Temporary Business-Related Tax Provisions Expiring 2021-2027 and Business “Tax Extenders”

May 24, 2021 R46800

Temporary and Expiring Business Tax
May 24, 2021
Provisions
Jane G. Gravelle,
Fifteen temporary business tax provisions that expired in 2020 were extended or made permanent
Coordinator
by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as Division EE of the
Senior Specialist in
Consolidated Appropriations Act, 2021 (P.L. 116-260). Sixteen additional business tax
Economic Policy
provisions are scheduled to expire between 2021 and 2027. Some of these provisions were

enacted as part of the 2017 tax revision, commonly called the “Tax Cuts and Jobs Act” (TCJA;
Molly F. Sherlock,
P.L. 115-97). Other expiring business tax provisions were enacted as part of Coronavirus Disease
Coordinator
2019 (COVID-19) tax relief legislation enacted in 2020 and 2021. This report briefly summarizes
Specialist in Public Finance
and discusses the economic impact of the 31 business-related tax provisions that are scheduled to

expire by 2027, as well as two provisions that have been made permanent. These provisions
include the following:
Sean Lowry
Analyst in Public Finance

Provisions Expiring in 2021
Traditional Tax Extenders
Donald J. Marples
Specialist in Public Finance

Three-Year Depreciation for Racehorses Two Years or Younger


Accelerated Depreciation for Business Property on an Indian Reservation


American Samoa Economic Development Credit

Indian Employment Tax Credit

Mine Rescue Team Training Credit

The Rum Cover Over
Other Temporary Provisions

Computation of Adjusted Taxable Income Without Regard to Any Deduction Allowable for

Depreciation, Amortization, or Depletion

12.5% Increase in Annual LIHTC Authority

Temporary Business Provision Enacted in the Families First Coronavirus Response Act, 2020, and

Subsequently Extended

Payroll Tax Credits for COVID-19 Sick and Family Leave


Employee Retention and Rehiring Credit


Prevention of Partial Plan Termination

Provisions Expiring in 2022
Traditional Tax Extender
 50% Rate for Railroad Track Maintenance
Other Temporary Provision
 Full Deduction for Business Meals

Provisions Expiring in 2025
Traditional Tax Extenders
 Special Expensing Rules for Certain Film, Television, and Live Theatrical Productions
 Seven-Year Recovery Period for Motorsports Entertainment Complexes
 Empowerment Zone Tax Incentives
 New Markets Tax Credit
 Employer Tax Credit for Paid Family and Medical Leave
 Work Opportunity Tax Credit
Congressional Research Service

Temporary and Expiring Business Tax Provisions

 Transfers of Excess Pension Assets to Retiree Health and Life Insurance Plans
 Look-Through Treatment of Payments Between Related Controlled Foreign Corporations
Other Temporary Provisions

Deductibility of Employer De Minimis Meals and Related Eating Facility, and Meals for the

Convenience of the Employer

Higher Exclusion Rates for GILTI and FDII

Lower Tax Rates and Credits for BEAT

20% Deduction for Pass-Through Businesses

Provisions Expiring in 2026 or 2027
Other Temporary Provisions Expiring in 2026

Limit on Excess Business Losses of Noncorporate Taxpayers

First Year Depreciation

Additional Depreciation for Trees Producing Fruits and Nuts

Election to Invest Capital Gains in an Opportunity Zone
Other Temporary Provision Expiring in 2027

Citrus Plants Lost by Casualty

Business Tax Extender Provisions Made Permanent


Credit for Certain Expenditures for Maintaining Railroad Tracks

Provisions Modifying the Excise Taxes on Wine, Beer, and Distilled Spirits

For other reports related to extenders, see
 CRS Report R46772, Temporary Individual Tax Provisions (“Tax Extenders”), coordinated by Molly
F. Sherlock and Jane G. Gravelle;
 CRS Report R46627, Tax Provisions Expiring in 2020 (“Tax Extenders”), by Molly F. Sherlock; and
 CRS Report R46451, Energy Tax Provisions Expiring in 2020, 2021, 2022, and 2023 (“Tax
Extenders”), by Molly F. Sherlock, Margot L. Crandall-Hollick, and Donald J. Marples.

Congressional Research Service

Temporary and Expiring Business Tax Provisions

Introduction
Congress has regularly acted to extend expired or expiring temporary tax provisions.1
Collectively, these temporary tax provisions are often referred to as “tax extenders.” In addition, a
number of provisions enacted in the 2017 tax revision, popularly known as the Tax Cuts and Jobs
Act (TCJA, P.L. 115-97), were enacted on a temporary basis. Temporary provisions were also
enacted, and in some cases extended, in bil s addressing the Coronavirus Disease 2019 (COVID-
19)-induced recession. This report briefly summarizes and discusses the economic impact of the
30 business-related tax provisions that are scheduled to expire by 2027, as wel as two provisions
that have been made permanent. It does not include energy-related provisions or individual
provisions.2 It also does not include scheduled tax code changes that are not the result of
temporary provisions. For example, research expenditures have been expensed since 1954, but
the TCJA provided that, starting in 2022, taxpayers wil be required to capitalize and amortize
those costs over 5 years for domestic research and 15 years for foreign research.3
There are 11 business-related temporary tax provisions scheduled to expire during or at the end of
2021. Six of these business-related provisions were included in past tax extenders legislation.
Most recently, Congress enacted or extended nine of these expiring provisions in the
Consolidated Appropriations Act, 2021 (P.L. 116-260) and the American Rescue Plan Act of 2021
(P.L. 117-2). These laws extended nine temporary tax provisions that had expired at the end of
2020 either partial y into or through 2021. The two provisions partial y extended into 2021 are the
prevention of partial plan termination (extended through March 31, 2021) and the payroll tax
credit for COVID-19-related sick and family leave (extended through September 30, 2021).
Two business provisions are scheduled to expire in 2022: the 50% credit rate for railroad track
maintenance (otherwise made permanent with a 40% rate) and the full deduction for businesses
meals enacted in the Consolidated Appropriations Act, 2021 (P.L. 116-260).
Twelve business provisions are scheduled to expire in 2025. Eight have been extended as part of
past tax extenders legislation. Four were enacted in the TCJA (P.L. 115-97), which scheduled
them to expire in 2025.4
Four business provisions are scheduled to expire in 2026. These provisions were added by the
TCJA (P.L. 115-97). One, the limit on excess business interest, was a revenue raiser. It was
scheduled to expire in 2025, but the effective date was extended to 2026 by the American Rescue
Plan Act of 2021 (P.L. 117-2).
One business provision enacted in the TCJA (P.L. 115-97), a provision for citrus plants lost by
casualty, is scheduled to expire in 2027.
Two temporary business provisions were made permanent: the railroad track maintenance credit
and the modifications of the excise taxes on wine, beer, and distil ed spirits.
The estimated costs of these and other temporary business tax provisions enacted or extended in
the Consolidated Appropriations Act, 2021 (P.L. 116-260) and the American Rescue Plan Act of

1 For an overview of tax extenders, see CRS Report R46627, Tax Provisions Expiring in 2020 (“Tax Extenders”), by
Molly F. Sherlock.
2 For an overview of temporary individual provisions, see CRS Report R46772, Temporary Individual Tax Provisions
(“Tax Extenders”), coordinated by Molly F. Sherlock and Jane G. Gravelle.
3 For more information, see CRS Insight IN11479, Section 174 and Investment in Research and Development, by Gary
Guenther.
4 T he employer credit for paid family and medical leave was also first enacted in T CJA (P.L. 115-97), with a 2019
expiration date.
Congressional Research Service

1

link to page 7 Temporary and Expiring Business Tax Provisions

2021 (P.L. 117-2) are provided in Table 1. The most costly of these provisions are the employee
retention and rehiring credit ($30.8 bil ion), the work opportunity tax credit ($16.2 bil ion), the
modifications of the excise taxes on wine, beer, and distil ed spirits ($9.0 bil ion), the payroll tax
credit for COVID-19-related sick and family leave ($7.9 bil ion), the full deduction for business
meals ($6.3 bil ion), the new markets tax credit ($5.7 bil ion), the look-through rules ($4.3
bil ion), and the employer credit for paid family and medical leave ($3.8 bil ion). These more
costly provisions are associated with COVID-19 relief legislation or were extended for five years.
The extension of the limit on excess business interest deductions for one year is estimated to raise
$31.0 bil ion.
Table 1. Estimated Cost of Extending Expired Business Tax Provisions in P.L. 116-260
and P.L. 117-2
(bil ions of dol ars)
Cost of
Cost of
Extension
Extension
Length of
in P.L.
in P.L.
Provision
Extension
116-260
117-2
Provisions Expiring in 2021

Three-Year Depreciation for Racehorses Two Years or
1 year
—

Younger
Indian Employment Tax Credit
1 year
$0.1

American Samoa Economic Development Credit
1 year
-i-

Accelerated Depreciation for Business Property on an
1 year
-i-

Indian Reservation
American Samoa Economic Development Credit
1 year
-i-

Mine Rescue Team Training Credit
1 year
-i-

Payrol Tax Credit for COVID-19-Related Sick and
3 months in P.L. 116-
$1.6
$6.3
Family Leave
260 (through
3/31/2021); 6 months
in P.L. 117-2
(through 9/30/2021)
Employee Retention and Rehiring Credit
6 months in P.L. 116-
$20.6
$10.2
260 (through
6/30/2021); 6 months
in P.L. 117-2
(through 12/31/2021)
Prevention of Partial Plan Termination
Applies to a plan
negligible

year that includes
the period beginning
on 3/13/2020, and
ending on 3/13/2021.
Provisions Expiring in 2022

Ful Deduction for Business Meals
1 year
$6.3

Provisions Expiring in 2025

Special Expensing Rules for Certain Film, Television, and
5 years
$0.6

Live Theatrical Productions
Seven-Year Recovery Period for Motorsports
5 years
$0.2

Entertainment Complexes
Congressional Research Service

2

Temporary and Expiring Business Tax Provisions

Cost of
Cost of
Extension
Extension
Length of
in P.L.
in P.L.
Provision
Extension
116-260
117-2
Empowerment Zone Tax Incentives
5 years
$1.4

New Markets Tax Credit
5 years
$5.7

Employer Credit for Paid Family and Medical Leave
5 years
$3.8

Work Opportunity Tax Credit
5 years
$16.2

Look-through Treatment of Payments Between Related
5 years
$4.3

Control ed Foreign Corporations
Provision Expiring in 2026

Limits on the Deduction of Business Losses by
1 year (2026)

