President Bush Signs Tax Reconciliation Bill Into Law

On Wednesday, May 17, President Bush signed into law a $70 billion tax reconciliation bill (H.R. 4297). The legislation includes broader individual relief individuals affected by the alternative minimum tax (AMT); a two-year extension of capital gains and dividend tax relief; and an extension of the law allowing business to expense the first $100,000 in capital investments annually.

The major provisions included in the Tax Reconciliation Act of 2005 (H.R. 4297) are outlined below:

• Two-year extension of 15 percent top capital gains and dividends rates.
• One-year AMT hold harmless provision, with allowance to use nonrefundable credits against liability.
• Two-year extension of the active financing exception under Subpart F.
• Lookthrough treatment of payments between related CFCs under foreign personal holding company income rules.
• Two-year extension of $100,000 limitation on Section 179 small business expensing.

Congressional tax-writers have now turned their attention to a second, follow-on tax bill that will include tax policy extensions that were not included in the reconciliation bill due to a $70 billion revenue ceiling. This "trailer bill" is expected to include a two-year extension of the deduction for state and local sales taxes, along with a one-year extension of the so-called business extenders - a package of popular tax breaks that includes the research and development credit, the work opportunity tax credit, and the deduction for qualified higher education expenses.

House Ways and Means Committee Chair William M. Thomas, R-Calif., has indicated that he intends to complete work on the trailer bill in time to include it in pending pension reform legislation (H.R. 2830) that congressional leaders hope to pass before the Memorial Day recess, which begins on May 29. However, he and Senate Finance Committee Chair Charles Grassley, R-Iowa, have not yet worked out the final details of the trailer package.

Prepared May 18, 2006, by Mark Prysock (mprysock@FinancialExecutives.org), General Counsel, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above.