Daily Tax Update - November 20, 2009

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS FROM ITS THANKSGIVING RECESS ON NOVEMBER 30^TH

IRS ISSUES GUIDANCE ON EXPANDED LOSS CARRYBACK RELIEF: Today, the IRS issued Rev. Proc. 2009-59, which provides guidance to taxpayers electing to carry back a 2008 or 2009 net operating loss (NOL) for a period of three, four or five years (or insurance company loss from operations for a period of four or five years) to offset taxable income in those preceding taxable years. The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after December 31, 2007, and beginning before January 1, 2010.

• Businesses across all industries, particularly owners of distressed real estate assets and mortgage-related assets (such as home builders, commercial real estate owners, banks, mortgage lenders, and insurers), have been searching for ways to raise funds in the wake of the recession and slow-thawing credit markets. One potential option has been for businesses to carry back a current-year NOL to pre-recession boom years, yielding a rather substantial tax refund. However, for most businesses, only a two-year carryback period has been available.
• Earlier this year, Congress expanded the available carryback period from two to five years, but only for NOLs generated in 2008 and only with respect to small businesses -- businesses that had average annual gross receipts of no greater than $15 million.
• On November 6th, Congress significantly expanded these rules to permit most businesses (regardless of revenue or asset size) to take advantage of the expanded five-year carryback period and to permit businesses to elect to carry back either a 2008 NOL or a 2009 NOL to a year within the expanded five-year carryback period. However, a carryback to the fifth previous year will be limited to 50 percent of such year's taxable income. Similar relief is provided with respect to the AMT and insurance company operations losses.
• If a small business already elected (or will elect) under the old relief provisions to carry back a 2008 NOL to a year within the five-year carryback period, that small business still will be permitted to make an additional election to carry back a 2009 NOL to a year within the five-year carryback period.
• Taxpayers that waived the right to carry back a 2008 NOL may also revoke that waiver to take advantage of this expanded relief. However, Rev. Proc. 2009-52 cautions that separate guidance will address the conditions under which a carryback waiver election can be made or revoked for a consolidated NOL attributable to a member acquired from another affiliated group, described in Treas. Reg. 1.1502-21(b)(3)(ii)(B).
• TARP recipients and their affiliates are ineligible for this expanded relief, even if the TARP funds have been repaid.
• Rev. Proc. 2009-52 provides the time and manner for electing to carry back an applicable NOL for a period of three, four or five years. Generally, eligible taxpayers may make a carryback election by either (1) attaching an election statement to the taxpayer’s federal income tax return (or amended return) for the taxable year in which the applicable NOL arises, or (2) by filing the appropriate form designated by the IRS and attaching an election statement (such form must be filed on or before the due date for filing the return for the taxpayer’s last taxable year beginning in 2009). A taxpayer’s election statement must state that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. Taxpayers that previously filed a carryback application or refund claim can file an amended election in accordance with the procedures in Rev. Proc. 2009-52. Similarly, taxpayers that previously filed an election to forgo the NOL carryback period for a taxable year ending before November 6, 2009, may revoke that election and make an election by following the procedures in Rev. Proc. 2009-52.
• The revenue procedure can be accessed here. 
• For additional information, contact Aaron P. Nocjar - anocjar@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com

KEY SENATE HEALTH CARE PROCEDURAL VOTE EXPECTED SATURDAY NIGHT: The pivotal procedural health care bill vote is set for Saturday evening in the Senate to determine whether Senate Majority Leader Harry Reid has the 60 votes needed to move the legislation forward. Two undecided Democrats are key in meeting the 60 vote requirement: Sens. Blanche Lincoln of Arkansas and Mary Landrieu of Louisiana. Sen. Ben Nelson of Nebraska said today he would vote for cloture. Nelson said, "Throughout my Senate career I have consistently rejected efforts to obstruct. That’s what the vote on the motion to proceed is all about. It is not for or against the new Senate health care bill released Wednesday.” Regarding the vote count, Sen. Majority Whip Richard Durbin said, "We’re not assuming a thing. We’re working hard to bring all Democrats together.”

