The tax credit for corporate research and 54 other breaks in theU.S. tax code expired Dec. 31. They've been replaced by confusionand frustration.

As U.S. corporations such as Intel Corp. and General ElectricCo. report earnings this month, they're warning shareholders andanalysts that they can't assume Congress will reinstate lapsedbreaks retroactively, though lawmakers have done just that fourtimes in the past eight years.

Corporations say they're unable to offer analysts and investorsconsistency in predicting what their tax rate will be in any givenyear and must explain fluctuations that can cause profit to vary byhundreds of millions of dollars.

Ron Dickel, Intel's vice president of global tax and trade, saidthe company is trying to dispel the commonly held belief inCongress that retroactive extensions are harmless.

“That's not true because it causes such mass confusion with theanalysts who are trying to understand what the effective tax rateis going forward,” he said in an interview.

Intel's fluctuating tax rate—27 percent projected for 2014, 23.7percent in 2013, and 26 percent in 2012—was driven by the absenceor presence of the research credit, which is worth 1.5 percentagepoints on the rate, or about $189 million.

The accounting difficulties are one of the first consequences ofcongressional inaction on expiring tax provisions. Thelapse-and-revive dynamic has become a consistent pattern inCongress, one that lawmakers grasp and haven't been able toreverse.

“Unfortunately, I think, it's become a way of life, tax life,and not in a good way,” said Representative Kevin Brady, a TexasRepublican who is a member of the Ways and Means Committee.

Companies have been lobbying Congress for years to make many ofthe breaks permanent, forming multi-industry coalitions thathaven't succeeded.

For Intel, which is struggling to increase sales in apersonal-computer market estimated to decline for a thirdconsecutive year, the lapse of the tax credit compounds a profitsqueeze.

“The tax rate is going up because of the R&D credit, whichis not within their control,” said Mike Shinnick, a fund manager atSalt Lake City-based Wasatch Advisors Inc., whose firm owns Intelshares. “There's quite a headwind there. It's not their fault.”

Capital Markets Not Working Well

Companies with expired research credits are more likely to haveinaccurate earnings forecasts, said Jeff Hoopes, an Ohio StateUniversity professor who has studied how markets react to thecredit's lapse.

“Capital markets are not working as well when these credits areexpired,” he said. “Basically, people see these earnings, theydon't understand them as well, and that translates into highertrading costs.”

Under U.S. accounting rules, once a tax break expires, companiesmust assume it's gone. If it's later reinstated, companies receivea one-time boost to earnings.

“It is definitely one of those sore spots for public companiesthat continually have to fluctuate their reporting,” said JeffMalo, a partner at WTP Advisors, a tax consulting firm based inWhite Plains, New York.

U.S. companies last encountered this situation in January 2013,when Congress passed legislation retroactively extending the breaksfor 2012 and prospectively for 2013.

That meant companies' fourth-quarter earnings for 2012 includedno benefit from the breaks and first-quarter earnings for 2013included five quarters of the breaks. Barring quick congressionalaction, first-quarter earnings for 2014 will include no benefits,making year-to-year and quarter-to-quarter comparisons of earningsand tax rates difficult.

“It puts the burden on management to have to explain to theinvestors and the analysts what's going on,” said Angela Evans,Americas leader for accounting and risk advisory services at Ernst& Young LLP.

The disclosures will begin appearing in companies' earningsguidance for 2014 and will be part of earnings reports for theyear's first quarter.

Intel, based in Santa Clara, California, used the researchcredit to lower its effective tax rate by 1 percentage point in2011 and then couldn't use it at all for 2012. The company, theworld's largest chipmaker, took five quarters' worth of credits atthe start of 2013. That lowered its quarterly tax rate to 16.3percent, down from 28.2 percent in the same period of 2012.

Intel plans to spend $10.5 billion on research and development(R&D) in 2014, the same as last year.

Dickel said the uncertainty surrounding the credit underminesthe goal of encouraging companies to conduct their research in theU.S.

Intel, which once had all its research in the U.S., now doesmore than 80 percent in the country.

“When we're deciding where we're going to put our R&D jobs,not having a permanent credit is very frustrating to ourmanagement,” he said.

Turning on and Turning Off

Along with the $7 billion annual research tax credit, Congressallowed dozens of other breaks to end Dec. 31. These include a taxcredit for hiring disadvantaged workers used by retailers andrestaurants and the credit for energy-efficient appliances taken byWhirlpool Corp.

Global financial-services companies such as GE, Citigroup Inc.,and Goldman Sachs Group Inc. lost the ability to defer U.S. taxeson income they earn overseas.

Ford Motor Co. recorded a $221 million tax benefit in the firstquarter of 2013 because of the retroactive provisions, includingthe financial-services break and the research credit. Citigroupsaid it received a $45 million tax benefit.

GE reported last year that its quarterly income tax rate for thefirst three months of 2013 was 12.3 percent, down from 16.9 percentthe year before, primarily because of the lapsed financial servicesbreak.

Jeffrey Bornstein, GE's chief financial officer, told analystson a Jan. 17 conference call that the company was “good through theend of November,” and that the tax rate would start being affectedin December.

Congress hasn't acted for several reasons.

Lawmakers including Dave Camp, the Republican chairman of theHouse Ways and Means Committee, are more focused on pushingsignificant changes to the tax code than on reviving the breaks.Extending them now would lessen the political pressure for broaderchanges.

Camp's Senate counterpart, Democrat Max Baucus of Montana, isPresident Barack Obama's choice to be ambassador to China, meaningthat some aspects of tax policy are on hold until Oregon DemocratRon Wyden takes over the Finance Committee's helm.

Wyden has said he wants to make sure renewable energy breaks areextended. He has been less clear about his plans for theothers.

Republicans such as Senator Orrin Hatch of Utah, his party's topmember on the Finance Committee, say they want to examine thebreaks individually and may allow some to expire.

Among the most criticized of those known as “extenders” are theproduction tax credit for wind energy and accelerated depreciationfor improvements to motor-sports tracks.

While Congress debates, accountants recalculate.

“Given the option of not having to deal with it,” Evans said,“I'm sure corporate America would prefer that the extenders beextended or made permanent versus this turning off and turningon.”

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.