Daily Tax Update - February 13, 2009

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RETURNS FROM ITS PRESIDENTS’ DAY RECESS ON FEBRUARY 23RD.

HOUSE PASSES STIMULUS BILL, SENATE VOTE POSSIBLE FRIDAY:  Today, the House passed the final $787 billion, 1,071 page, economic stimulus bill by a vote of 246 to 183. No Republicans voted in support of the bill. The Senate is expected to vote on the bill later tonight.

  • Today, White House economic adviser Larry Summers said, “I think this is a key part of what's going to be a multipart strategy to contain this decline.” However, Summers added that the problems “weren't made in a week, a month, a year. It's going to take time to fix...We're not promising that you're going to see some miracle cure, some silver bullet for the economy.” Summers added, “We don’t have a viable alternative. We're going to have starts and stops.”
  • Today, President Obama said that the bill “is only the beginning of what is going to be a long and difficult process of turning our economy around.”
  • Among the tax provisions in the bill include:
    • Extension of AMT relief for 2009.  The bill would provide more than 26 million families with tax relief in 2009 by extending AMT relief for nonrefundable personal credits and increasing the AMT exemption amount by $70,950 for joint filers and $46,700 for individuals.
    • Extension of Bonus Depreciation.  Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. The bill would extend this temporary benefit for capital expenditures incurred in 2009.
    • 5-Year Carryback of Net Operating Losses for Small Businesses.  Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.  
    • Delayed Recognition of Certain Cancellation of Debt Income.  Under current law, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (“CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011.
    • Temporary Reduction of S Corporation Built-In Gains Holding Period from 10 Years to 7 Years.  Under current law, if a taxable corporation converts into an S corporation, the conversion is not a taxable event. However, following such a conversion, an S corporation must hold its assets for ten years in order to avoid a tax on any built-in gains that existed at the time of the conversion. The bill would temporarily reduce this holding period from ten years to seven years for sales occurring in 2009 and 2010.
    • Repeal of Treasury Section 382 Notice.  Last year, the Treasury Department issued Notice 2008-83, which liberalized rules in the tax code that are intended to prevent taxpayers that acquire companies from claiming losses that were incurred by the acquired company prior to the taxpayer’s ownership of the company. The bill would repeal this Notice prospectively.

LEGISLATIVE TEXT AND DESCRIPTION OF STIMULUS BILL TAX PROVISIONS AVAILABLE:  The legislative language and description of the conference agreement on the tax provisions has been released. According to the Joint Committee on Taxation, the revenue provisions in the bill would cost $326 billion over 10 years of which approximately $285 billion is attributable to tax measures.

  • The documents can be accessed here and here.
  • A summary of the tax provisions can be accessed here.

TAX BILLS INTRODUCED FEBRUARY 12TH:
H.R.1014: To amend the Internal Revenue Code of 1986 to tax bona fide residents of the District of Columbia in the same manner as bona fide residents of possessions of the United States.
Sponsor: Rep Gohmert, Louie [TX-1] (introduced 2/12/2009)      Cosponsors (10)

H.R.1025: To amend the Internal Revenue Code of 1986 to provide for residents of Puerto Rico who participate in cafeteria plans under the Puerto Rican tax laws an exclusion from employment taxes which is comparable to the exclusion that applies to cafeteria plans under such Code.
Sponsor: Rep Becerra, Xavier [CA-31] (introduced 2/12/2009)      Cosponsors (None)

H.R.1040: To amend the Internal Revenue Code of 1986 to provide taxpayers a flat tax alternative to the current income tax system.
Sponsor: Rep Burgess, Michael C. [TX-26] (introduced 2/12/2009)      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.

STEPTOE & JOHNSON LLP - TAX PRACTICE
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