On January 28, the House its $816 billion economic stimulus package with $304 billion in revenue provisions. Meanwhile in the Senate, a similar, but more generous tax package is working its ways to a vote.
H.R. 1, the American Recovery and Reinvestment Act of 2009, passed on a 244-188 vote. No Republicans voted for the bill.
As I discussed in a previous post (Stimulus Bill Provides Few Business Incentives, dated January 19, 2009), the bill does not include any significant provisions that are going to stimulate business to invest in the future. Nevertheless, both bills would provide tax relief (but not tax stimulus) to businesses and individuals. Although both Bills include a number of similar tax changes, the Senate Bill includes additional tax provisions that will benefit business (tax related costs increase from $304 billion for the House passed version to $522 billion for the Senate Finance bill).
Here is a quick comparison of the House passed and Senate Bills:
Provisions Affecting Business
Bonus depreciation. Both the House and Senate bills would extend first-year 50% bonus depreciation to 2009 (to 2010 for certain longer-lived and transportation property).
Enhanced expensing. Both the House and Senate bills would extend enhanced Code Sec. 179 expensing (i.e., $250,000 maximum expensing/$800,000 phaseout ceiling) to tax years beginning in 2009.
Net operating loss (NOL) carryback. Both the House and Senate bills would provide an election to increase the carryback period for an applicable NOL from 2 years to any whole number of years elected by the taxpayer that is more than 2 and less than 6. An applicable NOL is the taxpayer's NOL for any tax year ending in 2008 or 2009, or, if elected by the taxpayer, the NOL for any tax year beginning in 2008 or 2009. The 90% limitation on the use of any alternative tax NOL deduction would be suspended for carrybacks of losses from tax years ending in 2008 or 2009 and carryovers of losses to such tax years (this rule would apply to tax years beginning in 2008 or 2009 if an election was in place to use such years as applicable NOLs). Under the House Bill, companies electing to carry back losses over five years, rather than the two years currently allowed, will see the value of their NOLs permanently reduced by 10 percent. This 10% “haircut” is not included in the Senate Bill.
Work opportunity tax credit (WOTC). Both the House and Senate bills would expand the WOTC to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth. Individuals would qualify as unemployed veterans if they were discharged or released from active duty from the Armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. Individuals would qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months.
Election to forgo bonus depreciation and increase credit limitations. Under Code Sec. 168(k)(4) , corporations may elect to claim additional research or minimum tax credits in lieu of claiming depreciation for eligible qualified property placed in service after Mar. 31, 2008. The research or minimum tax credit limitation is increased by the bonus depreciation amount, which is equal to 20% of the extra depreciation that would otherwise be claimed. The Senate bill, but not the House bill, would generally allow corporations to increase the research credit or minimum tax credit limitation by the bonus depreciation amount for certain extension property placed in service in 2009 (2010 in the case of certain longer-lived and transportation property). Extension property would be property that is eligible qualified property solely because it meets the requirements under the extension of the special allowance for certain property acquired during 2009. A taxpayer that has made an election to increase the research credit or minimum tax credit limitation for its first tax year ending after Mar. 31, 2008, could have that election not apply to extension property. Further, a taxpayer that hasn't made an election for its first tax year ending after Mar. 31, 2008 could elect under this rule for extension property for its first tax year ending after Dec. 31, 2008. Separate maximum increase amounts would apply where a taxpayer elects to increase the research or minimum tax credit for both eligible qualified property and extension property.
Deferral of debt cancellation income. The Senate bill, but not the House bill, would provide that certain income from the cancellation of indebtedness recognized by a taxpayer as a result of the taxpayer's or a related person's repurchase in 2009 or 2010 of a debt instrument that was issued by the taxpayer would be deferred and recognized in later years. The cancellation of indebtedness income realized in 2009 would be deferred and included ratably in income in each of the eight tax years beginning two years after the year of realization. The cancellation of indebtedness income realized in 2010 would be deferred and included ratably in income in each of the eight tax years beginning one year after the year of realization. The Senate provision is expected to be amended to expand the provision to include debt-for-debt swaps, and to immediately waive taxes on 50% of the indebtedness cancellation income. Taxes on the remaining 50 percent would be paid according to the 10-year schedule.
