The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2021 and the lease inclusion amounts for business vehicles first leased in 2021.

The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2021 and the lease inclusion amounts for business vehicles first leased in 2021.

Luxury Passenger Car Depreciation Caps
The luxury car depreciation caps for a passenger car placed in service in 2021 limit annual depreciation deductions to:

• $10,200 for the first year without bonus depreciation
• $18,200 for the first year with bonus depreciation
• $16,400 for the second year
• $9,800 for the third year
• $5,860 for the fourth through sixth year

Depreciation Caps for SUVs, Trucks and Vans
The luxury car depreciation caps for a sport utility vehicle, truck, or van placed in service in 2021 are:

• $10,200 for the first year without bonus depreciation
• $18,200 for the first year with bonus depreciation
• $16,400 for the second year
• $9,800 for the third year
• $5,860 for the fourth through sixth year

Excess Depreciation on Luxury Vehicles
If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.

The annual cap for this excess depreciation is:

• $5,860 for passenger cars and
• $5,860 for SUVS, trucks, and vans.

Lease Inclusion Amounts for Cars, SUVs, Trucks and Vans
If a vehicle is first leased in 2021, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:

• $51,000 for a passenger car, or
• $51,000 for an SUV, truck or van.

The 2021 lease inclusion tables provide the lease inclusion amounts for each year of the lease.

The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.

Vehicles Exempt from Depreciation Caps and Lease Inclusion Amounts
The depreciation caps and lease inclusion amounts do not apply to:

• cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
• SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.

So taxpayers who want to avoid these limits should "think big."

The IRS has issued guidance for employers claiming the employee retention credit under Code Sec. 3134, enacted by section 9651 of the American Rescue Plan Act of 2021 (ARP), P.L. 117-2, which provides a credit for wages paid after June 30, 2021, and before January 1, 2022. The guidance amplifies previous notices which addressed the employee retention credit under section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136, as amended by sections 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, P.L. 116-260.

The IRS has issued guidance for employers claiming the employee retention credit under Code Sec. 3134, enacted by section 9651 of the American Rescue Plan Act of 2021 (ARP), P.L. 117-2, which provides a credit for wages paid after June 30, 2021, and before January 1, 2022. The guidance amplifies previous notices which addressed the employee retention credit under section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136, as amended by sections 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, P.L. 116-260.

In general, eligible employers can claim a refundable employee retention credit against the employer share of Social Security tax equal to 70 percent of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021. Under Code Secs. 3134(a) and (b)(1)(A), these limits continue to apply in the third and fourth calendar quarters in 2021.

The guidance explains changes made to the employee retention credit for the third and fourth calendar quarters of 2021, including:

• making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022;
• expanding the definition of eligible employer to include "recovery startup businesses";
• modifying the definition of qualified wages for "severely financially distressed employers"; and
• providing that the credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP.

The guidance also provides guidance on several miscellaneous issues with respect to the employee retention credit for both 2020 and 2021, including:

• the definition of full-time employee and whether that definition includes full-time equivalents;
• the treatment of tips as qualified wages and the interaction with the Code Sec. 45B credit;
• the timing of the qualified wages deduction disallowance and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return; and
• whether wages paid to majority owners and their spouses may be treated as qualified wages.

Highlights of some of the items addressed in the guidance are summarized below.

Recovery Startup Businesses
A separate credit limit under Code Sec. 3134(b)(1)(B) applies to "recovery startup businesses." A "recovery startup business" is an employer (i) that began carrying on any trade or business after February 15, 2020; (ii) for which the average annual gross receipts of the employer for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the credit is determined does not exceed $1,000,000; and (iii) that is not otherwise an eligible employer due to a full or partial suspension of operations or a decline in gross receipts. For an eligible employer that is a recovery startup business, the amount of the credit allowed under Code Sec. 3134(a) (after application of the limit under Code Sec. 3134(b)(1)(A)) for each of the third and fourth calendar quarters of 2021 cannot exceed $50,000.

