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Tax Watch Archive

8/16/10 — President signs excise tax law carrying estimated tax changes for large corporations.
On August 16, the President signed into law the Firearms Excise Tax Improvement Act of 2010 (P.L. 111-237). It amends the Code to allow excise taxes on recreational equipment to be due and payable on the date for filing the return for such taxes (i.e., quarterly). It also allow IRS to assess and collect, in the same manner as delinquent taxes are assessed and collected, mandatory orders of restitution for victims of crime. Finally, P.L. 111-237 also increases estimated taxes for large corporations (those with assets of not less than $1 billion) for July, August, or September of 2015.

For highlights of the Firearms Excise Tax Improvement Act of 2010, see Weekly Alert - 08/12/2010.

8/16/10 — JCT releases comprehensive description of revenue changes in President's budget proposal.
On August 16, the Joint Committee on Taxation (JCT) issued a detailed, 500-page-plus description of revenue provisions in the President's Fiscal Year budget proposal.

RIA observation: The budget proposals will figure prominently in the upcoming Congressional debate in Congress over which Bush-era tax breaks should be continued, and in what form.

The following material can also be found on Checkpoint:

Part I of the text of the JCS-2-10 (August 16, 2010), the Joint Committee on Taxation's "Description of Revenue Provisions Contained in the President's Fiscal Year 2011 Budget Proposal;"
Part II of the text of the JCS-2-10 (August 16, 2010), the Joint Committee on Taxation's "Description of Revenue Provisions Contained in the President's Fiscal Year 2011 Budget Proposal;" and
Part III of the text of the JCS-2-10 (August 16, 2010), the Joint Committee on Taxation's "Description of Revenue Provisions Contained in the President's Fiscal Year 2011 Budget Proposal."

8/16/10 — President signs excise tax law carrying estimated tax changes for large corporations.
On August 11, the President signed into law H.R. 5552, the Firearms Excise Tax Improvement Act of 2010. It amends the Code to allow excise taxes on recreational equipment to be due and payable on the date for filing the return for such taxes (i.e., quarterly). It also allow IRS to assess and collect, in the same manner as delinquent taxes are assessed and collected, mandatory orders of restitution for victims of crime. Finally, the new law also increases estimated taxes for large corporations (those with assets of not less than $1 billion) for July, August, or September of 2015.

For highlights of the Firearms Excise Tax Improvement Act of 2010, see Weekly Alert - 08/12/2010.

RIA observation: The budget proposals will figure prominently in the upcoming Congressional debate in Congress over which Bush-era tax breaks should be continued, and in what form.

The following material can also be found on Checkpoint:

Part I of the text of the JCS-2-10 (August 16, 2010), the Joint Committee on Taxation's "Description of Revenue Provisions Contained in the President's Fiscal Year 2011 Budget Proposal;"
Part II of the text of the JCS-2-10 (August 16, 2010), the Joint Committee on Taxation's "Description of Revenue Provisions Contained in the President's Fiscal Year 2011 Budget Proposal;" and
Part III of the text of the JCS-2-10 (August 16, 2010), the Joint Committee on Taxation's "Description of Revenue Provisions Contained in the President's Fiscal Year 2011 Budget Proposal."

8/11/10 — Two bills carrying tax changes signed into law by the President.
On August 10, the President signed into law H.R. 1586, the Education Jobs and Medicaid Assistance Act. This Act closes a number of foreign tax credit loopholes and also ends the advanced earned income tax credit. See Weekly Alert - 08/12/2010 for details.

On August 11, the President signed into law H.R. 4380, the 2010 Manufacturing Act. This legislation carries a change for large corporations' estimated tax payments. See Article #1810 for details.

8/10/10 — House passes Education Jobs Act carrying foreign-related tax offsets; measure OK'd for President's signature.
On August 10, the House of Representatives by a vote of 247-161 approved the motion to concur with the Senate amendment to H.R. 1586, the Education Jobs and Medicaid Assistance Act. The President was expected to sign the measure into law on August 10.

Among other provisions, H.R. 1586 provides $10 billion to support local school districts and thereby help prevent massive layoffs of teachers. Its revenue offsets include a package of crackdowns related to foreign tax credits, plus a repeal of the advanced earned income tax credit (EITC).

For an RIA Special Study highlighting the tax changes made by H.R. 1586, see Weekly Alert - 08/12/2010.

The following material can also be found on Checkpoint:

the text of H.R. 1586 as passed by the Senate. The revenue offsets begin at page 14; and
the text of JCX-46-10 (August 10, 2010), the Joint Committee on Taxation Staff's "Technical Explanation of the Revenue Provisions of the Senate Amendment to the House Amendment to the Senate Amendment to H.R. 1586, Scheduled for Consideration by the House of Representatives on August 10, 2010."

