December 27, 2012 / 9:16 PM / in 5 years

Factbox: Corporate tax breaks in play at "cliff" and beyond

(Reuters) - The White House and the U.S. Congress are sizing up a range of corporate tax breaks as part of the “fiscal cliff” debate and a possible comprehensive revamping of the tax code next year.

No major changes are likely before January 1, when a host of sharp tax increases and federal spending cuts will begin to take effect unless lawmakers move quickly to avoid the “fiscal cliff,” according to Capitol Hill aides and lobbyists.

But the Obama administration has said it would support corporate tax reform under a “fiscal cliff” deal.

President Barack Obama unveiled a corporate tax reform plan in February. In that plan, he targeted many corporate tax breaks to help reduce the federal deficit. Here are some of them:


A mix of business and individual tax breaks known as the “tax extenders” have mostly expired and need renewal by year-end so companies can claim them in 2013. Among the biggest:

* R&D CREDIT - Renewal of a credit for research and development. Popular with Democrats and Republicans, the credit is critical to software, drug and aerospace companies.

* OFFSHORE INTEREST - Renewal of a tax break allowing companies to avoid tax on interest income earned outside the United States. Has bipartisan support. Could be part of a bigger deal to extend expiring individual tax cuts.

* WIND ENERGY. Extension of a tax credit for wind energy. Has bipartisan support, but faces resistance from traditional power groups and some Republicans.

* BONUS DEPRECIATION - Tax break with bipartisan support that lets businesses immediately depreciate certain new capital and equipment investments. It, too, expires at end of the year.


Though technically not part of the “fiscal cliff,” there are evergreen “revenue raisers” that typically get thrown into the negotiating mix in end-of-the-year talks. They include:

* CARRIED INTEREST - Obama and many Democrats want to raise the tax rate paid by managers of private equity, venture capital and real estate partnerships to the top income tax rate. They now enjoy the 15 percent capital gains rate on these earnings.

* OIL AND GAS SUBSIDIES - Democrats and a few Republicans want to kill energy sector tax breaks, including the oil and gas well depletion allowance; the domestic manufacturing deduction on oil and gas; and the expensing of intangible drilling costs.

* CORPORATE JETS - Obama has proposed the repeal of an accelerated depreciation tax break for corporate jet owners.


The tax code is immense and overhauling it would put scores of corporate tax breaks in play. Obama has the most detailed plan so far. Republicans have offered few specifics.

* LAST IN, FIRST OUT (LIFO) ACCOUNTING - Obama has proposed repealing this accounting technique, used in some industries, especially oil and gas. Companies say this change would force them to revalue old inventory to higher prices.

* CORPORATE TAX RATE - Obama agrees with much of the business community on one thing: The top 35-percent corporate tax rate should come down. Obama backs trimming it to 28 percent; many Republicans propose 25 percent.

* MINIMUM OVERSEAS PROFITS TAX - The White House proposed a minimum tax on overseas profits and using the revenues to help companies investing in the United States.

* PROFIT DEFERRAL - Obama proposed cutting off a deduction for interest expenses on foreign earnings for deferred taxes.

* FOREIGN TAX CREDIT POOLING - Obama proposed closing what critics call a loophole that lets companies claim more in tax credits than would be paid in U.S. taxes by manipulating which foreign subsidiaries pay out dividends.

* INTANGIBLE PROPERTY - Obama proposed closing a tax break that allows U.S. companies to shelter overseas profits from intangible property, such as royalties from drug patents.

* DEDUCTIONS FOR MOVING EXPENSES - Obama proposed limiting a tax break for expenses incurred when a U.S. company closes a plant and moves overseas. Obama would give a tax credit of 20 percent for the cost of moving back to the United States.

Additional reporting by Kim Dixon, Patrick Temple-West; Editing by Cynthia Osterman

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