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Obama Signs Omnibus Budget Bill that Includes $622 Million in Tax Extenders

On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”) after both houses of Congress voted to approve the budget measure and comprehensive spending bill. The PATH Act includes a broad range of tax extenders, either extending or making permanent several tax incentives, and also changes portions of the tax policy.

The budget measure provides two-year renewals for dozens of extenders, five-year renewals for some, and also contains provisions impacting Internal Revenue Service (“IRS”) administrative practices.

Permanent Tax Breaks

Under the PATH Act, many tax credits for individuals as well as businesses were made permanent. For individuals, tax-free distributions (up to $100,000) from qualified individual retirement plans for charitable purposes have been permanently extended. With the exclusion now permanently extended, individuals have the opportunity to make charitable contributions from either their traditional IRA or Roth IRA without the distributions being subject to federal income tax. For businesses, the reduced built-gain recognition period for S corporations of five-years has also been permanently extended. S corporations with a five-year built-in gain recognition period that extends beyond 2015 now have the opportunity to benefit from the permanently reduced five-year period. Additionally, the PATH Act has also permanently extended the Internal Revenue Code (“IRC”) Section 179 depreciable property limitation ($500,000) and phase-out amount ($2 million) aimed at benefiting small businesses. Without this extension, the limit would have been $25,000 with a phase-out amount of $200,000.

Five-Year Extensions

Other credits got five-year extensions, including bonus depreciation for qualified property, the work opportunity tax credit, the new markets tax credit and the look-through treatment for certain payments between related controlled foreign corporations.

Other Extensions and Tax Breaks

Energy-related provisions, including incentives for production of renewable biofuels, were renewed for two years. The wind energy production tax credit was also extended through the end of 2019. For businesses that plan to acquire assets for use in their trades or operations, bonus depreciation has been extended for property acquired and placed in service through 2019. Other tax-related measures were given another delayed effective date. A two-year moratorium was also placed on the 2.3% medical device excise tax which would stop it from going into effect until 2018. The “Cadillac tax” on high cost insurance plans, which was originally scheduled to take effect in 2018, has been delayed for another two years.

Changes to Tax Policy

The PATH Act also changes several areas of tax policy, including changes to the treatment of real estate investment trusts (“REITs”), such as restricting certain tax-free spinoffs of real property into REITs, and seeks to address certain IRS administrative practices. For foreign investors who own small interests in publicly traded corporations that are considered to be U.S. real property interests, the increased ownership percentage from 5% to 10% in certain REIT stock provides a broader exception to taxes imposed under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) regime.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume V, Number 357

About this Author

William J. Sanders, Polsinelli PC, Limited Liability Company Matters Lawyer, Tax matters Attorney
Shareholder, Practice Chair

Through over 30 years of practicing law, Bill Sanders has developed broad tax experience in corporate, partnership, limited liability company, complex business transactions, and workout and bankruptcy issues.

As chairman of the firm’s tax practice group and a licensed CPA in Missouri, Bill’s clients range from Fortune 100 companies to family-owned and tax-exempt organizations.

He regularly represents clients nationwide before the Internal Revenue Service at all levels including audits, the Appeals Division and...

D. Scott Lindstrom, Polsinelli PC, Tax Planning Attorney, Controversy Matters Lawyer

Scott Lindstrom brings a personal and customized approach to each client’s unique situation. This defines how he handles tax and business matters for the wide variety of clients he serves. Scott helps businesses and individuals with a broad range of tax planning and controversy matters, estate planning, and business transactions. He also represents clients in many aspects of business and general corporate transactions, including formation, operation, disposition, business contractual matters, and international taxation matters.

Virginia Y. Duong, Polsinelli PC, Income Tax Controversies Lawyer, Audit Planning Attorney

Virginia Duong seeks legal solutions to difficult tax problems by combining a thorough understanding of the tax laws with an ability to apply them in innovative ways. She demonstrates an understanding of the tax law, and pairs this knowledge with an appreciation of the business goals of both domestic and international clients in order to offer potential solutions. Virginia's practice focuses on the resolution of both federal and state income tax controversies with the IRS as well as state taxing authorities. She advises clients throughout all administrative phases of a...