The determination of when a recovery startup business "began carrying on a trade or business" is made in the same manner as for purposes of Code Sec. 162. It is appropriate for the term "qualified wages" to include wages paid by a recovery startup business. In the third and fourth calendar quarters of 2021, a recovery startup business that is a small eligible employer may treat all wages paid with respect to an employee during the quarter as qualified wages. Whether an employer is a recovery startup business is determined separately for each calendar quarter.

Qualified Wages
The rules in Notice 2021-20 for determining the average number of full-time employees continue to apply in the third and fourth calendar quarters of 2021. However, Code Sec. 3134(c)(3)(C) provides a different rule for qualified wages paid by "severely financially distressed employers." For the third and fourth calendar quarters of 2021, an eligible employer with gross receipts that are less than 10 percent of the gross receipts for the same calendar quarter in calendar year 2019 (or 2020, if the employer was not in existence in 2019) is a severely financially distressed employer.

Further, the rules for determining whether an employer is an eligible employer based on a decline in gross receipts also apply, in the third and fourth calendar quarters of 2021, for determining whether an eligible employer is a severely financially distressed employer based on the 10 percent threshold. For the third and fourth calendar quarters of 2021, a severely financially distressed employer that is a large eligible employer may treat all wages paid to its employees during the quarter in which the employer is considered severely financially distressed as qualified wages.

Claiming the Credit
Notice 2021-20 and Notice 2021-23 set forth the rules for claiming the employee retention credit in 2020 and the first and second calendar quarters in 2021, respectively. These rules, including the rules pertaining to claiming an advance and relevant limitations, continue to apply for the third and fourth quarters in 2021.

Reporting
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (Form 941) for the applicable period. If a reduction in the employer's employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Effect on Other Documents
Notice 2021-20, I.R.B. 2021-11, 922 and Notice 2021-23, I.R.B. 2021-16, 1113, are amplified.

The Treasury and IRS have provided an optional safe harbor allowing employers to exclude the following amounts from their gross receipts solely for determining eligibility for the employee retention credit.

The Treasury and IRS have provided an optional safe harbor allowing employers to exclude the following amounts from their gross receipts solely for determining eligibility for the employee retention credit:

• the amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
• the amount of any Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
• the amount of any Restaurant Revitalization Grants under the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2).

Certain employers may be eligible for an employee retention credit against applicable federal employment taxes if their gross receipts for a calendar quarter decline by a certain percentage as compared to a prior calendar quarter. For most employers, gross receipts are defined by Code Sec. 448(c). For tax-exempt employers, gross receipts are defined by Code Sec. 6033.

Applying Safe Harbor Consistently
Employers must apply the safe harbor consistently in order to exclude these amounts from gross receipts for determining employee retention credit eligibility. An employer consistently applies the safe harbor by:

• excluding these amounts from its gross receipts for each calendar quarter in which gross receipts are relevant to determining eligibility to claim the employee retention credit; and
• applying the safe harbor to all employers treated as a single employer under the aggregation rules.

An employer must also retain in its records substantiating support for the credit claimed, including the use of the safe harbor.

If an employer revokes its safe harbor election, it must adjust all employment tax returns affected by the revocation.

Claiming the Employee Retention Credit
Employers claim the employee retention credit on their employment tax return, generally Form 941, Employers Quarterly Federal Tax Return, or on an adjusted employment tax return, generally Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. An employer is not required to apply the safe harbor.

The safe harbor does not permit the exclusion of these amounts from gross receipts for any other federal tax purpose.

Effect on Other Documents
This guidance updates and amplifies Notice 2021-20, I.R.B. 2021-11, 922, Notice 2021-23, I.R.B. 2021-16, 1113, and Notice 2021-49, I.R.B. 2021-34.