8/6/10 — Still more changes for Senate small business jobs bill; deliberations deferred till September.
Before the Senate adjourned on August 5 for the August recess, Senate Finance Committee Chair Max Baucus (D-MT) unveiled yet another substitute amendment to H.R. 5297, the Small Business Jobs Act. Baucus's latest tinkering with his July 21 substitute amendment to H.R. 5927 would delete a provision that repeals the advanced earned income tax credit (this repeal is in H.R. 1586, which has passed the Senate and likely will be passed by the House; see Article #1819). For a summary of the tax changes that would be included in the substitute amendment, including revival of bonus depreciation and expanded Code Sec. 179 expensing, see Article #1805.

In a separate development, a Republican amendment to H.R. 1586 would repeal Sec. 9006 of the Patient Protection and Affordable Care Act (Health Care Act P.L. 111-148), and thus repeal extremely unpopular business information reporting provisions that are to go into effect for payments made after Dec. 31, 2011. See Article #1812 for more details. (On July 30, the House failed to pass a bill containing a repeal of these information reporting provisions.)

The Republican amendment to repeal the new information reporting requirements would be offset by eliminating the $15 billion Prevention Trust Fund that was part of the health care reform legislation. This offset is unpopular with Democrats, who offered an alternative amendment that repeals Sec. 9006 of the Health Care Act, but pays for it by disallowing the Code Sec. 199 domestic production activity deduction for the five largest oil companies, effective Dec. 31, 2010.

The small business jobs bill is slated to be taken up by the Senate on September 14.

The following material can also be found on Checkpoint:

the legislative text of the latest Baucus amendment to H.R. 5297, the Small Business Jobs Act;
a summary of the latest Baucus amendment to H.R. 5297, the Small Business Jobs Act;
a summary of the changes in the latest Baucus amendment to H.R. 5297, the Small Business Jobs Act; and
the legislative text of the Democratic amendment to H.R. 5297, the Small Business Jobs Act. The amendment would repeal Sec. 9006 of the Health Care Act and disallow the Code Sec. 199 domestic production activity deduction for the five largest oil companies.

8/6/10 — Firearms Excise Tax Improvement Act of 2010 includes estimated tax changes for large corporations.
On August 5, the Senate approved H.R. 5552, the Firearms Excise Tax Improvement Act of 2010, by voice vote. The bill was passed by the House of Representatives on June 29, so it's cleared for the President's signature.

H.R. 5552 amends the Code to require: (1) excise taxes on recreational equipment to be due and payable on the date for filing the return for such taxes (i.e., quarterly); and (2) IRS to assess and collect, in the same manner as delinquent taxes are assessed and collected, mandatory orders of restitution for victims of crime.

The new law also increases estimated taxes for large corporations (those with assets of not less than $1 billion) for July, August, or September of 2015. The amount of these installments otherwise due under Sec. 561 of the Hiring Incentives to Restore Employment Act in effect on the enactment date of H.R. 5552 is increased by 0.25 percentage points.

The legislative text of H.R. 5552, the Firearms Excise Tax Improvement Act of 2010. can be found on Checkpoint.

8/5/10 — Senate passes education jobs bill carrying foreign-related tax offsets; House will reconvene to vote on the bill.
On August 5, the Senate by a vote of 61-39 approved H.R. 1586. Incorporated into the Senate-passed bill is Senate Amendment 4575 (the "Murray-Harkin-Reid-Schumer" amendment), which would, among other things provide $10 billion to support local school districts and thereby help prevent massive layoffs of teachers. The bill includes a package of crackdowns related to foreign tax credits, plus a repeal of the advanced earned income tax credit (EITC). The House, which had left for its August recess, will return to session on Tuesday, August 10, to vote on the bill.

For an article summarizing the tax changes that would be made by Senate-passed H.R. 1586, see Weekly Alert - 08/12/2010.

The following material can also be found on Checkpoint:

the text of Senate Amendment 4575 (the "Murray-Harkin-Reid-Schumer" amendment), which was incorporated into H.R. 1586 as passed by the Senate. Text of the amendment begins at page three of the document, and statutory language of the tax changes carried in H.R. 1586 begins at page 11;
the text of a summary of Senate Amendment 4575 (the "Murray-Harkin-Reid-Schumer" amendment), which was incorporated into H.R. 1586 as passed by the Senate; and
the text of JCX-45–10, the Joint Committee on Taxation's Estimated Budget Effects of the Revenue Provisions Contained in Senate Amendment #4575.

