Once House and Senate Republicans agree on a concurrent budget resolution, the House Committee on Ways and Means and the Senate Committee on Finance will have twin targets for spending cuts and tax relief in the pending reconciliation bill. One issue that must be decided is the effective date of the so-called "Big Three" business extenders – the section 174 research and development (R&D) amortization fix, the use of earnings before interest, taxes, depreciation, and amortization (EBITDA) for purposes of the section 163(j) interest expense deduction limitation, and 100 percent bonus depreciation.
 
These three important business tax relief provisions were enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA) but were sunset due to revenue limits. Fully deducting R&D expenditures expired at the end of 2021. Since then, taxpayers must capitalize and amortize these expenditures over five years. Similarly, the ability to use EBITDA for purposes of section 163(j) also expired at the end of 2021 so, since 2022, taxpayers are required to use the less favorable earnings before interest and taxes (EBIT) for this purpose. One hundred percent bonus depreciation started ramping down at the end of 2022 (currently at a 40 percent rate for 2025).
 
The Tax Relief for American Families and Workers Act of 2024 (H.R. 7204), which passed the House on a bipartisan vote in January 2024 but stalled in the Senate on a procedural vote, sought to extend each of these provisions retroactively and through 2025. Since the demise of that legislation, supporters hope to see them retroactively extended in a forthcoming tax reconciliation bill.
 
A number of political, practical, and pecuniary considerations must be weighed by lawmakers regarding the proposed retroactivity of tax provisions. Interestingly, in his joint address to Congress last week, President Trump expressed support for 100 percent bonus depreciation, retroactive to his inauguration on January 20, 2025. That date is a departure from the general norm where an effective date is based on taxable years beginning after December 31 or taxable years beginning before January 1. More importantly, the January 20 date may serve as a demarcation for the other two extenders as well. Committee on Ways and Means Chairman Jason Smith (R-MO) responded by stating: "The president last night said the 20th, and if the president wants the 20th, I'll make it the 20th, but just I hope people didn't make a lot of investments from January 1st to the 20th, or the 19th."
 
While proponents of the Big Three have been closely watching for positive signs regarding retroactive extension, Trump's specified date in his joint address is a strong indication that it could be challenging to secure an earlier retroactive effective date. #TaxTake

Upcoming Speaking Engagements and Events

Marc will also speak at the 70th Annual William & Mary Tax Conference on March 20. His session will cover recently enacted tax legislation and the impact of the 2024 presidential and congressional election results on the federal tax legislative agenda for 2025 and beyond.
 

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