Press Room: Tax Release
President Signs Short-term Highway Bill with Revenue Offsets
On July 31, President Obama signed a three-month extension of federal highway and transit program authorization, which will allow more time for Congress to continue working on a long-term highway bill that could include international tax reform provisions.
The cost of the roughly $8 billion short-term highway bill (H.R. 3236) is offset by $4.9 billion in revenue-raising measures and $3.16 billion associated with an extension of Transportation Security Administration (TSA) fees. These offsets include changes in tax return filing dates for C corporations, partnerships, and S corporations, and the extended due date for trusts and estates. The filing date changes generally will be effective for certain tax returns filed for tax years beginning after December 31, 2015. Additional offsets include new information reporting provisions for mortgage lenders and estates.
House Ways and Means Chairman Paul Ryan (R-WI) has said that he hopes to develop international tax reform legislation that could feature a mandatory deemed repatriation provision to help fund a six-year highway bill. The Ways and Means Committee could consider such legislation in September or early October, after Congress returns from its August recess. The Senate’s version of a long-term highway bill relies primarily on non-tax offsets to provide additional funding for the Highway Trust Fund. Senate Majority Leader Mitch McConnell (R-KY) has stated that he is skeptical whether Congress and the Obama Administration can reach an agreement on international-only tax reform.
Revenue Raising Measures
Part of the cost of this General Fund transfer would be offset by new tax compliance measures that are estimated by JCT staff to raise $4.9 billion over 10 years. The remaining $3.16 billion cost of the transfer would be offset by a two-year extension, from 2022 through 2024, of TSA fees.
The revenue-raising provisions enacted by this legislation:
- Adjust tax-filing deadlines. The legislation modifies rules on tax-filing deadlines for C corporations, partnerships, and S corporations and modifies the extended due date for trusts and estates. Under this provision, the due date (without extension) for filing a C corporation tax return is April 15 (or three-and-a-half months after the close of its tax year). The due date (without extension) for filing a partnership and S corporation tax return is March 15 (or two-and-a-half months after the close of its tax year).
- The provision provides corporations with an automatic six-month extension of the applicable filing date. In the case of calendar-year C corporations, the automatic extension would be up to five months (September 15) until tax years beginning after December 31, 2025, at which time the extension would be up to six months (October 15).
- For C corporations with tax years ending on June 30, the current-law filing date (September 15, without extensions) would remain in effect until tax years beginning after December 31, 2025, and thereafter would be extended to October 15.
- The current law April 15 due date for trusts and estates is unchanged, but the extended due date is changed to September 30.
- The provision directs the IRS to provide by regulations that the maximum extension for a partnership return shall be a six-month period ending September 15 for calendar year taxpayers.
- The provision is estimated to raise $314 million over 10 years.
- Clarify the statute of limitations on reassessing certain tax returns. Present law generally gives the IRS six years to reassess taxpayers who substantially understate gross income (by 25 percent or more). This provision overturns a Supreme Court ruling that the six-year statute of limitations period does not apply in cases in which a taxpayer misstates the basis of a piece of property and, as a result, substantially understates their tax liability on sale of the property. The new provision affirms that the six-year rule also applies in cases where any overstatement of basis results in a substantial omission of income, effective for returns for which the assessment period is open as of the date of enactment and for returns filed after such date. The provision is estimated to raise $1.2 billion over 10 years.
- Require lenders to report additional information on outstanding mortgages. Current law requires lenders to provide the IRS with each borrower’s name, address, and taxpayer identification number. This provision requires lenders, beginning after 2016, to also include the loan origination date, the amount of outstanding principal, and the property’s address. The provision is estimated to raise $1.8 billion over 10 years.
- Require estates to report the value of property upon the owner’s death. This provision requires estates with a positive estate tax liability to report to the IRS the value of an item of property upon the owner’s death. A Ways and Means Committee staff summary states that this provision is intended to guard against situations in which, many years after inheriting property, beneficiaries may overstate the original value of the inherited property on their income tax returns and, as a result, understate their tax liability on gain from the sale of the property. This provision is effective for property with respect to which an estate tax return is filed after the date of enactment. The provision is estimated to raise $1.5 billion over 10 years.
- Allow the transfer of excess pension assets to retiree health accounts. The provision extends through December 31, 2025 (i.e., four years) a temporary current-law rule allowing employers to transfer excess defined benefit plan assets to retiree medical accounts and retiree group-term life insurance, while denying them a deduction for such transfers. The provision is estimated to raise $172 million over 10 years.
The legislation equalizes Highway Trust Fund taxes on liquefied natural gas, liquefied petroleum gas, and compressed natural gas, for fuel sold or used after 2015. The provision uniformly imposes taxes on such fuels on an energy-equivalent basis, resulting in a reduction in the current tax rates for liquefied natural gas and liquefied petroleum gas. The provision is estimated to reduce federal revenues by $90 million over 10 years.
The revenue offsets that were enacted for short-term highway funding indicate a new willingness of Republicans to support provisions related to tax administration outside the context of tax reform. The differing approaches of the House and Senate on Highway Trust Fund legislation keep open the possibility that Congress will consider using revenues from international tax reform to fund a long-term highway bill. Please contact us if you’d like to discuss the impact of legislation and legislative proposals on your business and strategies to provide a voice on pending legislation being considered by Congress.