8/4/10 — House will be called back from recess to vote on education jobs bill with foreign-related tax offsets.
On August 4, House Speaker Nancy Pelosi (D-CA) said that she would call the House of Representatives back from recess early next week to vote on an education jobs bill with foreign-related tax offsets. Pelosi's announcement no doubt was influenced by a successful Senate procedural vote (61-38) to cut off debate on the bill.

On August 5, the Senate is expected to vote on H.R. 1586 as modified by the "Reid-Murray" amendment (Senate Amendment 4575). The amendment would among other things provide $10 billion to support local school districts and thereby help prevent massive layoffs of teachers. The amendment would offset the cost with a package of crackdowns related to internationals, including: rules to prevent splitting foreign tax credits from income; separate application of foreign tax credit limitation, etc., to items resourced under treaties; limitation of the use of Code Sec. 956 to foreign tax credit planning (the "hopscotch rule"); a crackdown on certain redemptions by foreign subsidiaries; modification of the affiliation rules for purposes of allocating interest expense; and repeal of the "80/20" rules. These crackdowns are recycled from the other legislation that didn't make the cut. Also, the amendment would repeal the advanced earned income tax credit (EITC).

The text of Senate Amendment 4575 (the "Reid-Murray" amendment) to H.R. 1586. Text of the amendment begins at page three of the document can be found on Checkpoint.

8/2/10 — House fails to pass bill repealing unpopular information reporting changes.
On July 30, the House of Representatives failed to gain the necessary 2/3 vote for passage of H.R. 5982, the Small Business Tax Relief Act of 2010; the vote was 241-154. The bill would repeal a controversial section of the Patient Protection and Affordable Care Act (Health Care Act P.L. 111-148). The section will place new information reporting burdens on businesses after 2011 (see Article #1812).

RIA observation: These information reporting requirements are extremely unpopular among businesses and Congress may make another attempt to repeal them before they become effective.

8/2/10 — Two-month extension of aviation related taxes signed into law.
On August 1, President Obama signed into law H.R. 5900 the Airline Safety and Federal Aviation Administration Extension Act. The measure extends for two months—through Sept. 30, 2010—the taxes funding the airport and airway trust fund and the airport and airway trust fund expenditure authority.

8/2/10 — Senate slated to consider education jobs bill with foreign-related tax offsets.
On August 2, the Senate was scheduled to vote on the motion to concur in the House amendment to the Senate amendment to H.R. 1586 with the Reid amendment (SA 4567). The amendment carries provisions on an education jobs fund and FMAP (Federal Medical Assistance Percentages). It would offset the cost with a package of crackdowns related to internationals, including changes related to foreign tax credits, certain redemptions by foreign subsidiaries, and affiliation rules for purposes of allocating interest expense. The crackdowns are recycled from the other legislation that didn't make the cut.

The text of Senate Amendment 4567 (the Reid amendment) to H.R. 1586 can be found on Checkpoint.

7/30/10 — House passes Real Estate Jobs and Investment Act of 2010.
On July 30, the House of Representatives by a vote of 402-11 approved H.R. 5901, the "Real Estate Jobs and Investment Act of 2010." The bill moves on to the Senate for its consideration.

In a move to aid the real estate market, the bill would make it easier for foreign investors to invest in U.S. real estate investment trusts (REITs). For distributions with respect to REIT stock and to dispositions of REIT stock made after the enactment date, the bill would modify certain FIRPTA (Foreign Investment in Real Estate) rules that turn on a foreign shareholder holding a no greater than 5% interest over a specified time period in an entity that is regularly traded on an established securities market. The ownership threshold would be changed from no more than 5% to no more than 10%, but only in the case of REIT stock. For example, the bill would provide that under Code Sec. 897(c)(3), REIT stock of a class that is regularly traded on an established securities market is a U.S. real property interest (USRPI) (and therefore subject to U.S. capital gain tax when sold at a profit) only in the case of a person who, at any time during the relevant time period, held more than 10% (instead of 5% as under current law) of such stock. A sale of regularly traded REIT stock held by a person that does not exceed the 10% holding threshold would not be subject to FIRPTA.

To offset the revenue loss from the FIRPTA change, H.R. 5901 would allow IRS to issue levies before a collection due process (CDP) hearing on Federal tax liabilities of Federal contractors identified under the Federal Payment Ley Program (FPLP). When a levy is issued before a CDP hearing, the taxpayer would have an opportunity for a CDP hearing within a reasonable time after a levy is issued.

