Daily Tax Update - December 17, 2010: President Signs Tax Cut Bill

PRESIDENT SIGNS TAX CUT BILL – HOUSE PASSES BILL AFTER DEFEATING ESTATE TAX AMENDMENT: After efforts by House Democrats to change the estate tax provision in the Senate bill were unsuccessful, the House passed the $858 billion tax cut bill late last night by a vote of 277 to 148. An attempt to adopt the 2009 estate tax rate of 45 percent with a $3.5 million exemption level failed by a vote of 194 to 233 and was the only amendment offered.

  • The final vote occurred in the House around midnight. Voting for the bill were 139 Democrats and 138 Republicans; voting against it were 112 Democrats and 36 Republicans.
  • The House vote can be accessed here.
  • The roll call vote on the estate tax amendment can be accessed here
  • At the bill signing ceremony this afternoon, President Obama said, "This is progress and that's what they (the American people) sent us here to achieve. We are here with good news for the American people this holiday season. By a wide margin, both houses of Congress passed a package of tax relief that will protect the middle class, that will grow our economy and will create jobs for the American people."
  • House Majority Leader Steny Hoyer (D-MD) said, "There is probably no one on this floor that likes this bill. Therefore, the judgment is: Is it better than doing nothing? This is a jobs bill in my view, which is why I'll vote for it."
  • Incoming House Speaker John Boehner (R-OH) said, "It's a good first step, but let's be clear. If we actually want to help our economy get back on track and to begin creating jobs, we need to end the job-killing spending binge. We need to cut spending significantly, and we need to provide more certainty to small businesses around America."
  • Incoming House Ways and Means Committee Chairman Dave Camp (R-MI) said, "While this bill is not perfect, Congress made the right decision today to prevent a job-killing tax hike on Americans and small businesses. While I would prefer these provisions be extended permanently, this bill will give us some breathing room. Next year we should address the uncertainty in the tax code by passing fundamental tax reform so that families can thrive and employers can create jobs." 

The bill:

  • Extends by two years all of the 2001 and 2003 individual income tax cuts.
  • Includes a $120 billion payroll tax reduction for workers.
  • Extends unemployment insurance benefits for 13 months.
  • Extends the American Opportunity Tax Credit (college tuition), the Child Tax Credit and the Earned Income Tax Credit.
  • Allows businesses to deduct 100% of certain investments in the first year.
  • Extends for two years the state and local sales tax deduction.
  • Extends the current capital gains and dividends rates for all taxpayers for an additional two years, through 2012.
  • Extends Alternative Minimum Tax relief for two years.
  • Increases the estate tax exemption to $5 million (indexed for inflation) and reduces the top rate to 35 percent for 2011 and 2012. 
  • Phases-out the premiums for mortgage insurance as interest that is qualified residence interest – Under current law, a taxpayer may itemize the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000. Thus, the deduction is unavailable for a taxpayer with an AGI in excess of $110,000. The bill extends this provision for an additional year, through 2011.
  • Extends through 2011 the per-gallon tax credits and outlay payments for ethanol.
  • Extends the Section 1603 grants in lieu of credits program for renewable energy in the American Recovery and Reinvestment Act for one year.
  • Extends through 2011 the credit under Section 25C for energy-efficient improvements to existing homes.
  • Reinstates for two years (through 2011) the research credit.
  • Extends for two years (through 2011) the active financing exception from Subpart F of the tax code.
  • Extends for two years (through 2011) the current law look-through treatment of payments between related controlled foreign corporations.
  • The text of the bill can be accessed here.
  • A summary of the bill can be accessed here.

IRS RELEASES INSTRUCTIONS FOR EMPLOYERS FOR 2011 PAYROLL TAX CUTS: Today, the IRS released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011.

  • Notice 1036 contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes.
  • Additional information can be accessed here

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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