Senator Ron Wyden (D-OR), ranking member of the Senate Finance Committee, today in conjunction with a Senate Finance Committee hearing on business tax reform, introduced the Cost Recovery Reform and Simplification Act of 2016. The bill would replace the current cost recovery system with an Accelerated Mass Asset Cost Recovery and Reinvestment System (“A-MACRRS”).
In his opening statement at today’s Senate Finance Committee hearing on business tax reform, Senator Wyden said the following with regard to his depreciation proposal:
If you own a small business today, you’re in danger of being ensnared in an outdated, overgrown tax code that Americans spend 6.1 billion hours and more than $100 billion complying with each year. The code is punishing those who don’t have a team of accountants and the luxury of time to plan investments around taxes. The tax code tells small businesses that their dollar is worth less, compared to sophisticated firms that can afford to make the rules work for them. I see an enormous opportunity to modernize the code and strip out a lot of that unfairness by radically simplifying our system of depreciation. That’s why today I release the Cost Recovery Reform and Simplification Act of 2016.
According to documents released by the Finance Committee on its website in conjunction with the proposal, the bill would:
Among the preliminary observations of the proposal, it has been observed that it would eliminate almost all flexibility in the determination of depreciation. For example, there is no provision to elect to depreciate an asset, or even a group of assets, using a slower cost recovery rate than that provided for the asset’s pool. The election to depreciate property using a units of production or similar method also would be repealed.
If enacted, the proposal would likely result in increased book-tax differences around fixed assets, primarily in the treatment of dispositions. Since, under the proposal, the adjusted basis in a disposed asset would not be removed from the pool upon disposition (although the pool would be reduced by any proceeds received), taxpayers would face differences in book and tax fixed asset basis as soon as they dispose of a single fixed asset.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.