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Another stab at extenders, this time without the expanded S Corp tax

The controversial Form 1099 reporting requirement might still be on the books, but another tax proposal that ticked off businesses appears to be on its way out.

Senate Finance Committee Chair Max Baucus (D-Mont.) today released a new version of tax extenders legislation. It includes the popular individual tax breaks that expired at the end of 2009:

  • Tuition and fees above-the-line deduction,
  • State and local sales tax itemized tax deduction,
  • Additional standard deduction for real property taxes,
  • Educators out-of-pocket expenses above-the-line deduction, and
  • Tax-free roll over of IRA distributions directly to qualified charities.

Business, however, will be thrilled to learn that the proposed employment tax for professional service businesses, aka the expanded S Corp tax, is not in today's version of the The Jobs Creation and Tax Cuts Act.

The summary of the differences between this bill and the one rejected by the Senate this summer notes:

The bill removes a provision contained in the June 23, 2010 version of the American Jobs and Closing Tax Loopholes Act that would have closed a loophole in the tax code that allows some service professionals to avoid Medicare and Social Security taxes by routing their self-employment income through S-corporations or other pass-through organizations. The removal of this provision costs $9.1 billion over ten years.

The not so good news: However, there are still some glitches.

First, the tax-break extensions generally are for this year only.

So on Dec. 31, 2010, just a little more than three months from now, most of the tax laws will be dead again.

And, more immediately problematic, the newest version of the tax extenders bill isn't popular with the full Senate.

Baucus tried today to pass his new bill by unanimous consent. That effort failed when Baucus' Finance Committee colleague Orrin G. Hatch (R-Utah) objected.

Hatch's problem with the latest tax package? It doesn't extend the research credit permanently and it raises taxes on the carried interest income earned by partners in investment management firms.

I suspect other Senators (including the duo from Texas) also aren't too happy with the proposal that, to replace revenue lost by dropping the S Corp payroll tax expansion, continued tax breaks be paid for in part by hiking the excise tax on oil to 78 cents per barrel, versus the previous suggested increase of 49 cents per barrel.

No word yet on the next moves for considering the Senate tax extenders bill. Baucus, however, says he's committed to getting the legislation passed "fairly soon."

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