Don’t hold up tax returns for extenders bill

The Tax Relief for American Families and Workers Act of 2024, which passed in the House with a bipartisan vote, is now before the Senate. It contains taxpayer-favorable alterations to the Child Tax Credit and a trio of lapsed business provisions: bonus depreciation, research and experimental expenditures, and the business interest deduction limitation, among other items. 

“It’s pretty much now or never for the Act,” said Kasey Pittman, tax policy director for the Washington Tax Council of Top 10 Firm Baker Tilly. “Many provisions contained in this bill are retroactive, affecting 2023 and, in some case, 2022 tax years, which gives the Senate a very tight window to pass this legislation in its current form.”

“Any significant delay would make the implementation extremely difficult,” she noted. “While the resounding bipartisan vote in the House certainly put pressure on the Senate to pass the compromise quickly, passage remains far from certain.”

The changes being made to the Child Tax Credit are relatively modest, according to Pittman: “However, they are expected to have a substantial impact on low-income families, who may see an increase in their refunds.”

“The trio of business provisions that would alter the treatment of business interest expense, bonus depreciation and research and experimental costs are significant for business owners,” she added. “The business interest provision will provide some relief to companies who have experienced not only reduced deductibility under current law, but a rapid increase in interest rates over the last couple of years.”

The bill instructs the Treasury to recalculate the CTC for early 2023 filers based on the information they have provided with their return, and to issue refunds as applicable “as expeditiously as possible.”

IRS Commissioner Danny Werfel came out last week and told taxpayers not to hold their tax returns for Congress to act on the bill, Pittman observed: “They want taxpayers to go ahead and file them. The people who are likely to get additional refunds based on the changes to the credit are probably filing and getting refunds anyway, so they may not want to hold up their filings for the bill to pass just in order to get that additional refund.”

The research and experimental expenditures provision in the bill is retroactive to 2022, since the old treatment sunset at the end of 2021.

“This obviously creates some issues,” Pittman said. “Everybody’s 2022 return should have been long filed at this point, the authors of the bill recognized that, and they have provided some transition rules, one of which is that taxpayers will be eligible for a catch-up adjustment for those 2022 returns that have been filed where the research and experimental expenditures are amortized. So it won’t necessitate a 2022 amendment, which is probably a net positive for everybody.”

The business interest calculation will change under the act, Pittman noted. “It will give taxpayers the option to either go with an EBIT calculation that they’ve already filed for 2022 and for 2023, or to switch to the generally more taxpayer-favorable EBITDA,” she said. “And then it implements EBITDA across the board as the baseline measure for 2024 and 2025.”

“An amendment would be an option, and there’s a whole host of reasons why taxpayers may or may not want to amend a return, not the least of which is whether it is a centralized audit regime partnership,” she continued. “Should this bill become law, that’s a conversation that taxpayers will need to have with their practitioners to figure out whether it’s worth it to amend. Bonus depreciation was 100% through 2022, and then this makes the change for 2023, 2024 and 2025 to retain the 100% bonus depreciation. Current bonus depreciation is 80% in 2023, and 60% in 2024.”