The following material can also be found on Checkpoint:

JCX-41-10, the Joint Committee of Taxation's "Technical Explanation of the Revenue Provisions of H.R. 5901, The Real Estate Jobs And Investment Act Of 2010;" and
JCX-42-10, the Joint Committee of Taxation's "Estimated Revenue Effects of H.R. 5901, the "Real Estate Jobs And Investment Act of 2010 Scheduled for Consideration by the House Of Representatives on July 29, 2010."

7/30/10 — Congress passes two-month extension of aviation related taxes.
On July 30, the Senate by unanimous consent approved H.R. 5900 the Airline Safety and Federal Aviation Administration Extension Act. The House approved the bill on July 29 by voice vote, so the bill is ready for the President's signature.

H.R. 5900 extends for two months—through Sept. 30, 2010—the taxes funding the airport and airway trust fund and the airport and airway trust fund expenditure authority.

7/30/10 — House bill would repeal unpopular information reporting changes.
On July 30, a bill to repeal a controversial section of the Patient Protection and Affordable Care Act (Health Care Act P.L. 111-148) was taken up by the House of Representatives.

Under Sec. 9006 of the Health Care Act, for payments made after Dec. 31, 2011: (1) businesses that pay any amount greater than $600 during the year to non-tax-exempt corporate providers of property and services will have to file an information report with each provider and with IRS; and (2) businesses will have to file information returns with respect to any person (including corporations) that receives $600 or more from the business in exchange for property and merchandise.

H.R. 5982, the "Small Business tax Relief Act of 2010," would repeal Sec. 9006 of the Health Care Act and thus repeal the preceding Health Care Act requirements before they take effect.

To offset the $19.206 billion in revenue that would be lost by repealing Sec. 9006 of the Health Care Act, H.R. 5982 "borrows" from revenue raisers that were included in other House legislation. For example, it takes foreign loophole closers that were included in the House-passed extenders bill, see Weekly Alert - 06/03/2010. Other revenue raisers: a minimum 10–year term for grantor retained annuity trusts, an exclusion from the definition of cellulosic biofuel for the cellulosic biofuel producer credit for certain processed fuels, clarification of gain recognized in certain spin-off transactions, and increased penalties for failure to file information returns.

The following material can also be found on Checkpoint:

JCX-43–10, the Joint Committee of Taxation's "Technical Explanation of the Revenue Provisions of H.R.–5982, the Small Business Tax Relief Act of 2010;" and
the legislative text of H.R. 5982, the Small Business Tax Relief Act of 2010."

7/30/10 — Small business bill still stymied in Senate.
On July 29, the Senate again failed to gain cloture on H.R. 5297, the "Small Business Jobs Act." The vote was 58-42. On the Senate floor, Olympia Snowe (R-ME) accused Senate Majority Leader Harry Reid (D-NV) of "political theater." She added, "It's not about legislating anymore." Before the Senate vote on cloture of the measure, Reid had agreed to remove a controversial agriculture provision from the bill in hopes of avoiding a cloture vote on the measure, but Senate Minority Leader Mitch McConnell (R-KY) objected, forcing Reid to call for a vote on cloture of the measure. Reid later in the day once again tried to work out an agreement with McConnell that would have allowed the bill to move forward but was unable to do so. Reid and McConnell objected to each other's unanimous consent agreements that would have allowed votes on amendments. Reid made it clear that he would bring the bill up again during the week of August 2. "Let's cool down over the next couple of days," Reid said.

Even if the Senate passes the small business bill during the week of August 2, it won't be taken up by the House until after the August recess.

See Article #1808 and Article #1805 for earlier small jobs bill developments in the Senate.

7/28/10 — Congress passes trade bill carrying change for large corporations' estimated tax payments.
On July 27, the Senate approved by unanimous consent H.R. 4380, the U.S. Manufacturing Enhancement Act of 2010. The House approved the bill on July 21 by a vote of 378-48, so the measure is now cleared for signature by the President.

H.R. 4380 tinkers with estimated taxes for large corporations ($1 billion or more in assets). It provide that for these corporations, the required payment of estimated tax otherwise due in July, August, or September of 2015 under Sec. 561(2) of the Hiring Incentives to Restore Employment Act, as in effect on the enactment date, is increased by 0.5 percentage points. The amount of the next required installment will be appropriately reduced to reflect the amount of the increase in the earlier installment.

7/28/10 — Jobs and loophole closing legislation introduced in House.
Ways and Means Committee Chairman Sander M. Levin (D-MI) introduced H.R. 5893, the "Investing in American Jobs and Closing Tax Loopholes Act of 2010." The legislation would among other things close tax loopholes that encourage companies to ship jobs overseas (including a proposed repeal of the so-called 80/20 rules); extend the Build America Bonds program for one year; allow the new markets tax credit to be claimed against the alternative minimum tax for certain qualified investments; and extend tax-exempt eligibility for loans guaranteed by Federal Home Loan Banks.

