Small Business Taxes & Management^TM--Copyright 2009, A/N Group, Inc.

Introduction

The Tax Extenders Act of 2009 has been introduced in the House. The bill extends more than forty provisions scheduled to expire at the end of 2009 providing some $5 billion in individual tax relief and $17 billion in business tax relief. Included in the bill are extensions of certain charitable and disaster relief provisions. The highlights below include those of more general interest; certain specialized provisions have been excluded.

Individual Provisions

Extension of the deduction of State and local general sales taxes. The bill would extend for one year (through 2010) the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes.

Extension of the additional standard deduction for real property taxes. The bill would extend for one year (through 2010) the additional standard deduction for State and local real property taxes.

Extension of the above-the-line deduction for qualified tuition and related expenses. The bill would extend for one year (through 2010) the above-the-line tax deduction for qualified education expenses.

Extension of the above-the-line deduction for certain expenses of elementary and secondary school teachers. The bill would extend for one year (through 2010) the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and service), other equipment, and supplementary materials used by the educator in the classroom.

Business Provisions

Extension of the R&D credit. The bill would extend for one year (through 2010) the research credit.

Extension of active financing exception. The bill would extend for one year (through 2010) the active financing exception from Subpart F of the tax code.

Extension of look-through treatment of payments between related controlled foreign corporations. The bill would extend for one year (through 2010) the current law look-through treatment of payments between related controlled foreign corporations.

Extension of 15-year straight-line cost recovery for qualified leasehold improvements, restaurant buildings and improvements, and retail improvements. The bill would extend for one year (through 2010) the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements.

Extension of 7-year straight line cost recovery period for motorsports entertainment complexes. The bill would extend for one year (through 2010) the special 7-year cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes.

Extension of railroad track maintenance credit. The bill would extend for one year (through 2010) the railroad track maintenance credit.

Extension of special expensing rules for U.S. film and television productions. The bill would extend for one year (through 2010) the provision that allows film and television producers to expense the first $15 million of production costs incurred in the United States ($20 million if the costs are incurred in economically depressed areas in the United States).

Extension of expensing of "brownfields" environmental remediation costs. The bill would extend for one year (through 2010) the provision that allows for the expensing of costs associated with cleaning up hazardous ("brownfield") sites.

Extension of employer wage credit for activated military reservists. The bill would extend for one year (through 2010) the provision that provides eligible small business employers with a credit against the taxpayer's income tax liability for a taxable year in an amount equal to twenty percent (20%) of the sum of differential wage payments to activated military reservists.

Extension of five-year depreciation for farming business machinery and equipment. The bill would extend for one year (through 2010) the provision that provides a five-year recovery period for certain machinery and equipment which is used in a farming business.

Extension of special rules for regulated investment companies. The bill would extend for one year (through 2010) the tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated investment companies.

Extension of special rule for percentage depletion for marginal wells. The bill would extend for one year (through 2010) the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well.

Charitable Provisions

Extension of provision encouraging contributions of capital gain real property for conservation purposes. The bill would extend for one year (through 2010) the increased contribution limits and carryforward period for amounts in excess of these limits for contributions of appreciated real property (including partial interests in real property) for conservation purposes.

Extension of tax-free distributions from individual retirement plans for charitable purposes. The bill would extend for one year (through 2010) the provision that permits tax-free charitable contributions from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per taxable year.

Extension of enhanced charitable deduction for contributions of food inventory. The bill would extend for one year (through 2010) the provision allowing businesses to claim an enhanced deduction for the contribution of food inventory.

Extension of enhanced charitable deduction for contributions of book inventories to public schools. The bill would extend for one year (through 2010) the provision allowing C corporations to claim an enhanced deduction for contributions of book inventory to public schools (kindergarten through grade 12).

Extension of enhanced deduction for corporate contributions of computer equipment for educational purposes. The bill would extend for one year (through 2010) the provision that encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions.

Extension of special tax treatment of certain payments to controlling exempt organizations. The bill would extend for one year (through 2010) the special rules for interest, rents, royalties and annuities received by a tax exempt entity from a controlled entity.

Extension of exclusion of gain on the sale or exchange of certain brownfield sites from unrelated business taxable income. The bill would extend for one year (through 2010) the provision that excludes any gain or less from the qualified sale, exchange, or other disposition of any qualified brownfield property from unrelated business taxable income.

