Volume 11, Issue 9 - November/December 2010

WDMA Update

Tax Issues Linger as 111th Congress Winds Down
by Michael O’Brien

Faced with numerous tax breaks due to expire at the end of the year, Congress addressed only a handful before adjourning for its pre-election break. At press time, they were set to reconvene briefly in mid-November and then again in December to address these and other unresolved issues.

The energy efficiency tax credit (25c) for doors, windows and skylights fall into this category, as it is due to expire at the end of 2010. While Sen. Olympia Snowe (R - Maine) and Jeff Bingaman (D - N.M.) floated a discussion draft of an extension in October, it is unclear how much time will be devoted to debate on the matter before the end of the year. This post-election session, called a “lame duck,” often is filled with lofty aspirations that quickly dissipate after the election, as defeated members lose interest in spending much time in Washington.

As this issue goes to press, WDMA is actively advocating for as robust a credit as possible, and is working to ensure that the credit lives on to continue to spur the restoration of jobs in the hard-hit manufacturing sector while we await a housing recovery. It is not unheard of—in fact, it is increasingly common in these days of legislative discord—for tax credits to be extended retroactively. If the energy efficiency tax credit is not voted on before the end of the year, it is a safe bet that WDMA will focus on it as a top priority when we welcome the new 112th Congress in January.

WDMA has achieved victories on other tax provisions, including several measures included in the “Small Business Jobs Act” (SBJA, H.R. 5297), which President Obama signed into law in October. Of note to industry manufacturers is the two-year extension of increased Section 179 expensing, which increases to allow businesses to write off up to $500,000 for 2010 and 2011 and increases the phase-out threshold to $2 million. The temporary 50 percent bonus depreciation of certain capital expenditures also was extended through 2010. Additionally, certain small businesses with $50 million or less in average annual gross receipts are now eligible to carry back up to five years worth of their general business credits, including the Section 45L New Energy Efficient Home Credit, to offset taxes paid in prior years. The SBJA also temporarily shortens the built-in gains holding period of assets for a C-corporation converting to an S-corporation to five years.

"It is not unheard of for tax credits to be extended retroactively. If the energy efficiency tax credit
is not voted on before the end of the year, it is a safe bet that WDMA will focus on it as a top priority when we welcome the new 112th Congress in January."

Other aspects of the Bush tax cuts of 2001 and 2003 will still expire at the end of the year if Congress does not act to extend them. Without action, individual rates, capital gains, dividend and estate tax rates will all skyrocket after the end of the year. While the Administration and some Democrats in Congress have expressed a desire to extend only the so-called “middle class” tax breaks, economists and business organizations alike have called for an extension of all the tax rates.

Another looming tax issue for all businesses is the 1099 reporting mandate contained in the health care overhaul. Unfortunately, WDMA-supported efforts to repeal or reduce the burden on business were unsuccessful prior to the election, as the provision is seen by Democrats as essential to pay for the health care reforms. Without replacing the projected revenue, efforts to repeal the mandate have proven unable to garner Democratic support. To add insult to injury, the SBJA increased the penalties for failure to file timely reports to the IRS, including Form 1099s, to new maximums of up to $500,000. Without action, businesses will be required to issue 1099s to all businesses from which it purchases goods or services totaling $600 or more each year.

Even in a best-case scenario in which Congress takes up and extends each of these important tax breaks by the end of the year, it still is likely that taxes will be on the top of Congress’s to-do list in 2011. The Administration already has begun studying ways to enact permanent reform, rather than continuing these temporary extensions.

Michael O’Brien serves as president of the Window and Door Manufacturers Association. His opinions are solely his own and do not necessarily reflect those


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