December 2011

Federal Tax Provisions Expiring
at the End of 2011

The Joint Committee on Taxation (JCT) has identified 67 tax provisions that are scheduled to expire at the end of 2011.

The Two-Percentage-Point Payroll Tax Reduction

The Social Security payroll tax is 12.4% of taxable earnings, with 6.2% paid by the employer and 6.2% paid by the employee. Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010; P.L. 111-312), the employee's share of the Social Security payroll tax was reduced to 4.2% for 2011.The payroll tax reduction was enacted as an economic stimulus measure, increasing the take-home pay of employees. The budgetary cost in terms of foregone revenues for the one-year, two-percentage-point payroll tax reduction was estimated at $111.7 billion.

Provisions Related to the Alternative Minimum Tax  

The structural components of the Alternative Minimum Tax (AMT), notably the AMT exemption amount, are not indexed for inflation. Congress regularly enacts legislation increasing the exemption amount, preventing inflation from causing the real value of income tax liabilities to increase. Most recently, the AMT was patched (the exemption amount indexed for inflation) as part of the Tax Relief Act of 2010. In recent years, AMT patch legislation has also extended provisions allowing nonrefundable personal credits to fully offset AMT tax liability. The one-year AMT patch enacted under the Tax Relief Act of 2010 was estimated to result in $136.7 billion of foregone tax revenues.

Individual

Several temporary tax provisions affecting individuals are scheduled to expire at the end of 2011. Of these provisions, a number have been extended more than once as part of tax extender packages. These include the deduction for elementary and secondary school teacher expenses, the deduction for state and local sales taxes, the above-the-line deduction for qualified tuition and related expenses and the estate tax look-through for certain regulated investment company (RIC) stock held by nonresidents.

Two other provisions, one related to the tax treatment of employer-provided mass transit and parking benefits and the other allowing for mortgage insurance premiums to be deducted as qualified interest, were extended through 2011 as part of the Tax Relief Act of 2010.

Business

Several temporary tax provisions that benefit businesses are also scheduled to expire at the end of 2011. Notable is the tax credit for research and experimentation expenditures. The research tax credit has been a part of the Internal Revenue Code (IRC) since the 1980s as a temporary provision. The credit has regularly been extended, most recently as part of the Tax Relief Act of 2010. This retroactive extension (the credit had been allowed to expire at the end of 2009), cost an estimated $13.3 billion in terms of foregone tax revenue.

Provisions allowing for an exception from Subpart F rules for "active financing income" have also regularly been extended in recent years. The active financing exception applies to active income earned by banking, financing, and insurance business operation abroad. The exception under Subpart F for active financing income had been allowed to expire at the end of 2009. The exception was extended through 2011 as part of the Tax Relief Act of 2010, with an estimated cost of $9.2 billion in foregone tax revenue.

Other business-related provisions that have regularly been extended in recent years include the rum excise tax cover-over, provisions allowing for brownfield environmental remediation cost expensing, the Work Opportunity Tax Credit (WOTC), and incentives related to Indian employment and property investment on Indian reservations. Several other temporary provisions scheduled to expire at the end of 2011 were temporarily extended as part of the Tax Relief Act at the end of 2010, including the employer wage credit for activated military reservists, special expensing rules for film and televisions production, certain special rules for regulated investment companies, and special rules for small business stock.

Provisions allowing for additional enhanced expensing and bonus depreciation are scheduled to be scaled back at the end of 2011. A 100% bonus depreciation allowance is in effect through the end of 2011. This allowance is set to decrease to 50% for 2012, and expire after December 31, 2012. Under current law, the maximum expensing allowance is $500,000 for investments in qualified assets. This allowance is scheduled to drop to $125,000 in 2012 and $25,000 thereafter.

Charitable

Several temporary provisions designed to support charitable giving have been included in previous tax extender packages. The provisions expanding the enhanced charitable deductions for contributions of food and book inventory were enacted as relief provisions following Hurricane Katrina. Amongst the charitable provisions, allowing for tax-free distributions from IRAs for the purpose of charitable donations has the largest revenue cost. The retroactive extension from 2009 through 2011, enacted as part of the Tax Relief Act of 2010, was estimated to cost $1 billion in terms of foregone tax revenues.

Energy

Several of the temporary energy-related tax provisions that are scheduled to expire at the end of 2011 were first enacted as part of the Energy Policy Act of 2005 (EPACT05; P.L. 109-58). These include the credit for construction of energy efficient new homes, the credit for energy efficient appliances, and the credit for nonbusiness energy property (also known as the tax credit for energy efficiency improvements for existing homes). Certain tax incentives for alternative technology vehicles and alternative fuel vehicle refueling property were also included in EPACT05. Since first being enacted in 2005, these temporary incentives have been extended and often modified.

The majority of revenue losses attributable to energy-related provisions in the Tax Relief Act of 2010 came from three provisions: incentives for biodiesel and renewable diesel, incentives for alcohol fuels, and grants in lieu of tax credits for renewable energy property. The retroactive extension for biodiesel and renewable diesel incentives through 2011, which had been allowed to expire at the end of 2009, resulted in an estimated revenue loss of nearly $2.0 billion. A one-year extension of the tax incentives for alcohol fuels (primarily, ethanol) resulted in an estimated revenue loss of $4.9 billion, while a one-year extension of the Section 1603 grants in lieu of tax credit program cost an estimated $3.0 billion.

