President Obama released a fiscal year 2015 budget proposal on March 4th of 2014 that includes tax increases primarily targeting multinational corporations and high-income individuals to pay for lower- and middle-class tax relief, increased spending on transportation infrastructure, and deficit reduction. As part of that process, the White House also released what’s known as the “Green Book,” which provides the Treasury Department’s explanations of the revenue provisions in the budget proposal.

Key Provisions Affecting Individual & Corporate Tax Consequences

While the tax section of the President’s budget renews a number of provisions from his previous annual submissions, it does include some new and noteworthy revenue raisers, such as proposals to:

• Restrict deductions for what is defined as excessive interest of members of financial reporting groups;

• Create a new category of subpart F income for transactions involving digital goods or services;

• Prevent avoidance of foreign base company sales income through manufacturing services arrangements;

• Further limit the ability of domestic entities to expatriate, including restrictions on foreign corporations “managed and controlled” in the United States;

• Conform the treatment of self-employment taxes for individual owners of professional service businesses organized as S corporations, limited partnerships, general partnerships, and limited liability companies taxed as partnerships;

• Modify the I.R.C. § 1031 Like-Kind Exchange Rules for Real Property;

• Conform corporate ownership standards; and

• Prevent elimination of earnings and profits through distributions of certain stock.

Amongst the key revenue raisers carried over from previous budget packages are proposals to:

• Implement the so-called “Buffet Rule,” which would require households with incomes over $1 million to pay at least 30 percent of their income (after charitable giving) in taxes;

• Cap the value of itemized deductions and certain income exclusions for high-income taxpayers at 28 percent;

• Tighten the international tax rules, including provisions to defer deductions of interest expense related to deferred income of foreign subsidiaries, determine foreign tax credits on a pooling basis, tax currently excess returns associated with transfers of intangibles offshore, curtail the use of leveraged distributions to avoid dividend treatment, and limit shifting of income through intangible property transfers;

• Impose a financial crisis responsibility fee on certain large financial institutions;

• Tax income from carried interests at ordinary rates;

• Repeal the nonqualified preferred stock designation, and eliminate the “boot-within-gain” limitation under I.R.C. § 356(a)(2);

• Repeal certain longstanding deductions and credits for oil and gas companies; and

• Slow the depreciation schedule for corporate jets.

In connection to the incentives, the budget includes new proposals that would:

• Expand the availability of the earned income tax credit for childless adults and noncustodial parents;

• Simplify the gift tax exclusion for annual gifts;

• Reduce excise taxes on liquefied natural gas to bring them into parity with diesel; and

• Increase the limitations for deductible new business expenditures and consolidate provisions for start-up and organizational expenditures.

Finally, a number of limited “extenders” were included within the budget proposal. However, the budget proposal does not explicitly address many of the 55 temporary tax deductions, credits, and exclusions that expired on December 31, 2013; however, it does include provisions that would renew or make permanent a number of these so-called tax “extenders.” Most notably, the budget proposal would:

• Expand and permanently extend the research and experimentation credit;

• Modify and permanently extend the renewable energy production tax credit;

• Modify and permanently extend the New Markets Tax Credit and the Work Opportunity Tax credit;

• Modify and extend the tax credit for the construction of energy-efficient new homes;

• Permanently extend the 2013 section 179 expensing and investment limitations;

• Modify and extend the tax credit for cellulosic biofuels;

• Enhance and make permanent (with modifications) the deduction for contributions of conservation easements; and

• Extend the exclusion from income for cancellation of certain home mortgage debt.

In accordance with Circular 230 Disclosure