• If the 60 votes are obtained, the Senate will begin debating the bill after its week-long Thanksgiving recess. The $848 billion health care bill includes a 40-percent excise tax on high-cost (“Cadillac”) health insurance policies, increased payroll taxes on high-income households, and new caps on contributions to health flexible spending arrangements.
• Minority Leader Mitch McConnell said, “After six weeks of drafting a bill behind closed doors, the majority has produced a bill that increases premiums, raises taxes and slashes Medicare by half a trillion dollars to create a new government program. This is not what the American people want. I don’t believe they think this is reform. This is not the direction to take.”
• The revenue provisions in the bill include:
• 40% excise tax on health coverage in excess of $8,500/$23,000 ($149.1 billion)
• Employer W-2 reporting of value of health benefits (negligible revenue effect)
• Conform definition of medical expenses ($5.0 billion)
• Increase penalty for nonqualified health savings account distributions to 20% ($1.3 billion)
• Limit health flexible spending arrangements in cafeteria plans to $2,500 ($14.6 billion)
• Require information reporting on payments to corporations ($17.1 billion)
• Additional requirements for section 501(c)(3) hospitals (negligible revenue effects)
• Impose annual fee on manufacturers and importers of branded drugs ($22.2 billion)
• Impose annual fee on manufacturers and importers of certain medical devices ($19.3 billion)
• Impose annual fee on health insurance providers ($60.4 billion)
• Study and report of effect on veterans health care (no revenue effect)
• Eliminate deduction for expenses allocable to Medicare Part D subsidy ($5.4 billion)
• Raise 7.5% AGI floor on medical expenses deduction to 10% ($15.2 billion)
• $500,000 deduction limitation on taxable year remuneration to health insurance officials ($0.6 billion)
• Additional 0.5% hospital insurance tax on wages in excess of $200,000 ($250,000 joint) ($53.8 billion)
• Modification of section 833 treatment of certain health organizations ($0.4 billion)
• Impose 5% excise tax on cosmetic surgery and similar procedures ($5.8 billion)
• The Joint Committee on Taxation’s estimated revenue effects of the revenue provisions can be accessed here. 

BUSINESS PLAN WILL LIKELY BE RELEASED BY END OF NOVEMBER: IRS Chief Counsel Bill Wilkins said yesterday that the priority guidance plan should be released by the end of this month. Wilkins said that the review of the items is “basically” finished. Wilkins added, “If it is not before Thanksgiving, I'll be disappointed.”

TAX BILLS INTRODUCED NOVEMBER 19^TH:
H.R.4126: To amend the Internal Revenue Code of 1986 to prevent the overstatement of benefits payable to non-highly compensated employees under qualified plans, and for other purposes.
Sponsor: Rep Doggett, Lloyd [TX-25] (introduced 11/19/2009)      Cosponsors (16)

H.R.4130: To amend the Internal Revenue Code of 1986 to establish a temporary surtax to offset the costs of the Afghanistan war.
Sponsor: Rep Obey, David R. [WI-7] (introduced 11/19/2009)      Cosponsors (10)

H.R.4132: To amend the Internal Revenue Code of 1986 to provide for clean renewable water supply bonds.
Sponsor: Rep Becerra, Xavier [CA-31] (introduced 11/19/2009)      Cosponsors (4)

H.R.4133: To amend the Internal Revenue Code of 1986 to exempt public school rehabilitation from the tax-exempt use exception to the rehabilitation credit.
Sponsor: Rep Cantor, Eric [VA-7] (introduced 11/19/2009)      Cosponsors (1)

H.R.4144: To amend the Internal Revenue Code of 1986 to modify the investment tax credit for combined heat and power system property.
Sponsor: Rep Inslee, Jay [WA-1] (introduced 11/19/2009)      Cosponsors (6)

H.R.4149: To amend the Internal Revenue Code of 1986 to provide a renewable electricity integration credit for a utility that purchases or produces renewable power.
Sponsor: Rep Markey, Betsy [CO-4] (introduced 11/19/2009)      Cosponsors (1)

H.R.4154: To amend the Internal Revenue Code of 1986 to repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.
Sponsor: Rep Pomeroy, Earl [ND] (introduced 11/19/2009)      Cosponsors (None)

H.R.4155: To amend the Internal Revenue Code of 1986 to permit the issuance of tax-exempt bonds for financing clean energy improvements under State and local property assessed clean energy programs.
Sponsor: Rep Sarbanes, John P. [MD-3] (introduced 11/19/2009)      Cosponsors (None)

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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