-$31.0
Noncorporate Taxpayers
Provisions Made Permanent

Credit for Certain Expenditures for Maintaining Railroad
permanent
$1.5

Tracks
Provisions Modifying the Excise Tax Rates of Wine, Beer,
permanent
$9.0

and Distil ed Spirits
Sources: Joint Committee on Taxation, Estimated Budget Effects Of The Revenue Provisions Contained In Rules
Committee Print 116-68, The “Consolidated Appropriations Act, 2021”, JCX-24-20, December 21, 2020; and Joint
Committee on Taxation, Estimated Revenue Effects Of H.R. 1319, The “American Rescue Plan Act Of 2021,” As
Amended By The Senate, Scheduled For Consideration By The House Of Representatives, JCX-13-21, March 9, 2021.
Notes: The cost estimates are estimated reductions in revenue over a 10-year budget period (FY2021-FY2030).
An “-i-” indicates an estimated revenue loss of less than $50 mil ion between FY2020 and FY2029. A negative
sign means a revenue gain. An “—“ indicates no estimated revenue effect.
There are several options for Congress to consider regarding temporary provisions. Temporary
provisions could be extended, and the extension could be short-term, long-term, or permanent.
Alternatively, Congress could al ow the provisions to expire and remain expired.
Tax Provisions Expiring in 2021
Business “Tax Extenders”
Three-Year Depreciation for Racehorses Two Years or Younger5
Racehorses are tangible property, and taxpayers using racehorses in a trade or business must
capitalize (deduct over a period of years) the cost of purchasing racehorses. The cost can then be
recovered through annual depreciation deductions over time. The cost recovery period for
racehorses is seven years, although racehorses that begin training after age two have a three-year
recovery period. Under the temporary provision, this three-year recovery period is extended to al
racehorses. In particular, al racehorses placed in service after December 31, 2008, have a three-
year recovery period as a result of the Food, Conservation, and Energy Act of 2008 (P.L. 110-
246), with provisions subsequently extended. The provision was most recently extended through
2021 by the Consolidated Appropriations Act, 2021 (P.L. 116-260).

5 IRC §168(e)(3)(A).
Congressional Research Service

3

Temporary and Expiring Business Tax Provisions

Advocates of a shorter depreciation period claim that reducing the recovery period to three years
more closely aligns the recovery period with the racing life of a horse. The Internal Revenue
Service (IRS) cost recovery period suggests a longer view. Some racehorses continue in
productive activity after their racing careers through breeding, as wel as having a residual value
for resale. Taking those uses into account, a U.S. Department of Treasury study estimated an
overal economic life of nine years.6
This provision does not affect breeders who race their own horses, because they deduct the cost
of breeding and thus have no basis (capital investment) in the horses. The provision general y
benefits investors who purchase racehorses.
The provision is currently less beneficial because racehorses are eligible for expensing under the
general depreciation rules (as discussed below), and the revenue estimate in the recent extension
indicates no revenue cost.
Accelerated Depreciation for Business Property on an Indian Reservation7
The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66) contained a provision al owing
businesses on Indian reservations to be eligible for accelerated depreciation (through a reduction
in the applicable recovery periods) as part of an effort to increase investment in businesses
located on Indian reservations. Since its initial temporary enactment, this provision has regularly
been extended as part of tax extenders legislation—most recently in the Consolidated
Appropriations Act, 2021 (P.L. 116-260), which extended the provision through December 31,
2021.
Extending the provision might encourage additional investment on Indian reservations, which, in
turn, could encourage eligible companies to locate, retain, or expand operations on Indian
reservations. However, if these provisions’ main objective is to improve the economic status of
individuals currently living on Indian reservations, it is not clear to what extent this tax subsidy
wil succeed, because it is not given directly to workers but instead is received by businesses.
Capital subsidies may not ultimately benefit workers. While more capital could increase worker
productivity, it is possible that capital equipment subsidies may encourage more capital-intensive
businesses and make workers relatively worse off. In addition, workers would not benefit from
higher wages resulting from an employer subsidy if the wage is determined by regulation (the
minimum wage) that is set higher than the prevailing market wage.
This provision is beneficial for structures; equipment is eligible for expensing under the general
depreciation rules.

6 U.S. Department of the T reasury, Report to Congress on the Depreciation of Horses, March 1990, at
https://www.treasury.gov/resource-center/tax-policy/Documents/Report-Depreciation-Horses-1990.pdf.
7 IRC §168(j)(8). See also Joint Committee on T axation, Overview Of Federal Tax Provisions And Analysis Of Selected
Issues Relating To Native Am erican Tribes And Their Mem bers, JCX-8-20, February 28, 2020, https://www.jct.gov/
publications/2020/jcx-8-20/.
Congressional Research Service

4

Temporary and Expiring Business Tax Provisions

American Samoa Economic Development Credit8
The American Samoa economy is largely dependent on three sectors: public works and
government, tuna canning, and the residual private sector (e.g., tourism and other servic es).9
The American Samoa economic development credit (EDC) is a credit against U.S. corporate
income tax. The amount of the credit is equal to the sum of certain percentages of a domestic
corporation’s employee wages, employee fringe benefit expenses, and tangible property
depreciation al owances for the taxable year with respect to the active conduct of a trade or
business within American Samoa. The credit is available to U.S. corporations that, among other
requirements, (1) claimed the now-expired possession tax credit (predecessor to the EDC) with
respect to American Samoa for their last taxable year beginning before January 1, 2006; or (2)
have qualified production activities income after December 31, 2011, in American Samoa (akin to
production activities income eligible for Section 199 tax treatment in the United States).10
The credit’s proponents claim it encourages eligible companies to locate, retain, or expand
manufacturing operations in the territory. Media reports suggest the EDC’s main beneficiary, thus
far, has been StarKist, which has retained its cannery operations in American Samoa.11
The EDC was first enacted in the Tax Relief and Health Care Act of 2006 (P.L. 109-432). This
version of the EDC was only available to corporations that had previously claimed the possession
tax credit, and it original y expired at the end of 2007. It has been extended numerous times. The
American Tax Relief Act of 2012 (P.L. 112-240) also expanded the EDC’s criteria to include
corporations that had not previously claimed the possession tax credit. The provision was
extended through 2020 by the Further Consolidated Appropriations Act, 2020 (P.L. 116-94), and
through 2021 by the Consolidated Appropriations Act, 2021 (P.L. 116-260).
Indian Employment Tax Credit12
The Indian employment tax credit is an incremental credit (applied to expenses in excess of a
base) claimed by employers for qualified wages and health insurance costs. The credit is designed
to encourage hiring of certain individuals—enrolled members of an Indian tribe and their spouses.
There are restrictions limiting the benefit to services performed within an Indian reservation for
individuals living on or near the reservation.
The Indian employment credit was first enacted in 1993, as part of the Omnibus Reconciliation
Act of 1993 (P.L. 103-66), and is equal to 20% of the excess of qualified wages and health

8 Section 119 of the T ax Relief and Health Care Act of 2006 (P.L. 109-432) as amended by Section 756 of the T ax
Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312), based on the rules of
IRC Sections 30A and 936.
9 U.S. Government Accountability Office (GAO), Economic Trends, Status of the Tuna Canning Industry, and
Stakeholders’ Views on Minimum Wage Increases, GAO-20-467, June 2020, p. 19, at https://www.gao.gov/assets/gao-
20-467.pdf.
10 See Section 936 of H.Rept. 109-455 and Section 329 of P.L. 112-240. See also JCT , General Explanation of Tax
Legislation Enacted in 2015, JCS-1-16, March 2016, pp. 196-198, at https://www.jct.gov/publications.html?func=
startdown&id=4509. For more information on Section 199, see CRS Report R41988, The Section 199 Production
Activities Deduction: Background and Analysis, by Molly F. Sherlock.
11 GAO, Economic Trends, Status of the Tuna Canning Industry, and Stakeholders’ Views on Minim um Wage
Increases, GAO-20-467, June 2020, pp. 25, 35, at https://www.gao.gov/assets/gao-20-467.pdf.
12 IRC §45A(f). See also Joint Committee on T axation, Overview Of Federal Tax Provisions And Analysis Of Selected
Issues Relating To Native Am erican Tribes And Their Mem bers, JCX-8-20, February 28, 2020, at https://www.jct.gov/
publications/2020/jcx-8-20/.
Congressional Research Service

5

Temporary and Expiring Business Tax Provisions

insurance costs paid by an employer over base-year expenses. The credit is al owed for the first
$20,000 in qualified wages and health insurance costs. Hence, the maximum amount of the credit
is $4,000 (20% of $20,000). The $20,000 amount has not been changed since the credit was
enacted and is not adjusted for inflation. As such, the incentive is incremental to 1993 wages and
health insurance costs. The credit is not available for wages paid to an employee if their total
wages exceed $30,000, as adjusted for inflation ($50,000 in 2020). The employer must reduce the
deduction for wages by the amount of wages claimed for the credit.
The Indian employment credit was initially scheduled to expire at the end of 2003, but has been
regularly extended, often retroactively. Past extensions of the Indian employment credit have
extended the termination date without updating the base year. Some have proposed updating the
base year, in an effort to (1) eliminate the need for taxpayers to maintain tax records dating back
to 1993; and (2) restore the credit’s incremental design.13 The most recent extension was through
2021 in the Consolidated Appropriations Act, 2021 (P.L. 116-260).
Extending the Indian employment credit might encourage additional hiring of Indian tribe
members and their spouses. Although the Indian employment credit may not increase overal
employment on or near Indian reservations, it might increase employment among tribe members.
Mine Rescue Team Training Credit14
Taxpayers that employ miners in underground mines located in the United States may be able to
claim a tax credit for mine rescue team training expenses. The credit amount is limited to the
lesser of (1) 20% of training program costs per employee (including wages paid to the employee
while in training); or (2) $10,000. For a taxpayer to claim the credit for training provided to an
employee, the employee must be a full-time miner who is eligible to serve as a mine rescue team
member.
The mine rescue team training credit was enacted in the Tax Relief and Health Care Act of 2006
(P.L. 109-432). It was initial y scheduled to be effective for 2006, 2007, and 2008. It has
subsequently been extended as part of tax extenders legislation, most recently through 2021 in the
Consolidated Appropriations Act, 2021 (P.L. 116-260).
The mine rescue team training credit was enacted at the end of 2006, following the high-profile
mining accident at Sago Mine. There was an uptick in coal mining fatalities in 2006—47 fatalities
were reported (12 were a result of the Sago Mine disaster).15 From 2007 through 2020, coal
mining fatalities averaged 19 per year. During this period, fatalities were highest in 2010,
reflecting the Upper Big Branch Mine accident, where there were 29 fatalities. In the year with
the lowest number of fatalities, 2020, there were 5 deaths. Coal mining fatalities have general y
been trending downward over time. In recent years, some of this might be explained by a decline
in coal production and the decline in the number of coal miners. The fatality rate, however, has
also tended to decline over time.
A credit for mine rescue team training can encourage mine operators and employers to invest in
additional training. The credit can also reduce the cost of complying with federal regulations