Repeal of IRS's built-in loss rules. Both the House and Senate bills would prospectively repeal Notice 2008-83, 2008-42 IRB 905 —the controversial guidance which provided that if a bank recognizes a loss from the disposition of a loan or takes a bad debt deduction under the specific charge-off or reserve methods of accounting after a change in ownership, that loss or deduction will not be treated as a built-in loss under Code Sec. 382 attributable to the pre-acquisition period. The bills would also provide that IRS isn't authorized to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers. Notice 2008-83 would be deemed to have the force and effect of law for any ownership change occurring on or before Jan. 16, 2009, and only for any ownership change which occurs after Jan. 16, 2009, if the change: (1) is under a written binding contract entered in to on or before Jan. 16, 2009; or (2) is under a written agreement entered into on or before Jan. 16, 2009 and the agreement was described on or before Jan. 16, 2009 in a public announcement or in a filing with the Securities and Exchange Commission required by reason of the ownership change.
Qualified small business stock. The Senate bill, but not the House bill, would increase the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after the enactment date and before 2011.
S corporation built-in gains. The Senate bill, but not the House bill, would temporarily reduce the S corporation built-in gains holding period from 10 year to 7 years for tax years that begin in 2009 and 2010. Thus, where a corporation that was formed as a C corporation elects to become an S corporation, the S corporation would be taxed on all gains that were built-in at the time of the election if the gains were recognized during the first seven S corporation years.
Broadband investment tax credit. The Senate bill, but not the House bill, would provide an investment tax credit for qualified broadband expenditures—i.e., the direct or indirect costs for the purchase or installation of qualified equipment (including upgrades) and the connection of the equipment to a qualified subscriber (but not the cost of launching satellite equipment). The credit would be: (1) 10% for investment in current generation broadband in rural and underserved areas; and (2) 20% for investment in current-generation broadband in unserved areas and investment in next-generation broadband in rural, underserved, and unserved areas. The basis of qualified property would be reduced by the credit. To qualify for the credit, qualified broadband equipment would have to be placed in service after Dec. 31, 2008, and before Jan. 1, 2011.
AMT patch. The Senate bill, but not the House bill, would include a one-year “patch” of the individual alternative minimum tax (AMT).
Making work pay credit. Both the House and Senate bills would create a new refundable tax credit of up to $500 for working individuals and $1,000 for working families, calculated at a rate of 6.2% of earned income, and phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit could be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return.
Economic recovery payment. The Senate bill, but not the House bill, would provide for a one-time payment of $300 would be made to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans' Affairs.
Expanded earned income tax credit (EITC). Both the House and Senate bills would provide an expanded EITC that would temporarily increase the EITC to 45% of the family's first $12,570 of earned income for families with three or more children and would increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880.
Expanded child tax credit. Both the House and Senate bills would increase the eligibility for the refundable child tax credit in 2009 and 2010. However, while the child tax credit is refundable for 2008 to the extent of 15% of the taxpayer's earned income in excess of $8,500, the House would eliminate the floor for 2009 and 2010, and the Senate would lower the threshold to a $6,000 floor for 2009 and 2010.
New American Opportunity tax credit. Both the House and Senate bills would create a new American Opportunity tax credit for 2009 and 2010 of up to $2,500 of the cost of tuition and related expenses paid during the tax year. The credit would be based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). The House would provide that 40% of the credit would be refundable, but the Senate would provide 30% refundability. The new credit would replace current law education credits.
Computers as an education expense. The Senate bill, but not the House bill, would provide that computer technology and equipment qualifies as qualified education expenses under Code Sec. 529 plans for tax years beginning in 2009 and 2010.
First-time homebuyer credit. Both the House and Senate bills would remove the repayment requirement for the first-time homebuyer credit under Code Sec. 36, unless the home is resold within 36 months of purchase. The waiver of the recapture provision in the House bill would apply for homes bought after Dec. 31, 2008, and before July 1, 2009. The Senate bill provision would extend the date (by two months) for qualifying purchase for the credit and for the recapture waiver to homes bought after Dec. 31, 2008, and before Sept. 1, 2009. Senate taxwriter and Budget Committee Chair Kent Conrad, D-N.D., said he is negotiating with Senate Finance Committee Chair Max Baucus, D-Mont., to add language expanding the $7,500 first-time home buyer tax credit to include all purchases of primary residences.
