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This article from April 15, 2022 has been updated to reflect new legislative updates as of May 26, 2022.
They say nothing happens in Washington in an election year. Then again, every other year is an election year. The classic refutation is the passage of the Tax Reform Act of 1986 (”TRA86”) less than two weeks before that year’s mid-term elections. But then again, President Reagan’s job approval numbers were in the 60 percent range that year.
We don’t expect any legislation of that magnitude to emerge, but that hasn’t stopped the parade of tax bills in Congress – some meaningful, some less so – from being introduced. Here are some you may find interesting.
The Renewing Investment in American Workers and Supply Chains Act
Sen. Mike Braun (R-IN) introduced a bill which would reduce the depreciable life of nonresidential real estate and residential rental property to 20 years. The last time it was that short was before the aforementioned TRA86. Cost recovery would also be adjusted to account for inflation and the time value of money. The Senator’s press release said that, among other things, the legislation would “make tax code more efficient.” Get out your HP-12C.
Health Savings for Seniors Act
A bill introduced by Rep. Ami Bera (D-CA) and Jason Smith (R-MO) would make Medicare enrollees eligible for Health Savings Accounts (“HSAs”). HSAs allow individuals to set aside pre-tax money to pay for out-of-pocket medical expenses. HSAs are interest-bearing accounts, further encouraging individuals to save for future unexpected health care expenses. Currently, Medicare beneficiaries may not contribute to nor open new HSAs. On the other hand, funds already in an HSA could no longer be used to pay Medicare premiums. Penalty-free withdrawals from existing HSAs for non-medical uses would also be prohibited.
Opportunity Zones Transparency, Extension, and Improvement Act
There seems to be some movement in both houses of Congress, and with bi-partisan support, to overhaul the Opportunity Zone program. In addition to strengthening the reporting requirements, the bill would allow some zones to sunset and be removed from the program. It would also incorporate unpopulated former brownfield sites that are adjacent to Opportunity Zone census tracts into the program. Finally, it would allow feeder funds – investment vehicles that make cash investments of not less than 95% of their assets in Opportunity Zone funds – a common investment structure not previously permitted in the program. Given the bi-partisan, bi-cameral support, as well as support of those active in the program, this legislation could be enacted before the election.
The Supply Chain Disruptions Relief Act introduced in the House by Rep. Dan Kildee (D, MI) and in the Senate by Sen. Sherrod Brown (OH) has yet to leave the starting gate. This is despite the fact that the House bill has 29 Democrat and 27 Republican co-sponsors, the Senate bill has 12 Republican, 1 Democrat, and 1 Independent co-sponsors, and the National Association of Auto Dealers and the AICPA are strong supporters. According to the website govtrack.us, each bill has a 1% chance of being enacted.
Build Back Better Act
Senator Majority Leader Schumer (NY) and Senator Joe Manchin (WV) are talking. Again. Senator Schumer hopes to advance the entire agenda. Senator Manchin told the World Economic Forum in Davos, Switzerland that the bill should focus on inflation, drug pricing, and climate change but without abandoning the fossil fuel industry. Then there is the need to do something related to the OECD/G20 agreement on base erosion and profits (“BEPS”). The latter will have to find its way into some legislation before the end of the session.
Relief for Restaurants and other Hard-Hit Small Businesses Act of 2022
The American Rescue Plan Act of 2021 (“ARPA”) established the Restaurant Revitalization Fund (“RRF”). The $29 billion program was to provide grants of up to $10 million each to food service establishments affected by the COVID-19 pandemic. Over 278,000 restaurants received grants but another 177,000 eligible applicants were shut out when the fund was exhausted in July 2021.
Last month the House passed a bill replenishing the RRF and establishing a grant program for other hard-hit industries. Last week, the Senate took up its version of the legislation. Well, it tried to anyway. As you are aware, it takes 60 votes in the Senate to pass most bills. This one garnered only 52, despite having bi-partisan sponsorship and getting the vote of 4 Republican Senators. Critics said the bill would worsen inflation by putting more money into the economy.
We’re approaching halfway through the first year of the 2017 Tax Cuts and Jobs Act (“TCJA”) rule that research and experimentation expenses must be capitalized and amortized over 5 years. This is another area where there is widespread support for legislative change — in this case to repeal the provision and it was thought that it would be included in the America COMPETES Act currently in conference committee. It looks possible now that there may not be any tax titles, other than those related to semi-conductors, in that bill in which case the capitalization repeal might see life as a stand-alone bill or in a lame-duck tax extender package.
We reported in February on the tax provisions that expired at the end of 2021. There are also other provisions taking effect in 2022 or 2023 – R&E expense capitalization, lower limit for business interest deductibility, reduced bonus depreciation. Expect some or all of these to be addressed after the mid-term elections or, depending on the outcome, after the new Congress starts in January. We’ve had retroactive tax extender legislation before so there’s no reason it can’t happen again.
Count on Friedman
We will post updates as they happen. In the meantime, feel free to contact your Friedman LLP advisor with any questions