13 See, for example, Department of the T reasury, General Explanations of the Administration’s Fiscal Year 2017
Revenue Proposals, February 2016, pp. 39-41, at http://www.treasury.gov/resource-center/tax-policy/Documents/
General-Explanations-FY2017.pdf.
14 IRC §45N(e).
15 U.S. Department of Labor, Mine Safety and Health Administration, Coal Fatalities for 1900 through 2020, at
https://arlweb.msha.gov/stats/centurystats/coalstats.asp.
Congressional Research Service

6

Temporary and Expiring Business Tax Provisions

regarding mine rescue team training.16 Federal regulations are the government’s primary policy
instrument governing coal mine safety, with tax incentives playing a smal role.17
The Rum Cover Over18
Under permanent law, the excise tax on rum is $13.50 per proof gal on and is collected on rum
produced in or imported into the United States. Under permanent law, $10.50 per proof gal on of
imported rum is transferred or “covered over” to the treasuries of Puerto Rico (PR) and the
United States Virgin Islands (USVI). Temporary provisions have increased the transfer amount to
$13.25. The law does not impose any restrictions on how PR and USVI can use the transferred
revenues. Both territories use some portion of the revenue to promote and assist the rum industry.
The cover-over provisions for rum extend as far back as 1917 for PR and 1954 for USVI.
Original y, the full amount of the tax was covered over; however, the Deficit Reduction Act of
1984 (P.L. 98-369) limited the cover over to $10.50 when the federal tax rates were increased to
$12.50. The cap was intended to address the question of whether the rebates were proper given
the lack of rebates to the states. The Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L.
103-66) temporarily increased the cap to $11.30 for five years, in a law that also reduced another
benefit to the possessions (the possessions tax credit). When this increase expired, the cap was
increased to $13.25, and it has subsequently been extended, most recently through 2021 by the
Bipartisan Budget Act of 2018 (P.L. 115-123).
For additional information on the rum cover over see CRS Report R41028, The Rum Excise Tax
Cover-Over: Legislative History and Current Issues, by Steven Maguire.
Temporary Business Provision Enacted in the Tax Cuts and Jobs Act
(2017)
Computation of Adjusted Taxable Income Without Regard to Any Deduction
Allowable for Depreciation, Amortization, or Depletion19
Prior to the 2017 tax revision, commonly referred to as the Tax Cuts and Jobs Act (TCJA; P.L.
115-97), the deduction for net interest was limited to 50% of adjusted taxable income for firms
with a debt-equity ratio above 1.5. (Adjusted taxable income is income before taxes, interest
deductions, and depreciation, amortization, or depletion deductions.) Interest above the limitation
could be carried forward indefinitely. The law limited deductible interest to 30% of adjusted
taxable income for businesses with gross receipts greater than $25 mil ion. The provision also has
an exception for floor plan financing for motor vehicles. Businesses providing services as an
employee and certain regulated utilities are excepted from this new limit. Also, certain real
property and farming businesses can elect out of this limit but must adopt a slower depreciation
method for real property or farming assets. The restrictions on interest, cal ed thin capitalization
rules, were partial y enacted to address concerns about large multinational businesses locating

16 More on federal requirements for mine rescue team training can be found on the U.S. Department of Labor, Mine
Safety and Health Administration website, at https://www.msha.gov/training-education/mine-rescue-training.
17 30 C.F.R. §49. For background information, see CRS Report RL34429, Coal Mine Safety and Health. (T his out-of-
print CRS report is available to congressional clients from the authors upon request.)
18 IRC §7652(e).
19 IRC §163(j).
Congressional Research Service

7

Temporary and Expiring Business Tax Provisions

borrowing in the United States as a method to shift profits out of the United States and to foreign,
lower-tax, jurisdictions.
Under prior law and the temporary provisions of the TCJA, this interest limit applies to earnings
(income) before interest, taxes, depreciation, amortization, or depletion (referred to as EBITDA).
After 2021, the TCJA changes the measure of income to earnings (income) before interest and
taxes (referred to as EBIT). Because EBIT is after the deduction of depreciation, amortization,
and depletion, it results in a smal er base and thus a smal er amount of eligible interest
deductions. The temporary broader base (EBITDA), which expires in 2021, al ows more interest
deductions. The current, more generous rules for measuring the adjusted taxable income base are
more beneficial to businesses with depreciable assets, although affected businesses might be able
to avoid some of the change in the deduction rules by leasing assets from financial institutions,
such as banks, that general y have interest income.
For additional discussion of the interest limitation, see CRS Report R45186, Issues in
International Corporate Taxation: The 2017 Revision (P.L. 115-97), by Jane G. Gravel e and
Donald J. Marples.
Temporary Business Provision Enacted in the Consolidated
Appropriations Act, 2018
12.5% Increase in Annual LIHTC Authority20
The low-income housing tax credit (LIHTC) program, which was created by the Tax Reform Act
of 1986 (P.L. 99-514), is the federal government’s primary policy tool for the development of
affordable rental housing. LIHTCs are awarded to developers to offset the cost of constructing
rental housing in exchange for agreeing to reserve a fraction of rent-restricted units for lower-
income households. Although it is a federal tax incentive, the program is primarily administered
by state housing finance agencies (HFAs) that award tax credits to developers.
Authority for states to award tax credit is determined according to each state’s population. In
2021, the amount of tax credits a state can award is equal to $2.8125 per person, with a minimum
smal population state authority of $3,245,625 in 2021. These figures reflect a temporary increase
in the amount of credits each state received for 2018-2021 as a result of the 2018 Consolidated
Appropriations Act (P.L. 115-141). The increase is equal to 12.5% above what states would have
received absent P.L. 115-141, and is in effect through 2021.
Advocates argue that the increase in credit authority supports the construction of additional
affordable housing. Opponents argue that this view overlooks the potential for LIHTC
construction to substitute for (or “crowd out”) affordable housing provided by the market.
For more information, see CRS Report RS22389, An Introduction to the Low-Income Housing
Tax Credit, by Mark P. Keightley.

20 IRC §42(h)(3)(I).
Congressional Research Service

8

Temporary and Expiring Business Tax Provisions

Temporary Business Provision Enacted in the Families First
Coronavirus Response Act (2020) and Subsequently Extended
Through September 30, 2021
Payroll Tax Credits for COVID-19 Sick and Family Leave21
The Families First Coronavirus Response Act (FFCRA; P.L. 116-127), enacted in March 2020,
included an employer payroll tax credit (against Social Security and Railroad Retirement taxes)
for the paid sick and family leave required as part of FFCRA. This tax credit was intended to
cover the cost to businesses of providing paid leave to address the COVID-19 pandemic. FFCRA
general y required private employers with fewer than 500 employees, and al government
employers, to provide employees with two workweeks of paid sick leave for certain COVID-19-
related leave purposes. It general y provided employees of private employers with fewer than 500
employees, state and local government employees, and some federal employees expanded job-
protected Family and Medical Leave Act (FMLA) leave for certain COVID-19-related caregiving
responsibilities. Employers were not required to compensate workers for the first two weeks of
expanded FMLA, but after this period the leave was to be partial y compensated by employers.
Self-employed individuals were also covered. The mandates and payroll credit expired at the end
of 2020.
The Consolidated Appropriations Act, 2021 (P.L. 116-260) extended the payroll credit through
March 31, 2021, and applied it as if the mandate were stil in place. The American Rescue Plan
Act of 2021 (P.L. 117-2) expanded the credit and extended it through September 30, 2021, with
the credit applying against the Medicare (HI) tax.
The purpose of the credits was in part to encourage employees to take leave to reduce the spread
of COVID-19. The Social Security trust funds were not affected by the credit. Transfers from the
general fund to the Social Security trust funds to cover any shortfal from this provision were
al owed under the law. Al owing the credits to be claimed against payroll taxes, as opposed to
income taxes, al owed employers to access this tax benefit faster than would have been the case
with an income tax credit. Further, employers with limited income tax liability may stil be able to
benefit from payroll tax credits.
See CRS In Focus IF11739, Payroll Tax Credit for COVID-19 Sick and Family Leave, by Molly
F. Sherlock for further discussion.
Temporary Business Provision Enacted in the CARES Act (2020)
and Subsequently Extended
Employee Retention and Rehiring Credit22
The employee retention and rehiring tax credit (ERTC) was first enacted in the Coronavirus Aid,
Relief, and Economic Security (CARES) Act (P.L. 116-136) to address the economic fal out from
the COVID-19 pandemic. The credit was original y effective through the end of 2020, then was
broadened and extended through July 2021 in the Consolidated Appropriations Act, 2021(P.L.
116-260), and most recently restructured and extended through December 31, 2021, by the
American Rescue Plan Act of 2021 (P.L. 117-2). Currently, the credit is 70% of qualified wages,

21 Division G, Families First Coronavirus Response Act (P.L. 116-127).
22 Section 2301 of P.L. 116-136, as amended.
Congressional Research Service

9

Temporary and Expiring Business Tax Provisions

and the credit can be computed on up to $10,000 in qualified wages paid to an eligible employee
per calendar quarter. The maximum credit amount for 2021 is $28,000. The credit is claimed
against the employer’s share of the hospital insurance (HI) payroll tax.
Qualified wages depend on the number of employees the employer had in 2019. For employers
with more than 500 full-time employees, qualified wages are wages paid when employee services
are not provided. For employers with 500 or fewer full-time employees, al wages paid by eligible
employers are credit-eligible. Eligible employers are those who (1) are required to fully or
partial y suspend operations due to a COVID-19-related order (including nonprofit employers); or
(2) have gross receipts 20% less than gross receipts in the same quarter as in the prior calendar
year. (The credit is no longer available once gross receipts are 80% of prior year calendar quarter
gross receipts.)
A credit of up to $50,000 per calendar quarter is also provided to recovery startup businesses,
defined as businesses established after February 15, 2020, that have average annual gross receipts
less than or equal to $1 mil ion. Severely financial y distressed employers—those with gross
receipts that are less than 10% of what they were in the same calendar quarter in 2019—are able
to treat al wages as qualified wages. Eligible employees are general y those who have been
employed by the employer for at least 30 days. Health plan expenses can be treated as qualified
wages when computing the credit.
Prior to the Consolidated Appropriations Act, 2021, the ERTC could not be taken if the employer
had a Paycheck Protection Program (PPP) loan. This restriction may have limited its use by smal
businesses, as the PPP program, which provided for forgiven loans under certain circumstances,
may have been more attractive. The Consolidated Appropriations Act, 2021 also increased the
employment threshold for businesses who could receive the credit even if employees were
working from 100 to 500, decreased the decline compared to previous years from 50% to 20%,
and increased the credit from 50% to 70%. Al of these changes make the credit more attractive.
Structuring the tax credit as a payroll tax credit, as opposed to an income tax credit, addresses
policy concerns associated with past employee retention and hiring credits. Payroll tax credits can
be delivered relatively quickly, addressing concerns about timing associated with past ERTCs.
The benefits of payroll tax credits extend to al employers and are not limited to taxpayers with
income tax liability. Further, payroll tax credits can be claimed by nonprofit employers.
One metric for evaluating the effectiveness of ERTCs relates to the economic efficiency, or “bang
for the buck,” of these incentives. To the extent that this credit is claimed for employees that
would have been retained absent this credit, it is less economical y efficient than payments
directly targeted at those who are laid off.
There are also questions about the credit’s potential for economic relief. If employers have laid
off employees due to lack of consumer demand, employers may be slow to hire, even with
employment subsidies. Economic theory tends to indicate that demand-side stimulus, rather than
supply-side (like employer tax relief), is the most effective tool for boosting employment during
periods of economic weakness.
For additional discussion of the credit, see CRS In Focus IF11721, The Employee Retention and
Employee Retention and Rehiring Tax Credits, by Molly F. Sherlock.
Congressional Research Service

