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TAX TAKE: A Helter Skelter Push for a Tax Bill

Tax Alert

Things are moving fast, so these words could already be out of date by the time Tax Take hits your inbox this morning. Nonetheless, as of late Friday, here are five big questions as taxwriters in Congress make a mad dash to assemble a bipartisan tax bill that can reach the president's desk in the next few weeks.

1. What tax relief will be added?

Beyond the "base" package — child tax credit (CTC) relief and the three Tax Cuts and Jobs Act (TCJA) extenders (repealing mandatory section 174 research and experimentation (R&E) amortization, restoring the section 163(j) usage of earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than EBIT in the adjusted taxable income calculation, and restoring 100 percent bonus depreciation) — there are reports that low-income housing, disaster relief, and the pending U.S.-Taiwan tax "treaty" legislation could be included. Other items reflecting member priorities may be added to secure necessary support for the bill.

2. How are the three TCJA extenders being treated?

Taxwriters appear to be considering retroactive extensions through 2025. The only reported substantive change is that current deductibility of R&E would be limited to domestic R&E (i.e., foreign R&E would remain subject to amortization under current section 174).

3. Is the tax package paid for and how?

Reports are that the package will raise revenue by enacting limitations on the employee retention credit. Although a number of proposals have been suggested, it is unclear which will be included and what the reaction to them will be. It is also not clear whether the tax package will be fully paid-for.

4. What's the legislative vehicle?

As we said last week, the best chance for tax extenders would be one of the two government funding bills currently scheduled for consideration in January and February, although the status of the spending process is very uncertain. A pivot to the Federal Aviation Administration (FAA) excise tax extension bill in early March may be necessary, but any CTC changes for this year's tax filing season (which begins on January 29) would no longer be practical.

5. Does last week's legislative activity increase the chances that the tax bill gets enacted?

Perhaps, but many questions remain. Taxwriters have not settled on a final package and congressional leaders have not indicated that the tax bill is a priority for near-term passage. An available legislative vehicle remains uncertain. The fact that the taxwriting committees are trying to develop a package is encouraging, but the path forward is riddled with political and policy pitfalls that could easily derail the effort. 

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