Unemployment compensation exclusion. The Senate bill, but not the House bill, would provide a temporary suspension of federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009.
Transportation fringe benefits. The Senate bill, but not the House bill, would increase the maximum monthly exclusion for employer-provided transit and vanpool benefits (currently $120 for 2009) to the same level as the exclusion for employer-provided parking (currently $230 for 2009).
Plug-in electric vehicle credit. The Senate bill, but not the House bill, would modify the plug-in electric drive motor vehicle credit by excluding low-speed vehicles and increasing the 250,000 vehicle limitation to 500,000. It would create a new credit 10% credit (with a $4,000 maximum) as part of the general business credit for low-speed vehicles, motorcycles, and three-wheeled vehicles that would otherwise meet the criteria of a qualified plug-in vehicle but for the fact that they are low-speed vehicles or do not have at least four wheels. Basis reduction and rules similar to those in Code Sec. 30 would apply. It wouldn't apply for vehicles sold after Dec. 31, 2011.
Research Credit. Both the House and Senate bills would provide an enhanced 20% research & development credit for tax years beginning in 2009 and 2010 for research expenditures incurred in the fields of fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration;
Energy Efficient Credit. Both the House and Senate bills would extend the Code Sec. 25C tax credits for improvements to energy-efficient existing homes through 2010. For 2009 and 2010, the amount of the tax credit would be increased from 10% to 30% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the tax year. The property-by-property dollar caps on the tax credit would also be eliminated and an aggregate $1,500 cap would apply to all property qualifying for the credit.
Renewable Energy Production Tax Credit. Both the House and Senate bills would extend and modify the renewable energy production tax credit, extending the placed-in-service date for wind facilities for 3 years through Dec. 31, 2012, and for certain other qualifying facilities for 3 years through Dec. 31, 2013. Both the House and Senate bills would provide a temporary election to claim the investment tax credit in lieu of the production tax credit.
Both the House and Senate bills would repeal the subsidized energy financing limitation on the investment tax credit.
Energy Credits. The House bill would provide remove the dollar limitations on certain energy credits, e.g., for qualified small wind energy property ($4,000 cap); for qualified solar water heating property ($2,000 cap); and qualified geothermal heat pumps ($2,000).
Business Energy Credit. Both the House and Senate bills would enhance the business energy credit by eliminating the cap on small wind property and repealing the basis reduction for subsidized energy financing.
Alternative Refueling Property Credit. Both the House and Senate bills would provide an increase for 2009 and 2010 in the Code Sec. 30C 30% alternative refueling property credit for businesses (capped at $30,000) to 50% (capped at $50,000).
Renewable Energy Bonds and Qualified Energy Conservation Bonds. Both the House and Senate bills would authorize additional funds for new clean renewable energy bonds and qualified energy conservation bonds.
The House and Senate bills would also make changes to the small-issuer exception to tax-exempt interest expense allocation rules for financial institutions; increase the national volume limitation for qualified school construction bonds in 2009 and 2010; expand the definition of qualified conservation purposes for the qualified energy conservation tax credit bonds and of a recovery zone for the recovery zone economic development bonds and recovery zone facility bonds; and extend and expand qualified academy bonds.
New Market Credits. The Senate bill would also enhance the new markets tax credit by authorizing an additional $1.5 billion for the 2008 allocation round and an additional $1.5 billion for the 2009 allocation round. Tax credits for 2009 allocations made after the date of enactment would be allowed against the AMT.
The Senate bill, but not the House bill, would provide that carbon dioxide used as a tertiary injectant and otherwise eligible for a $10 per metric ton credit must be sequestered in permanent geologic storage in order to qualify for the Code Sec. 45Q carbon dioxide sequestration credit.
Finally, the Senate Plan is expected to be amended to renew for one year the section 965 tax holiday for repatriated dividends.