Daily Tax Update - December 31, 2012: US Will Temporarily Go Over Fiscal Cliff-No House Vote Tonight-Agreement Reached on Tax Provision

U.S. WILL TEMPORARILY GO OVER FISCAL CLIFF – NO HOUSE VOTE TONIGHT –  AGREEMENT REACHED ON TAX PROVISIONS:  This afternoon, President Obama said that an agreement to avert the "fiscal cliff" of automatic tax increases and spending cuts appears to be "within sight."  The President said, "There are still issues left to resolve, but we are hopeful Congress can get it done."

  • Senate Minority Leader Mitch McConnell said, "I can report that we’ve reached an agreement on all of the tax issues. We are very, very close."
  • The House is expected to vote on the package January 1st or 2nd. 
  • According to reports:  the agreement would:
    • “Set the top rate at 39.6% on income over $400,000 for individuals and $450,000 for joint filers while permanently extending current policy rates below those thresholds. Those thresholds also apply to capital gains rates, with those below the threshold paying 15% and those above paying 20%.
    • Permanent alternative minimum tax relief and a package of extenders approved by the Finance Committee, which includes the research credit, the state and local sales tax deduction, and the subpart F active financing income exception, but it would not renew several incentives including disaster relief stemming from hurricanes Katrina and Rita, enhanced charitable deductions for donations of book or computer inventory, and tax subsidies for ethanol used as fuel.
    • The estate tax would be set at 40%, with a $5 million exemption.
    • The Pease limitation on itemized deductions and the personal exemption phaseout would be permanently reinstated for those earning more than $250,000 per year ($300,000 for joint filers).
    • The American opportunity tax credit, child credit, and earned income tax credit would be extended for five years.
    • The 50% bonus depreciation for some property would be extended for one year.”

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE  Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.