Extension of special rule for S corporations making charitable contributions of property. The bill would extend for one year (through 2010) the provision allowing S corporation shareholders to take into account their pro rata share of charitable deductions even if such deductions would exceed such shareholder's adjusted basis in the S corporation.

Miscellaneous Provisions

Extension of Indian employment credit. The bill would extend for one year (through 2010) the business tax credit for employers of qualified employees that work and live on or near an Indian reservation. The credit is for wages and health insurance costs paid to qualified employees (up to $20,000) in the current year over the amount paid in 1993.

Extension of accelerated depreciation for business property on an Indian reservation. The bill would extend for one year (through 2010) the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property. In general, qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation, which is not used outside the reservation on a regular basis and was not acquired from a related person.

Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. The bill would extend for one year (through 2010) the provision extending the section 199 domestic production activities deduction to activities in Puerto Rico.

Extension of temporary increase in limit on cover over of rum excise tax revenues to Puerto Rico and the Virgin Islands. The bill would extend for one year (through 2010) the provision providing for payment of $13.25 per gallon to cover over a $13.50 per proof gallon excise tax on distilled spirits produced in or imported into the United States.

Expiring Community Assistance Programs

Extension of tax incentives for Empowerment Zones. The bill would extend for one year (through 2010) the designation of certain economically depressed census tracts as Empowerment Zones. Businesses and individual residents within Empowerment Zones are eligible for special tax incentives.

Extension of tax incentives for Renewal Communities. The bill would extend for one year (through 2010) the designation of certain economically depressed census tracts as Renewal Communities. Businesses and individual residents within Renewal Communities are eligible for special tax incentives.

New markets tax credit. The bill would extend for one year (through 2011) the new markets tax credit, permitting a maximum annual amount of qualified equity investments of $3.5 billion.

Extension of tax incentives for the District of Columbia. The bill would extend for one year (through 2010) the designation of certain economically depressed census tracts within the District of Columbia as the District of Columbia Enterprise Zone. Businesses and individual residents within this enterprise zone are eligible for special tax incentives. The bill would also extend for one year (through 2010) the $5,000 first-time homebuyer credit for the District of Columbia.

Extension of tax incentives for the New York Liberty Zone. The bill would extend for one year (through 2010) the special depreciation allowance for certain real property within the New York Liberty Zone and the time for issuing New York Liberty Zone bonds.

Extend Work Opportunity Tax Credit (WOTC) for Hurricane Katrina Employees. The bill would extend for one year (through August 27, 2010) the work opportunity tax credit for certain employers hiring in the Hurricane Katrina core disaster area.

Extension of Increased Rehabilitation Credit for Historic Structures in the Gulf Opportunity Zone. The bill would extend for one year (through 2010) the increased rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone. The Gulf Opportunity Zone Act of 2005 increased the rehabilitation credit from 10 percent to 13 percent of qualified expenditures for any qualified rehabilitated building other than a certified historic structure, and from 20 percent to 26 percent of qualified expenditures for any certified historic structure.

Election for refundable low-income housing credit for 2010. The bill would extend for one year (through 2010) the program that was enacted as part of the American Recovery and Reinvestment Act of 2009 that allows state housing agencies to elect to receive a payment in lieu of a portion of the State's allocation of low-income housing tax credits.

Expiring General Disaster Tax Relief Provisions

Extension of expanded and enhanced casualty loss deductions relating to federal disasters. The bill would extend for one year (through 2010) the provision that allows taxpayers who have suffered loss as a result of a Federally-declared disaster to claim a deduction for casualty losses (i.e., both itemizers and non-itemizers) and would allow these taxpayers to calculate their casualty loss deduction without regard to their adjusted gross income. The bill would also extend for one year (through 2010) the current law $500 per loss threshold.

Extension of expensing of qualified disaster expenses. The bill would extend for one year (through 2010) the provision that allows businesses that have been adversely affected by a Federally-declared disaster to write off and immediately recover demolition, repair (regardless of whether repair costs are incurred due to a casualty event), clean-up, and environmental remediation expenses ("Qualified Disaster Expenses").

Extension of five-year carry-back period for certain losses relating to federal disasters. The bill would extend for one year (through 2010) the provision that allows businesses to carry back to the previous five years the following losses: (1) casualty losses that are attributable to a Federally-declared disaster; and (2) Qualified Disaster Expenses.

