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If you own a small business today, you’re in danger of being ensnared in an outdated, overgrown tax code that Americans spend 6.1 billion hours and more than $100 billion complying with each year.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 The election to depreciate property using a units of production or similar method also would be repealed.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.
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