Thursday, November 25, 2010


Congress convened this past week as time is running out on the current Congress and as many tax issues were left hanging earlier in the year. This session takes place in the wake of the historic Congressional elections that recently took place, but the newly elected members will not be sworn in until January 3, 2011 as a part of the 112th Congress. That means the members of the 111th Congress remain in control and will be the ones called on to make some of these difficult decisions.

In the meantime, Congress will adjourn for the Thanksgiving holiday and is expected to begin consideration of many of these proposals upon its return on November 29th.

The difficult issues include:

Extension of the Expiring Bush Tax Cuts

If Congress fails to act by January 1, 2011; many Internal Revenue Code provisions expire, and return to what they were in 2001. A few of the affected items include:

1. Increasing all income tax rates, dividend tax rates, capital gains tax rates, eliminating marriage penalty relief in all brackets
2. Increased Federal withholding taxes- Should Congress fail to extend the Bush tax cuts the higher tax rates would normally require the IRS to issue new withholding tables for employers.
3. Reinstatement of itemized deduction limits
4. Reinstatement of personal exemption phase-out
5. Reduction in child tax credits
6. Reductions in IRA contribution limits

Reinstating the Estate Tax

If Congress does not act, the estate tax is automatically reinstated but at the rates and exemption levels that were in the law in 2001. The rates that existed in 2001 included a top estate tax rate of 55%, and a personal exemption level of $1 million, significantly lower than the $3.5 million exemption that was in effect in 2009 and the maximum rate of 45%.

Expiring Provisions and Extenders

Expect that votes in the House and Senate will take place but also expect the early votes to be more for politics than substance. Success on extending these issues and enacting a bill the President will sign is uncertain as of this date. Following is a partial list of expiring provisions and extenders that either expired at the end of last year or will expire at the end of this year. In some cases the credit or deduction is reduced.

1. Alternative Minimum Tax Indexing- currently not indexed for 2010
2. Education Tax Credits
3. Employment Tax Credits
4. Deduction for State and local Sales taxes in lieu of property taxes
5. Energy tax credits
6. Bonus depreciation rules

Extension of Unemployment Benefits

Congress must act to extend unemployment benefits for the long term unemployed, meaning those who have been unemployed for 99 weeks. Congress must act on this by December 1, 2010 as that is the date that benefits begin to run out under current law.

Enacting a Federal Budget

Congress has yet to enact any of the appropriations legislation necessary to allow for the continued funding of the federal government. The usual deadline for this is September 30 of the year, but Congress was unable to act and so deferred this deadline until December 3, 2010. Failure to either enact the appropriations bills or extend the continuing resolution would have a severe impact on every activity of the federal government.

Other Critical Issues for Congress

1099 Burdens

In the past year Congress enacted legislation that requires the IRS to impose a significant expansion of the rules to determine when a business owner must provide a 1099 to a business, incorporated or not, when providing goods and or services to a business. This included requiring providing 1099s to corporations for the first time, and for owners of rental property to provide a 1099 for each service provider or repair service. Recently legislation has been introduced to repeal this requirement, but it is unclear whether the revenue would have to be raised somewhere else.

Extending the Medicare Reimbursement Rates (Doc Fix)

The Health Care act enacted by Congress earlier in the year was unable to agree on a way to extend the Medicare reimbursement rates for seniors and it was extended through November 30. A permanent solution for this may not take place until next year.