Omnibus spending package passes without tax extenders
The $1.7 trillion omnibus spending bill that Congress passed Friday just in time for the end of the year contains a number of accounting and tax-related provisions, though it’s missing the traditional set of tax extenders and some other much desired tax breaks.
The provisions that will probably be of most interest to accountants and their clients involve the inclusion of the so-called “Secure 2.0” bill, a follow-up to a 2019 bill, providing automatic enrollment in 401(k) retirement plans for more workers. Employers have to automatically enroll employees in a 401(k) plan at a rate of between 3% to 10%. Businesses with 10 or fewer workers and new companies in business for under three years would be exempted, however, according to CNBC. The bill would delay required minimum distributions from retirement plans from age 72 to age 73 in 2023 and then to age 75 in 2033. The penalty for failing to take out RMDs would decrease to 25%, and in some instances, 10%, from the current level of 50%. The bill would also increase catch-up contributions to a 401(k) for older retirement savers from an extra $6,500 per year for those over age 50. Secure 2.0 would increase the limit to $10,000 (or 50% more than the traditional catch-up amount) starting in 2025 for people ages 60 to 63. Catch-up amounts would be indexed for inflation. All catch-up contributions would be subject to treatment similar to Roth IRAs (that is, not pre-tax) except for employees who make $145,000 or less.
Other provisions involve emergency savings accounts and withdrawals for emergency expenses, multiple-employer plans, annuity options, a new retirement-tracking database, coverage for part-time workers, student loan payments becoming elective deferrals for purposes of matching contributions, financial incentives for plan contributions, and more.
“Millions of Americans could soon see more opportunities for retirement saving and income as a result of today’s action by Congress,” said American Academy of Actuaries senior pension fellow Linda Stone in a statement Friday. “Changes like retirement plan auto-enrollment, the establishment of pension-linked emergency savings accounts, and allowing limited emergency withdrawals will encourage saving. Employers will soon find it easier to provide new plan and income options like pooled and multiple-employer plans, starter 401(k)s, and annuity options for defined contribution plan participants that can help protect them against longevity risk. The creation of the lost-and-found database will be very helpful in connecting participants with retirement benefits they earned but have lost track of.”
Rep. Richard Neal, D-Massachusetts, the outgoing chair of the House Ways and Means Committee, praised the package. “Saving for retirement will be easier than ever with my SECURE 2.0 legislation, thanks to an expanded automatic enrollment provision and a federal match for the lowest income Americans,” he said in a statement Friday. “The investments in Americans’ health, specifically for our Medicare beneficiaries, will allow for more flexibility and make mental health services more accessible.”
HFCAA changes
Also within the omnibus package is a change in the Holding Foreign Companies Accountable Act, which requires the Securities and Exchange Commission to delist companies whose auditing firms don’t allow inspections by the Public Company Accounting Oversight Board for three years in a row. The law, which Congress passed in 2020, was aimed at China and enabled the PCAOB to recently gain access to inspect the audit workpapers of firms affiliated with KPMG and PwC in China with hopes for more to follow (see story). The omnibus bill lowers that time period to two years.
PCAOB Chair Erica Williams hailed the move to reduce the time period. “Investors are better protected today because Congress created the leverage the PCAOB needed to force China to open the books for the first time in history,” Williams said in a statement Friday. “Cranking up the pressure now will help us hold China’s feet to the fire and keep investors protected as we continue demanding complete access moving forward. The PCAOB is grateful to members of the House and Senate for their ongoing leadership, and we look forward to working with Congress to continue holding China accountable.”
Conservation easements
The omnibus package also contains a provision that aims to deter the use of syndicated conservation easements as a tax shelter promoted to groups of investors. The IRS has considered syndicated conservation easements to be so-called “listed transactions” that could signal abusive tax avoidance schemes, but it needed to propose new regulations after a pair of recent court decisions challenging its procedures (see story). The spending package includes the Charitable Conservation Easement Program Integrity Act, which aims to deter abuses of the easements, which are supposed to protect land from development. This bill imposes a limitation on the tax deduction for qualified conservation contributions made by certain partnerships if the amount of the contribution exceeds 2.5% times the sum of each partner’s relevant basis in the partnership. The limitation also applies to other pass-through entities, such as S corporations.
“In spite of federal efforts to stop abusive syndicated conservation easement transactions during the past decade, they have continued and have cost taxpayers billions of dollars,” said Andrew Bowman, president and CEO of the Land Trust Alliance, in a statement. “It has been clear for years that Congress alone had the power to stop these bad actors by enacting sensible, narrowly targeted legislation that would end the abuse and protect an invaluable conservation tool. Today, Congress exercised that power and, in the process, preserved the integrity of our tax laws and protected those who work tirelessly and ethically to conserve our country’s irreplaceable working and natural lands.”
A number of prominent tax provisions were left out of the omnibus package, however, with Republicans and Democrats unable to agree on rolling back a requirement in the Tax Cuts and Jobs Act of 2017 for amortizing research and development expenses in exchange for extending the expanded Child Tax Credits provided last year under the American Rescue Plan Act. Also left on the chopping block was an extension of 100% bonus depreciation on purchases of assets by businesses, which will phase out initially to 80% and then go back to regular depreciation in 2027. Another tax provision from the Tax Cuts and Jobs of 2017 that didn’t get delayed was the cap on deductibility of interest expenses, which took effect in 2022.
