Congress passes omnibus government funding bill

Congress passed the $1.7 trillion Consolidated Appropriations Act, 2023 (the Act). Most of the Act is not tax-focused. However, it does contain some new tax provisions:

• Expanding retirement savings options in provisions called SECURE 2.0, of 2022 (SECURE 2.0) 
• Limiting tax deductions for certain charitable contribution of conservation easements

Also included was a 2% cut to certain IRS funding previously included in the Inflation Reduction Act.

Throughout the fall, there was much discussion about extending some, if not all, of the more than 40 temporary tax provisions that had expired at the 2021, including:

• Increase in exclusion for employer-provided dependent care assistance
• Extension of favorable formula used to compute business interest expense deduction under section 163(j)
• Charitable contribution deduction by non-itemizers

Most notably, the Act did not include either any extensions to either the increased child tax credit or to these very popular business-favorable rules:

• Research and experimental costs: The Tax Code requires capitalization of research and experimental costs for taxable years beginning after Dec. 31, 2021. Since the Act does not delay or eliminate this capitalization rule, taxpayers will need to determine which of their costs are covered by the capitalization requirement. To do this, taxpayers must consider numerous technical issues that currently are not addressed in regulations or other IRS and Treasury guidance. Significant work may be required, so impacted taxpayers should begin addressing this as soon as possible. While there are gray areas in many situations, section 174 specifically requires capitalization of software development costs. The IRS and Treasury included section 174 guidance on their recently released Priority Guidance Plan but have not yet issued any regulations or other guidance.
• Bonus depreciation: Through 2022, U.S. companies can deduct 100% of certain equipment purchase costs right away via bonus depreciation. The Act does not extend 100% bonus depreciation. As a result, the bonus depreciation percentage generally decreases to 80% for property placed in service after Dec. 31, 2022, and before Jan. 1, 2024.