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TAX TAKE: What Would a Year-End Lame Duck Package Look Like?

Tax Alert

With the prospects for the Build Back Better Act (BBBA) still up in the air, consideration is already being given to what a post-election year-end lame duck tax package might look like. The prospects for a lame duck package, both in terms of whether one comes to fruition and how robust its contents may be, are always uncertain and highly dependent on the results of the previous election. That being said, lame duck bills have historically carried significant bipartisan tax legislation, particularly if there is a pending change in control of one or both houses of Congress. A lame duck bill has the potential to address a significant number of pending tax issues, including the 2022 and 2023 tax extenders packages, bipartisan retirement legislation, and recent/pending changes to Tax Cuts and Jobs Act (TCJA) provisions.

2021 and 2022 Tax Extenders. The annual tax extenders package, a collection of temporary tax relief provisions, needs to be addressed for both provisions that expired at the end of last year (on a retroactive basis) and those provisions that will expire at the end of this year. Tax extenders may very well form the base of a lame duck bill.

Bipartisan Retirement Legislation. In late March, the House passed H.R. 2954, the Securing a Strong Retirement Act of 2022 (commonly referred to as Secure 2.0) and the Senate is expected to consider its own retirement legislation in the near future. Although there is bipartisan support for retirement legislation, it is unlikely to get separate floor consideration in the Senate, making a lame duck bill the perfect legislative vehicle.

Recent/Pending TCJA Changes. TCJA contained several provisions with built-in future changes that now need to be addressed in order to avoid substantial tax increases. These include significant changes to two key provisions that also went into effect at the end of last year:

  • The transition from the full deductibility of research and development expenditures to a five- or 15-year amortization schedule
  • The shift from EBITDA to EBIT for purposes of calculating the section 163(j) interest expense deduction limitation

In addition, Congress will soon face the phase-out of 100 percent bonus depreciation scheduled to begin in 2023, which provides for an 80 percent deduction for property placed in service in 2023, a 60 percent deduction for property placed in service in 2024, a 40 percent deduction for property placed in service in 2025, and a 20 percent deduction for property placed in service in 2026, before sunsetting for tax years beginning in 2027. There is the potential that some of these items, particularly the research and development amortization "fix" may be addressed prior to year-end, but there is hope that any remaining items would be considered for a lame duck" package.

What Else? A lame duck package could attract any other tax provisions with bipartisan support, such as legislation addressing business operations in Russia and technical corrections. #TaxTake

Upcoming Speaking Engagements and Events

Loren and fellow Tax Members Kevin Kenworthy and Rocco Femia will present "International Tax Agreements in an Era of Congressional and Political Polarization" at the American Petroleum Institute's 87th Annual Federal Tax Forum on May 4.

On May 4, Marc will provide a Tax Legislative Review and Outlook to the Tax Executives Institute's Denver Chapter.

Loren will moderate the "International Tax: Outbound Tax Developments" panel at the DC Bar 2022 Tax Legislative and Regulatory Update Conference on May 4.

Marc will present "Federal Tax Policy Update," at the Manufacturers Alliance Tax Council Spring Meeting on May 19.

On May 19, Marc and Jorge will present "2022 Federal Tax Policy Update," a webinar sponsored by TEI Chicago, the National Association of Black Accountants (NABA), and The Association of Latino Professionals For America (ALPFA) Chicago.

In the News

In Tax Notes, Marc discussed possible year-end lame duck tax legislation. He said it's easy to imagine many bipartisan items being thrown into what would be a large lame duck package. He added, however, that lame duck bills are, at best, a "dicey proposition."

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