The IRS issued transition relief for certain employers claiming the Work Opportunity Tax Credit (WOTC) under Code Sec. 51. This would apply for certain employees beginning work after December 31, 2020, in response to legislation permitting the designation of an Empowerment Zone under Code Sec. 1393(b) to be extended from December 31, 2020, through December 31, 2025. Specifically, section IV of this notice provides transition relief by extending the 28-day deadline for employers to request certification from a designated local agency that an individual who begins work on or after January 1, 2021, and before October 9, 2021, is a member of the Designated Community Resident targeted group or the Qualified Summer Youth Employee targeted group.

The IRS issued transition relief for certain employers claiming the Work Opportunity Tax Credit (WOTC) under Code Sec. 51. This would apply for certain employees beginning work after December 31, 2020, in response to legislation permitting the designation of an Empowerment Zone under Code Sec. 1393(b) to be extended from December 31, 2020, through December 31, 2025. Specifically, section IV of this notice provides transition relief by extending the 28-day deadline for employers to request certification from a designated local agency that an individual who begins work on or after January 1, 2021, and before October 9, 2021, is a member of the Designated Community Resident targeted group or the Qualified Summer Youth Employee targeted group.

Additional Time to Submit Form 8850
The IRS stated that employers may need additional time to comply with the certification requirements of Code Sec. 51(d)(13)(A)(ii). Because the termination dates designated in Empowerment Zone nominations are not automatically extended until after the deadline in Rev. Proc. 2021-18, I.R.B. 2021-15 for submitting a written declination has passed, employers that hired an individual who is a Designated Community Resident or a Qualified Summer Youth Employee and who began work for that employer on or after January 1, 2021, may not have submitted Form 8850 to the designated local agency within 28 days of the individual beginning work. To be eligible for the relief provided by this notice, an employer that did not submit Form 8850 to the DLA within 28 days of an individual beginning work must submit the completed Form 8850 to the DLA.

An employer that hires an individual who is a Designated Community Resident or a Qualified Summer Youth Employee and who begins work for the employer on or after October 9, 2021, is not eligible for the transition relief described in this notice with respect to that new employee.

Effective Date
The effective date of this notice is August 10, 2021

The U.S. Small Business Administration ( SBA) is launching a streamlined application portal to allow certain borrowers to apply for Paycheck Protection Program (PPP) Loan forgiveness directly through the SBA. The SBA also is explaining why it discontinued use of Loan Necessity Questionnaires for PPP borrowers.

The U.S. Small Business Administration ( SBA) is launching a streamlined application portal to allow certain borrowers to apply for Paycheck Protection Program (PPP) Loan forgiveness directly through the SBA. The SBA also is explaining why it discontinued use of Loan Necessity Questionnaires for PPP borrowers.

PPP Direct Forgiveness Portal
The SBA announced that it is launching a streamlined application portal to allow borrowers with PPP loans $150,000 or less through participating lenders to apply for forgiveness directly through the SBA. The new forgiveness platform will begin accepting applications from borrowers on August 4th, 2021.

In addition to the technology platform, the SBA is setting up a PPP customer service team to answer questions and directly assist borrowers with their forgiveness applications. Borrowers that need assistance or have questions should call (877) 552-2692, Monday to Friday, 8 a.m.-8 p.m. EST. More information on the PPP direct forgiveness portal is available at https://www.sba.gov/article/2021/jul/28/sba-announces-opening-paycheck-protection-program-direct-forgiveness-portal.

Loan Necessity Questionnaires
In updated FAQs, the SBA has explained why it discontinued use of the Loan Necessity Questionnaire. According to Treasury, based on the results of loan reviews that it has completed thus far, the SBA believes audit resources will be more efficiently deployed across all loans if the loan necessity questionnaire is discontinued. The loan necessity reviews, including the review of the borrower’s completed Loan Necessity Questionnaire, are lengthy and have caused delays beyond the 90-day statutory timeline for forgiveness, thus negatively impacting those borrowers that made their loan necessity certification in good faith. For these reasons, SBA is discontinuing any reliance on the Loan Necessity Questionnaires.

