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Stephen J. Ehrenberg
Stephen J. Ehrenberg

How the Tax Increase Prevention Act of 2014 affects corporations

Here’s what you need to know about the many extended corporate provisions.

January 29, 2015
by Stephen J. Ehrenberg, CPA

While most of us were getting some rest and relaxation before the start of the upcoming tax filing season, Congress and the president were busy enacting tax legislation that broadly affects both corporate and individual taxpayers. The Tax Increase Prevention Action of 2014 (TIPA), P.L. 113-295, extended a number of tax relief provisions retroactively through the beginning of 2014 that had expired at the close of calendar 2013. While the so-called tax extender package does provide clarity and guidance for taxpayers through 2014, for 2015 taxpayers are in a familiar situation once again awaiting congressional action to determine whether these provisions will be extended through the current year.

New provisions

On Dec. 16, Congress passed TIPA, which was signed into law by President Barack Obama on Dec. 19. TIPA extended a number of expired tax provisions for businesses and individuals through Dec. 31, 2014.

Subtitle A of TIPA covers the individual tax extenders. While the individual tax extenders are not the primary focus of this article, taxpayers should note that a number of individual tax benefits are now available through the end of calendar 2014, including, but not limited to, IRA distributions to charities, cancellation-of-debt income, mortgage insurance premiums, and sales tax deductions in lieu of the itemized deduction for state income taxes. In addition to these items, TIPA also includes the Achieving a Better Life Experience (ABLE) Act of 2014, which provides for tax-free savings accounts for disabled individuals.

Corporate taxpayers have likely focused on subtitle B of TIPA, which contains the business-related tax extenders. The most noteworthy tax relief provisions that were extended through 2014 include:

  • Tax credits:
    • Sec. 41 research and experimentation credit;
    • Sec. 51 work opportunity tax credit;
    • Sec. 179D deduction for energy-efficient commercial buildings; and
    • Sec. 45D new markets tax credit (which also includes a carryover of unused credits to 2019).
  • Fixed-asset cost recovery:
    • The Sec. 168 50% first-year bonus depreciation for certain new property placed in service before Jan. 1, 2015;
    • The Sec. 168 provision extending the 15-year write-off period for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; and
    • Increased expensing limits for Sec. 179 property ($500,000 maximum expensing amount).
  • International tax:
    • Subpart F exception for active financing income; and
    • Lookthrough treatment of payments between related controlled foreign corporations under the foreign personal holding company rules.
  • S corporations:
    • Recognition period for Sec. 1374 built-in gains tax is reduced to five years from 10 years; and
    • Sec. 1367 basis adjustments to S corporation stock for S corporations making charitable donations of property.
  • Other:
    • Exclusion of 100% of gain on certain Sec. 1202 small business stock.

However, certain energy- and efficiency-related credits, as well as credits for health insurance costs for eligible individuals under Sec. 35, were not extended under TIPA.

Taxpayer action

The 2014 tax season surely will keep business taxpayers and their tax preparers busy. From the implementation of the tangible property rules, which are now effective for tax years beginning on or after Jan. 1, 2014, to the new health care issues and concerns brought about by the Patient Protection and Affordable Care Act, P.L. 111-148, taxpayers certainly have a lot to consider. Couple these items with the TIPA extender package, and it becomes apparent that businesses should review and analyze all these rules and regulations to determine their impact.

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Stephen J. Ehrenberg, CPA, MBT, is a tax principal in the Los Angeles office of Holthouse Carlin & Van Trigt LLP.