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Includes Tax Extenders
By Robert Giese
bob.giese@chsfl.org

After months of negotiation, Senate Finance Committee Chair Max Baucus (D-MT) and House Ways and Means Committee Chair Sander Levin (D-MI) have announced an agreement.

Passed House and Senate

The House and Senate both previously passed bills that would extend over 40 tax provisions, including the IRA Charitable Rollover. Because there were different tax offsets in the House and Senate bills, extended negotiations were required to find tax increases acceptable to both.

The House bill paid for the tax extenders by increasing the tax rate on hedge fund managers. Currently, the “carried interest” or income of hedge fund managers is taxed at capital gain rates. The House proposed to tax this income at the higher ordinary income rates.

American Jobs and Closing Tax Loopholes Act of 2010

Under the compromise published in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), the “carried interest” amounts will be subject to increased tax. For hedge fund managers, 75% of income is taxed at ordinary rates and 25% is taxed as long-term capital gain.

Vote this Week

The House plans to vote on the bill the week of May 24. Former Chair of the House Ways and Means Committee Charles Rangel (D-NY) stated, “For a lot of members, it’s a very difficult vote and they don’t want to take a vote unless they have assurance that the Senate is going to pass it.”

Assessment

Sen. Max Baucus indicated that he expected to find the 60 votes required for passage in the Senate. As is true in the House, a number of Senators who represent regions with financial service firms are concerned about the change in the tax on hedge fund managers. However, Sen. Baucus indicates that the votes are likely to be sufficient to pass the bill.

Editor’s Note: Because the tax extenders portion of the bill includes the educational deduction for teachers, a research and development credit for business and many other popular provisions, similar bills normally pass by large margins. Even with the tax offsets, it is probable that the bill will pass in the next few weeks. Charities should begin planning their fall IRA Charitable Rollover marketing campaigns. Because most individuals with larger IRAs take their required minimum distributions in the fall, there is still time to have a successful IRA Rollover Campaign in 2010.

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Filed under: Breaking News, Financial Planning, Retirement and Benefits, Taxation | Tagged: American Jobs and Closing Tax Loopholes Act of 2010, H.R. 4213, House Ways and Means Committee, IRA Charitable Rollover, Senate Finance Committee, tax extenders | 3 Comments »