By Martha Waggoner, for the Journal of Accountancy
The House on Wednesday passed a roughly $78 billion tax bill that contains provisions making changes to restrict the employee retention credit (ERC), expand eligibility for the child tax credit (CTC), and temporarily reinstate the expensing of research or experimental (R&E) expenditures. It also restores tax breaks for companies from the law known as the Tax Cuts and Jobs Act, P.L. 115-97, that have expired or would expire in the coming years.
The House passed the bill, The Tax Relief for American Families and Workers Act of 2024, H.R. 7024, in a 357–70 vote after House Speaker Mike Johnson, R-La., said he supported the legislation. It now moves to the Senate, where it has support from Finance Committee Chair Ron Wyden, D-Ore., and Majority Leader Chuck Schumer, D-N.Y., among others.
The top line items include a bar on additional claims for the ERC as of Jan. 31, 2024; the deadline under current law is April 15, 2025. According to the Joint Committee on Taxation, the bill has $77.5 billion in added costs that would be partially offset by $77.1 billion in savings from the revised ERC filing deadline.
It also includes various other enforcement provisions related to the ERC, including extending the statute of limitation on assessment for the ERC to from five years to six years from the date of the claim, defining who qualifies as a "COVID-ERTC promoter," and increasing certain penalties and reporting requirements for those who are COVID-ERTC promoters.
The bill would define a COVID-ERTC promoter as a person who aids, assists, or advises on an affidavit, refund, claim, or other document related to the ERC if the person charges fees based on the amount of the credit (sometimes called a contingency fee) or meets a gross receipts test as defined in the law. The bill would:
- Increase the penalty on a COVID-ERTC promoter for aiding and abetting the understatement of a tax liability to the greater of $200,000 ($10,000 in the case of a natural person) or 75% of the gross income of the ERC promoter derived (or to be derived) from providing aid, assistance, or advice with respect to a return or claim for ERC refund or a document relating to the return or claim.
- Require a COVID-ERTC promoter to comply with due-diligence requirements (similar to the due-diligence requirements applying to paid tax return preparers) with respect to a taxpayer's eligibility for (or the amount of) an ERC, and the bill applies a $1,000 penalty for each failure to comply with the requirements.
- Require a COVID-ERTC promoter to file return disclosures and provide lists of clients to the IRS on request similar to those that material advisers are required to provide with respect to listed transactions and to make available at the IRS's request lists of advice recipients with respect to such transactions.
Child tax credit
For the Sec. 24 CTC, the bill increases the maximum refundable amount per child to $1,800 in tax year 2023, up from the current $1,600 per child. The amount increases to $1,900 in tax year 2024 and $2,000 in tax year 2025 and includes inflation adjustments for those two years.
The bill would also change how the CTC is calculated. Under current law, taxpayers compute the amount by multiplying their earned income (in excess of $2,500) by 15%. The bill calls for the same percentage but allows taxpayers to multiply that amount by the number of children. This change would be effective for tax years 2023, 2024, and 2025.
In tax years 2024 and 2025, taxpayers would be able to choose to use their earned income from the prior tax year to calculate their maximum child credit if that income was higher in the prior year.
This is a partial restoration of the CTC expansion that was available during the pandemic and then expired. That expansion was credited with significantly cutting child poverty.
Tax breaks for businesses
R&E costs: The bill would amend Sec. 174 to delay when taxpayers must begin deducting their domestic R&E costs over a five-year period to tax years beginning after Dec. 31, 2025, from the current Dec. 31, 2021. That means taxpayers could deduct currently domestic R&E costs that are paid or incurred in tax years beginning after Dec. 31, 2021, and before Jan. 1, 2026.
Business interest limitation: Before 2022, the computation of adjusted taxable income (ATI) for purposes of the business interest deduction limitation was made without regard to any deduction for allowable depreciation, amortization, or depletion. The bill would amend Sec. 163 to extend that treatment through 2025.
Bonus depreciation: The bill would extend Sec. 168 100% bonus depreciation for qualified property placed in service after Dec. 31, 2022, and before Jan. 1, 2026 (Jan. 1, 2027, for longer production period property and certain aircraft) and for specified plants planted or grafted after Dec. 31, 2022, and before Jan. 1, 2026. Currently, bonus depreciation has started phasing out (by 20% per year) for property placed in service and for specified plants planted or grafted after Dec. 31, 2022 (Dec. 31, 2023, for longer production period property and certain aircraft).
Sec. 179 expensing: The bill would also increase the Sec. 179 limitation amounts. Under the bill, the maximum amount a taxpayer could expense under Sec. 179 would be $1.29 million, reduced by the amount by which the cost of the qualifying property exceeds $3.22 million. Those amounts would be adjusted for inflation after 2024. (They were $1.16 million and $2.89 million, respectively, in 2023.)
Other provisions: Other areas covered by the bill include low-income housing, relief in specific communities hurt by disasters; an increase in the threshold for information reporting on Forms 1099-NEC, Nonemployee Compensation, and 1099-MISC, Miscellaneous Information; and the end of double taxation between the United States and Taiwan if Taiwan reciprocates with a similar change.
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