Daily Tax Update - May 15, 2008

WAYS AND MEANS APPROVES $57 BILLION REVENUE-NEUTRAL ENERGY & TAX EXTENDERS BILL:  Today, the House Ways and Means Committee passed H.R. 6049, the Energy and Tax Extenders Act, which combines one-year extensions of tax provisions expiring in 2007 and 2008 with a set of renewable energy incentives. The bill would be paid for mainly by tax changes to the treatment of deferred compensation paid by managers of offshore hedge funds and a nine-year delay in the implementation of the worldwide interest allocation rule.

• An amendment offered by Rep. Thomas Reynolds (R-NY) that would patch the AMT for one-year without an offset was not approved. Committee Democrats pledged action this year on a fully paid-for AMT fix. 
• The legislation is expected to be considered in the House next week. 
• H.R. 6049 would provide tax relief for individuals and families, including:
• Deduction of State and local sales tax
• Deduction of tuition and other education expenses
• Deduction of out-of-pocket expenses by teachers
• Deduction of property taxes for non-itemizers
• Relief for more than 12 million children through an expansion of the refundable child tax credit to taxpayers earning $8,500 a year.
• H.R. 6049 will also provide tax incentives for businesses to invest in new technology by:
• Extending the research and development credit and active financing provisions.
• The bill provides almost $20 billion of tax incentives for investment in renewable energy, carbon capture and sequestration demonstration projects, energy efficiency, and conservation.
• According to the Committee, the revenue provisions in the bill include:
• “Current inclusion of deferred compensation paid by certain tax indifferent parties: The bill would tax individuals on a current basis if such individuals receive deferred compensation from a tax indifferent party. Current law generally allows executives and other employees to defer paying tax on compensation until the compensation is paid. This deferral is made possible by rules that require the corporation paying the deferred compensation to defer the deduction that relates to this compensation until the compensation is paid. Matching the timing of the deduction with the income inclusion ensures that the executive is not able to achieve the tax benefits of deferred compensation at the expense of the Treasury. Instead, the corporation paying the compensation bears the expense of paying deferred compensation as a result of the deferred deduction. Where an individual is paid deferred compensation by a tax indifferent party (such as an offshore corporation in a tax haven jurisdiction), there is no offsetting deduction that can be deferred. As a result, individuals receiving deferred compensation from a tax indifferent party are able to achieve the tax benefits of deferred compensation at the expense of the Treasury. This proposal is estimated to raise $24.289 billion over 10 years.
• Delay implementation of worldwide allocation of interest: In 2004, Congress provided taxpayers with an election to take advantage of a liberalized rule for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer's foreign tax credit limitation. Although enacted in 2004, this election is not available to taxpayers until taxable years beginning after 2008. The bill would delay the phase-in of this new liberalized rule for nine years (for taxable years beginning after 2017). This proposal is estimated to raise $29.962 billion over 10 years.”
• A summary of the bill can be accessed via: http://waysandmeans.house.gov/media/pdf/110/bill.pdf
• The text of the bill can be accessed via: http://waysandmeans.house.gov/media/pdf/110/6049.pdf

TAX BILL INTRODUCED MAY 14TH:
H.R.6049: To amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes.
Sponsor: Rep Rangel, Charles B. [NY-15] (introduced 5/14/2008)      Cosponsors (17)

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