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Washington Wire: Tax Extenders Make Progress

Published by Michael J. Novogradac on Saturday, August 1, 2015

Journal cover August 2015   Download PDF

The Senate Finance Committee July 21 approved legislation that included a 2015 and 2016 extension of 52 tax provisions that expired at the end of 2014 that are commonly referred to as tax extenders. The strong bipartisan vote of 23-3 will help advance the bill in the full Senate. But, at the time of this writing little is known about how the bill will fare in the coming weeks and months. While only Sens. Michael Enzi, R-Wyo.; Pat Toomey, R-Pa.; and Dan Coats, R-Ind., opposed the bill in committee, there was uncertainty about how and when the package would be considered by the full Senate.

In the meantime, affordable housing, community development and renewable energy supporters are continuing to make a case for key tax provisions by sharing with lawmakers the important benefits they provide in communities around the country.

What’s In
The Senate Finance Committee-passed bill includes several key provisions.

Affordable Housing
The committee package includes an extension of the minimum 9 percent low-income housing tax credit (LIHTC) applicable percentage for allocations made by the end of 2016. The legislation also includes a provision introduced by Sens. Maria Cantwell, D-Wash.; Pat Roberts, R-Kans.; Ben Cardin, D-Md.; Chuck Schumer, D-N.Y.; Sherrod Brown, D-Ohio; Debbie Stabenow, D-Mich.; Bob Casey, D-Pa.; and Bob Menendez, D-N.J. that provides a minimum 4 percent applicable percentage for LIHTC used to finance the acquisition of existing properties for allocations made by the end of 2016. This provision does not apply to 4 percent LIHTC generated by multifamily housing private activity bonds.

Community Development
The committee approved two additional rounds of new markets tax credit (NMTC) authority, adjusted for inflation from 2007, to provide $3.94 billion annually. This is would be the first NMTC authority increase since the temporary increase that was authorized by the American Reinvestment and Recovery Act of 2009 (ARRA). This inflation adjustment proposal was championed by Sens. Cardin, Schumer, Brown; Stabenow, and Menendez.

Renewable Energy and Energy Efficiency
The committee’s approved version of the bill includes an extension of the Section 45 renewable energy production tax credit (PTC) for projects that begin construction by the end of 2016. The bill also extends the election to claim the Section 48 investment tax credit (ITC) in lieu of the PTC by the end of 2016.

An extension of the Section 45L new energy-efficient home tax credit for eligible homes (generally buildings no more than three stories above grade) acquired by the end of 2016 was passed, as was an extension of the Section 179D energy-efficient commercial and multifamily buildings (generally buildings of 4 or more stories above grade) deduction for two years, through the end of 2016. In addition to the extension, the bill allows nonprofits and tribal governments to allocate the deduction to the person primarily responsible for designing the property, just as current law permits for public property. The bill also increases the efficiency standards such that by 2016 qualifying buildings are determined relative to the ASHRAE/IESNA 90.1-2007 standards (instead of the current law 90.7-2001 standard). Sen. Cardin also offered an amendment to change basis adjustment rules with respect to partnerships and S corporations, as well as earnings and profits rules with respect to Real Estate Investment Trusts (REITs) to allow such pass-through entities to utilize the full economic value of the deduction, but he withdrew it because it lacked a score.

The committee also approved an extension of 50 percent first-year bonus depreciation, generally available for property placed in service by the end of 2016.

What’s (Currently) Out
Several senators offered amendments during committee deliberations, but because of strict rules that only permitted provisions that addressed expired tax provisions and allowed those provisions to be effective no later than the end of 2016, those amendments were ruled not germane and were withdrawn.

Renewable Energy
Of the amendments that were filed and discussed but ultimately withdrawn, several related to renewable energy tax credits underscored the controversial nature of the PTC. Based on these amendments and the sentiments that inspired them, it’s unclear whether the PTC will remain in the final extenders bill.

For example, Sen. Toomey offered an amendment to repeal the PTC, arguing the credit is inefficient and bad policy. He ultimately recognized the lack of support on the committee and withdrew the amendment. Sen. Coats expressed support for Sen. Toomey’s amendment, and offered an amendment to phase-down the PTC by 20 percent, citing the wind industry past support for a phase-down. But, like Sen. Toomey, Coats eventually withdrew his amendment. Sen. Rob Portman, R-Ohio, noted his amendment to phase down both the ITC and PTC by 30 percent in 2017 and 40 percent in 2018, followed by the elimination of the PTC in 2019, while allowing the ITC to be effective for projects that start construction by the end of 2016, provided policy “parity” with the PTC. However, these amendments were also withdrawn.