10

Temporary and Expiring Business Tax Provisions

Temporary Business Provision Enacted in the Consolidated
Appropriations Act, 2021
Prevention of Partial Plan Termination23
Employer-sponsored retirement plans, including pension defined benefit plans, 401(k) plans, and
tax-deferred annuity programs under 403(b), are partial y terminated under normal law if a
significant amount of participants are no longer eligible. In a partial termination, the plan must
fully vest the benefits or accounts of the affected employees who are no longer covered regardless
of the plan’s normal vesting schedule. General y, a plan is considered partial y terminated if plan
turnover is 20% over the plan year, although this treatment can be rebutted with facts and
circumstances. The turnover is considered from the beginning to the end of the year.
The IRS issued guidance that indicated a plan would not be terminated in 2020 as long as
employees who were laid off had been rehired at the end of the year.
The Consolidated Appropriations Act, 2021 (P.L. 116-260) provides a temporary rule that a plan
wil not be considered terminated if at least 80% of the active participants remain the same on
March 31, 2021, as on March 13, 2020. The participants do not have to be the same individuals.
This rule delays the effect of the partial plan termination due to the COVID-19 recession and
makes it more likely that the plan wil not be considered partial y terminated.
Tax Provisions Expiring in 2022
Business “Tax Extenders”
50% Rate for Railroad Track Maintenance24
While the tax credit for railroad track maintenance was made permanent, the 50% rate expires in
2022, and the rate wil revert to 40% beginning in 2023. See discussion of the railroad track
maintenance provision below.
Temporary Provision Enacted in the Tax Cuts and Jobs Act (2017)
and Subsequently Extended
Full Deduction for Business Meals25
Prior to the 2017 tax revision (TCJA; P.L. 115-97), no deduction was al owed for activities
general y considered to be entertainment, amusement, or recreation, unless the activity or facility
was directly related to or associated with the active conduct of the taxpayer’s trade or business—
such as a meal with a prospective client. If directly related, the al owed deduction for
entertainment was general y limited to 50% of the amount of the expense. Similarly, a deduction
for any expense for meals general y was limited to 50% of the amount, although meals provided
for the convenience of the employer were fully (100%) deductible. (An example of an expense

23 §209 of Division EE of P.L. 116-260.
24 IRC §45G.
25 IRC §274(n).
Congressional Research Service

11

Temporary and Expiring Business Tax Provisions

eligible for the deduction for meals provided for the convenience of the employer is the cost to
run an on-site subsidized cafeteria for employees.) In addition, no deduction was al owed for
membership dues with respect to any club or organization.
The TCJA restricted businesses’ ability to deduct meals and entertainment expenses. The TCJA
general y disal owed any deduction for entertainment expenses and reduced the deduction for
meals provided for the convenience of the employer to 50%, while largely retaining the broad
50% deduction for other business meals. The deduction for business meals is general y limited to
50% of costs.
The Consolidated Appropriations Act, 2021 (P.L. 116-260) al owed a 100% deduction for
restaurant meals for costs paid or incurred after December 31, 2020, and before January 1, 2023.
The restaurant industry has been particularly affected by the COVID-19 recession, and the full
expensing would likely increase demand in that industry, although evidence suggests that fears of
contracting the virus are the primary reason for decreased demand. Thus, a tax incentive may not
be effective compared to controlling the virus.
For additional information, see CRS Insight IN11313, Business Deductions for Entertainment and
Meals, by Donald J. Marples.
Tax Provisions Expiring in 2025
Business “Tax Extenders”
Special Expensing Rules for Certain Film, Television, and Live Theatrical
Productions26
Investments in film and television productions are general y recovered using the income forecast
method. Under this method, depreciation deductions are based on the pattern of expected
earnings.
The American Jobs Creation Act of 2004 (P.L. 108-357) included special rules to al ow expensing
for certain film and television production costs. The provision’s main purpose was to discourage
“runaway” productions, or the production of films and television shows in other countries, where
tax and other incentives are often offered. Initial y, the provision was set to expire at the end of
2008. However, since 2008, the provision has regularly been extended as part of tax extender
legislation—most recently in the Consolidated Appropriations Act, 2021 (P.L. 116-260).27
Under the special expensing rules for film, television, and live theatrical productions, taxpayers
may elect to deduct immediately up to $15 mil ion of production costs ($20 mil ion for
productions produced in certain low-income and distressed communities) in the tax year incurred.
Eligible productions are limited to those in which at least 75% of the compensation paid is for
services performed in the United States. For productions that started before 2008, the expensing
deduction is not al owed if the aggregate production cost exceeds $15 mil ion ($20 mil ion for

26 IRC §181(f).
27 T he bonus depreciation provided in the 2017 tax revision (P.L. 115-97), allowing for 100% bonus depreciation
through 2022 and phasing out afterward to 0% after 2026, expands the definition of qualified property for the purposes
of claiming bonus depreciation to include the production costs of qualified film, television, and live theatrical
productions.
Congressional Research Service

12

Temporary and Expiring Business Tax Provisions

productions in designated low-income and distressed communities). Qualifying live theatrical
productions are those general y performed in venues with an audience capacity of not more than
3,000 (or 6,500 for seasonal productions performed no more than 10 weeks annual y). The
provisions would cover most theatrical productions (the largest of the Broadway theatres, for
example, has a seating capacity of less than 2,000).28
The ability to expense (deduct immediately) certain film, television, and live theatrical production
costs provides a benefit by al owing deductions to be taken earlier, thus deferring tax liability.
The magnitude of the first benefit depends on the average lag time from production to earning
income. For many films, production costs would be deductible in the year the film is released. If
the film is released one year after the production costs are incurred, which may be the case for
independent and smal er productions, the provision accelerates cost recovery by one year. The
benefit conferred by accelerating cost recovery deductions by one year is limited until the
beginning of the expiration of expensing in 2022 adopted in the TCJA (discussed below), when
the advantage of expensing even without regard to the production period al ows costs to be
written off more quickly. Taxpayers with limited or no income tax liability may derive little or no
benefit from the expensing al owance.
The primary policy objective of providing special tax incentives for film and television producers
is to deter productions from moving overseas, lured by lower production costs as wel as tax and
other subsidies offered by foreign governments. Because live theatre is tied to audience location,
runaway productions are not a concern. However, providing expensing for live theatrical
production costs could encourage investment in such productions and provide parity with film
and television. In evaluating this incentive, one consideration is the economic value of domestic
film, television, and theatre production relative to the cost of the targeted tax benefits.
Seven-Year Recovery Period for Motorsports Entertainment Complexes29
An exception from the 39-year depreciation life for nonresidential structures exists for the theme
and amusement park industry. Assets in this industry are assigned a recovery period of seven
years. Historical y, motorsports racing facilities have been included in this industry and also
al owed a seven-year recovery period. However, ambiguities in the law led to questions about
whether motorsports racing facilities were correctly categorized. When the Treasury reconsidered
the appropriateness of this classification in 2004, Congress made the seven-year treatment
mandatory through 2007 with the American Jobs Creation Act (P.L. 108-357). Since 2004, the
provision has been extended as part of tax extenders legislation—most recently in the
Consolidated Appropriations Act, 2021 (P.L. 116-260), which extended the provision through
December 31, 2025. Without this provision, motorsports racing facilities would be depreciated
over the standard 39-year life. The expensing provisions adopted by the Tax Cuts and Jobs Act in
2017, discussed below, make this provision more valuable because it is eligible for expensing.
The Department of the Treasury presumably estimated motorsports racing facilities to have
slower depreciation rates than the seven-year life that applies to amusement park facilities. If so,
the seven-year-life provision for motorsports racing facilities constitutes a subsidy to the auto
racing industry that does not appear to have an obvious justification. Supporters argued that the
provision preserves historical treatment and provides a stimulus to business. They also argued

28 For information on Broadway theatre seating capacity, see the New York Show T ickets website, at
http://www.nytix.com/Links/Broadway/broadwaytheatres.html.
29 IRC §§168(i)(15) and 168(e)(3)(C)(ii).
Congressional Research Service

13

Temporary and Expiring Business Tax Provisions

that the benefit helps make motorsports facilities more competitive with sports facilities that are
often subsidized by state and local governments.
Empowerment Zone Tax Incentives30
Empowerment Zones (EZs) are federal y designated geographic areas characterized by high
levels of poverty and economic distress, where businesses and local governments may be eligible
to receive federal grants and tax incentives.31 Since 1993, Congress has authorized three rounds
of EZs (1993, 1997, and 1999) with the objective of revitalizing selected economical y distressed
communities. EZs are similar to Enterprise Communities (ECs) and Renewal Communities
(RCs), which are also federal y designated areas for the purposes of tax benefits and grants.
A number of studies have evaluated the effectiveness of the EZ, EC, and RC programs.
Government Accountability Office and Department of Housing and Urban Development studies
have not found links between EZ and EC designation and improvement in community
outcomes.32 Other research has found modest, if any, effects and cal ed into question these
programs’ cost-effectiveness. This inability to link these programs to improvements in
community-level outcomes should not be interpreted as meaning that the EZ, EC, and RC
programs did not aid economic development. The main conclusion from these studies is that the
EZ, EC, and RC programs have not been shown to have caused a general improvement in the
examined localities’ economic conditions. One possible cause for this inability to empirical y
show the program effects on a large geographic area is that the EZ tax incentives are relatively
smal . Another possibility is that the EZ tax incentives are targeted at business owners and do not
provide direct benefits to workers in EZs.
Five tax incentives33 are typical y related to designated EZs:34 (1) increased exclusion of capital
gains from taxation;35 (2) issuance of qualified, tax-exempt zone academy bonds (QZABs) in
EZs;36 (3) EZ employment credits under the Work Opportunity Tax Credit (WOTC);37 (4)
increased expensing under Internal Revenue Code (IRC) Section 179 for businesses located in
EZs;38 and (5) nonrecognition of capital gains on rollover of EZ investments.39
EZs were created by legislation enacted in 1993, and the program expired at the end of 2009. The
provisions were extended in the Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L.