The following material can also be found on Checkpoint:

the legislative text of H.R. 5893, the "Investing in American Jobs and Closing Tax Loopholes Act of 2010;" and
H.R. 5893, the "Investing in American Jobs and Closing Tax Loopholes Act of 2010."

7/28/10 — Baucus makes still more changes to small business jobs bill.
Late on July 27, Senate Finance Chair Max Baucus (D-MT) tinkered further with his July 21 substitute amendment to H.R. 5297, the "Small Business Jobs Act." The latest changes would include a provision eliminating the advanced earned income tax credit, effective for tax years beginning after Dec. 31, 2010. The repeal would raise $1.131 billion over ten years. For a summary of the other tax changes that would be included in the substitute amendment, see Code Sec. 1805.

7/27/10 — Ways & Means Acting Chair introduces draft of energy bill.
On July 26, House Ways and Means Committee Acting Chair Sander Levin (D-MI) released draft legislative text of the "Domestic Manufacturing and Energy Jobs Act of 2010." The draft provides tax incentives to modernize U.S. manufacturing facilities and encourages renewable energy and energy efficient products. The House is expected to consider the legislation after the August recess.

The Levin proposal would among other provisions extend and enhance the Code Sec. 48C advance manufacturing tax credit, extend existing tax credits for domestic manufacturers of energy-efficient appliances for three years, extend the direct payment in lieu of production tax credit and investment tax credit, and provide an investment tax credit for long-term projects involving geothermal and offshore wind energy facilities. The proposal also would provide tax incentives to consumers for the purchase of heavy natural gas vehicles and heavy hybrid vehicles, modify and extend alternative vehicle refueling property tax credits, and extend tax credits for biofuels and alternative fuels.

The following material can also be found on Checkpoint:

the legislative text of Chairman Levin's discussion draft of the "Domestic Manufacturing and Energy Jobs Act of 2010;"
a staff summary of Chairman Levin's discussion draft of the "Domestic Manufacturing and Energy Jobs Act of 2010;" and
the estimated revenue effects of Chairman Levin's discussion draft of the "Domestic Manufacturing and Energy Jobs Act of 2010."

7/22/10 — Congress passes unemployment insurance bill with estimated tax provisions for large corporations.
On July 22, the House of Representatives by a vote of 272-152 approved H.R. 4213, the "Unemployment Compensation Extension Act of 2010." This unemployment insurance extension bill was approved by the Senate on July 21, so it's on the way to the President for his signature.

HR 4213 contains two estimated tax changes for large corporations ($1 billion or more in assets). The first, at Sec. 9(a), provides that for these corporations, the required payment of estimated tax otherwise due in July, August, or September of 2014 under Sec. 202(b) of the Corporate Estimated Tax Shift Act of 2009, as in effect on the enactment date, is increased by 0.25 percentage points. The amount of the next required installment is appropriately reduced to reflect the amount of the increase in the earlier installment. The second, at Sec. 9(b), provides that for these corporations, the required payment of estimated tax otherwise due in July, August, or September of 2015 under Sec. 561(2) of the Hiring Incentives to Restore Employment Act, as in effect on the enactment date, is increased by 0.25 percentage points. The amount of the next required installment is appropriately reduced to reflect the amount of the increase in the earlier installment.

7/22/10 — Senate takes another stab at passing a small business jobs bill.
The Senate leadership appears to be making a determined effort to pass a "new and improved" version of H.R. 5297, the "Small Business Jobs Act." The latest substitute amendment to the House-passed version of the bill includes, among items, a provision removing cell phones from the listed property category, and provisions dealing with, among other things, guarantee fees and nonqualified annuity contracts.

Review of recent developments. On June 15, the House passed H.R. 5297, the Small Business Jobs and Credit Act of 2010, which includes a tax title called the Small Business Jobs Tax Relief Act of 2010. Changes in this bill include: A 100% exclusion of gain under Code Sec. 1202 from the sale of certain small business stock acquired at original issue and held for more than five years; a rewrite and liberalization of the Code Sec. 6707A penalty for failure to disclose certain reportable transactions (including listed transactions); an exception to the "at-risk" rules for nonrecourse loans that are guaranteed by the Small Business Administration (SBA); liberalized dollar limits for business startup deductions under Code Sec. 195; and new, more restrictive rules for grantor retained annuity trusts (GRATs). See Article #1785 and Article #1786 for more details.

