The Tax Relief for American Families and Workers Act of 2024: Will it pass?

When the House passed H.R. 7024, Tax Relief for American Families and Workers Act of 2024, on January 31, 2024, by a vote of 357-70, it was widely believed that the Senate would quickly pass the bill and send it to President Biden for signature.

Over two months have passed, and it is no longer a question of when the Senate will pass the bill, but rather if the Senate will pass the bill.

As a reminder, these are the three key provisions included in the bill for businesses:

• Restore immediate expensing of domestic research and development costs
• Reinstate 100% bonus depreciation
• Restore the addback of depreciation, amortization and depletion when determining IRC Section 163(j) adjusted taxable income

The bill would make these provisions retroactive and extend them through 2025. 

Insights from Washington

Certain members within the Senate have raised issues with various aspects of the bill and indicated they would look for the bill to go through full debate. If the Senate made significant changes to the bill, the House may not pass the revised bill.

In order to invoke cloture (a process to limit debate within the Senate), 60 votes are needed. At this time, Senate Majority Leader Chuck Schumer has said he does not feel he has the 60 votes needed and therefore has not yet scheduled the bill for debate on the Senate floor.

There is no indication this stalemate will be resolved. As this is an election year, the more time elapses in 2024 without action on the bill, the more likely it is that the legislature will “kick the can down the road,” leaving these issues for the next Congress to address as part of the Tax Cut and Jobs Act provisions that expire at the end of 2025.

What does this mean for 2023 income tax returns?

Many businesses filed extensions for their income tax returns, expecting that the legislation would be passed before the extended due date.

Over the next month or so, if no progress is made, businesses will need to decide on when to move forward with filing income tax returns under current law. Companies run the risk of not having the necessary resources available to file if they wait until shortly before the extended due date.

Some might ask, “Can’t I file my 2023 income tax return assuming the law will get passed and it will be effective retroactively?” That filing position would likely put a business at risk for the IRS accuracy-related penalty (20% of the underreported tax) along with interest, currently charged at 8%.

In some cases, the accuracy penalty can be avoided if the tax position has a reasonable basis and is properly disclosed on the income tax return. The IRS rules say that reasonable basis is not satisfied by a return position that is merely arguable. At this time, it is likely the IRS would assert that filing a tax return based on the provisions proposed in H.R. 7024, Tax Relief for American Families and Workers Act of 2024, does not rise to the level of reasonable basis.

How Wipfli can help

If you think your business may be impacted by the uncertainty surrounding this legislation, don’t get stuck waiting for clarity. Our tax professionals can assess your situation and offer advice to help you avoid costly tax penalties and interest. Contact Wipfli today and get the answers you need to keep moving forward.