Community Development

Several provisions designed to promote community development are also scheduled to expire at the end of 2011. Qualified zone academy bonds are tax credit bonds available to state and local governments for elementary and secondary school renovation, equipment, teacher training, and course materials. New markets tax credits (NMTC) are designed to promote investment in low-income and impoverished communities. Tax incentives are also available to encourage economic activity in empowerment zones, the District of Columbia and in American Samoa.

Disaster Relief Provisions

A number of temporary disaster-related provisions are also scheduled to expire at the end of 2011. They include provisions designed to help redevelopment of the New York Liberty Zone, the Gulf Opportunity (GO) Zone, as well as provisions to provide relief following the Midwestern storms and Hurricane Ike in 2008.

List of all Tax Provisions Expiring at the end of 2011

Payroll Tax Cut

  • Two Percentage Point Payroll Tax Reduction

Alternative Minimum Tax

  • Increased AMT Exemption Amount

Individual Provisions

  • Deduction for Certain Expenses of Elementary and Secondary School Teachers
  • Deduction for State and Local Sales Taxes
  • Above-the-Line Deduction for Qualified Tuition and Related Expenses
  • Estate Tax Look-Through for Certain Regulated Investment Company (RIC) Stock Held by Nonresidents
  • Premiums for Mortgage Insurance Deductible as Qualified Interest
  • Parity for Exclusion for Employer-Provided Mass Transit and Parking Benefits
  • Disclosure of Prisoner Return Information to Certain Prison Officials
  • Treatment of Military Basic Housing Allowances under Low-Income Housing Credit
  • Expansion of Adoption Credit and Adoption Assistance Programs

Business Provisions

  • Tax Credit for Research and Experimentation Expenses
  • Temporary Increase in Limit on Cover Over of Rum Excise Tax Revenues to Puerto Rico and the Virgin Islands
  • Expensing of Brownfield Environmental Remediation Costs
  • Work Opportunity Tax Credit
  • Indian Employment Tax Credit
  • Accelerated Depreciation for Business Property on Indian Reservations
  • Exceptions under Subpart F for Active Financing Income
  • Look-Through Treatment of Payments Between Controlled Foreign Corporations under the Foreign Personal Holding Company Rules
  • Credit for Railroad Track Maintenance
  • 15-Year Straight-Line Cost Recovery for Qualified Leasehold, Restaurant,and Retail Improvements
  • 7-Year Recovery for Motorsport Racing Facilities
  • Deduction Allowable with Respect to Income Attributable to Domestic Production Activities in Puerto Rico
  • Modification of Tax Treatment of Certain Payments to Controlling Exempt Organizations
  • Treatment of Certain Dividends of Regulated Investment Companies (RICs) Employer Wage Credit for Activated Military Reservists
  • Special Expensing Rules for Film and Television Production
  • RIC Qualified Investment Entity Treatment under FIRPTA
  • Special Rules for Qualified Small Business Stock
  • Additional First-Year Depreciation for 100% of Basis of Qualified Property
  • Increase in Expensing to $500,000/$2,000,000 and Expansion of Definition of Section 179 Property
  • Reduction in S Corporation Recognition Period for Built-In Gains Tax

Charitable Provisions

  • Enhanced Charitable Deduction for Corporate Contributions of Computer Equipment for Educational Purposes
  • Enhanced Charitable Deduction for Contributions of Food Inventory
  • Enhanced Charitable Deduction for Contributions of Book Inventory to Public Schools
  • Tax-Free Distributions From Individual Retirement Accounts for Charitable Purposes
  • Basis Adjustment to Stock of S Corporations Making Charitable Contributions of Property
  • Special Rules for Contributions of Capital Gain Real Property for Conservation Purposes

Energy Provisions

  • Suspension of 100%-of-Net-Income Limitation on Percentage Depletion for Oil and Gas from Marginal Wells
  • Special Rule to Implement Electric Transmission Restructuring
  • Credit for Construction of Energy Efficient New Homes
  • Placed-in-Service Date for Refined Coal Production Facilities
  • Mine Rescue Team Training Credit
  • Election to Expense Mine-Safety Equipment Credit for Energy Efficient Appliances
  • Credit for Nonbusiness Energy Property
  • Alternative Fuel Vehicle Refueling Property
  • Incentives for Alternative Fuel and Alternative Fuel Mixtures
  • Incentives for Biodiesel and Renewable Diesel
  • Incentives for Alcohol Fuels
  • Grants for Specified Energy Property in Lieu of Tax Credits
  • Credit for Electric Drive Motorcycles, Three-Wheeled, and Low-Speed Vehicles
  • Conversion Credit for Plug-In Electric Vehicles

Community Assistance Provisions

  • Qualified Zone Academy Bonds - Allocation of Bond Limitation
  • New Markets Tax Credit
  • American Samoa Economic Development Credit
  • Tax Incentives for Investment in the District of Columbia
  • Empowerment Zone Tax Incentives

Disaster Relief Provisions

  • New York Liberty Zone - Tax Exempt Bond Financing
  • Tax-Exempt Bond Financing for the Gulf Opportunity (GO) Zone
  • Low-Income Housing Credit Additional Credit for the GO Zone
  • Placed-in-Service Date for Additional Depreciation for specified GO Zone Extension Property
  • Increase in Rehabilitation Credit for Structures Located in the GO Zone
  • Increase in Rehabilitation Credit for Areas Damaged by the 2008 Midwestern Storms
  • Tax-Exempt Bond Financing for Areas Damaged by the 2008 Midwestern Storms
  • Tax-Exempt Bond Financing for Areas Damaged by Hurricane Ike in 2008