In 2015, the federal government enacted 18 bills that included tax changes, although most did not include the word “tax” in the title. Instead, these changes were tucked into bills aimed at appropriations, trade preferences, or transportation funding. Within these public laws are over 150 tax changes.
Some of the changes, such as to bonus depreciation and Sec. 179 expensing, are multifaceted, with significant modifications. Other changes are relatively minor, such as requiring universities to include their employer identification numbers (EIN) on Forms 1098-T, Tuition Statement, issued to students. Three bills extended the Internet Tax Freedom Act (ITFA) by a few days or months, while the final one made the ITFA ban permanent in 2016. The ITFA relates to state and local government tax systems rather than to federal taxes by prohibiting state and local governments from imposing multiple or discriminatory taxes on internet access.
Chart of 2015 legislative tax changes
This chart lists the 2015 legislative tax changes. They are ordered chronologically by public law number with the affected Code section(s), effective date(s), and other information noted as well.
In addition to the resources listed and linked in the chart, the Joint Committee on Taxation (JCT) has a 384-page summary of 2015 tax legislation at JCS-1-16 (3/14/16) with explanations of the provisions and revenue effects.
CLICK HERE TO DOWNLOAD THE CHART (PDF).
Internet Tax Freedom Act action in early 2016
The only tax item left open from 2015 was the ITFA, set to expire Oct. 1, 2016. Congress took quick action on this item though. The Trade Facilitation and Trade Enforcement Act of 2015, P.L. 114-125 (2/24/16), made the ITFA moratorium on state and local taxes on internet access permanent and, effective after June 30, 2020, removed the grandfather provision (relevant to Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin) (see Stupak, The Internet Tax Freedom Act: In Brief (Congressional Research Service 10/5/15), for more information on ITFA).
One view of the PATH changes, where some provisions were made permanent and others extended for only two to five years, is that the “path” was cleared for tax reform. In fact, after passage of PATH, Sen. Ron Wyden, D-Ore., ranking member of the Senate Finance Committee stated: “Today is a down payment on tax reform, and our work continues as we strive towards a complete overhaul of our broken tax system” (House Ways and Means Committee press release (12/16/15)).
Another aspect of the 2015 tax legislation relevant to both tax and budget reforms is the effect of the legislation on the deficit and debt. The JCT estimates that the cost to the federal government of the federal tax changes enacted in 2015 is $679.6 billion over 10 years (FY 2015 to FY 2025) (JCS-1-16 (3/14/16), page 359).
Over 150 changes were made to the federal tax law in 2015. Only about one-third of these changes were simple extensions of provisions that expired at the end of 2014. Many of the changes, such as to partnership audits, depreciation, and several credits, require tax practitioners to spend significant time to review them to ensure proper compliance and optimal tax planning. The partnership audit changes likely require changes to partnership agreements after the IRS issues guidance. In addition to cautions regarding applying the changes summarized in the above tables, practitioners must determine which changes were also adopted by the states and the compliance and planning consequences.
In recent years, the new year has started with at least 50 expired tax provisions, and their fate was uncertain until late in the year when most were retroactively reinstated to the start of the year. Fortunately, this will not be the situation for 2016. All of the provisions that expired at the end of 2014 were renewed through at least 2016. So, given past experiences, it is expected that Congress will wait until late 2017 to tell taxpayers if any provisions that expire at the end of 2016 will be renewed for 2017. However, given the cost of the extenders, the fact that PATH picked winners (provisions made permanent) and losers (provisions given a 2016 or 2019 expiration date), it is likely that the losers will not be renewed this time.
Thus, consideration must be given to how clients can best take advantage of the tax incentives that expire at the end of 2016 or later. For assistance in knowing what provisions expire and when, the JCT report issued in January 2016 on expiring provisions should be reviewed (JCT, List of Expiring Federal Tax Provisions 2016-2015, JCX-1-16 (1/8/16)).
Several long-standing temporary provisions, such as the research tax credit (temporary since its enactment in 1981), were made permanent. Several provisions, including the research tax credit and Sec. 179 expensing election, were not only made permanent, but also modified in ways favorable to taxpayers. Thus, new planning opportunities are presented by the changes. Generally, modifications are effective starting in 2016. Practitioners should find many tax planning ideas to share with clients in any of the provisions modified by PATH and, thus, should review the details of these modifications as soon as possible.
It is likely that the balance of the 2016 congressional agenda will proceed with no further tax legislation. PATH teed up the 115th Congress and the next president to move on tax reform. Tax reform ideas are prominent in the presidential election race, and the congressional tax committees continue to hold hearings on the topic. Many of the 2015 tax changes, particularly administrative changes and provisions set to expire in the next few years, likely serve as stepping stones to comprehensive tax reform in the 115th Congress.
Annette Nellen, Esq., CPA, CGMA, is a tax professor and director of the MST Program at San José State University. She is an active member of the tax sections of the AICPA, ABA, and California State Bar. She is a member of the AICPA Tax Executive Committee and Tax Reform Task Force. She has several reports on tax policy and reform and maintains the 21st Century Taxation blog .