletion method; and
the companies would be unable to deduct under Code Sec. 193 the costs of tertiary injectants used in enhanced oil recovery, and would instead be required to capitalize these costs.

The text of S.2204, the "Repeal Big Oil Tax Subsidies Act" can be found on Checkpoint.

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