Tax extenders Senate saga continues

In an effort to get enough votes to move the tax extenders legislation, Senate Finance Committee Chair Max Baucus (D-Mont.) has revised the bill's contentious carried interest and S corp provisions.

And
as a sop to housing industry lobbyists, home purchasers who qualify for the first-time homebuyer tax credit have more time to seal the deal.

Baucus was forced to make more changes to H.R. 4213, the American Jobs and Closing
Tax Loopholes Act of 2010, after the substitute he introduced last week wasn't able to overcome a procedural point of order in the Senate. That is, most of his colleagues hated the bill.

The two big sticking points were revenue raisers (necessary to pay for extending tax breaks) that were designed to toughen existing carried interest and S corp taxes.

Latest carried interest change: Baucus originally proposed taxing 65 percent of carried interest as ordinary income and 35 percent as capital gains starting with the 2013 tax year. Before that, he proposed a temporary transition ratio of 50-50 for 2011 and 2012.

Now the bill raises the ratio to 75 percent ordinary income and 25 percent capital gains, and eliminates the transition relief. The 75-25 split would begin in 2011.

The revised bill also changes the ratio for carried interest income related to the sale or exchange of long-held assets. The previous split was 55 percent ordinary income, 45 percent capital gains. That now is 50-50 for assets held for at least five years.

Changes to S corp taxation: This provision sparked much opposition from affected entities, as well as lawmakers, as being unduly burdensome on small businesses.

Baucus now proposes keeping a provision that would require shareholder-employees of a personal service S corporation to pay employment tax on their full share of allocated earnings, but that now applies to a more targeted sector of taxpayers.

The lead Senate tax writer would apply the provision to:

• An S corporation that is a partner in a professional services business and
  
• An S corporation that is engaged in a professional service business if 80 percent or more of its gross income is attributable to the service of three or fewer shareholders of the corporation.
  

The 80-percent-of-gross-income standard, says Baucus, should make the provision easier to administer.

The S corp changes would raise an estimated $9.15 billion over 10 years (a tad less than the earlier House and Senate versions' estimated $11.25 billion over a decade) and it would take effect in 2011.

Homeowner tax credit extension: It's baaaccckkk! Sort of.

The latest extenders bill now includes an amendment
approved by the Senate yesterday that would give qualifying first-time homebuyers until Sept.30 to close on a residential purchase.

They get the three extra months as long as, per the current law, they had a signed contract in place by April 30.

This extra time is estimated to cost $140
million over 10 years.

More changes, vote timing: You can read more about these and other changes in the summary of the revised bill.

The Senate is scheduled to vote today on amendments to the new bill. It's possible, say Capitol Hill watchers, that final passage could come as early as Friday, June 18.

Don't bet your house, purchased with a tax credit or not, on that.

There's still a lot of opposition to some spending provisions in the bill and Democratic leaders don't yet have the requisite 60-vote super majority necessary to clear procedural hurdles.

That could push wrangling and the final vote into next week.

Related posts:

• Senate tax extender changes: homebuyer credit extension, easing S Corp taxes?
• Senate makes changes to tax extenders
• House passes extenders
• Carried interest slows extenders
  vote
• Tax extenders vote on Tuesday?
• Agreement reached on tax
  extenders
• Ways to pay for extenders grows
• Extenders outlook from W&M
  chair
• Bank tax to fund extenders?
• House OKs extending tax breaks
• Congressional tax wrap-up
• Tax break extenders on tap

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