30 For related provisions, see IRC §§1391, 1394, 1396, 1397A, and 1397B.
31 For a list of EZs, see U.S. Department of Housing and Urban Development (HUD), “List of Current Empowerment
Zones and Updated Contact Information,” at http://portal.hud.gov/hudportal/HUD?src=/program_offices/
comm_planning/economicdevelopment/programs/rc/ezcontacts.
32 For more discussion, see CRS Report R41639, Empowerment Zones, Enterprise Communities, and Renewal
Com m unities: Com parative Overview and Analysis, by Donald J. Marples.
33 For a quick reference chart with a description of each of these provisions, see U.S. Department of Housing and
Urban Development (HUD), “ Empowerment Zone T ax Incentives Summary Chart ,” August 2013, at
http://portal.hud.gov/hudportal/documents/huddoc?id=ez_tis_chart.pdf.
34 IRC §§1391(d)(1)(A)(i) and (h)(2).
35 IRC §§1202(a)(2) and 1391(d)(1)(A)(i).
36 IRC §§1394 and 1391(d)(1)(A)(i).
37 IRC §§1396 and 1391(d)(1)(A)(i). For more information of the WOTC, see CRS Report R43729, The Work
Opportunity Tax Credit, by Benjamin Collins and Sarah A. Donovan .
38 IRC §§1397A and 1391(d)(1)(A)(i). For more information on Section 179 expensing, see CRS Report RL31852, The
Section 179 and Section 168(k) Expensing Allowances: Current Law and Econom ic Effects, by Gary Guenther.
39 IRC §§1397B and 1391(d)(1)(A)(i).
Congressional Research Service

14

Temporary and Expiring Business Tax Provisions

114-113), which also amended the requirements for tax-exempt enterprise zone facility bonds to
treat an employee as a resident of a particular EZ if the employee is a resident of a different EZ,
EC, or qualified low-income community. Provisions were extended after 2015, and were last
extended through 2025 by the Consolidated Appropriations Act, 2021 (P.L. 116-260).
For more analysis of EZs, see CRS Report R41639, Empowerment Zones, Enterprise
Communities, and Renewal Communities: Comparative Overview and Analysis, by Donald J.
Marples.
New Markets Tax Credit40
The New Markets Tax Credit (NMTC) was enacted in the Community Renewal Tax Relief Act of
2000 (P.L. 106-554) to encourage investors to invest in low-income communities (LICs) that
traditional y lack access to capital. The NMTC is a competitively awarded tax credit overseen by
the Community Development Financial Institutions (CDFI) Fund, organized within the
Department of the Treasury. For each NMTC round authorized by Congress, the CDFI Fund
ranks al requests for NMTC al ocation authority and grants awards to those Community
Development Entities (CDEs) that score highest. A CDE is a domestic corporation or partnership
that is an intermediary vehicle for the provision of loans, investments, or financial counseling in
LICs.41 Al taxable investors, such as banks, venture capital firms, and other private investors, are
eligible to receive the NMTC.
The NMTC’s structure creates incentives for CDEs and private investors to participate in the
program. CDEs benefit from the NMTC because they charge fees to their investors for organizing
the NMTC application and for structuring the financing for a portfolio of community
development projects. The private investors benefit because they receive, each year over seven
years, an annual tax credit equal to 5% to 6% of the total amount paid for the stock or capital
interest in the CDE that they purchase.42 Overal , the tax credit amounts to 39% of the cost of the
qualified equity investment (less the CDE’s fees) as long as the interest in the investment is
retained for the entire seven-year period. Thus, even if the community development project
funded by the CDE incurs some losses, the value of the tax credit could generate a positive return
for the private investors.
Opposition to the NMTC is partly based on the belief that corporations and higher-income
investors primarily benefit from the provision or that the NMTC leads to an economical y
inefficient al ocation of resources. For instance, although banks and other investors might benefit
directly from the credit, a 2009 study found that the NMTC’s benefits to selected low-income
communities were modest.43 The study concluded that poverty and unemployment rates fel by
statistical y insignificant amounts in tracts that received NMTC-subsidized investment relative to
similar tracts that did not. From a national economic perspective, the NMTC’s impact would be
greatest in the case where the investment represents a net investment in the U.S. economy rather
than a shift in investment from one location to another. Another 2009 study found that corporate
NMTC investment represented a shift in investment location, but a portion of individual NMTC

40 IRC §45D(f).
41 Because CDEs serve purposes outside the NMT C, they do not have to be for -profit organizations. However, to
receive a NMT C allocation, a CDE must be a for-profit organization.
42 For more details, see CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and
Sean Lowry.
43 Matthew Freedman, “T eaching New Markets Old T ricks: T he Effects of Subsidized Investment on Low-Income
Neighborhoods,” Journal of Public Economics, vol. 96, no. 11-12 (December 2012), pp. 1000-1014.
Congressional Research Service

15

Temporary and Expiring Business Tax Provisions

investment (roughly $641 mil ion in the first four years of the program from 2001 to 2004)
represented new investment.44
The NMTC has been extended as a temporary tax provision since 2008, after its initial
authorization expired at the end of 2007.45 In more recent years, the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended NMTC
authorization through 2011 and permitted a maximum annual amount of qualified equity
investments of $3.5 bil ion. Following several other extensions, the Further Consolidated
Appropriations Act, 2020 (P.L. 116-94) extended the provision through 2020 with a maximum
al ocation authority of $5 bil ion. It was further extended, with an al ocation of $5 bil ion per year
through 2025 by the Consolidated Appropriations Act, 2021 (P.L. 116-260).
For more information on the NMTC, see CRS Report RL34402, New Markets Tax Credit: An
Introduction, by Donald J. Marples and Sean Lowry; and CRS Report R42770, Community
Development Financial Institutions (CDFI) Fund: Programs and Policy Issues, by Sean Lowry.
Employer Tax Credit for Paid Family and Medical Leave46
The employer credit for paid family and medical leave (PFML) can be claimed by employers
providing paid leave (wages) to employees under the Family and Medical Leave Act of 1993
(FMLA; P.L. 103-3).
The credit amount is equal to up to 25% of PFML wages paid to qualifying employees.47 The
credit can only be claimed for PFML provided to certain employees with incomes below a fixed
threshold.48 For credits claimed in 2021, employee compensation in 2020 cannot have exceeded
$78,000. The amount of PFML wages for which the credit is claimed cannot exceed 12 weeks per
employee per year. Further, al qualifying employees must be provided at least two weeks of
PFML for an employer to be able to claim the credit. Tax credits cannot be claimed for leave paid
by state or local governments, or for leave that is required by state or local law. To claim the
credit, an employer must have a written family and medical leave policy in effect. The policy
cannot exclude certain classifications of employees, such as unionized employees.
The employer credit for paid family and medical leave was added to the IRC in the 2017 tax
revision (TCJA; P.L. 115-97). Initial y, the credit was effective for wages paid in 2018 and 2019.
The credit was extended for one year, through 2020, by the Further Consolidated Appropriations
Act, 2020 (P.L. 116-94) and extended through 2025 by the Consolidated Appropriations Act, 2021
(P.L. 116-260).
Providing a tax credit for employers that provide PFML should, on the face of it, tend to increase
access to this benefit. How effective the credit wil be at achieving this goal remains an open
question. Employers may provide PFML to qualified employees for a number of reasons;
attracting high-quality talent might be one. If most of the credit’s beneficiaries are employers that

44 T ami Gurley-Calvez et al., “Do T ax Incentives Affect investment? An Analysis of the New Markets T ax Credit ,”
Public Finance Review, vol. 34, no. 4 (2009), pp. 371-398.
45 Given that some of these tax extenders have been passed retroactively, the CDFI Fund has often issued a Notice of
Funds Availability (NOFA) for the NMT C in the Federal Register despite not having formal authorization of funds.
46 IRC §45S.
47 T he credit rate increases from 12.5% to 25% ratably as leave wages increase from 50% to 100% of wages normally
paid.
48 A qualifying employee is one who, in the preceding year, did not have compensation in excess of 60% of the amount
applicable for a highly compensated employee under the nondiscrimination requirements rules for qualified retirement
plans (IRC §414(q)(1)(B)).
Congressional Research Service

16

Temporary and Expiring Business Tax Provisions

would have provided PFML without the credit, then the credit is not a particularly efficient
mechanism for increasing PFML. There is also the possibility that employers choose to substitute
credit-eligible PFML for other forms of leave. An employer could reduce the amount of paid sick,
personal, or vacation time off, knowing that employees use this time for paid family and medical
leave purposes. If other benefits are scaled back in favor of tax-preferred FMLA leave, employees
may not be better off.
For more information, see CRS In Focus IF11141, Employer Tax Credit for Paid Family and
Medical Leave, by Molly F. Sherlock.
Work Opportunity Tax Credit49
The work opportunity tax credit (WOTC) is a nonrefundable wage credit intended to increase job
opportunities for certain categories of disadvantaged individuals. The WOTC reduces the cost of
hiring specified groups of disadvantaged individuals. WOTC-eligible hires include members of
families receiving Temporary Assistance to Needy Families (TANF) benefits, certain members of
families receiving food stamp benefits, ex-felons, and certain veterans.
For most eligible hires that remain on a firm’s payroll at least 400 hours, an employer can claim
an income tax credit equal to 40% of wages paid during the worker’s first year of employment, up
to a statutory maximum. For most WOTC-eligible hires, the wage maximum is $6,000, for a
maximum credit of $2,400. For eligible veterans, the maximum eligible wage varies between
$6,000 and $24,000, depending on the veteran’s characteristics and work history. Eligible
summer youth hires’ maximum wage to which the credit can be applied is $3,000. A credit equal
to 25% of a qualified worker’s wages is available for eligible hires that remain employed for at
least 120 hours, but fewer than 400 hours.
The WOTC was created as part of the Smal Business Job Protection Act of 1996 (P.L. 104-188).
The WOTC evolved from an earlier tax credit designed to increase employment among targeted
groups, the Targeted Jobs Tax Credit (TJTC), which was available from 1978 through 1994.
When first enacted, the WOTC was scheduled to expire on October 1, 1997. Since 1997, the
WOTC has been expanded, modified, and regularly extended. In several instances, the WOTC
was al owed to lapse before being retroactively reinstated. It was extended through 2020 in the
Further Consolidated Appropriations Act, 2020 (P.L. 116-94). It was extended through 2025 by
the Consolidated Appropriations Act, 2021 (P.L. 116-260).
The WOTC is designed to encourage employers to hire more disadvantaged individuals by
compensating for potential higher training costs and possible lower productivity. Because the
credit is focused on hiring from targeted groups, and not net job creation, it is not necessarily
intended to create new jobs or promote recovery in labor markets.50 Studies evaluating the credit
have examined whether it increases job opportunities for targeted disadvantaged individuals, and
whether the WOTC is a cost-effective policy measure for achieving this objective.
Early evidence on the WOTC suggested that although the credit did offset part of the cost of
recruiting, hiring, and training WOTC-eligible employees, it had a limited effect on companies’
hiring decisions.51 More recent studies have found that the WOTC provided benefits to certain