Extension of relaxed mortgage revenue bond limitations for federal disasters. The bill would extend for one year (through 2010) the provision that allows states waive certain rules that limit their ability to use tax-exempt housing bonds to provide loans to taxpayers that wish to acquire residences in Federally-declared disaster areas. The bill would also extend for one year (through 2010) the provision that allows states to use their tax-exempt housing bonds to provide loans to repair or reconstruct homes and rental housing units that have been rendered unsafe for use as a residence by reason of a Federally-declared disaster or have been demolished or relocated by reason of government order on account of a Federally-declared disaster. Such loans are limited to the lower of (1) the actual cost of the repair or reconstruction or (2) $150,000.

Extension of bonus depreciation for qualified disaster property. The bill would extend for one year (through 2010) the provision that permits businesses that suffered damage as a result of a Federally-declared disaster to claim an additional first-year depreciation deduction equal to 50 percent of the cost of new real and personal property investments made in the Presidentially-declared disaster area.

Extension of increased small business expensing for expenditures relating to federal disasters. The bill would extend for one year (through 2010) the provision that increases by $100,000 (or the cost of qualified property, if less) the amount of expensing available for qualifying expenditures made in a Presidentially-declared disaster area. The bill would also extend for one year (through 2010) the provision that increases by $600,000 (or the cost of qualified property, if less) the level of investment at which the small business expensing benefits phase-out.

Expiring Energy Tax Provisions

Extension of tax incentives for biodiesel and renewable diesel. The bill would extend for one year (through 2010) the $1.00 per gallon production tax credit for biodiesel and the small agri-biodiesel producer credit of 10 cents per gallon. The bill would also extend for one year (through 2010) the $1.00 per gallon production tax credit for diesel fuel created from biomass.

Extension of the alternative motor vehicle credit for heavy hybrids. The bill would extend for one year (through 2010) the alternative motor vehicle credit for so-called heavy hybrids (i.e., hybrid motor vehicles that are not passenger automobiles or light trucks).

Extension of tax incentive for natural gas and propane used as a fuel in transportation vehicles. The bill would extend for one year (through 2010) the $0.50 per gallon production tax credit for natural gas and propane used as a transportation fuel. The bill would not extend this credit for propane used to power forklifts.

Extension of special rule for sales of electric transmission property. The bill would extend for one year (for sales prior to January 1, 2011) the present law deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC-approved independent transmission companies. Rather than recognizing the full amount of gain in the year of sale, this provision would allow gain on such sales to be recognized ratably over an eight-year period.

Revenue Provisions

Foreign Account Tax Compliance Act of 2009 (H.R. 3933 & S.1934). Recent events have highlighted the growing use of foreign financial institutions, foreign trusts, and foreign corporations by U.S. individuals to evade U.S. tax. In order to prevent this tax evasion, the Foreign Account Tax Compliance Act of 2009 would provide the U.S. Treasury Department with significant new tools to find and prosecute U.S. individuals that hide assets overseas from the Internal Revenue Service. Based on proposals included in President Obama's 2010 Budget, on legislation proposed by Senator Carl Levin and Representative Lloyd Doggett, and a draft released by Senator Max Baucus, the Foreign Account Tax Compliance Act would force foreign financial institutions, foreign trusts, and foreign corporations to provide information about their U.S. accountholders, grantors, and owners, respectively. The nonpartisan Joint Committee on Taxation has estimated the provisions of the Foreign Account Tax Compliance Act would prevent U.S. individuals from evading $7.7 billion in U.S. tax over the next ten years. The Foreign Account Tax Compliance Act of 2009 has been developed in close consultation with the U.S. Department of the Treasury, and is the legislative product of numerous hearings conducted in the Senate Permanent Select Committee on Investigations, the Select Revenue Measures Subcommittee of the House Ways and Means Committee, and the Senate Finance Committee.

Taxation of carried interest as ordinary income. The bill would prevent investment fund managers from paying taxes at capital gains rates on investment management services income received as carried interest in an investment fund. The bill would require such managers to treat carried interest as ordinary income received in exchange for the performance of services to the extent that carried interest does not reflect a reasonable return on invested capital. The bill would continue to tax carried interest at capital gain tax rates to the extent that carried interest reflects a reasonable return on invested capital. This is consistent with the proposal to change the tax treatment of carried interest that is included in the President's FY2010 Budget. This provision has previously passed the House of Representatives on two occasions. First, as part of H.R. 3996 (110th Congress) where it passed by a vote of 216 to 193. Second, as part of H.R. 6275 (110th Congress) where it passed by a vote of 233 to 189 (with 10 Republicans joining with 223 Democrats in support).

--Last Update 12/09/09