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CFOs Worried About Losing Popular Tax Incentives

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Aug 28th 2015
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How confident are you that Congress will again extend dozens of expired tax provisions that could be vital to the growth of your business clients? If you agree with many of the CFOs who responded to a new survey by accounting firm Grant Thornton LLP, the answer is “not very.”

A late extension of tax breaks has become an annual rite of passage in our nation's capital. For example, the Tax Increase Prevention Act was enacted in the waning days of 2014. The legislation extended more than 50 individual and business provisions retroactively to Jan. 1, 2014, but this temporary reprieve was good for only one year. Some of those provisions included an extension of bonus depreciation for certain business property, the popular research and development tax credit, and the production tax credit for wind energy.

So the dance will begin again as Congress reconvenes after its summer recess.

Frustration over Congress' failure to provide a clear blueprint for tax planning is evident in Grant Thornton's CFO Survey. The latest edition of this annual survey, which polled 912 finance chiefs and comptrollers, showed the following results:

  • More than one-third of respondents – 37 percent, to be exact – are acting as if no extensions will be approved.
  • Slightly more than one-quarter (26 percent) are assuming the risk that the provisions will not be extended and are planning accordingly.
  • Less than one out of 10 CFOs (9 percent) are operating as if the extensions are inevitable and will occur in full.

Particularly significant is the fact that 51 percent of respondents whose companies rely on the expired provisions are basing their plans on the assumption that extensions won't occur.

“In past years, negotiations over the tax extenders bill dragged on into December. This is very troublesome and creates major headaches for US businesses,” Mel Schwarz, partner and director of tax legislative affairs in Grant Thornton's Washington National Tax Office, said in a written statement. “Lawmakers need to agree on at least a two-year retroactive extension of nearly all the provisions, with a one-year extension as an absolute fallback.”

The uncertain fate of tax extensions isn't the only issue troubling finance leaders. According to the survey, 55 percent of CFOs believe that uncertainty in the US economy could affect business expansion over the next 12 months. Compare that finding to results from this past May, when only 22 percent of corporate higher-ups viewed the economy as a significant restraint. And remember that this polling took place before economic troubles in China caused a ripple effect around the world.

Among other concerns, CFOs in the survey also cited risks of cybersecurity attacks and increased regulatory and compliance burdens as prime deterrents to growth. Fifty-seven percent said the potential for undetected breaches is the most troublesome security issue, while 31 percent indicated that merely keeping up with the volume and complexity of regulations is their main challenge.

At least the corporate chiefs are looking to develop new talent, with 40 percent expecting to increase hiring in the coming year and 52 percent maintaining the same hiring level. Almost three-quarters of those surveyed (67 percent) are projecting salary increases over the next 12 months.

Nevertheless, uncertainty over tax extensions continues to cloud business plans for the future. Once again, the ball is in Congress' court.

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