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Monday, December 2, 2013

Tax Provisions Expiring in 2013 (“Tax Extenders”)

Molly F. Sherlock
Specialist in Public Finance

Dozens of temporary tax provisions are scheduled to expire at the end of 2013 under current law. Most of the provisions set to expire in 2013 have been part of past temporary tax extension legislation. Most recently, many temporary tax provisions were extended as part of the American Taxpayer Relief Act (ATRA; P.L. 112-240). Collectively, temporary tax provisions that are regularly extended by Congress—often for one to two years—rather than being allowed to expire as scheduled are often referred to as “tax extenders.”

Interest in tax reform during the 113
th Congress has led some to believe that tax extenders should be addressed as part of the tax reform process. The President’s FY2014 Budget identifies several expiring provisions that should be permanently extended (and in some cases substantially modified), including the research and experimentation (R&D) tax credit, enhanced expensing for small businesses, the renewable energy production tax credit (PTC), the new markets tax credit (NMTC), the work opportunity tax credit (WOTC), the deduction for state and local sales taxes, the exclusion of discharge of principal residence indebtedness, and the tax deduction for energy efficient commercial buildings. Unlike previous budget proposals during the Obama Administration, the President’s FY2014 Budget does not propose or assume that some set of expiring provisions is temporarily extended.

There are several reasons why Congress may choose to enact tax provisions on a temporary basis. Enacting provisions on a temporary basis provides legislators with an opportunity to evaluate the effectiveness of tax policies prior to expiration or extension. Temporary tax provisions may also be used to provide temporary economic stimulus or disaster relief. Congress may also choose to enact tax provisions on a temporary rather than permanent basis due to budgetary considerations, as the foregone revenue from a temporary provision will generally be less than if it was permanent.

The provisions that are scheduled to expire in 2013 are diverse in purpose, including provisions for individuals, businesses, the charitable sector, energy, community assistance, and disaster relief. Among the individual provisions scheduled to expire are deductions for teachers’ out-of-pocket expenses, state and local sales taxes, qualified tuition and related expenses, and mortgage insurance premiums. On the business side, under current law, the R&D tax credit, the WOTC, the active financing exceptions under Subpart F, and increased expensing and bonus depreciation allowances will not be available for taxpayers after 2013. Charitable provisions scheduled to expire include the enhanced deduction for contributions of food inventory and provisions allowing for tax-free distributions from retirement accounts for charitable purposes. The renewable energy production tax credit (PTC) is set to expire at the end of 2013, along with a number of other incentives for energy efficiency and renewable and alternative fuels. The new markets tax credit, a community assistance program, is also scheduled to expire at the end of 2013.

A majority of the provisions set to expire at the end of 2013 were temporarily extended as part of ATRA. There were, however, a number of provisions that had previously been included in “tax extenders” legislation that were not extended under ATRA. Moving forward, Congress may choose to address expiring tax provisions as part of tax reform, deciding at that time which temporary provisions should become a permanent part of the tax code. Alternatively, Congress may choose to develop a tax extender package, extending some or all of the provisions that have previously been extended in “tax extender” legislation.

Date of Report: November 5, 2013
Number of Pages: 24
Order Number: R43124
Price: $29.95

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