The Loan Necessity Questionnaires (SBA Forms 3509 and 3510) were used to facilitate the collection of supplemental information that would be used by SBA loan reviewers to evaluate the good faith certification made by PPP borrowers on their loan application that economic uncertainty made the loan request necessary to support ongoing operations. Each borrower, that together with its affiliates, received PPP loans with an original principal amount of $2 million or greater was required to complete the form. In July, the SBA said it would no longer request either version of the Loan Necessity Questionnaire. In addition, Loan Necessity Questionnaires previously requested by the SBA are no longer required to be submitted.

The IRS stated that families should use the Child Tax Credit (CTC) Update Portal to confirm their eligibility for the payments. If eligible, the tool also indicates whether taxpayers are enrolled to receive their payments by direct deposit. More information can be found at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

The IRS stated that families should use the Child Tax Credit (CTC) Update Portal to confirm their eligibility for the payments. If eligible, the tool also indicates whether taxpayers are enrolled to receive their payments by direct deposit. More information can be found at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

Direct Deposit
For taxpayers currently using direct deposit, the tool will list the full bank routing number and the last four digits of their account number. This account is where the IRS sent their payments so far and will continue to do so. If necessary, the account can now be changed starting with the September 15 payment.

Monthly Payments
Eligible families for monthly payments include those who (1) filed either a 2019 or 2020 federal income tax return; (2) used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment; and (3) registered for the advance CTC this year using the new Non-Filer Sign-Up Tool on IRS.gov. The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of (1) $75,000 or less for singles; (2) $112,500 or less for heads of household; and (3) $150,000 or less for married couples filing a joint return and qualified widows and widowers.

The American Rescue Plan (ARP) ( P.L. 117-2) raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child.

The IRS provided additional guidance on the application of the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2) relating to temporary premium assistance for Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation coverage. This notice supplements Notice 2021-31, I.R.B. 2021-23, and addresses additional issues.

The IRS provided additional guidance on the application of the American Rescue Plan Act of 2021 (ARP) (P.L. 117-2) relating to temporary premium assistance for Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation coverage. This notice supplements Notice 2021-31, I.R.B. 2021-23, and addresses additional issues.

Eligibility
The IRS noted that if the original qualifying event was a reduction in hours or an involuntary termination of employment, COBRA premium assistance is available to an individual entitled to elect COBRA continuation coverage for an extended period due to a disability determination, second qualifying event, or an extension under State mini-COBRA. This should fall under the extended period of coverage between April 1, 2021 and September 30, 2021, even if the taxpayer had not notified the plan or insurer of the intent to elect extended COBRA continuation coverage before the start of that period.

Next, the eligibility ends when the taxpayer becomes eligible for coverage under any other disqualifying group health plan or Medicare. This includes the other coverage not including all of the benefits provided by the previously elected COBRA continuation coverage.

Finally, if a plan (other than a multiemployer plan) subject to Federal COBRA covers employees of two or more members of a controlled group, each common law employer that is a member of the controlled group is the premium payee entitled to claim the COBRA premium assistance credit with respect to its employees or former employees.

The foreign tax credit did not apply against the net investment income tax (NIIT). The structure of the Internal Revenue Code made the credit inapplicable to the NIIT, and tax treaties did not override that fact.

The foreign tax credit did not apply against the net investment income tax (NIIT). The structure of the Internal Revenue Code made the credit inapplicable to the NIIT, and tax treaties did not override that fact.

Under Code, Foreign Tax Credit Did Not Apply to NIIT
The foreign tax credit is in chapter 1, subtitle A of the Code, and it expressly applies only against taxes imposed by chapter 1. However, the NIIT is in chapter 2A. Thus, the credit does not apply against the NIIT. Although Reg. §1.1411-1(a) provides that all Code provisions that apply to the determination of taxable income under chapter 1 also apply to the NIIT, tax credits are not taken into account in determining taxable income. In fact, Reg. §1.1411-1(e) explicitly provides that credits against the tax imposed by chapter 1, including the foreign tax credit, are not allowed against the NIIT unless specifically provided by the Code.