Before the July 4th recess, the Senate considered but did not act on a substitute amendment to the House-passed version of H.R. 5297. Late on July 21, Senate Finance Chair Max Baucus (D-MT) unveiled a "new and improved" version of his substitute amendment with the hope of garnering enough support to pass a bill.

What's in the latest version. Here's a summary of the tax breaks for business in Baucus's latest substitute amendment:

A 100% exclusion of gain under Code Sec. 1202 from the sale of certain small business stock acquired at original issue and held for more than five years. The change would be effective for stock acquired after the date of enactment and held for more than five years. Additionally, the gain wouldn't be an alternative minimum tax (AMT) preference.
For the first tax year of the taxpayer beginning in 2010, eligible small businesses could carry back unused general business credits for five years. Eligible small businesses would consist of sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
For tax years beginning in 2010, eligible small businesses, as defined above, would be able to use all types of general business credits to offset their AMT.
Where a corporation formed as a C corporation elects to become an S corporation (or where an S corporation receives property from a C corporation in a nontaxable carryover basis transfer), the S corporation is taxed at 35% on all gains that were built-in at the time of the election if the gains are recognized during the recognition period. The recognition period generally is the first ten S corporation years (or the ten-period after the transfer). For tax years beginning in 2009 and 2010, no tax is imposed on the net unrecognized built-in gain of an S corporation if the seventh tax year in the recognition period preceded the 2009 and 2010 tax years. The substitute amendment would, for any tax year beginning in 2010, shorten the holding period of assets subject to the built-in gains tax to 5 years if the fifth tax year in the recognition period precedes the tax year beginning in 2011.
Under current law, the Code Sec. 179 expensing limit for tax years beginning in 2010 is $250,000, and the maximum expensing amount is reduced (i.e., phased out, but not below zero) by the amount by which the cost of Code Sec. 179 property placed in service exceeds $800,000 (the investment ceiling). For tax years beginning after 2010, these amounts are to revert to $25,000 and $200,000 respectively. The substitute amendment would for tax years beginning in 2010 and 2011 increase the maximum Code Sec. 179 expensing amount to $500,000 and the investment ceiling to $2,000,000.
For property placed in service after Dec. 31, 2009, in tax years beginning after that date, qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) would be eligible for $250,000 of expensing under Code Sec. 179. The dollar cap would apply to the aggregate cost of qualified real property.
Bonus 50% first year depreciation would be extended to apply to property placed in service in 2010 (in 2011, for certain long production period property).
Bonus depreciation would be decoupled from allocation of contract costs under the percentage of completion accounting method rules for assets with a depreciable life of seven years or less. According to a summary of the substitute amendment, this change would allow contractors that do not complete contracts within the same year in which they are entered into to benefit from bonus depreciation.
For a tax year beginning in 2010, the deduction for startup expenses under Code Sec. 195 would be increased from $5,000 to $10,000 and the phaseout threshold would be increased from $50,000 to $60,000.
For a tax year beginning after Dec. 31, 2009, but before Jan. 1, 2011, when calculating self-employment taxes, the deduction for health insurance costs of a self-employed taxpayer under Code Sec. 162(l) could be taken into account (i.e., could be deducted) in computing net earnings from self-employment.
Cell phones would be removed from the definition of listed property under Code Sec. 280F.
RIA observation: Congress has tried before to legislate a fix for the problem of employer-provided cell phones being treated as listed property. For details, and questions that might remain after "delisting," see Weekly Alert - 04/22/2010.

Revenue offsets. The substitute amendment would pay for its tax breaks with the following revenue raisers:

