Tax Extenders Clear the Senate Finance Committee

Includes Expansions for the R&D Tax Credit and Section 179D

On July 21, the Senate Finance Committee took the first major steps on tax extenders legislation—which includes important provisions such as the R&D Tax Credit and the Energy-Efficient Commercial Building Deduction(Section 179D)—by approving a tax extenders bill on a strong bipartisan vote of 23-3 that will now go to the Senate for full consideration.

With respect to R&D and 179D, the proposed bill includes several key expansions that we have long advocated for and would greatly strengthen small and mid-sized businesses. Here are the key takeaways:

The R&D Tax Credit

The R&D Tax Credit would be extended for two years. The extension is retroactive to when it expired (December 31, 2014) and runs until December 31, 2016.

Expansion of the R&D Tax Credit

The Finance Committee’s proposed legislation allows companies to take the R&D credit against their Alternative Minimum Tax (AMT). This is basically what the Senate passed as a one year exception for 2010, but has been brought back and will be a tremendous benefit to a large number of alliantgroup’s partner companies.

The committee also agreed to an amendment that, in effect, makes the R&D Tax Credit refundable for small businesses (although capped). It allows a company to take a credit of up to $250,000 against the payroll taxes the company pays on its employee wages. The benefit is available for companies that have existed for less than five years (targeting this benefit for startups) and that have less than $5 million in annual gross receipts.

Section 179D

Like the R&D Tax Credit, Section 179D would be extended for two years. The extension is retroactive to when it expired (December 31, 2014) and runs until December 31, 2016.

Expansion of Section 179D

Not only would 179D be extended, but it would be expanded so that buildings owned by charities (IRC 501(c)(3)) and tribal governments can also allocate the 179D tax deductions to the designers and builders that are making the energy-efficient enhancements (just like government entities can currently). The committee also bumped up the standards for 179D, meaning that starting in 2016 the base would be 2007 ASHRAE standards.

What’s Next

The extenders bill will now to go to the Senate floor for consideration. It is strongly anticipated that the Senate will give a heavy vote in favor of the extenders bill—signaled by the good bipartisan vote of final passage in the Finance Committee. The Senate bill will then be reconciled with the stand alone House R&D bill that has already passed and includes provisions that would make the R&D Tax Credit permanent, with the included AMT fix. While Boehner’s exit doesn’t make things any easier, unless extenders legislation is derailed by another fiscal cliff or a prolonged government funding battle coming out of the August recess (the chances of which are unlikely), we should see tax extenders legislation in some form later this year.
This good news has occurred in no small part due to the scores of alliantgroup partner CPA firms and businesses reaching out and contacting their elected officials on the importance of these provisions. It matters. The Senate Finance Committee listened—but it’s important that we continue to make our voices heard on these important provisions during the rest of the bill’s legislative journey.