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Provisions in the Senate's Tax Cut Extension Bill
IRC 1367(a)(2) basis adjustment to stock of S corporations making contributions to charity is one of many expired and expiring temporary deductions that may also be extended through 2011 by the bill.

December 2010
by Journal of Accountancy staff

Senate Majority Leader Harry Reid, D-Nev., introduced legislation late Thursday that would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, and extend a number of expired provisions, as well as extending unemployment benefits. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Senate Amendment 4755 to HR 4853, incorporates elements of the deal struck by congressional and Obama administration negotiators on December 6, but also incorporates many provisions that were not reported to be part of that deal.

The bill has provisions from four of the five tax areas that were considered to be important for Congress to address during its current “lame duck” session: the estate tax, expiring tax cuts, expired tax provisions, and an alternative minimum tax (AMT) patch. The bill as introduced does not address the expanded Form 1099 reporting requirements.

In 2001, when Congress enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107 – 16), it included a sunset provision, under which most EGTRRA changes would expire after 2010. This was designed to keep the costs of the bill small enough to ensure widespread support in Congress. HR 4853 would amend EGTRRA to postpone that sunset until after 2012.

Reid will reportedly seek to file a cloture motion on the bill on Monday. This would clear the way for a vote on the bill in the Senate. The bill’s prospects in the House of Representatives are unclear because on December 9, House Democrats voted to oppose consideration of any tax bill based on the deal struck on December 6.

Extension of EGTRRA Tax Cuts

The EGTRRA introduced a new 10 percent tax bracket for individuals and reduced the tax brackets above the 15 percent bracket to 25 percent, 28 percent, 33 percent and 35 percent. Those changes were scheduled to sunset after 2010, so that in 2011 the 10 percent rate would disappear (with income in that bracket reverting to the 15% bracket) and the other rates would revert to 28 percent, 31 percent, 36 percent and 39.6 percent, respectively. With the bill’s postponement of the EGTRRA sunset, those rates would continue through 2012.

The EGTRRA also lowered the capital gains tax rate to 15 percent (0% for taxpayers in the 10% and 15% tax brackets), which is also scheduled to expire after 2010. The bill’s postponement of the EGTRRA sunset would continue the lowered capital gains tax rate through 2012.

The EGTRRA’s repeal of the itemized deduction phase-out and the personal exemption phase-out also sunset in 2011, but would be extended by the bill for two years.

For 2011 only, the legislation would also reduce the rate for the Social Security portion of payroll taxes to 10.4 percent by reducing the employee rate from 6.2 percent to 4.2 percent (the employer’s portion remains at 6.2%).

This article has been excerpted from the Journal of Accountancy. View the full article here.