49 IRC §51(c)(4).
50 Kenneth A. Couch, Douglas J. Besharov, and David Neumark, “Spurring Job Creation in Response to Severe
Recessions: Reconsidering Hiring Credits,” Journal of Policy Analysis and Management, vol. 32, no. 1 (Winter 2013),
pp. 142-171.
51 For an overview of the empirical literature on the WOT C, see U.S. Congress, Senate Committee on the Budget, Tax
Congressional Research Service

17

Temporary and Expiring Business Tax Provisions

groups: increasing the wage income of disabled veterans and increasing employment among long-
term welfare recipients, for example. Researchers have also explored whether the credit causes
employers to “churn” their workforce to take advantage of the credit, replacing currently credit-
ineligible workers with credit-certified workers. Evidence of this behavior has not been found.
For more information on the WOTC, see CRS Report R43729, The Work Opportunity Tax Credit,
by Benjamin Collins and Sarah A. Donovan.
Transfers of Excess Pension Assets to Retiree Health and Life Insurance Plans52
This provision, first enacted in the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508),
al ows firms with excess assets in their pension plans to transfer them to retiree health and life
insurance plans without causing adverse consequences, such as losing tax-exempt status, being
considered a prohibited transaction, or being included in income or subject to an excise tax on
reversions. The original legislation al owed transfers to health plans.
This provision has been extended on several occasions, by P.L. 103-465 in 1994, P.L. 106-170 in
1999, P.L. 108-218 in 2004, P.L. 112-141 in 2012, and by P.L. 114-41 in 2015. The 2012 law
added life insurance to the programs eligible for the transfers. The 2015 extension established the
December 31, 2025, expiration date.
Look-Through Treatment of Payments Betw een Related Controlled Foreign
Corporations53
Look-through rules effectively al ow U.S. corporations to reduce tax paid by al owing them to
shift the income of certain foreign subsidiaries in high-tax countries into a lower-taxed foreign
subsidiary. The temporary look-through rules were original y enacted in the Tax Increase
Prevention and Reconciliation Act of 2005 (P.L. 109-222), for 2006 through 2008, and
subsequently extended, most recently through 2025 in the Consolidated Appropriations Act, 2021
(P.L. 116-260).
Depending on its source, income earned abroad by foreign-incorporated subsidiaries of U.S.
parent corporations is taxed at full rates, not taxed at full rates, or not taxed at al . Tax rules
require passive income (such as interest income) and certain types of payments that can be easily
manipulated to reduce foreign taxes to be taxed at the full rate (21% for a corporate shareholder)
if earned by controlled foreign corporations (CFCs).54 This income is referred to as Subpart F
income, reflecting the part of the tax code where treatment is specified. Credits against the U.S.
tax imposed are al owed for any foreign taxes paid on this income, and are applied on an overal
basis (so that unused foreign taxes in one country can offset taxes paid on income in another
country). Other income earned abroad by CFCs is subject to the global intangible low -taxed
income (GILTI) provision, which taxes this foreign-source income at half the corporate tax rate

Expenditures: Com pendium of Background Material on Individual Provisions, committee print, prepared by
Congressional Research Service, 116th Cong., December 2020, S. Prt. 116-53, pp. 757-766, at https://www.crs.gov/
Reports/Pdf/CP10004.
52 IRC §420(b)(4).
53 IRC §954(c)(6).
54 A CFC is 50% or more controlled by U.S. parents who each have at least 10% ownership. Many CFCs are wholly
owned by one U.S. parent corporation. CFCs can be owned by individuals as well as corporations, but individual
shareholders are not eligible for benefits such as the GILT I deduction. Individuals can elect corporate treatment,
however.
Congressional Research Service

18

Temporary and Expiring Business Tax Provisions

(10.5%), after al owing a deduction for a deemed return of 10% on tangible assets. Credits are
al owed for 80% of foreign taxes paid. This GILTI rate is scheduled to rise to 13.125% after 2025.
Thus, some income (Subpart F) is taxed at the full rate, some income (GILTI) is taxed at partial
rates, and some income (the deemed return from tangible assets) is not taxed. (For a more
extensive discussion of international tax rules, see CRS Report R45186, Issues in International
Corporate Taxation: The 2017 Revision (P.L. 115-97), by Jane G. Gravel e and Donald J.
Marples.)
Unless an exception applies, Subpart F income includes dividends, interest, rent, and royalty
payments between related firms. These items of income are subject to Subpart F. If they were not
subject to subpart F, affiliated firms could shift income and avoid taxation. For example, without
Subpart F, a U.S. parent’s subsidiary (first-tier subsidiary) in a country without taxes (e.g., the
Cayman Islands) could lend money to its own subsidiary (second-tier subsidiary) in a high-tax
country. The interest payments would be deductible in the high-tax country, but no tax would be
due in the no-tax country. Thus, an essential y paper transaction would shift income out of the
high-tax country. A similar effect might occur if an intangible asset (e.g., a patent) were
transferred to the no-tax subsidiary, and then licensed in exchange for a royalty payment by the
high-tax subsidiary. As a result of Subpart F, this income is taxed at full rates.
Avoidance of Subpart F taxation was made easier in 1997, when U.S. entity classification rules
(to be a corporate or noncorporate entity) were simplified to al ow checking a box on a form.
These “check-the-box” regulations provided a way to avoid treatment of payments as Subpart F
income under certain circumstances by al owing firms to elect treatment as an unincorporated
entity. They were original y intended to simplify classification issues for domestic firms and the
IRS, but their usefulness in international tax planning quickly became evident. The Treasury
issued regulations in 1998 to disal ow their use to avoid Subpart F, but withdrew them after
protests from firms and some Members of Congress.55
In the example above, if the high-tax subsidiary is not a direct subsidiary of the U.S. parent but is
a subsidiary of the Cayman Islands subsidiary (i.e., a second-tier subsidiary), the Cayman Islands
(first-tier) subsidiary can elect to treat the high-tax subsidiary as if it were a pass-through entity.
This treatment would effectively combine the two subsidiaries into a single firm. This outcome
can be achieved simply by checking a box, making the high-tax subsidiary a disregarded entity
under U.S. law. Because there are no separate firms, no income is recognized by the Cayman
Islands firm, although the high-tax subsidiary (second tier) is stil a corporation from the point of
view of the foreign jurisdiction in which it operates and can deduct interest in the high-tax
jurisdiction.
The look-through rules expand the scope of check-the-box, as the check-the-box rules do not
work in every circumstance. For example, if the related firms do not have the same first-tier
parent, check-the-box does not apply. In some cases, because of foreign countries’ rules about
corporate and noncorporate forms, the check-the-box regulations’ classification of some entities
as per se corporations make this planning unavailable. In addition, other undesirable tax
consequences (from the firm’s point of view) could occur as a side effect of check-the-box. The
look-through rule effectively puts this check-the-box type of planning into the tax code, rather
than implementing it as a regulation (which could be altered without legislation), but disconnects
it from the check-the-box regulations’ creation of a disregarded entity. Related firms do not have
to have the parent-child relationship; they can be otherwise related as long as they are under
common control.

55 See Internal Revenue Service Notice 98-11 at https://www.irs.gov/pub/irs-drop/n-98-11.pdf.
Congressional Research Service

19

Temporary and Expiring Business Tax Provisions

The main argument against the look-through rules (and check-the-box) is that they undermine
Subpart F’s purpose, which is to prevent firms from using passive and easily shifted income to
avoid taxation. The main argument for the provision is to al ow firms the flexibility to redeploy
earnings from one location to another without having U.S. tax consequences (foreign tax rules are
unchanged). Firms could, for example, accomplish much of the treatment of look-through rules
(even in the absence of check-the-box), but that may involve complex planning and
inconvenience. An argument can also be made that in some cases (for example, with the payment
of interest), the profit shifting is not harming the U.S. Treasury, but rather reducing taxes
collected by foreign governments, as income is shifted out of high-tax countries into low-tax
ones. Some might view this last argument as a “beggar-thy-neighbor” argument because it
facilitates U.S. firms in using tax planning to reduce taxes paid to other countries.
Temporary Tax Provisions Enacted in the Tax Cuts and Jobs Act
(2017)
Deductibility of Employer De Minimis Meals and Related Eating Facility, and
Meals for the Convenience of the Employer 56
Prior to the 2017 tax revision (TCJA, P.L. 115-97), de minimis meals provided by an employer
through an eating facility and meals for the convenience of the employer were deductible even if
they were not included in income. The TCJA reduced that deduction to 50%, for the years 2018
through 2025, with no deduction after 2025.
The rationale for disal owing these deductions is to reduce the favorable treatment of firms and
their employees where meals are commonly provided, such as for restaurant employees or firms
remote from other eating facilities or with short lunch periods. Some interest in revising the
treatment of these meals was due to news reports about the provision of gourmet meals by Silicon
Val ey employers.57
Higher Exclusion Rates for GILTI and FDII58
Prior to the 2017 tax revision (TCJA; P.L. 115-97), earnings of foreign-related corporations were
taxed only when income was paid to the U.S. shareholder as a dividend, so that taxes were
deferred, perhaps indefinitely, with one exception. That exception was for income of controlled
foreign corporations (CFCs) that was easily shifted to avoid tax (cal ed Subpart F). CFCs are
foreign-incorporated firms that are 50% or more controlled by U.S. parents who each have at
least 10% ownership. Hence, under this exception, the corporate income tax applied to
CFCs’10% shareholders and it was retained in the 2017 revision.
Under the new regime, dividends paid by foreign firms are exempt (through a dividend-received
deduction) if a U.S. corporate shareholder owns at least 10% of the foreign firm. The new law
imposed a minimum tax on some of the CFCs’ remaining profits under the tax on global
intangible low-taxed income (GILTI), which is imposed after exclusion of a deemed return on
tangible assets and a deduction from the remainder. The deduction from the remaining income is
currently 50%, but that rate is scheduled to fal to 37.5% after 2025.