Tax Treaties Did Not Override Code
Provisions in the U.S.-France and U.S.-Italy tax treaties that provided a foreign tax credit against U.S. income tax also did not provide an independent foreign tax credit against the NIIT. Although the treaties were intended to limit double taxation, they were expressly subject to the provisions and limitations of the Code. Thus, any allowable foreign tax credit had to be determined in accordance with the Code, and was limited by the Code’s provision of a credit. Although the taxpayer claimed that the Code was silent as to whether there was a foreign tax credit against the NIIT, the placement of the NIIT in chapter 2A made the foreign tax credit inapplicable. The creation of a new chapter for the NIIT was not happenstance or a mere clerical choice; rather, it was a deliberate decision by Congress and part of the Code’s fundamental structure.

No Summary Judgment on Penalty
Finally, issues of material fact precluded summary judgement as to the taxpayer’s liability for the penalty for failing to pay tax shown due on a return. She reported zero tax due on her Form 1040, though she did show the correct amount of the NIIT on her attached Form 8060, Net Investment Income Tax. Even if her Form 8960 constituted a return, the taxpayer argued that she had reasonable cause for her failure to pay because when she filed her return, she included a disclosure that she was claiming the foreign tax credit against the NIIT.

A missing or unknown federal gift tax return could constitute reasonable cause for the late filing of an estate tax return.

A missing or unknown federal gift tax return could constitute reasonable cause for the late filing of an estate tax return.

To understand the appropriate steps to take after the decedent’s death, the executor was in contact with the decedent’s tax preparer, a family office service, and an attorney. Several months after the decedent’s death, the attorney advised that no estate tax return needed to be filed because the gross estate was below the basic exclusion amount for the year of death. Nearly two years after the decedent’s death, the decedent’s son, who had not been involved in the estate preparation and administration, indicated that various trusts might have been created. The attorney asked the tax preparer about the trusts and the tax preparer provided a gift tax return reporting gifts to the trusts. The amount of the gifts put the estate over the threshold amount for an estate tax return.

Complaint Established Reasonable Cause
Calling the government’s argument circular, the court concluded that it would not dismiss the complaint based on the position that the attorney’s advice on whether to file an estate tax return was objectively unreasonable. If the court sided with the government on this point, missing information could never constitute reasonable cause because the advice would never be based on all pertinent facts and circumstances. Relying on the complaint alone, the court could not decide whether the attorney’s investigation constituted reasonable due diligence.

The executor is ultimately responsible for providing all of the information available to prepare a tax return. In this case, the question of whether the executor acted reasonably was dependent on the availability of the missing gift tax return. Absent more information from the tax preparer about the gift tax return, the complaint could not be dismissed.

Hopes for a pre-election resolution to the fate of the Bush-era tax cuts, extenders and other tax incentives are quickly fading as summer approaches.  This year is increasingly looking like a replay of 2010, the last time the Bush-era tax cuts were facing imminent expiration.  The White House, the Democratic-controlled Senate and the GOP-controlled House all have different opinions on the fate of these tax incentives and negotiations, which have been few and far between, and have quickly bogged down.  One solution, which is being talked about more and more, is a temporary extension of the tax cuts.  While this would punt the issue to the next Congress, it does little to ease taxpayers’ concerns about tax planning in a climate of constant uncertainty.

Hopes for a pre-election resolution to the fate of the Bush-era tax cuts, extenders and other tax incentives are quickly fading as summer approaches.  This year is increasingly looking like a replay of 2010, the last time the Bush-era tax cuts were facing imminent expiration.  The White House, the Democratic-controlled Senate and the GOP-controlled House all have different opinions on the fate of these tax incentives and negotiations, which have been few and far between, and have quickly bogged down.  One solution, which is being talked about more and more, is a temporary extension of the tax cuts.  While this would punt the issue to the next Congress, it does little to ease taxpayers’ concerns about tax planning in a climate of constant uncertainty.

