Will “tax extenders” be renewed retroactively for 2014?

October 9, 2014 | By: Robert A. Green, CPA

The IRS commissioner recently told Congress that further delay on anticipated renewal of “tax extenders” will delay the 2014 tax-filing season and 2014 tax refunds. Many taxpayers are hoping Congress renews tax extenders retroactively to all of 2014 so it increases their 2014 tax refunds. I can see a case for non-renewal of tax extenders.

The IRS needs a long lead time
Each year, the IRS and tax publishers need to finalize tax forms and software on a timely basis. Last minute tax law changes often throw a monkey wrench into that process. When Congress passes new tax law, the IRS has to codify those laws with proposed regulations and final regulations. The last step is drafting and finalizing tax forms and related instructions. Factor in government bureaucracy and this entire process can take a lot of time. Congress passed the Affordable Care Act (ObamaCare) in March 2010, yet it took the IRS several years to finalize regulations and 2013 Net Investment Income Tax Form 8960. Form 8960 was released late for the 2013 tax filing season – delaying last year’s tax season. The IRS just released 2014 ObamaCare insurance-mandate tax forms, which is early in this case (see upcoming blog).

Renewal of tax extenders is not certain
Congress allowed the entire list of “tax extenders” to expire at the end of 2013. Unlike in prior years, Congress did not renew the tax extenders during its annual game of political brinksmanship. If Congress permanently passed tax extenders, it would blow a huge hole in the budget deficit forecast and that’s a political problem.

In “A major tax reform bill in 2014 is unlikely, and “tax extenders” may be history, too,” I predicted Republicans might block renewal of tax extenders for leverage in discussing an overhaul of the tax code – otherwise known as “tax reform.” Why pass a bunch of tax breaks separately, without taking the opportunity to also simplify and fix the tax code at the same time?

My latest thoughts about tax extenders and tax reform
Why pass tax extenders just before the major election in November 2014? Congressmen campaign on tax policy raising money from the tax-benefit lobby. Pundits currently predict that Republicans may win narrow control of the Senate, but not filibuster-proof. Republicans could press for their vision of tax reform with the mantle in both houses of Congress. With ongoing public controversy over corporate tax inversions and U.S. companies moving abroad, a Republican Congress can probably exert pressure on the White House to pass corporate tax reform. Most small businesses uses pass-through entities like LLCs and S-Corps, which means they pay their business taxes on individual tax returns. For this reason, Congress should include individual tax reform in the tax reform bill, too. You can’t leave a large gap between individual and corporate tax rates.

The 2015 Congress sits in late January 2015, which means the 2014 lame-duck Congress will deal with year-end calls for renewing tax extenders. It’s highly unlikely the latter will deal with tax reform.

Is the IRS Commissioner weighing in to politics by pressuring Congress on tax extenders before the November election? Tax extenders lapsed at the end of 2013. Shouldn’t the IRS create tax forms based on current tax law? It’s certainly not easy with a last-minute Congress.

I vote for tax reform over just renewing tax extenders. For those that cry wolf, I question if corporations will reduce their research and development, or investments in new technology and equipment simply because the U.S. Treasury won’t subsidize them. American big and small businesses need to innovate and stay technologically advanced or they will lose their worldwide competitive edge.

As we approach the year-end holidays, many lobbyists, corporations and individuals will write letters to their Congressmen crying foul over tax extenders, Congress may cave and renew tax extenders. It’s tough to do tax planning with this routine.

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