Sen. Dean Heller, R-Nev., along with Sens. Cantwell, Portman, and Michael Bennet, D-Colo., offered an amendment focused solely on providing ITC the policy “parity” for the commencement of construction. Sen. Ron Wyden, D-Ore., filed a similar amendment. However, these amendments were ruled non-germane and withdrawn.

Affordable Housing and Community Development
Conversely, several other noteworthy amendments were filed and not ultimately offered that signal support for other tax credits.

For example, Sens. Cantwell and Roberts, filed an amendment to make the minimum 9 percent LIHTC applicable percentage permanent and establish a permanent minimum 4 percent applicable percentage for LIHTC used to finance the acquisition of existing property, similar to the separate bill they introduced earlier this year, S. 1193.

On the community development side, Sens. Schumer, Portman, Cardin, Cantwell, Stabenow, Brown, Casey, and Menendez filed an amendment to make the NMTC permanent at $3.5 billion annually. Sens. Cardin, Schumer, Brown, Stabenow, and Menendez filed another amendment to increase NMTC authority in 2015 and 2016 by providing an inflation adjustment from 2000, which was estimated to provide $4.9 billion in 2015 and $5.1 billion in 2016. Sens. Roy Blunt, R-Mo., and Schumer have introduced a separate bill, S. 591, to make the NMTC permanent, provide for an inflation adjustment from 2000, and allow the NMTC to be taken against alternative minimum tax (AMT) liability.

And finally, Sens. Schumer, Cantwell, Bennet, Casey and Menendez offered an amendment to provide disaster tax relief for federally declared disasters in 2012-2015, similar to a separate bill Sens. David Vitter, R-La., Bill Cassidy, R-La., and Schumer introduced in July, S. 1795. Among other things, the amendment and bill would provide:

  • Special LIHTC allocation equal to the greater of $8 per capita in affected areas or 50 percent of the state’s LIHTC ceiling;
  • Special $500 million NMTC allocation for projects in affected areas;
  • Increased Section 47 rehabilitation tax credit percentages: 26 percent for historic structures and 13 percent for non-historic structures placed in service before 1936; and
  • Special allocation of private activity bond authority for disaster recovery.

Again, unlike the PTC amendments, the fact that senators filed these amendments portends possible positive legislative action in the future.

NMTC Enjoys Key Support
During the hearing, Committee Chairman Orrin Hatch, R-Utah, and others on committee called for numerous tax provisions to be made permanent through a comprehensive tax reform process. They also noted the need to advance a limited set of extensions in the meantime. Among that group was Sen. Portman, whose support for a permanent NMTC extension was a particularly positive development, as he has not previously cosponsored NMTC extension legislation. In his statement to the Senate Finance Committee on July 21, Sen. Portman urged his colleagues to revisit tax extenders later in the year and consider permanency for “those that make sense.”

The NMTC was also singled out for positive attention by Ranking Member Wyden. In his opening statement, Sen. Wyden highlighted a few specific provisions he called economic priorities “vital to families, businesses and communities in Oregon and across the country.” They included the NMTC, which Wyden noted “promotes investment and jobs in communities mired in poverty.”

What’s Next
It is unclear when the full Senate will consider the Finance Committee-approved extenders bill. Also on July 21, Senate Majority Leader Mitch McConnell, R-Ky., Environment and Public Works Committee Chairman James Inhofe, R-Okla., and Ranking Member Barbara Boxer, D-Calif., announced a deal on highway funding, which some have suggested, including Chairman Hatch in recent weeks, could serve as a potential legislative vehicle for tax extenders. But following the committee mark-up, Sen. Hatch said he didn’t think the two would be combined. Meanwhile, House Ways and Means Committee Chairman Paul Ryan, R-Wis., announced his intention to consider extenders legislation in the fall.

Based on these statements and the progress to date, it’s possible the House could take up extenders in September and there is some hope that the final extenders bill could be approved much earlier than the end of the year. Furthermore, that final extenders bill could make several provisions permanent.

However, it’s also possible that the House, with its approach focused on making a select set of extenders permanent, and the Senate, with its two-year bill extending almost all expiring provisions, will not be able to quickly resolve their differences. Ultimately, final action on the package could stall until December, as it has in recent years.

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