While all signs point to the fact that, given the current makeup of the House and Senate, the Build Back Better bill on the table last fall is essentially lifeless, some of the policies contained in the bill may be back in play in 2022.
A possible alternative path for some of the policies contained in the BBB bill is inclusion in smaller, more targeted pieces of legislation. (For prior coverage, see BDO’s alert “The Build Back Better Act in a Legislative Lull”). Whether or not some or all of the tax policies in the BBB bill are revived this year, Congress will nonetheless need to address what has become an almost annual ritual – passing tax extenders legislation.
Congress’s Joint Committee on Taxation generally publishes an annual list of expired or expiring tax provisions. The most recent publication, List of Expiring Federal Tax Provisions 2021-2031 (JCX-1-22), lists 40 tax provisions that expired on December 31, 2021, and over 50 additional provisions that are set to expire between 2022 and 2031.
Some of the provisions that expired in 2021 are pandemic-related, such as the employment tax credit for paid sick and paid family leave, credits for sick and family leave for self-employed individuals, and the employee retention credit.
Other more routine expired provisions include a host of energy-related tax credits, the health insurance credit for certain individuals and the treatment of mortgage insurance premiums as interest.
Finally, the list includes some provisions that were enacted as part of the Tax Cut and Jobs Act of 2017 that expired at the end of 2020 or 2021, such as the return of the five-year net operating loss (NOL) carryback without the 80 percent limitation, interest deductions based on EBITDA and current research and development expensing, set to become five-year amortization in 2022.
Unless Congress acts, these provisions will not be retroactively extended.
Some of these provisions, such as the expanded NOL carryback rules from the TCJA, may be allowed to lapse. Other provisions, however, are considered routine extenders, and Congress is likely to act on them. Irrespective of the history of any of these provisions, to the extent any will be extended, Congress will need to find a legislative vehicle to move these provisions forward.
The current stop-gap funding bill expires February 18 ,2022 (and the Biden administration has not yet introduced its Fiscal Year 2023 budget proposal). On February 8, 2022, the House passed (272-162) a bill that would fund the government through March 11, 2022 (the fiscal year ends September 30, 2022). The bill is expected to pass the Senate before the February 18, 2022, deadline. However, this stop-gap bill does not address the expiring tax provisions.
The practice in recent years of extending expiring tax provisions on a year-by-year basis mirrors the way appropriations are often addressed: at the last minute and in small pieces, providing only routine bandages. This approach presents challenges for taxpayers because it limits their ability to plan based on predictable tax policy. It also causes frustration at the Internal Revenue Service because it undermines its ability to administer the annual filing season, such as the 2021 season that began January 24, 2022.
We will continue to monitor the status of tax extenders to determine if and when any of these provisions are extended through inclusion in legislation in the near future.
Written by Todd Simmens. Copyright ©️ 2022 BDO USA, LLP. All rights reserved. www.bdo.com