The Code Sec. 6707A penalty for failing to disclose a reportable transaction would be overhauled. The minimum penalty would be $10,000 for corporations and $5,000 for individuals, and the maximum penalty would be $50,000 for corporations and $10,000 for individuals (for failure to report a listed transaction, the maximum penalty would be $200,000 and $100,000 respectively). These changes would be retroactively effective to penalties assessed after Dec. 31, 2006. The substitute amendment also would require IRS to provide an annual report to the Congressional tax-writing committees giving an account of certain tax-shelter related penalties asserted during the year.
For payments made after Dec. 31, 2010, persons receiving rental income from real property would have to file information returns to IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. Exceptions would be provided for individuals renting their principal residences (including active members of the military), taxpayers whose rental income doesn't exceed an IRS-determined minimal amount, and those for whom the reporting requirement would create a hardship (under IRS regs).
For information returns required to be filed after Dec. 31, 2010, the Code Sec. 6721 penalties for failure to timely file information returns to IRS would be increased. For example, the first-tier penalty would be increased from $15 to $30, and the calendar year maximum would be increased from $75,000 to $250,000. For small filers, the calendar year maximum would be increased from $25,000 to $75,000 for the first-tier penalty. The minimum penalty for each failure due to intentional disregard would be increased from $100 to $250. The Code Sec. 6722 penalties for failure to file information returns to payees would be similarly increased.
For levies issued after the enactment date, the substitute amendment would (1) clarify that Treasury's continuous levy authority on government payments to Federal contractors who owe back taxes to IRS applies to amounts paid for property, as well as to payments for goods and services; and (2) allow IRS to issue levies before a collection due process (CDP) hearing on Federal tax liabilities of Federal contractors (taxpayers would have an opportunity for a CDP hearing within a reasonable time after a levy is issued).
For tax years beginning after Dec. 31, 2010, retirement savings plans sponsored by state and local governments (i.e., governmental Code Sec. 457(b) plans) would be able to include Roth accounts.
For distributions after the enactment date, 401(k), 403(b), and governmental 457(b) plans could permit participants to roll their pre-tax account balances into a Roth account. If the rollover is made in 2010, the participant could elect to pay the tax in 2011 and 2012.
For fuels sold or used after Dec. 31, 2009, eligibility for the Code Sec. 40 tax credit for the production of biofuel from cellulosic feedstocks would be limited to fuels that are not highly corrosive (i.e., fuels that could be used in a car engine or in a home heating application).
Holders of nonqualified annuities (annuity contracts held outside of a qualified retirement plan or IRA) could elect to receive part of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis.
Amounts received directly or indirectly for guarantees of indebtedness of the payor issued after the enactment date would be sourced like interest and, as a result, if paid by U.S. taxpayers to foreign persons would generally be subject to withholding tax. The change would prospectively overturn the holding in Container Corporation, Successor to Interest of Container Holdings Corporation, Successor to Interest of Vitro International Corporation, (2010) 134 TC No. 5, that fees paid by a U.S. subsidiary to its foreign parent for guaranteeing the subsidiary's debt were analogous to payments for a service and therefore were not U.S. source income. No inference would be intended with respect to the treatment of guarantees issued before the enactment date.

7/21/10 — Financial reform package signed into law carries new exclusions from Code Sec. 1256 treatment.
On July 21, the President signed into law H.R. 4173, the "Restoring American Financial Stability Act of 2010." This landmark financial reform package contains one Code amendment broadening the list of contracts that are excepted from the definition of Code Sec. 1256 contracts and thus are excepted from mark-to-market treatment. See Weekly Alert -- 7/22/2010 for details.

The text of Sec. 1601 (relating to Code Sec. 1256) of the conference report to accompany H.R. 4173, the "Restoring American Financial Stability Act of 2010" is available on Checkpoint.

7/21/10 — House-passed trade bill would tinker with large corporations' estimated tax payments.
On July 21, the House of Representatives by a vote of 378-43 passed H.R. 4380, the "U.S. Manufacturing Enhancement Act of 2010." Sec. 3002 of the bill would tinker with estimated taxes for large corporations ($1 billion or more in assets). It would provide that for these corporations, the required payment of estimated tax otherwise due in July, August, or September of 2014 under Sec. 202(b) of the Corporate Estimated Tax Shift Act of 2009, as in effect on the enactment date, would be increased by 0.75 percentage points. The amount of the next required installment would be appropriately reduced to reflect the amount of the increase in the earlier installment.

7/6/10 — House passes spending bill with three changes.
On July 1, by a vote of 215-210, the House passed H.R. 4899, a supplemental appropriations bill, which contains tax provisions imposing limits on grantor retained annuity trusts (GRATs) and crude tall oil, and a change to the estimated tax rules for large corporations.

GRATs. For transfers made after the enactment date, a minimum 10-year term would be required for GRATs, the value of the remainder interest would have to be greater than zero and the annuity could not decrease during the first 10 years of the GRAT term.

Crude tall oil. For fuels sold or used on or after Jan. 1, 2010, paper manufacturers would be prevented from claiming a $1.01 per gallon cellulosic biofuels tax credit for a pulp byproduct known as crude tall oil.

Estimated taxes. The required installment of estimated tax for a large corporation (assets of $1 billion or more) otherwise due in July, August, or September of 2015 would be increased by 5.25 percentage points.

RIA observation These revenue raisers were lifted from H.R. 5486, the "Small Business Jobs Tax Relief Act of 2010," as passed by the House on June 15. See the first item dated 6/16 below.

The Senate is to take up the measure when it returns from the July 4th recess.

The text of the aforementioned revenue provisions in H.R. 4899, a supplemental appropriations bill can be found on Checkpoint..