56 IRC §274(o).
57 See Mark Maremount, “ Silicon Valley’s Mouthwatering T ax Break,” Wall Street Journal, April 7, 2013, at
https://www.wsj.com/articles/SB10001424127887324050304578408461566171752.
58 IRC §250(a).
Congressional Research Service

20

Temporary and Expiring Business Tax Provisions

As in prior law, U.S. owners are al owed a credit for foreign taxes paid, although the credit for
GILTI income is limited to 80% of foreign taxes.
The 2017 law also enacted a provision to provide similar benefits to GILTI for domestic holdings
of intangible assets: the deduction for foreign-derived intangible income (FDII). FDII is
determined based on the share of exports and with an exclusion for a deemed return on tangible
assets. The remainder is eligible for a 37.5% deduction, which is scheduled to fal to 21.875%
under GILTI. The tax deductions for GILTI and FDII cannot exceed taxable income.
Among the purposes of the new regime was to end the system of U.S. taxation of CFCs where
taxes were triggered by repatriating income (paying dividends). The exemption of dividends led
to concerns that artificial profit shifting to low-tax jurisdictions would increase. The purpose of
GILTI and FDII was to reduce this profit shifting, which is associated with earnings from
intangible assets. Reducing the deductions wil increase the taxation of intangible foreign-source
income but maintain relative neutrality between holding intangible assets abroad or in the United
States. While a deduction for tangible assets has been aimed at targeting intangible income, this
deduction has been criticized for encouraging investment in tangible assets since that investment
reduces the GILTI tax and increases the tax in the United States by reducing the FDII deduction.
For additional discussion of GILTI and FDII, see CRS Report R45186, Issues in International
Corporate Taxation: The 2017 Revision (P.L. 115-97), by Jane G. Gravel e and Donald J.
Marples.
Lower Tax Rates and Credits for BEAT59
The 2017 tax revision (TCJA; P.L. 115-94) introduced the base erosion and anti-abuse tax
(BEAT) as an alternative minimum tax, and imposed it at a 10% rate on a broadened base. Most
credits are disal owed for BEAT, although a credit was al owed for the research credit and 80% of
the sum of three credits (the low-income housing credit, the renewable electricity production
credit in Section 45 of the code, and the Section 48 energy investment credit). The rate wil rise to
12.5% and the credits wil no longer be available after 2025.
BEAT aims to reduce profit shifting by adding back certain payments to related foreign
subsidiaries. Its focus is primarily on U.S. subsidiaries of foreign parents, although it applies in
general to related parties. It can also affect U.S. multinationals with foreign-source income from
higher-tax locations because it does not al ow foreign tax credit. It applies to corporations with
average annual gross receipts of at least $500 mil ion over the past three tax years and with
deductions attributable to outbound payments exceeding 3% of overal deductions (2% for certain
financial institutions).
Base erosion payments are payments to related foreign parties, including those that would result
in a deduction (such as interest, rents, royalties, and services), the purchase of depreciable or
amortizable property, certain reinsurance payments, and payments to certain inverted firms (who
have moved their headquarters abroad). Other than payments to inverted firms,60 costs of goods
sold would not be included, and costs of services would not be included if determined under the
services cost method.
BEAT was original y proposed without credits, but concerns about credits, particularly the
research credit, resulted in al owing these credits on a temporary basis. BEAT has also been

59 IRC §59A.
60 Inverted firms are firms that have moved their headquarters abroad. T his provision applies to firms that invert after
passage of the 2017 act.
Congressional Research Service

21

Temporary and Expiring Business Tax Provisions

criticized for not al owing foreign tax credits while including foreign-source income, such as
Subpart F and GILTI, in the tax base.
For additional discussion of BEAT, see CRS Report R45186, Issues in International Corporate
Taxation: The 2017 Revision (P.L. 115-97), by Jane G. Gravel e and Donald J. Marples.
20% Deduction for Pass-Through Businesses61
Pass-through business income general y is taxed according to ordinary individual income tax
rates. Under the 2017 revision, taxpayers may deduct 20% of qualified pass-through income. The
deduction is limited to the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5%
multiplied by depreciable property (equipment and structures). Specified service businesses
(health, law, accounting, actuarial science, performing arts, consulting, athletics, financial
services, brokerage services, and services consisting of investment and investment management,
and trading of securities, partnership interests, or commodities) general y may not claim the
deduction. The specified service business definition does not include architecture or engineering
firms. The deduction limitation and the specified service business limitation do not apply, for
2021, if taxable income is less than $164,900 (single) or $329,800 (married). These limits are
phased in over a $50,000 (single) and $100,000 (married) range, and thus apply fully at $214,900
(single) and $429,800 (married).
The pass-through deduction was enacted in part to al ow benefits to businesses not taxed as
corporations and thus not benefitting from the corporate rate cut (from 35% to 21%). Individual
tax rates were reduced by smal er amounts. The reduction also reduced the incentive for firms to
switch to a corporation form. This provision, however, unlike the corporate tax rate cut, was
scheduled to expire after 2025, as was the case for other individual tax changes that were not
related to business.
The provision has been criticized as adding to complexity, especial y given the phaseout and
exceptions, leading firms to engage in reorganizations to maximize use of the deduction (such as
splitting business sectors or combining them). The provision benefits high-income taxpayers,
with 80% of the benefit going to taxpayers with more than $200,000 of income.62
See CRS In Focus IF11122, Section 199A Deduction for Pass-through Business Income: An
Overview, by Gary Guenther and CRS Report R46650, Section 199A Deduction: Economic
Effects and Policy Options, by Gary Guenther for further discussion.
Provisions Expiring in 2026
Temporary Provisions Enacted in the Tax Cuts and Jobs Act (2017)
Limit on Excess Business Losses of Noncorporate Taxpayers63
Businesses are general y permitted to carry over a net operating loss (NOL) to certain past and
future years. Under the passive loss rules, individuals and certain other taxpayers are limited in
their ability to claim deductions and credits from passive trade and business activities, although

61 IRC §199A.
62 See Joint Committee on T axation, Tables Related to the Federal Tax System as in Effect 2017 -2026, JCX-32R-18,
April 24, 2018, at file:///C:/Users/jgravelle/Downloads/x-32R-18-5093.pdf.
63 IRC §461(l).
Congressional Research Service

22

Temporary and Expiring Business Tax Provisions

unused deductions and credits may general y be carried forward to the next year. Similarly,
certain farm losses may not be deducted in the current year, but can be carried forward to the next
year.
For taxpayers other than C corporations, the TCJA disal owed a deduction in the current year for
excess business losses and treats such losses as a NOL carryover to the following year. An excess
business loss is the amount that a taxpayer’s aggregate deductions attributable to trades and
businesses exceed the sum of (1) aggregate gross income or gain attributable to such activities
and (2) $250,000 ($500,000 if married filing jointly), adjusted for inflation. For partnerships and
S corporations, this provision was applied at the partner or shareholder level. The TCJA provision
was set to expire after 2025.
This TCJA provision was temporarily suspended for 2018 through the end of 2020 by the CARES
Act (P.L. 116-136). The limit on deductions was extended through 2026 by the American Rescue
Plan Act (P.L. 117-2).
See CRS Insight IN11296, Tax Treatment of Net Operating Losses (NOLs) in the Coronavirus
Aid, Relief, and Economic Security (CARES) Act, by Jane G. Gravel e and CRS Report R46377,
The Tax Treatment and Economics of Net Operating Losses, by Mark P. Keightley, for further
discussion.
First-Year Depreciation
The cost of assets that provide services over a period of time, such as machines or buildings, is
deducted over a period of years as depreciation. The schedule of depreciation deductions depends
on the asset’s life and the distribution of deductions over that life. Straight-line depreciation is
used for structures, where equal amounts are deducted in each year. For equipment, deductions
are accelerated, with larger amounts deducted in earlier years. Equipment is most commonly
depreciated over 5 years or 7 years, but some short-lived assets are depreciated over 3 years and
some longer-lived assets are depreciated over 10, 15, or 20 years. Residential structures are
depreciated over 27.5 years and nonresidential structures are depreciated over 39 years. Aside
from the desire for economic stimulus, traditional economic theories suggest that tax depreciation
should match economic (physical) depreciation of assets as closely as possible.
The expensing provision al ows immediate deductions for depreciation, which are valuable
because of the time value of money. A fixed reduction in tax liability today is worth more than
that same fixed reduction in tax liability in the future. Expensing provisions al ow a firm to
deduct the cost of an asset the year it is placed in service. Expensing or partial expensing is also
commonly referred to as bonus depreciation. The expensing provision does not apply to
structures.
Through 2022, bonus depreciation of 100% al ows for full expensing of investments in qualifying
equipment and property. The share of investments that can be deducted in the year they are
incurred is scheduled to decrease to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and
0% for property acquired and placed in service in 2027 and thereafter.
Full expensing leads to an effective zero tax rate on new tangible business investment, and to
negative tax rates when financed in part by borrowing. Incentives for equipment investment favor
those investments relative to investment in buildings, although they lead to uniform treatment
with respect to investment in most intangibles (such as research and development), which are
currently expensed. (Research and development expensing is currently scheduled to be replaced
by five-year amortization in 2022.)
Congressional Research Service

23

Temporary and Expiring Business Tax Provisions

For more information, see CRS Report RL31852, The Section 179 and Section 168(k) Expensing
Allowances: Current Law and Economic Effects, by Gary Guenther.
Additional Depreciation for Trees Producing Fruits and Nuts64
Uniform capitalization rules require the costs of orchards to be capitalized and depreciated only
when the trees reach an income-producing level. This provision al ows depreciation when trees
are planted.
The provision was original y introduced by the Protecting Taxpayers from Tax Hikes Act,
Division Q of the Consolidated Appropriations Act, 2016 ( P.L. 114-113).
Most farmers are familiar with the uniform capitalization rules. Typical y, when orchards are
acquired before the trees have reached an income-producing level, the preproductive costs must
be capitalized. But a farmer may choose to elect out of the rules at the cost of a slower
depreciation method known as the alternative depreciation system (ADS). The language adopted
at that time referenced ADS deductions relative to the existing depreciation provisions at that
time. The provision was amended by the 2017 tax revision (TCJA; P.L. 115-97) to provide a
deduction for the ADS system consistent with the expensing provisions adopted in that law.
Election to Invest Capital Gains in an Opportunity Zone65
The 2017 tax revision (TCJA; P.L. 115-97) temporarily authorized Opportunity Zone (OZ) tax
incentives, which are intended to encourage private investment in economical y distressed
communities. OZ tax incentives are al owed for investments held by Qualified Opportunity Funds
(QOFs) in qualified OZs. In 2018, the Community Development Financial Institutions (CDFI)
Fund in the Treasury Department designated qualified census tracts that are eligible for OZ tax
incentives after receiving recommendations from state executives (e.g., governors). Qualified OZ
designations for census tracts are in effect through the end of 2026.
OZ tax incentives include (1) a temporary tax deferral for capital gains reinvested in a QOF, (2) a
step-up in basis for any investment in a QOF held for at least five years (10% basis increase) or
seven years (15% basis increase), and (3) a permanent exclusion of capital gains from the sale or
exchange of an investment in a QOF held for at least 10 years.
Taxpayers can defer capital gains tax due upon sale or disposition of a (presumably non-OZ) asset
if the capital gain portion of that asset is reinvested within 180 days in a QOF.66 Under current
law, the deferral of gain is available on qualified investments up until the earlier of (a) the date on
which the investment in the QOF is sold or exchanged, or (b) December 31, 2026. In other words,
this deferral is only in effect until December 31, 2026. Any reinvested capital gains in a QOF
made before this date must be realized on December 31, 2026. Thus, investors would realize the
deferred gain in their 2026 income filings, even if they do not sel or dispose of their investment
in a QOF. Any reinvested capital gains in a QOF after this date are not eligible for deferral.