Bush-era tax cuts

Unless extended, the tax cuts in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) (as extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010) will sunset after December 31, 2012.  The list of expiring tax incentives is long and includes reduced individual income tax rates and capital gains/dividends tax rates; the $1,000 child tax credit; enhancements to the earned income tax credit (EIC); and much more.

On May 15, House Speaker John Boehner, R-Ohio, said that the House will vote before the November elections on legislation to extend the Bush-era tax cuts.  Boehner gave no timetable for a vote.  It is unclear at this time if the GOP plans to vote on making the Bush-era tax cuts permanent or merely to extend them one or two more years. Also unclear is whether or not any extension would be offset with revenue raisers elsewhere.  Even if the House votes on the tax cuts, there is no guarantee the Senate will take them up.

Complicating matters is the federal budget deficit.  After months of partisan wrangling last year, Congress passed the Budget Control Act of 2011 (BCA).  The BCA imposes mandatory, across-the-board spending cuts through sequestration.  The BCA’s spending cuts are scheduled to take effect in 2013.  The GOP wants to repeal the BCA and on May 10, the House approved legislation to effectively do that.  The GOP bill has no chance of passage in the Democratic-controlled Senate.  So the BCA remains, for now, law.

Few Capitol Hill observers expect Congress to take any meaningful action on the Bush-era tax cuts before the November elections. This leaves the fate of the Bush-era tax cuts to the lame duck Congress.  Depending on the outcome of the November elections, the lame duck Congress could do nothing and allow the Bush-era tax cuts to expire, make the tax cuts permanent, or – and this appears to be the most likely scenario – extend the tax cuts for one year. Either way, the uncertainty complicates tax planning for 2012 and beyond.

Small businesses

Lawmakers are also dueling over competing small business tax bills. The House has approved the GOP-sponsored Small Business Tax Cut Act.  The GOP bill would, among other provisions, provide a deduction for 20 percent of qualified domestic business income of the taxpayer for the tax year, subject to limitations. In the Senate, the Democrats’ small business bill would give a 10 percent income tax credit to small employers that increase wages or create jobs in 2012 and extend 100 percent bonus depreciation through 2012 (which had expired at the end of 2011).   If the Senate approves the Democratic bill, the two chambers could iron-out the differences in the bills in conference.

Tax extenders

Since January, supporters of the tax extenders have tried several times, all unsuccessfully, to attach the extenders to other bills.  Some of the extenders were initially attached to the Middle Class Tax Relief and Job Creation Act of 2012, which extended the employee-side payroll tax cut for all of calendar year 2012, but were subsequently dropped. Supporters also tried to include many of the extenders, especially energy-related tax incentives, to the Senate’s highway funding bill: the Moving Ahead for Progress in the 21st Century (MAP-21) Act.  At the last minute, the extenders were removed from the Senate bill.

A drag on the extenders is their estimated cost to the federal budget.  According to the Congressional Research Service, renewing all of the extenders for 2012 would cost $35 billion. This is one reason why supporters have tried to move only some of the extenders.  There have also been calls in Congress to let some of the extenders expire permanently; but every extender has its supporter.

Federal estate tax

Another big question mark hovers over the federal estate tax.  Unless Congress acts, the federal estate tax is schedule to revert to its pre-EGTRRA levels (a top tax rate of 55 percent with a $1 million exclusion).  In 2010, the White House and the GOP agreed on a top tax rate of 35 percent with a $5 million exclusion (indexed for inflation) for decedents dying in 2011 and 2012 (special rules applied to decedents dying in 2010).  The GOP has proposed to eliminate the estate tax entirely or, if not abolished, to retain the 35/$5 million amounts for decedents dying after 2012; the White House has proposed to reduce the exclusion amount to $3.5 million. 

Our office will monitor developments and keep you posted of any changes. If you have any questions about legislative developments, please contact our office.