7/2/10 — Homebuyer Assistance Improvement Act and FAA Extension Act signed into law.
On July 2, the President signed into law H.R. 5623, the Homebuyer Assistance Improvement Act of 2010, and H.R. 5611, the Airport and Airway Extension Act of 2010, Part II.

The Homebuyer Assistance Improvement Act of 2010 provides a three-month reprieve for taxpayers who couldn't meet a key June 30, 2010, closing date to qualify for the first-time homebuyer credit. The President's signature establishes the effective date for two tax-related revenue offsets in the new law, see Weekly Alert - 07/08/2010 for details.

The Airport and Airway Extension Act of 2010, Part II, extends for four weeks authorizations for the airport improvement program, the airport and airway trust fund expenditure authority, and related provisions.

7/1/10 — House-passed financial reform package includes new exclusions from Code Sec. 1256 treatment.
On June 30, the House of Representatives by a vote of 237-192 approved the conference report to accompany H.R. 4173, the "Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010." This massive financial reform bill will be considered by the Senate after it returns from the July 4th recess.

The sole Code amendment in the financial reform bill is in Sec. 1601 of the bill, which would amend Code Sec. 1256 to broaden the list of contracts that are excepted from the definition of section 1256 contracts and thus are excepted from mark-to-market treatment. Under the bill, for tax years beginning after the enactment date, all of the following would be excepted: any interest rate swap; currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement.

The text of Sec. 1601 of the conference report to accompany H.R. 4173, the "Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010" can be found on Checkpoint.

7/1/10 — Congress passes closing date extension for homebuyer credit and FAA extension.
On June 30, the Senate by unanimous consent passed H.R. 5623, the Homebuyer Assistance Improvement Act of 2010, and H.R. 5611, the Airport and Airway Extension Act of 2010, Part II. Both pieces of legislation had already passed the House and thus are ready for the President's signature.

The Homebuyer Assistance Improvement Act of 2010 provides a three-month reprieve for taxpayers who couldn't meet a key June 30, 2010, closing date to qualify for the first-time homebuyer credit. See Weekly Alert - 07/08/2010 for details on this reprieve and the tax-related revenue offsets in the bill.

7/1/10 — Small business and extenders bills deferred until after July 4 recess.
Two important pieces of tax legislation were left unfinished as Congress headed into the Independence Day recess, the small business bill, and the extenders package.

Small business bill. The House passed H.R. 5297, the Small Business Jobs and Credit Act of 2010, which includes a tax title called the Small Business Jobs Tax Relief Act of 2010. Changes in this bill include: A 100% exclusion of gain under Code Sec. 1202 from the sale of certain small business stock acquired at original issue and held for more than five years; a rewrite and liberalization of the Code Sec. 6707A penalty for failure to disclose certain reportable transactions (including listed transactions); an exception to the "at-risk" rules for nonrecourse loans that are guaranteed by the Small Business Administration (SBA); liberalized dollar limits for business startup deductions under Code Sec. 195; and new, more restrictive rules for grantor retained annuity trusts (GRATs). See Article #1785 and Article #1786 for more details.

Before the recess, the Senate was considering but did not act on a substitute amendment to the House-passed version of H.R. 5297. The substitute amendment would significantly expand the House-passed bill and include, among other items, a 5-year NOL carryback for eligible small businesses for tax years beginning in 2010; expanded expensing deductions and bonus first-year depreciation deductions for 2010; allowing health insurance costs of a self-employed taxpayer under Code Sec. 162(l) to be taken into account (i.e., to be deducted) in computing net earnings from self-employment; and a change that would permit 401(k), 403(b), and governmental 457(b) plan participants to roll their pre-tax account balances into a Roth account. See Article #1797 for more details. When the Senate takes up the bill again after the Independence Day recess, it may consider amendments, such as one to remove cell phones from the listed-property category.

Extenders package. H.R. 4213, the American Jobs, Closing Tax Loopholes and Preventing Outsourcing Act of 2010, was passed by the House in May, right before the Memorial Day weekend. The House-passed bill retroactively reinstates and extends for one year a host of important tax breaks for businesses and individuals. It also includes many revenue raisers, such as eventually treating three-quarters of carried interest as ordinary income, a crackdown on using certain S corporations as a way to minimize Medicare and Social Security taxes, and a major assault on "foreign tax loopholes."

On June 24, the Senate Democratic leadership failed to attract the 60 votes necessary to invoke cloture on a third attempt to slim down the House's extenders bill. The cuts to the House bill weren't enough to satisfy Democratic fiscal conservatives, or the Republicans. Thus, the ultimate fate of the extenders bill remains in doubt.

Tax Watch Archive

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