64 IRC §168(k)(5)(A).
65 IRC §1400Z-(2)(a)(2)(B).
66 IRS issued regulations extending the 180-day window for certain investments in qualified opportunity funds. If the
last day of the 180-day investment period within which a taxpayer must make an investment in a QOF in order to
satisfy the 180-day investment requirement falls on or after April 1, 2020, and before March 31, 2021, the last day of
that 180-day investment period is postponed to March 31, 2021. See IRS Notice 2021-10, January 19, 2021, p. 8, at
https://www.irs.gov/pub/irs-drop/n-21-10.pdf.

Congressional Research Service

24

Temporary and Expiring Business Tax Provisions

See CRS Report R45152, Tax Incentives for Opportunity Zones, by Sean Lowry and Donald J.
Marples for additional discussion.
Provision Expiring in 2027
Temporary Tax Provision Enacted by the Tax Cuts and Jobs Act
(2017)
Citrus Plants Lost by Casualty67
The uniform capitalization (UNICAP) rules address the method for determining costs that
taxpayers are required to capitalize or treat as inventory. They general y apply to property
produced in a trade or business or acquired for resale. One exception is for edible plants lost or
damaged by reason of a casualty or similar event. The exception may apply to (1) the taxpayer’s
cost of replanting such plants and (2) costs paid or incurred by other persons if the taxpayer has
more than a 50% equity interest in the plants at al times during the year and the other person
owns any of the remaining interest and material y participates in the planting or similar activities.
The TCJA (P.L. 115-97) expanded this treatment to persons other than the taxpayer if (1) the
taxpayer has an equity interest of at least 50% in the replanted plants at al times during the year
and the other person owns any of the remaining interest, or (2) the other person acquired the
taxpayer’s entire equity interest in the land on which the plants were located and the replanting is
on such land. This expansion expires in 2027.
Provisions Made Permanent
Business “Tax Extenders”
Credit for Certain Expenditures for Maintaining Railroad Tracks68
Qualified railroad track maintenance expenditures paid or incurred in a taxable year by eligible
taxpayers qualify for a 50% business tax credit. The credit is limited to $3,500 multiplied by the
number of miles of railroad track owned or leased by an eligible taxpayer. Qualified railroad track
maintenance expenditures are amounts, which may be either repairs or capitalized costs, spent to
maintain railroad track (including roadbed, bridges, and related track structures) owned or leased
as of January 1, 2005, by a Class II or Class III (regional or local) railroad. Eligible taxpayers are
smal er (Class II or Class III) railroads and any person who transports property using these rail
facilities or furnishes property or services to such a person.
The taxpayer’s basis in railroad track is reduced by the amount of the credit al owed (so that any
deduction of cost or depreciation is only on the cost net of the credit). The credit cannot be
carried back to years before 2005. The credit is al owed against the alternative minimum tax. The
amount eligible is the gross expenditures, not accounting for reductions such as discounts or loan
forgiveness.

67 IRC §263A.
68 IRC §45G.
Congressional Research Service

25

Temporary and Expiring Business Tax Provisions

The provision was enacted in the American Jobs Creation Act of 2004 (P.L. 108-357) and
extended numerous times. The provision relating to discounts was added by the Tax Relief and
Health Care Act of 2006 (P.L. 109-432). The credit was al owed against the alternative minimum
tax by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). It was most recently
extended through 2022 by the Further Consolidated Appropriations Act, 2020 (P.L. 116-94). It
was made permanent in the Consolidated Appropriations Act, 2021 (P.L. 116-260), although the
50% rate is reduced to 40% after 2022.
This provision substantial y lowers the cost of track maintenance for the qualifying short-line
(regional and local) railroads, with tax credits covering half the costs for those firms and
individuals with sufficient tax liability. Class II and III railroads account for 32% of the nation’s
freight rail miles.69 These regional railroads are particularly important in providing transportation
of agricultural products.
Although no rationale was provided when the credit was introduced, sponsors of earlier
freestanding legislation and industry advocates indicated that the purpose was to encourage the
rehabilitation, rather than the abandonment, of short-line railroads. These railroads were spun off
in the deregulation of railroads in the early 1980s. Advocates also indicated that this service is
threatened by heavier 286,000-pound cars that must be used to connect with longer rail lines.
They also suggested that preserving these local lines would reduce local truck traffic. There was
also some indication that a tax credit was thought to be more likely to be achieved than grants.
The arguments stated by industry advocates and sponsors of the legislation are also echoed in
assessments by the Federal Railroad Administration (FRA), which indicated the need for
rehabilitation and improvement, especial y to deal with heavier cars. The FRA also suggested that
these firms have limited access to banking.70
Provisions Modifying the Excise Taxes on Wine, Beer, and Distilled Spirits71
The temporary provisions modifying excise taxes on alcoholic beverages were original y enacted
through 2019 in the 2017 tax revision (TCJA; P.L. 115-97). The first provision applies to beer,
wine, and distil ed spirits broadly. The provisions that apply only to beer, wine, or distil ed spirits
are discussed separately below.
These temporary provisions are made permanent by the Consolidated Appropriations Act, 2021
(P.L. 116-260).
In general, the uniform capitalization (UNICAP) rules require some costs that would otherwise be
immediately deductible (such as interest and overhead) to be added to inventory or to the cost of
property and deducted in the future when goods are sold or assets depreciated. In the case of
interest costs, the rules apply only if the asset is long-lived or has a production period over two
years or a production period over one year and a cost of more than $1 mil ion. The production
period includes any customary aging period. A temporary modification to the UNICAP rules
exempts the aging periods for beer, wine, and distil ed spirits from the production period for the
UNICAP interest capitalization rules, thus leading to shorter production periods.

69 Association of American Railroads, “Railroad 101,” June 2019, at https://www.aar.org/wp-content/uploads/2018/08/
Overview-of-Americas-Freight -RRs.pdf.
70 See discussion in United States Senate, Committee on the Budget, Tax Expenditures: Compendium of Background
Material on Individual Provisions, Prepared by the Congressional Research Service, 108 th Congress, 2nd Session, S. Prt.
108-54, December 2004, p. 341, at https://www.govinfo.gov/content/pkg/CPRT -108SPRT97214/pdf/CPRT -
108SPRT 97214.pdf.
71 IRC §§263A, 5041, 5051, 5414.
Congressional Research Service

26

Temporary and Expiring Business Tax Provisions

Beer
Absent the temporary excise tax modification provisions, the excise tax rate on beer producers is
$18 per barrel (31 gal ons), and smal brewers that domestical y produce no more than 2 mil ion
barrels annual y are subject to a rate of $7 per barrel on the first 60,000 barrels. The temporary
provision reduces the rate for smal brewers (producing no more than 2 mil ion barrels) to $3.50
per barrel on the first 60,000 barrels and $16 per barrel on the remaining production. Beer
importers and large producers meeting certain requirements may also be eligible for the reduced
rate of taxation. For al other producers or importers, the excise tax rates are $16 per barrel on the
first 6 mil ion barrels.
The tax on beer is due when the beer is removed from the brewery for sale. Beer can be
transferred between breweries that are commonly owned (and released from customs) without
paying the tax (although tax would be paid on the eventual sale). The temporary provision also
al ows transfer without payment of tax to an unrelated brewer if the transferee accepts
responsibility for paying the tax.
Wine
Excise taxes are imposed at different rates on wine, depending on the wine’s alcohol content and
carbonation levels. Stil wines are taxed at $1.07 per wine gal on (w.g.) if they are 14% alcohol or
less, $1.57/w.g. if they are 14% to 21% alcohol, and $3.15 per w.g. if they are 21% to 24%
alcohol. Natural y sparkling wines are taxed at $3.40 per w.g. and artificial y carbonated wines
are taxed at $3.30 per w.g.
Absent the temporary provisions, up to a $0.90 credit against excise tax liability ($0.056 per w.g.
for hard cider) may be available for the first 100,000 w.g. removed by a smal domestic winery
producing not more than 150,000 w.g. per year. The per wine gal on tax credit rate is phased out
on production in excess of 150,000 w.g. for wineries producing not more than 250,000 w.g. per
year. This smal winery credit does not apply to sparkling wine.
The temporary provisions modify the credit for smal domestic wineries to al ow it to be claimed
by domestic and foreign producers, regardless of the gal ons of wine produced. The credit is also
made available to sparkling wine producers. Also, a $1.00 credit against excise tax liability may
be available for the first 30,000 w.g. removed annual y by any eligible wine producer or importer.
The credit is reduced to $0.90 on the next 100,000 w.g., and $0.535 on the next 620,000 w.g. In
contrast to permanent law, this credit is not phased out based on production. For hard cider, the
credit rates, above, are adjusted to $0.062 per gal on, $0.056 per gal on, and $0.033 per gal on,
respectively.
Mead is taxed according to wine excise tax rates depending on its alcohol and carbonation
content. Natural y sparkling wines are taxed at $3.40 per w.g. and artificial y carbonated wines
taxed at $3.30 per w.g. Under the temporary provision, mead and certain sparkling wines are to be
taxed at the lowest rate applicable to stil wine of $1.07 per wine gal on. Mead contains not more
than 0.64 grams of carbon dioxide per hundred mil iliters of wine, is derived solely from honey
and water, contains no fruit product or fruit flavoring, and contains less than 8.5% alcohol. The
sparkling wines eligible to be taxed at the lowest rate contain no more than 0.64 grams of carbon
dioxide per hundred mil iliters of wine, are derived primarily from grapes or grape juice
concentrate and water, contain no fruit flavoring other than grape, and contain less than 8.5%
alcohol.
Congressional Research Service

27

Temporary and Expiring Business Tax Provisions

Distilled Sprits
Producers and importers of distil ed spirits are taxed at a rate of $13.50 per proof gal on (ppg) of
production. Under the temporary provision, the tax rate is lowered to $2.70 ppg on the first
100,000 proof gal ons, $13.34 ppg for proof gal ons in excess of that amount but below
22,130,000 proof gal ons, and $13.50 ppg for amounts thereafter. The provision contains rules to
prevent members of the same control ed group from receiving the lower rate on more than
100,000 proof gal ons of distil ed spirits.
Distil ed spirits are taxed when removed from the distil ery, or, in the case of an imported
product, from customs custody or bonded premises. Bulk distil ed spirits may be transferred in
bond between bonded premises without being taxed, but may not be transferred in containers
smal er than one gal on. The temporary provision al ows transfer of spirits in approved containers
other than bulk containers without payment of tax.

Author Information

Jane G. Gravelle, Coordinator
Sean Lowry
Senior Specialist in Economic Policy
Analyst in Public Finance

Molly F. Sherlock, Coordinator
Donald J. Marples
Specialist in Public Finance
Specialist in Public Finance

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
R46800 · VERSION 1 · NEW
28

Download PDF

Download EPUB

Revision History

May. 24, 2021

HTML · PDF

Metadata

Topic areas

Economic Policy

Report Type: CRS Report

Source: CRSReports.Congress.gov

Raw Metadata: JSON